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Northern Air Cargo v. United States Postal Service

September 23, 2010

NORTHERN AIR CARGO, ET AL., PLAINTIFFS,
v.
UNITED STATES POSTAL SERVICE, DEFENDANT, AND PENINSULA AIRWAYS, INC., DEFENDANT-INTERVENOR.



The opinion of the court was delivered by: Emmet G. Sullivan United States District Court Judge

MEMORANDUM OPINION

This case involves the decision of the United States Postal Service (the "Postal Service") to grant an equitable tender of non-priority mainline bypass mail to Peninsula Airways, Inc. ("PenAir") on five mainline routes in rural Alaska pursuant to 39 U.S.C. § 5402(g)(5)(c) ("§ 5402(g)(5)(c)"). This equitable tender is being challenged by three mainline carriers -- Northern Air Cargo ("NAC"), Tatonduk Outfitters Ltd d/b/a Everts Air Cargo ("Everts"), and Lynden Air Cargo LLC ("Lynden") (collectively, "plaintiffs"). Plaintiffs seek declaratory and injunctive relief. Pending before the Court is plaintiffs' motion for summary judgment, as well as cross-motions for summary judgment filed by Defendant Postal Service and Defendant-Intervenor PenAir (collectively, "defendants"). Upon consideration of the motions, the responses and replies thereto, the applicable law, the entire record, the arguments of counsel made during the motions hearing held on February 23, 2010, the parties' post-argument briefs, and for the following reasons, the Court hereby GRANTS IN PART AND DENIES IN PART plaintiffs' motion for summary judgment and GRANTS IN PART AND DENIES IN PART defendants' cross-motions for summary judgment.

I. STATUTORY BACKGROUND

A. Intra-Alaska Bypass Mail System

The State of Alaska is the largest state in the Union and has a very limited system of roads connecting its communities. See Congressional Findings, Pub. L. 107-206 § 3002(b)(1) (Aug. 2, 2002). The United States Government owns nearly 2/3 of Alaska's landmass, including large tracts of land separating isolated communities within the State. Id. § 3002(b)(5). This federal ownership has inhibited the ability of Alaskans to build roads connecting isolated communities. Id. § 3002(b)(6). Consequently, most communities and a large portion of the population in the State can only be reached by air. Id. § 3002(b)(7). As a result, the vast majority of food items and everyday necessities destined for these isolated communities and populations can only be transported through the air. Id. § 3002(b)(8). To tackle the unique challenge of connecting hundreds of rural and isolated communities within the State, Congress created the Intra-Alaska Bypass Mail system (the "bypass mail system"). Id. § 3002(b)(9).*fn1

The bypass mail system provides for the carriage of items -ranging from foodstuffs to building materials to livestock - as mail, which elsewhere would be transported as freight. It also provides a means of affordable and reliable passenger service for rural Alaskans. Indeed, Congress describes the bypass mail system as a "4-legged stool," designed to: (1) "provide the most affordable means of delivering food and everyday necessities to these rural and isolated communities"; (2) "establish a system whereby the Postal Service can meet its obligations to deliver mail to every house and business in the United States"; (3) "support affordable and reliable passenger service"; and (4) "support affordable and reliable nonmail freight service." Id.

B. Rural Service Improvement Act of 2002

In 2002, based upon its determination that some air carriers were abusing the bypass mail system, Congress enacted the Rural Service Improvement Act of 2002 (the "RSIA"). See Pls.' SMF ¶¶ 11-12; see also Congressional Findings, Pub. L. 107-206 § 3002(b)(11) ("Attempts by Congress to support passenger and nonmail freight service in Alaska using the Intra-Alaska Bypass Mail system have yielded some positive results, but some carriers have been manipulating the system by carrying few, if any, passengers and little nonmail freight while earning most of their revenues from the carriage of non-priority bypass mail."). In passing the RSIA, Congress affirmed that "[a]s long as the Federal Government continues to own large tracts of land within the State of Alaska which impede access to isolated communities, it is in the best interest of the Postal Service, the residents of Alaska and the United States" to: (i) "ensure that the Intra-Alaska Bypass Mail system remains strong, viable, and affordable for the Postal Service"; (ii) "ensure that residents of rural and isolated communities in Alaska continue to have affordable, reliable, and safe passenger service"; (iii) "ensure that residents of rural and isolated communities in Alaska continue to have affordable, reliable, and safe nonmail freight service"; (iv) "encourage that intra-Alaska air carriers move toward safer, more secure, and more reliable air transportation . . . where such operations are supported by the needs of the community"; and (v) "ensure that the Intra-Alaska Bypass Mail system continues to be used to support substantial passenger and nonmail freight service and to reduce costs for the Postal Service." Congressional Findings, Pub. L. 107-206 § 3002(b)(12).

To achieve these goals, the RSIA created basic tests and minimum eligibility requirements that carriers must satsify in order to be eligible to carry bypass mail. Specifically, the RSIA divides eligible carriers into two groups: (i) mainline bypass mail carriers; and (ii) bush bypass mail carriers. Mainline bypass mail carriers operate large aircrafts (greater than 7500 pound payload capacity) and fly "mainline routes" between either Anchorage or Fairbanks and a regional Alaska hub.*fn2

See 39 U.S.C. § 5402(a)(13). Bush bypass mail carriers, by contrast, operate smaller aircrafts (less than 7500 pound payload capacity) and fly "bush routes" between regional hubs and smaller, rural communities.*fn3 Id. § 5402(a)(4); see also generally Postal Service SOF ¶ 6 ("There are two types of eligible bypass mail carriers in Alaska's system and two corresponding types of mail rates available to those carriers:

(1) the higher bush rate mail is distinguished by the size of the aircraft used to transport it -- aircraft having a payload capacity up to and including 7,500 pounds, and (2) mainline rate mail is also distinguished by the size of the aircraft used to transport it -- aircraft having a payload capacity over 7,500 pounds." (internal quotation marks omitted)).

At the time the RSIA was passed, only four carriers qualified as existing mainline carriers; those carriers are the three plaintiffs in this lawsuit -- NAC, Everts, and Lynden -- as well as Alaska Airlines.*fn4 Pls.' SMF ¶ 17; see also 39 U.S.C. § 5402(a)(12) (defining the term "existing mainline carrier" as those carriers that met certain statutory criteria "on January 1, 2001"). PenAir was a bush bypass mail service carrier at that time. See Pls.' SMF ¶ 70 (explaining that PenAir has been providing bush bypass mail service since approximately 1998); see also PenAir's Opp'n & Cross-Mot. at 10 (explaining that PenAir is one of the "largest and oldest airlines" in Alaska, which began operations over 50 years ago and currently employees more than 500 Alaskan residents).

II. FACTUAL BACKGROUND

A. PenAir's Request for Equitable Tender of Non-priority Mainline Bypass Mail

As noted above, this case arises from the Postal Service's determination that PenAir was eligible for the equitable tender of non-priority mainline bypass mail on five mainline routes: Anchorage-Dillingham, Anchorage-King Salmon, Anchorage-Aniak, Anchorage-McGrath, and Anchorage-Unalakleet. PenAir has historically provided daily service to those communities using its bush aircrafts. See PenAir's Opp'n & Cross-Mot. at 10.*fn5 Due to the economic downturn in 2009, however, PenAir's ability to continue to provide daily service to those communities became less viable. PenAir's SMF ¶¶ 12-14. Rather than reduce services to those communities, PenAir sought to become a new mainline carrier on those routes in order to obtain an equitable tender of non-priority mainline bypass mail. See PenAir's SMF ¶ 15.*fn6

Towards this end, by letters dated July 6, 2009 and July 22, 2009, PenAir applied to the Postal Service for an equitable tender of non-priority mainline bypass mail in the Anchorage-Dillingham and Anchorage-King Salmon markets pursuant to 39 U.S.C. § 5402(g)(5)(C) -- the statutory provision governing the entry of new mainline passenger carriers on routes in which there is no existing mainline passenger carrier.*fn7 Pls.' SMF ¶¶ 52-54; see also Pls.' Exs. B and C to Declaration of David Karp ("Karp Decl.") (letters dated July 6, 2009 and July 22, 2009). By letter dated August 7, 2009, the Postal Service determined that PenAir was eligible for an equitable tender of mainline non-priority bypass mail in those markets. Pls.' SMF ¶ 56. In its letter, the Postal Service explained:

This replies to your letter of July 6, 2009, as supplemented by your letter of July 22, 2009, requesting the equitable tender of non-priority bypass mail as a new 121 mainline passenger carrier on the city-pair routes of Anchorage-Dillingham and Anchorage-King Salmon. Having reviewed the matter, we have concluded that your letters describe service which would make you eligible for the equitable tender you have requested in those markets.

Ex. A to Karp Decl. (letter dated August 7, 2009).

Thereafter, PenAir applied to the Postal Service for an equitable tender of non-priority mainline bypass mail in the additional markets of Anchorage-Aniak, Anchorage-McGrath, and Anchorage-Unalakleet. Pls.' SMF ¶ 55; see also Postal Service's Ex. J to Declaration of Steve Deaton ("Deaton Decl.") (letter dated August 24, 2009). By letter dated September 2, 2009, the Postal Service approved PenAir's request for equitable tender in these additional markets, concluding that "[PenAir's] letters describe service which would make [it] eligible for the equitable tender [it has] requested in those markets." Ex. K to Deaton Decl. (letter dated Sept. 2, 2009).

On August 22, 2009, PenAir began operating as a mainline passenger carrier on the Anchorage-Dillingham, Anchorage-King Salmon, Anchorage-Aniak, Anchorage-McGrath, and Anchorage-Unalakleet routes. PenAir's SMF ΒΆ 23. Soon thereafter, on November 9, 2009, the Postal Service began tendering ...


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