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Ascom Hasler Mailing Systems, Inc v. United States Postal Service

August 14, 2012

ASCOM HASLER MAILING SYSTEMS, INC., PLAINTIFF,
v.
UNITED STATES POSTAL SERVICE, DEFENDANT.
NEOPOST, INC., PLAINTIFF,
v.
UNITED STATES POSTAL SERVICE, DEFENDANT.



The opinion of the court was delivered by: Paul L. Friedman United States District Judge

OPINION, FINDINGS OF FACT, AND CONCLUSIONS OF LAW

TABLE OF CONTENTS

SECTION PAGE

I. INTRODUCTION 1

II. BACKGROUND 1

III. FINDINGS OF FACT 7

A. General Witness Background 7

1. Plaintiffs' Witnesses 7

2. USPS' Witnesses 11

B. Pitney Bowes, CMRS, and USPS 12

C. The 1979 CMRS Regulations 16

D. Neopost, CMRS, and USPS 17

E. Ascom, CMRS, and USPS 21

F. The Job Duties of Frederick W. Ganley, Jr. and 24 Francis Eugene Gardner

G. The 1995 CMRS Regulations 27

1. Promulgation and Effect 27

2. Motivation for the Changes 28

a. Cash Management 29

b. Customer Service and Security 31

H. Implementation of the 1995 CMRS Regulations 33

1. Neopost Goes First 33

2. Ascom Follows Neopost 37

3. Pitney BowesGoes Last 38

I. Lawsuit and Settlement Between Pitney Bowes and USPS 39

J. Damages 39

IV. CONCLUSIONS OF LAW 40

A. Standard of Proof 40

B. Contract Claims (Count III) 41

1. Alleged Oral or Implied-in-Fact Contract Between 43 Neopost and USPS Regarding Interest Income

2. Alleged Implied-in-Fact Contract Between Ascom and USPS 49 Regarding Interest Income

3. Alleged Oral Contract Between Neopost and USPS for 50 Implementing the 1995 CMRS Regulatory Changes

C. Contract Implied-in-Law Claims(Counts II, III in Part, VI, and VIII) 53

1. Unjust Enrichment and Quantum Meruit Under a 53 Quasi-Contract Theory (Counts II, III in Part, and VIII)

a. Development of CMRS - Neopost and Ascom 54

b. Implementation of the 1995 CMRS Regulations 56

- Neopost Only

2. Promissory Estoppel (Count VI) 57

a. Development of CMRS - Neopost and Ascom 59

b. Implementation of the 1995 CMRS Regulations 61

- Neopost Only

D. Takings Claims (Count I) 62

V. CONCLUSION 73

I. INTRODUCTION

These consolidated cases came before the Court for a five-day bench trial on plaintiffs' contractual, equitable, and constitutional claims against defendant, the United States Postal Service ("USPS"), arising out of USPS' alleged arrogation of certain interest income that plaintiffs contend rightfully belonged to them. Upon consideration of the evidence presented at trial, the parties' proposed findings of fact and conclusions of law, and the relevant legal authorities, the Court now issues its Findings of Fact and Conclusions of Law in accordance with Rule 52 of the Federal Rules of Civil Procedure.

II. BACKGROUND

The Court previously has described the background of these consolidated cases. See Ascom Hasler Mailing Sys., Inc. v. USPS, 815 F. Supp. 2d 148, 151-55 (D.D.C. 2011); see also Memorandum Op. & Order at 1-3, Dec. 2, 2011 [Dkt. No. 199].*fn1 It therefore will limit its discussion accordingly.

In the 1970s, Pitney Bowes, Inc. invented and patented a Computerized Remote Meter Resetting System ("CMRS") that it marketed under the name "Postage by Phone." Joint Stipulation of Facts ¶ 1, Mar. 5, 2012 [Dkt. No. 215-1]. CMRS permits postal service customers to use their phones to purchase more postage without having to take their postage meter to the post office to have it reset. Id. ¶ 2. In 1978, USPS and Pitney Bowes entered into a Statement of Understanding that gave Pitney Bowes the right to operate its new CMRS. Ascom Hasler Mailing Sys., Inc. v. USPS, 815 F. Supp. 2d at 151. And on April 9, 1979, by publication in the Federal Register, USPS promulgated regulations governing the operation of CMRS for all meter manufacturers. See Joint Stipulation of Facts ¶ 8.

In the 1980s, plaintiffs, Ascom Hasler Mailing Systems, Inc. ("Ascom") and Neopost, Inc., corporations that are competitors of Pitney Bowes, began development of their own CMRSs. See Joint Stipulation of Facts ¶¶ 10-18. USPS ultimately authorized Ascom to operate its CMRS in 1988 and authorized Neopost to operate its system in 1990. See id.

With CMRS in operation, postal service customers advance payments for postage to meter resetting companies like Pitney Bowes, Ascom, and Neopost. Ascom Hasler Mailing Sys., Inc. v. USPS, 815 F. Supp. 2d at 152. Consequently, as the Court previously has noted, CMRS provided meter manufacturers with a financial opportunity:

[Customers'] money went first to the meter resetting companies' lockbox banks and from there to the companies' trustee banks. The funds remained with the trustee banks until the customer actually used the postage it had purchased for the postage meter. At that point, the funds went from the appropriate trustee bank to the Postal Service. During the interval between receipt of the advance payment from the customer and the transmittal of those funds to the Postal Service, the funds in the meter resetting companies' trustee accounts earned interest, which the meter resetting companies kept.

Id. (quotations omitted) (alteration in original).

But this process involving trustee bank accounts changed in 1995 when USPS promulgated new regulations governing CMRS. See Joint Stipulation of Facts ¶ 19; Ascom Hasler Mailing Sys., Inc. v. USPS, 815 F. Supp. 2d at 152. The 1995 CMRS regulations eliminated the commercial trustee bank accounts, and required that postal service customers' advance-meter-resetting deposits go directly into USPS' account. Joint Stipulation of Facts ¶ 19. As a result of that change, all the meter resetting companies operating CMRS could no longer collect interest on the customers' advance deposits. See id.

On December 19, 1997, two years after the new regulations went into effect, Pitney Bowes sued USPS, alleging contractual, equitable, and constitutional claims arising out of USPS' promulgation of the 1995 CMRS regulations and USPS' alleged arrogation of interest income. See Ascom Hasler Mailing Sys., Inc. v. USPS, 815 F. Supp. 2d at 152; see also Pitney Bowes, Inc. v. USPS, 27 F. Supp. 2d 15, 17 (D.D.C. 1998). That case was assigned to Judge Ricardo M. Urbina. Ascom Hasler Mailing Sys., Inc. v. USPS, 815 F. Supp. 2d at 152. In 1998, Judge Urbina denied the parties' cross-motions for summary judgment, and shortly thereafter, in 1999, that case settled. Id. at 152-53.

On June 13, 2000, Ascom filed a complaint against USPS, similar to the one filed by Pitney Bowes, "for damages suffered as a result of [USPS'] unlawful misappropriation of the revenue stream earned or which would have been earned by Ascom from its" CMRS. Ascom Compl. ¶ 1. Two months later, on August 30, 2000, Neopost filed a substantively identical complaint against USPS. See generally Neopost Compl.*fn2

In their complaints against USPS, Ascom and Neopost make the exact same claims:

# Count I. USPS' actions constitute a taking of plaintiffs' private property for public use without just compensation in violation of the Fifth Amendment to the United States Constitution. Ascom Compl. ¶¶ 52-56; Neopost Compl. ¶¶ 49-53. # Count II. USPS unjustly enriched itself at plaintiffs' expense. Ascom Compl. ¶¶ 57-59; Neopost Compl. ¶¶ 54-56. # Count III. USPS breached the terms of its express, implied, or quasi-contractual arrangements with plaintiffs. Ascom Compl. ¶¶ 60-64; Neopost Compl. ¶¶ 57-60. # Count IV. Plaintiffs were third-party beneficiaries of the 1978 Statement of Understanding between Pitney Bowes and USPS. Ascom Compl. ¶¶ 65-69; Neopost Compl. ¶¶ 61-65. # Count V. By compensating Pitney Bowes but not plaintiffs, USPS breached its constitutional obligation to treat similarly situated parties equally. Ascom Compl. ¶¶ 70-72; Neopost Compl. ¶¶ 66-69. # Count VI. Plaintiffs relied to their detriment on USPS' promise that they would be permitted to keep interest, and they are now entitled to it. Ascom Compl. ¶¶ 73-76; Neopost Compl. ¶¶ 70-72. # Count VII. USPS violated a duty to treat regulated parties equally in compensating Pitney Bowes but not plaintiffs. Ascom Compl. ¶¶ 77-79; Neopost Compl. ¶¶ 73-75. # Count VIII. Plaintiffs are entitled to recovery in quantum meruit. Ascom Compl. ¶¶ 80-82; Neopost Compl. ¶¶ 76-79.

USPS moved to dismiss all eight of plaintiffs' claims on the ground that each failed to state a claim upon which relief could be granted; USPS also asserted that this Court lacked jurisdiction. Ascom Hasler Mailing Sys., Inc. v. USPS, 815 F. Supp. 2d at 153. On September 27, 2007, the Court issued a Memorandum Opinion and Order in which it concluded that it had jurisdiction; dismissed plaintiffs' third-party beneficiary claim (Count IV); and denied USPS' motion to dismiss regarding the other seven claims in plaintiffs' complaints. See Memorandum Op. & Order at 6-7, Sept. 27, 2007 [Dkt. No. 95].

The parties then filed cross-motions for summary judgment on June 4, 2010; USPS also filed a motion to dismiss certain claims for lack of subject matter jurisdiction or for failure to state a claim. Ascom Hasler Mailing Sys., Inc. v. USPS, 815 F. Supp. 2d at 153-54. And in the course of briefing the cross-motions, USPS filed a motion to strike certain affidavits that plaintiffs relied upon in their motion for summary judgment. Id.

On September 30, 2011, the Court issued an Opinion and Order that, among other things, granted USPS' motion to dismiss plaintiffs' equal protection claims (Counts V and VII), but denied the parties' cross-motions for summary judgment on all other claims. See Ascom Hasler Mailing Sys., Inc. v. USPS, 815 F. Supp. 2d at 176; Order at 1-2, Sept. 30, 2011 [Dkt. No. 192]. That decision ultimately left four remaining claims in these consolidated cases. See Joint Pretrial Statement at 2 (listing plaintiffs' remaining claims as (1) breach of contract, (2) Fifth Amendment takings, (3) unjust enrichment, and (4) promissory estoppel). USPS then moved for partial reconsideration of the Court's September 30, 2011 decision. The Court denied that motion on December 2, 2011, see Memorandum Op. & Order at 6, Dec. 2, 2011, and these consolidated cases proceeded to trial before the Court on both liability and damages.*fn3

The bench trial of these consolidated cases began on March 19, 2012, and concluded on March 27, 2012. The following eight witnesses were called by plaintiffs to testify: Frederick W. Ganley, Jr.; Robert Hillegass; Neil Mahlstedt; Edmond B. Goggin; Steven M. Kearney; Wayne Wilkerson; Robert J. Pedersen; and Bruce Abramson, Ph.D.*fn4 The following two witnesses were called by USPS to testify: Patricia M. Gibert; and G. William Kennedy, Ph.D.

After the conclusion of the bench trial, the parties filed a joint proposal regarding trial exhibits to be admitted in evidence and objections thereto. See Joint Proposal at 1, Apr. 18, 2012 [Dkt. No. 226]. Plaintiffs moved to admit 100 exhibits in evidence, see id. at 2-7, and USPS objected to the admission of many of those exhibits on various grounds. Id. at 7-9. USPS moved to admit 115 exhibits in evidence, see id. at 9-16, and plaintiffs objected only to one - DX 36, DemandOne Invoice to USPS - on the ground of relevance. See id. at 16. USPS eventually withdrew its proposal to introduce DX 36 in evidence. See Dkt. No. 228.

The parties since have filed proposed findings of fact and conclusions of law. See generally Def. Post Trial Brief with Findings of Fact and Conclusions of Law ("USPS Findings & Conclusions"), June 14, 2012 [Dkt. No. 235]; Pls. Proposed Findings of Fact and Conclusions of Law ("Pls. Findings & Conclusions"), June 14, 2012 [Dkt. No. 236]. These consolidated matters therefore now are ripe for judgment.

The Court has considered the testimony of all the witnesses at trial and the documentary evidence admitted by the Court, and has made credibility findings as necessary and appropriate to resolve any material discrepancies in the testimony. The Court admits into the record all the exhibits requested by the parties in their joint proposal - with the exception of DX 36, which USPS subsequently withdrew. The Court need not resolve USPS' objections to plaintiffs' proposed exhibits, because, as discussed below, even with the admission of the objected-to exhibits, all of plaintiffs' claims fail.

In accordance with Rule 52 of the Federal Rules of Civil Procedure, the Court makes the following findings of fact and conclusions of law. See FED. R. CIV. P. 52(a) ("In an action tried on the facts without a jury . . . , the court must find the facts specially and state its conclusions of law separately. The findings and conclusions may be stated on the record after the close of the evidence or may appear in an opinion or a memorandum of decision filed by the court.").

III. FINDINGS OF FACT

A. General Witness Background

1. Plaintiffs' Witnesses

a. Frederick W. Ganley, Jr. Mr. Ganley is a retired USPS employee. See Ganley Dep. at 11. He was first employed by USPS in 1971 and retired in 1992. Id. at 11-12. From the early 1970s until shortly before his retirement, Mr. Ganley's position at USPS was as General Manager of the Special Services Division, later changed to the Business Systems Division, of the Office of Mail Classification Rates and Classification Department. Id. at 26. That division was part of the Finance Department, but Mr. Ganley's financial responsibilities were negligible. Id. at 110-11. Mr. Ganley was the primary liaison between USPS and the meter manufacturers. Id. at 27. His subordinate, Francis Eugene Gardner, assisted Mr. Ganley in his role as the primary liaison between USPS and the meter manufacturers during the time period relevant to this litigation. Id. at 97-99.

Plaintiffs acknowledge that their claims turn in large part on Mr. Ganley's testimony. See Trial Tr. (3/27/12) at 156-57 (plaintiffs' counsel acknowledging that "the case really . . . turns to a large extent on Mr. Ganley's testimony"). Of all the witnesses, the Court found Mr. Ganley's testimony during his de bene esse deposition to be the most credible and persuasive and the least biased.

Although Mr. Ganley is a central figure in this litigation, he was not contacted about these consolidated cases until February 2012; before that time, the parties presumed that Mr. Ganley had passed away. See Ganley Dep. at 14-15. In preparing for trial, counsel for plaintiffs discovered that Mr. Ganley had not in fact passed away and has been living in Virginia since retiring from USPS in 1992. See id. at 11. Counsel for plaintiffs subsequently met with Mr. Ganley in person to discuss this litigation, and counsel for plaintiffs drafted an affidavit that Mr. Ganley signed, after requesting certain changes, on February 10, 2012. See PX 187, Affidavit of Frederick W. Ganley, Jr. ("Ganley Aff."), Feb. 10, 2012; Ganley Dep. at 16-17. Mr. Ganley then met with counsel for USPS and discussed this litigation and his recently signed affidavit with them. See Ganley Dep. at 18. Thus, before testifying at his de bene esse deposition, Mr. Ganley made himself available to both sides for discussion and questioning. See id. at 23, 25.

The Court finds Mr. Ganley's testimony during his deposition much more probative than the affidavit he signed on February 10, 2012. Although the affidavit referenced statements made by Ascom and Neopost employees, see, e.g., Ganley Aff. ¶ 13, Mr. Ganley was not provided with those specific statements before he signed the affidavit. See Ganley Dep. at 100-01. And during his deposition, Mr. Ganley credibly clarified the statements made in his affidavit and testified about his responsibilities at USPS, his interactions with the meter manufacturers, and ultimately his role in litigation.

b. Robert Hillegass. Mr. Hillegass was an employee of Neopost or one of its predecessors for over 40 years before retiring from the company in 1999. He started working at Neopost's predecessor in 1958 when he was 20 years old. Trial Tr. (3/19/12 a.m.) at 39. He worked his way up in the company, and, in 1974, he took the position of National Service Manager. Id. at 41. Around 1988, he was promoted to Director of National Service, and, in 1990, he was promoted to Vice President of Technical Operations, a position he held until he retired in 1999. Id. at 42. Mr. Hillegass was the primary liaison between Neopost and USPS for most of his career and was the lead Neopost employee involved in discussions with USPS related to the development of Neopost's CMRS. See id. at 43, 53-55, 59-60; Trial Tr. (3/19/12 p.m.) at 62-64, 79-80.

c. Neil Mahlstedt. Mr. Mahlstedt is a former President of Neopost. Trial Tr. (3/19/12 p.m.) at 88. Mr. Mahlstedt began working for Neopost's predecessor in the late 1960s; he was initially hired to start its financial company. Id. at 87. In 1991, he became Neopost's President. Id. at 88. In that role, Mr. Mahlstedt "ran the administration arm of the company, day-to-day activities," and performed oversight of Neopost's CMRS. Id. at 88-89. He was personally involved in discussions with USPS regarding the proposed CMRS regulatory changes that ultimately took effect in 1995. See, e.g., PX 145, Letter from N. Mahlstedt to P. Gibert at 1-2, Aug. 15, 1994. He retired around 2002. Trial Tr. (3/19/12 p.m.) at 84.

d. Edmond B. Goggin. Mr. Goggin was an employee of Ascom or its predecessor for over 15 years. He joined Ascom's predecessor in 1975 and served in various capacities, including as Ascom's Vice President of Operations, from 1981 to 1991. See Trial Tr. (3/20/12 a.m.) at 27. Mr. Goggin was in charge of Ascom's development of its CMRS. See id. at 27-29. During trial, USPS orally moved to strike part of Mr. Goggin's testimony. The parties then filed briefs addressing that oral motion after trial. See Dkt. Nos. 223 & 225. The Court concludes that it need not resolve this oral motion and will deny it as moot.

e. Steven Michael Kearney. Mr. Kearney is a current USPS employee. Trial Tr. (3/20/12 p.m.) at 3. He began working for USPS around 1980 and spent the first 10 years as an Investment Officer and as an Investment Manager. See id. at 3. In 1990, Mr. Kearney became the Treasurer of USPS and remained in that position for approximately 10 years. Id. at 4, 8. Mr. Kearney was involved in formulating and executing the 1995 CMRS regulatory changes. See id. at 30-32.

f. Wayne A. Wilkerson. Mr. Wilkerson is a former USPS employee and is currently a self-employed consultant and expert witness. Trial Tr. (3/21/12) at 104. He was first employed by USPS in 1979 as a Postal Inspector. Id. at 53. He then held various jobs for USPS in various cities. See id. at 54. In 1992, he was hired at the USPS headquarters in Washington, D.C., as a Manager of Mailing Systems Development. Id. It was in that position that Mr. Wilkerson assumed responsibility for postage meters. Id. Mr. Wilkerson served as a successor to Mr. Ganley. Id. at 55.

g. Robert John Pedersen. Mr. Pedersen currently is employed by USPS in the position of Manager, Technical Analysis, Accounting and Finance. Trial Tr. (3/21/12) at 135.

He began working for USPS in 1983 and, from 1983 to 1987, he served as an Investment Officer. Id. Mr. Pedersen then left USPS for five years to work in the Army Banking and Investment Fund, managing investments as the Army's Chief Investment Officer. Id. at 136. He returned to USPS in 1992 as a Debt Portfolio Manager. Id. When USPS was restructured later that year, he became a Chief Investment Officer, id. at 137, and, in 1994, he was promoted to Assistant Treasurer, Cash Management, a position that he remained in until March of 2002. Id. at 138.

Mr. Pedersen participated in several internal and external discussions between USPS and the meter manufacturers relating to the 1995 CMRS regulatory changes. See id. at 141-42.

h. Bruce Abramson, Ph.D. Dr. Abramson testified as plaintiffs' retained expert witness on damages. He holds a bachelor's degree in computer science and mathematics, a master's degree in computer science, and a Ph.D. in computer science, all of which are from Columbia University. See Trial Tr. (3/26/12 a.m.) at 6. Dr. Abramson also holds a J.D. from the Georgetown University Law Center. Id.

2. USPS' Witnesses

a. Patricia M. Gibert. Ms. Gibert was a USPS employee from 1968 until her retirement in 2002. Trial Tr. (3/21/12) at 104. She began her USPS career as a management intern and subsequently held various positions throughout the organization. See id. at 104-06. In 1992, Ms. Gibert became the Vice President of Customer Service Support. See id. at 106-08. In that role, she assumed responsibility for a large group, about one-eighth of which involved postage meters. Id. at 107-09. As for postage meters, Ms. Gibert's responsibilities included dealing with meter operations and policy issues concerning the meter manufacturers' ability to do business with USPS. Id. at 107. Meters remained under her purview until approximately 2002 when she retired. Id. at 108. Ms. Gibert played no role in the development of CMRS, and, before 1992, she did not work with postage meters or CMRS. Id. at 109.

b. G. William Kennedy, Ph.D. Dr. Kennedy testified as USPS' retained expert witness on damages. He holds a bachelor's degree and a master's degree in accounting, both from the University of Illinois, and a Ph.D. in finance from St. Louis University. Trial Tr. (3/27/12) at 5-6. Dr. Kennedy is also a licensed certified public account. Id. at 6.

B. Pitney Bowes, CMRS, and USPS

In the 1970s, Pitney Bowes invented and patented CMRS, which it marketed under the name "Postage by Phone." Joint Stipulation of Facts ΒΆ 1. This system permits postal service customers to use their phones to purchase more postage without having to take ...


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