Court Opinion

ID: 9953597
Source: CourtListenerOpinion
Date Created: 2024-03-22 15:01:45.613396+00
Date Added: 2024-06-11T08:02:19.311263
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 5, 2023               Decided March 22, 2024

                        No. 23-1006

               UNITED PARCEL SERVICE, INC.,
                       PETITIONER

                             v.

            POSTAL REGULATORY COMMISSION,
                     RESPONDENT

           AMAZON.COM SERVICES, LLC, ET AL.,
                    INTERVENORS

             On Petition for Review of an Order
            of the Postal Regulatory Commission

     Kathleen M. Sullivan argued the cause for petitioner. On
the briefs were David M. Cooper and Steig D. Olson.

    Michael Shih, Attorney, U.S. Department of Justice,
argued the cause for respondent. With him on the brief were
Brian M. Boynton, Principal Deputy Assistant Attorney
General, Michael S. Raab and Kevin J. Kennedy, Attorneys,
David A. Trissell, General Counsel, Postal Regulatory
Commission, Lauren A. D'Agostino, Deputy General Counsel,
and Reese T. Boone, Attorney.
                              2
     John Longstreth argued the cause for respondent-
intervenors. With him on the brief were Eric P. Koetting and
Morgan E. Rehrig, Attorneys, U.S. Postal Service, and Michael
F. Scanlon.

    Before: SRINIVASAN, Chief Judge, GARCIA, Circuit Judge,
and ROGERS, Senior Circuit Judge.

   Opinion for the Court filed by Senior Circuit Judge
ROGERS.

     ROGERS, Senior Circuit Judge: The Postal Regulatory
Commission determines an “appropriate share” of the Postal
Service’s institutional costs to be covered by the Service’s
“competitive” products, such as package delivery. 39 U.S.C §
3633(a)(3), (b). In 2020, the court remanded the Commission’s
Order adopting a formula for the appropriate share, with
instructions to better explain its reasoning in accounting for
certain statutory cost categories. United Parcel Serv., Inc. v.
Postal Regul. Comm’n (“UPS II”), 955 F.3d 1038 (D.C. Cir.
2020). On remand, the Commission revised its analysis while
readopting the same “dynamic formula[.]” Order No. 6399,
Dkt. Nos. RM2017-1, RM2022-2 (Jan. 9, 2023) (“2023
Order”) at 2. Upon review of this Order, the court concludes
that the Commission adequately addressed the issues identified
in UPS II and reasonably exercised its statutory discretion in
adopting the appropriate share formula. The court therefore
denies United Parcel Service’s (“UPS”) petition for review.

                              I.

    The background to this appeal is set forth in UPS II and
United Parcel Service Inc. v. Postal Regulatory Commission
(“UPS I”), 890 F.3d 1053 (D.C. Cir. 2018). The Postal
Accountability and Enhancement Act (“Act”), Pub. L. No. 109-
                               3
435, 120 Stat. 3198 (2006), divides the Service’s products
between “market dominant” products like standard mail, where
the Service holds a near monopoly, and “competitive”
products, like package delivery where the Service competes
with private companies like UPS. UPS I, 890 F.3d at 1055–56.
The Commission allocates the Service’s costs “attributable” to
a particular product as “direct and indirect [] costs” identified
“through reliably identified causal relationships.” 39 U.S.C. §
3631(b).     All other “residual” costs are classified as
“institutional costs.” UPS I, 890 F.3d at 1055–56. The court
upheld as reasonable in UPS I, id. at 1069, the Commission’s
current methodology for identifying “attributable” costs.

     In ratemaking, the Commission’s competitive products
must cover both their “attributable” costs plus an “appropriate
share” of the Service’s institutional costs. 39 U.S.C. § 3633(a),
(b). The Commission, in setting an “appropriate share” figure
must “consider” certain factors, including “the degree to which
any costs are uniquely or disproportionately associated with
any competitive products.” Id. § 3633(b). The court in UPS
II, 955 F.3d at 1041–42, remanded the Commission’s last
attempt with instructions to explain more thoroughly two
conclusions. First, how 39 U.S.C. § 3631(b)’s definition of
costs attributable to” competitive products “through reliably
identified causal relationships” and Section 3633(b)’s category
of costs “uniquely or disproportionately associated with
competitive products” either “have similar meanings” or could
otherwise “coincide in application,” despite being “distinct in
meaning.” Id. at 1050. Second, the court instructed the
Commission to evaluate the relevance of “any costs” fitting
Section 3633(b)’s description, including “attributable costs”
that the Commission may have “already accounted for” in
promulgating separate anti-subsidization regulations under
Section 3633(a)(1) – (2). Id. at 1050–51.
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                               II.

     Definition of costs “uniquely or disproportionately
associated with competitive products.” On remand, the
Commission recognized a textual distinction between Section
3631(b) and Section 3633(b)’s cost groups, see 2023 Order at
8–11, 77–78, and explained that the two categories were
functionally coextensive because there was “no way to
determine which portion of institutional costs” relate to
competitive products. Id. at 79. The Commission defined costs
“uniquely or disproportionately associated” with competitive
products, 39 U.S.C. § 3631(b), as those costs that can be linked
through “economically sound” relationships. 2023 Order at
105. Because the Commission’s cost-attribution model
reaches the “outer limits of all costs that can be linked . . . in
any way using existing costing methodologies,” the
Commission explained that it has already treated as
“attributable” any cost that exhibits an economically sound
relationship to any product. 2023 Order at 61. Thus, by “their
very nature,” id. at 100, none of the Service’s remaining
institutional costs possess an “economically sound” connection
to competitive products. Id. at 236–37. The Commission
confirmed, by “review[ing] all the Postal Service’s accrued
costs,” that no non-attributed institutional costs exhibited any
such connections. Id. at 60.

    This approach comports with the Act and UPS II, 955 F.3d
at 1051, where the court contemplated that the Commission
might “decide against revising its bottom-line judgment” given
“the latitude that the [statute] affords the Commission in
making a final determination.” Section 3633(b) requires the
Commission to analyze costs bearing a “unique[] or
disproportionate[]” relationship with competitive products,
what the court characterized in UPS II as costs “related in some
meaningful way” to competitive products. Id. at 1045
                                 5
(emphasis added). The Commission’s decision to interpret the
text as requiring an association that can be established in an
“economically sound” manner reflects a reasonable
construction of ambiguous statutory phrasing. See. id. at 1047–
48 (applying the two-step framework of Chevron, USA, Inc. v.
NRDC, Inc., 467 U.S. 837 (1984)). The Commission’s
interpretation fits within the definitional space UPS II, 955
F.3d at 1048–49, identified in Section 3633, which describes a
cost category that is both broader than Section 3631(b)’s
conservative and causally limited test for “attributable” costs,
yet rigorous enough to encompass only those costs exhibiting
a “unique[]” and disproportionate[]” relationship to
competitive products. 39 U.S.C. § 3633(b) (emphasis added).

     UPS, although maintaining that the Commission’s
interpretation is “obviously different” from Section 3633(b)
and the interpretive gloss in UPS II, Pet. Br. 25; Reply Br. 5,
fails to point to a textual or structural conflict with the statutory
terms. UPS instead focuses on the Commission’s application
of the “economically sound” test. It objects that the
Commission’s failure to identify any costs satisfying the
standard, beyond those already classified as “attributable,”
evinces that the Commission’s interpretation is merely a
“sleight-of-hand” and impermissibly conflated the definition in
Section 3633(b) with Section 3631(b)’s narrower standard.
Pet. Br. 25–27. But, as the court observed in UPS II, if
substantiated, there is nothing intrinsically flawed with the
notion that the two cost categories, “even if distinct in
meaning,” might “nevertheless coincide in application.” 955
F.3d at 1050–51.

    UPS contends that there is a meaningful relationship
between institutional costs and competitive products. But the
Commission has offered a detailed explanation why the
specific cost categories UPS highlights — most notably peak-
                                6
season costs, delivery vehicle costs, city carrier assistant costs,
and package-scanning equipment costs — either lack any
“economically sound” connection with competitive products or
are already treated as “attributable” costs. 2023 Order at 177–
218. For example, the Service has hired thousands of “city
carrier assistants” not because of increased competitive
products volumes as UPS proposed in its comments, see UPS
Initial Comments on Supplemental Notice of Proposed
Rulemaking (Feb. 25, 2022) at 23, but rather due to broader
changes to the Service’s staffing model across products. 2023
Order at 200–02. In any event, the Commission’s cost
attribution model already captures the specific proportion of
these employees’ time spent on competitive products and
attributes them accordingly. Id. at 202. The Commission’s
analysis of the other cost categories identified by UPS is
similarly persuasive. See id. at 179–218.

     UPS’ challenge to this analysis fails to undermine the
Commission’s conclusion that, in practice, the only costs
exhibiting an “economically sound” link to competitive
products are already treated as “attributable” costs. Cf. Pet. Br.
27–35. UPS has not pointed to specific errors in the
Commission’s analysis, “nor adduced any data or studies that
[it] overlooked.” In re Polar Bear Endangered Species Act
Listing & Section 4(d) Rule Litig., 709 F.3d 1, 3 (D.C. Cir.
2013). Instead, UPS suggests that the Commission was
required to construct and exhaust an unspecified set of novel
econometric tests before it could reasonably conclude that it
lacked any way of identifying further “economically sound”
relationships to competitive products within the Service’s
institutional costs. Reply Br. 6–10.

    The Commission, however, engaged with UPS’ proposed
regression approach, identifying it as technically flawed and in
conflict with the broader statutory regime. 2023 Order at 256–
                               7
65; see id. at 237–238. As noted, the Commission explained
why each of the institutional cost categories identified by UPS
did not include any costs exhibiting an “economically sound”
connection to competitive products. Id. at 177–218. The
Commission relied on expert econometric evidence in the
record, see, e.g., id. at 26, 44, 92, 256–65, and its expert
understanding of the Postal Service’s costs and operations.
This suffices to demonstrate reasoned decision-making.
Contrary to UPS’ reply, see Reply Br. 9, there is no statutory
or administrative requirement that the Commission construct
an elaborate econometric model before reaching an otherwise
reasonable conclusion. Accord FCC v. Fox Television
Stations, Inc., 556 U.S. 502, 520 (2009).

     Consideration of “Attributable” Costs. Consistent with
Section 3633(b) and UPS II, 955 F.3d at 1051, the Commission
has adequately “considered” the relevance of “attributable”
costs and reasonably declined to include them directly in the
appropriate share. Because the price floors of Section
3633(a)(1) – (2) already require competitive products to cover
attributable costs, the Commission explained that they were
only “indirectly relevant” in determining the appropriate share.
2023 Order at 78. Its proposed formula takes “attributable”
costs into account as part of the calculation for one of the
formula’s variables (the competitive products margin). Id. The
Commission’s choice not to require a more direct tie between
“attributable” costs and the appropriate share was reasonable.
Because the anti-subsidization limitations of Section
3633(a)(1) – (2) already require the Service to include these
costs, the Commission concluded that requiring the Service to
cover them again in the appropriate share would “essentially
double-count” them in a way that would be “unnecessary,
economically unsound,” and “harmful to the Postal Service”
and its competitive position. Id. at 77–78, 94–95.
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     As an alternative, the Commission considered whether to
set the appropriate share equal to the percentage of total
“attributable” costs allocable to competitive products. Cf. Pet.
Br. 56–58. The Commission declined to do so because such a
“mechanical” approach would neglect other relevant statutory
and prudential factors, including the Service’s “market power
[and] the size of the overall parcel delivery market.” 2023
Order at 230. Apportioning institutional costs based on
“attributable” cost allocation, it further reasoned, would also
represent a form of “fully distributed costing,” which the
Commission has consistently rejected as inconsistent with the
statutory scheme and its own policy priorities. Id. at 237; see
Order No. 6043, Dkt. Nos. RM2017-1, RM2022-2 (Nov. 18,
2021) at 85.

     UPS objects that the Commission failed to “consider”
adequately these costs because its proposed formula does not
include any discrete reference to “attributable” costs. Pet. Br.
36–37. But, as acknowledged in UPS II, 955 F.3d at 1051, “it
is not for this court to say that the Commission must account
for costs in any specific way under § 3633(b),” and UPS
appears to be “conflat[ing] the word ‘consider’ with the word
‘include.’” Resp. Br. 49. The Commission considered several
alternatives for directly including various measures of
“attributable” costs in the appropriate share, including those
advanced by UPS. 2023 Order at 229–39. It declined to adopt
those measures upon concluding that they would result in
harmful and unnecessary double-counting, neglect other
important factors, or would be inconsistent with the broader
statutory scheme. Id. UPS has not shown that Congress’
directive for the Commission to “consider” these costs requires
more.

    Implicit Break-Even Requirement. Contrary to UPS, Pet.
Br. 39–44, the Commission need not endeavor to allocate all
                               9
the Service’s institutional costs between market dominant and
competitive products. From 1970–2006, the Service was
subject to a “break-even” cost coverage requirement so annual
revenues had to equal costs. 39 U.S.C. § 3621 (2001).
Congress repealed this requirement in the Act. See 2023 Order
at 37–38, 40–42. UPS’ position that the Act still implicitly
requires the Commission to allocate all the Service’s costs is
unpersuasive.

     UPS relies on Section 3622(b)(9)’s direction that the
Commission “allocate the total institutional costs of the Postal
Service appropriately between market-dominant and
competitive products.” See Pet. Br. 40. The Commission
explained that provision relates only to market-dominant
products ratemaking — not competitive products or the
appropriate share. See 2023 Order at 53. Even within the
market-dominant products ratemaking framework, UPS
overlooks that this phrasing represents one of nine objectives
and fourteen factors that the Commission must weigh, Nat’l
Postal Pol’y Council v. Postal Regul. Comm’n, 17 F.4th 1184,
1187–88 (D.C. Cir. 2021), in a “multi-factor balancing test,”
id. at 1193 (citation and internal quotation marks omitted).

     Furthermore, UPS’ view is inconsistent with the structure
of Section 3633(b), which permits the Commission to
“eliminate[]” the appropriate share contribution altogether.
Such authority cannot be squared with a total cost allocation
principle. Resp. Br. 60–61. UPS finds a total cost coverage
requirement in Section 3633’s purpose of preventing improper
subsidization of the Service’s competitive products. Pet. Br.
42–43. The Commission explained that Section 3633(a)(1) –
(2)’s price floors already require competitive products to cover
“attributable” costs, preventing subsidization under the
Commission’s longstanding test. 2023 Order at 50; see Order
No. 3506, at 10–12, Dkt. No. RM2016-2 (Sept. 9, 2016). UPS
                               10
does not contest the reasonableness of this definition of
unlawful subsidization.

     Evaluation of Competitive Conditions. Likewise, the
Commission adequately considered competitive products
market conditions as required by Section 3633(b), concluding
that the market was healthy based on robust volume and price
growth across the Service and its private counterparts. 2023
Order at 137. UPS maintains that the Service’s perennial
financial losses reflect systematic underpricing of its
competitive products. Pet. Br. 47–49. The Commission
explained that the Service’s losses stem from other causes,
including volume declines in its price-capped market dominant
products and the funding of its healthcare benefits and pension
obligations. 2023 Order at 144–45, 151–52.

    UPS’ questioning of the 2023 Order’s reliance on a 2007
FTC report, Pet. Br. 48, is without merit. The Commission is
required to consider the report, 39 U.S.C. § 3633 note, and
recognizing the report’s age, adequately contextualized its
probative value in view of more recent evidence. 2023 Order
at 176–77. The Commission did not rely on the report in
reaching any of its conclusions. Id.

     The Proposed Formula. UPS fails to show that the
Commission’s proposed formula for setting the appropriate
share is substantively unreasonable. The formula is highly
technical, see 2023 Order at 113–21, 154–65, but designed to
measure competitive products’ “capacity to contribute to
institutional costs [] based on changes in the Postal Service’s
market power and market position[]” and to “reflect the
cumulative effect of developments” in the competitive
products market “since the [Act’s] enactment.” Id. at 157–58.
It does so by setting a starting appropriate share of 5.5% of the
Service’s institutional costs and then adjusting that value based
                              11
on year-over-year changes across variables that collectively
“account[] for the prevailing competitive conditions in the
market and other relevant circumstances [] historically
considered qualitatively when evaluating the appropriate share
requirement.” Id. at 14; see Order No. 4963, Dkt. No.
RM2017-1 (Jan. 3, 2019) (“2019 Order”) at 20.

     UPS disagrees with the Commission’s weighting and
choice of variables. Pet. Br. 53–56. But the court, recognizing
that “Congress vested postal ratemaking authority in the
Commission out of a desire to harness the educated and
politically insulated discretion of experts,” has been
“reluctan[t] to interfere” with the Commission’s “judgments
about technical questions’’ related to postal costing and
ratemaking. UPS I, 890 F.3d at 1066 (internal quotations and
citations omitted). The Commission explained the aim of its
formula and how its selection of variables reflected statutory
and prudential considerations related to the appropriate share.
See 2023 Order at 113–121; 2019 Order at 20–27. This
demonstrates reasoned decision-making, and the court properly
declines to “substitute its judgment for that of the
[Commission]” on the policy-laden intricacies of formula
design. Fox Television Stations, 556 U.S. at 513 (internal
citation omitted).

     UPS also challenges the formula’s 5.5% start value. Pet.
Br. 52–53. This value has been the fixed appropriate share
contribution since 2007 and, as explained, serves as the
formula’s baseline, before its year-over-year variables capture
changes in the Service’s costs and competitive position over
time. 2019 Order at 27; 2023 Order at 139. Because this figure
was initially based on competitive products’ actual
contribution to institutional costs in 2007, UPS maintains that
reliance on an outdated figure arbitrarily ignores significant
intervening shifts in the Service’s operations and parcel
                              12
delivery market share. Pet. Br. 52–53. Yet the 5.5% value
reflects the appropriate share requirement that the Service has
been subject to since 2007 and represents a reasonable baseline
for a formula seeking to capture prospective changes. In that
sense, it is hardly the random or hopelessly outdated figure
UPS characterizes it to be. Id. UPS may prefer a baseline using
the Service’s current market share and operations, but the
Commission’s choice is within its considerable discretion.

     In sum, the Commission’s action on remand was
“reasonable and reasonably explained.” FCC v. Prometheus
Radio Project, 141 S. Ct. 1150, 1158 (2021). The Commission
addressed the court’s concerns in UPS II and offered
discernable and detailed explanations for its conclusions. Cf.
UPS II, 955 F.3d at 1050–51. Its choices in rejecting UPS’
challenges appear logical and permissible under the Act.
Accordingly, pursuant to arbitrary and capricious review, 39
U.S.C. § 3663; 5 U.S.C. § 706(2)(A), the court denies the
petition for review.