United States District Court, District of Columbia
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
Charles H. Nave, Charles H. Nave, P.C., Roanoke, VA, Pittsburgh, PA, Geoffrey W. Peters, Vienna, VA, for Plaintiff/Counterclaim Defendant.
Marian L. Borum, Terri Lynn Roman, U.S. Attorney's Office, Washington, DC, for Defendant/Counterclaim Plaintiff/Third-Party Plaintiff.
Jeffrey B. Balicki, Feldstein Grinberg Stein & McKee, Pittsburgh, PA, for Reese Brothers, Inc. and Third-Party Defendants.
ELLEN SEGAL HUVELLE, District Judge.
Plaintiff Reese Brothers, Inc. (" RBI" ) brings this action against the United States Postal Service (" Postal Service" or " USPS" ) seeking to set aside a final agency decision that assessed a revenue deficiency against RBI in excess of $3.5 million for improper use of the nonprofit mailing rate (" Final Agency Decision" ). RBI also seeks damages for the injury to its business allegedly caused by that decision. The Postal Service filed a counterclaim against RBI to collect the unpaid deficiency, and a third-party claim based on a theory of successor liability against Reese Teleservices, Inc. (" RTI" ), which acquired RBI in December 2002, and The Resources Group, LLC (d/b/a TRG Holdings, Inc.) (" TRG" ), which now has a controlling interest in RTI.
Before the Court are the parties' cross-motions for summary judgment on all claims. These include: (1) RBI's motion for partial summary judgment on its complaint against the Postal Service (partial only in that it does not include damages) (" RBI Mot." ); (2) the Postal Service's cross-motion for summary judgment on RBI's complaint, on its counterclaims against RBI, and also on its third-party complaint against RTI and TRG (" PS Mot." ); and (3) RTI and TRG's joint motion for summary judgment on the Postal Service's third-party complaint (" RTI/TRG Mot." ). For the reasons stated herein, RBI's motion will be granted in part and denied in part; the Postal Service's motion will be granted in part and denied in part; and RTI/TRG's motion will be denied. The Final Agency Decision will be upheld except as to the amount of the assessed deficiency, which will be set aside.
I. STATUTORY AND REGULATORY BACKGROUND
A. Origins of Reduced Rates for Mail Sent by Qualified Nonprofit Organizations (the " Nonprofit Rate" )
Congress adopted the first statutory mail classification providing a reduced rate for certain mail sent by qualified nonprofit organizations in 1951. See Act of Oct. 30, 1951, Pub. L. No. 233, § 6, 65 Stat. 672, 673 (1951) (codified at 39 U.S.C. § 4452 (1964)); see also Nat'l Retired Teachers Ass'n v. U.S. Postal Serv., 593 F.2d 1360, 1361 n. 2 (D.C.Cir.1979). When the Postal Reorganization Act (" PRA" ) was enacted in 1970, establishing the United States Postal Service as " an independent establishment of the executive branch of the Government of the United States," it provided that qualified nonprofit organizations would continue to be eligible for a reduced rates. Postal Reorganization Act, Pub. L. No. 91-375, §§ 201, 3626, 84 Stat. 719, 720, 762-63 (1970) (codified at 39 U.S.C. §§ 201, 3626). The mail classification schedule the Postal Service thereafter adopted included the following provision: 
The nonprofit bulk rate is available for bulk rate third-class mail mailed by qualified nonprofit organizations. A qualified nonprofit organization is a religious, educational, scientific, philanthropic, agricultural, labor, veteran's or fraternal organization or association that is not organized for profit and none of the net income of which inures to the benefit of any private stockholder or individual. Before being entitled to mail at the nonprofit bulk rate, the organization shall furnish proof of its qualifications to the Postal Service.
B. Postal Service Regulations re Use of the Nonprofit Rate
The PRA authorized the new Postal Service " to adopt, amend, and repeal such
rules and regulations as it deems necessary to accomplish the objectives of this title." 39 U.S.C. § 401(2) (1970). It also exempted the Postal Service from chapters 5 and 7 of the Administrative Procedure Act (" APA" ). Id. § 410(a) (" no Federal law dealing with public or Federal contracts, property, works, officers, employees, budgets, or funds, including the provisions of chapters 5 and 7 of title 5, shall apply to the exercise of the powers of the Postal Service" ). Chapter 5 of the APA, entitled " Administrative Procedure," generally sets forth the procedural requirements for administrative decision-making, including rulemaking and adjudication. Chapter 7, entitled " Judicial Review," generally sets forth the requirements for and scope of judicial review of administrative decisions.
In 1975, the Postal Service issued a regulation that " define[d] the conditions under which nonprofit organizations qualified for special third-class mailing privileges under [DMCS § ] 300.221." Nat'l Retired Teachers, 593 F.2d at 1361; see 40 Fed. Reg. 37,209 (Aug. 26, 1975). In relevant part, that regulation provided:
An organization authorized to mail at the [nonprofit] rates for qualified nonprofit organizations may mail only its own matter at these rates. An organization may not delegate, or lend the use of its permit to mail at [nonprofit] rates to any other person, organization, or association. Cooperative mailings may not be made at the [nonprofit] rates for qualified nonprofit organizations if one or more of the cooperating persons or organizations is not entitled itself to the special rates. Cooperative mailings involving the mailing of matter in behalf of or produced for an organization not authorized to mail at the [nonprofit] rates for qualified nonprofit organizations must be paid at the applicable regular rate....
Postal Service Manual § 134.57. In 1979, the Court of Appeals for the District of Columbia Circuit upheld this regulation as " a valid exercise by [the Postal Service] of its authority to interpret the mail classification schedule established by the PRC," specifically the requirement that the mail matter be " mailed by qualified nonprofit organizations." Nat'l Retired Teachers, 593 F.2d at 1361 n. 2, 1364.
The regulation was carried over without substantive change to the Domestic Mail Manual (" DMM" ), although it was subdivided into two parts within a subsection entitled " Eligible Matter." See DMM
§ 625.5. The first part, entitled " Matter of Eligible Organizations," stated:
An organization authorized to mail at the [nonprofit] rates may mail only its own matter at these rates. An organization may not delegate, or lend the use of its authorization to mail at the [nonprofit] rates to any other person or organization.
Cooperative mailings may not be made at the [nonprofit] rates for qualified nonprofit organizations if one or more of the cooperating persons or organizations is not entitled itself to the special rates. Cooperative mailings involving the mailing of matter in behalf of or produced for an organization not authorized to mail at the [nonprofit] rates for qualified nonprofit organizations must, be paid at the applicable regular rate....
Cooperative mailings may be made at the special bulk rates only when each of the cooperating organizations is individually authorized to mail at the [nonprofit] rates at the post office where the mailing is deposited. Cooperative mailings involving the mailing of any matter in behalf of or produced for an organization not itself authorized to mail at the [nonprofit] rates at the post office where the mailing is deposited must be paid at the applicable regular rates....
C. Responses to Perceived Misuse of the Nonprofit Rate
1. Postal Service
In 1989 and 1990, the Postal Service issued several lengthy interpretive rulings to further define its " cooperative mailing" regulation. First, in July 1989, the Postal
Service issued Customer Support Ruling, PS-209. ( See PS Mot., Ex. H (" PS-209" ).) In relevant part, PS-209 provided:
The term " Cooperative Mailing" refers to mailings made at the [nonprofit rate] in which one or more parties " cooperate" with the authorized permit holder....
Under [the applicable rules], the mailing must be owned by the authorized nonprofit entity at the time of mailing in order to be mailed at the special rates. A cooperative mailing may be considered proper if the authorized organization uses a for-profit entity (or other unauthorized entity) as an agent.
The mailer must be able to show, however, that the relationship is a legitimate principal/agent relationship in order to use the special rates. Mailings may not be sent at the special rates if made in conjunction with or in support of a venture of an unauthorized entity or a joint venture between authorized and unauthorized entities even if it is claimed that the mail matter itself is " owned" by the authorized entity.
An examination of the mailing piece is not sufficient for a determination that the cooperative mailing is not acceptable at the special rate. Instead, it is necessary to determine the relationship between all of the participating entities. This requires a review of all contracts executed by the parties, as well as other documents which may demonstrate its relationship between them. Provisions in these documents showing that the parties are not engaged in a joint venture or that the unauthorized party is the agent of the authorized nonprofit entity are relevant, but are not determinative evidence of the relationship between the parties.
Factors that may be considered in determining whether a mailing is cooperative include the following:
• The identity of the party that devised, designed, prepared, and paid for the mailpiece;
• The identity of the party which directly or indirectly paid the postage on the mailing;
• How the unauthorized parties are compensated;
• How the profits and revenues from the enterprise supported by the mailing are divided;
• What risks are entailed in the enterprise supported by the mailing, and whether the parties share the risk;
• How managerial decisions are made concerning the content of the mailings or the enterprise it supports, and who makes those decisions;
• The contribution each participant makes toward the enterprise supported by the mailing (e.g., money, service, managerial decision making, etc.);
• The intent and interests of the participants; and,
• Any other evidence that may be relevant to the standards discussed above.
Joint Business Venture
When a nonprofit and for-profit organization enter into a joint business venture, the joint business venture is not entitled to mail at the special rates. Typically both parties put something in (a list of names and use of special rate permit for the nonprofit party, and payment of printing and mailing costs by the for-profit organization) and both
parties take something out (a share of the proceeds/profits)....
Shortly thereafter, in August 1990, the Postal Service issued Publication 417, " Special Bulk Third-Class Rates," and Publication 417A, " Customer Guide To Cooperative Mailings," " to remind mailers concerning the types of organizations which may be authorized to mail at the [nonprofit] rates, and what restrictions exist on matter which may be mailed at those rates." 55 Fed. Reg. 33,793 (Aug. 17, 1990). As explained by the Postal Service, the impetus for issuing these additional publications was that " [a] recent investigation by the Postal Inspection Service has documented what appears to be the proliferation of improper cooperative mailings made at the [nonprofit] rates." Id. The Postal Service further explained that:
Instead of relying chiefly on " after-the-fact" investigations, the Postal Service wants to remind the nonprofit mailing community of the cooperative mailing rules and encourage improved compliance by providing information to help mailers determine whether planned mailings are cooperative. The information in publications 417 and 417A is designed to assist organizations in avoiding cooperative mailing problems. Nonprofit organizations should consider the factors explained in those publications when deciding whether or not to enter into specific fund-raising programs with commercial firms.
The Postal Service encourages mailers who review the information found in publications 417 and 417A, and have questions concerning whether or not mailings they are considering as part of a fundraising program will be eligible for the special rates, to submit a sample of the mailpiece or pieces, as well as a copy of the contracts and all other documentation affecting the relationship between the parties, to the appropriate field division manager of mailing requirements for review.
Id.  In relevant part, these new publications stated (RBI Appendix, Jan. 31, 2012 (" RBI App." ), Tab B (" Publication 417/417A" )): 
A cooperative mailing is a mailing produced by an authorized organization that " cooperates" with one or more organizations
to share the cost, risk, or benefit of the mailing. Cooperative mailings may not be entered at the [nonprofit] rates unless all cooperating organizations are authorized to mail at these rates at the post office of mailing. Furthermore, the cooperative mail rule prevents authorized organizations from sharing their authorizations with others who are not authorized. The rule restricts [nonprofit] mailings to the authorized organizations' own mail.
5-2 ELIGIBLE MAILINGS
5-2.1 Eligibility Factors
For determining whether a mailing is eligible for the Nonprofit Standard Mail rates, the Postal Service evaluates the answers to these questions:
• Who devised, designed, and paid for the mailpiece?
• Who paid the postage on the mailing, either directly or indirectly?
• How are the profits and revenues divided from the mailing or an enterprise it supports?
• What risks are entailed with the mailing or with an enterprise it supports and who bears these risks?
• Who makes managerial decisions about the content of the mailing or the enterprise it supports?
• What are the participants' intentions and interests?
5-2.2 Commercial Mailing Agent
An authorized organization may use a commercial mailing agent (or other unauthorized entity) if the organization can show that the relationship is a legitimate principal-agent relationship. If a question arises whether a mailing is eligible for the [nonprofit] rates, the authorized organization must provide, on request, documentation of the relationship that includes all contracts between the organization and other parties to the mailing. [ ]
5-3 INELIGIBLE MAILINGS
Mail matter associated with joint enterprises between an authorized organization and a commercial enterprise (or other unauthorized mailer) is ineligible for the [nonprofit] rates. Typically, ineligible cooperative mailings are arranged as follows:
• Both parties contribute something to the mailing:
— A list of names and use of the [nonprofit] authorization by the authorized organization.
— Payment of printing or mailing costs by the commercial enterprise.
• Both parties take something out of the mailing (a share of the proceeds or profits).
Congress shared the Postal Service's " concerns about what it considers to be abuses in the [use of the nonprofit rate] which place the use of subsidies for legitimate mailings in jeopardy." See, e.g., S.Rep. No. 101-411 (1990). In 1990, it indicated that as part of " its annual statutory oversight hearings concerning the Postal Service," one of the issues to " be explored" was " so-called cooperative mailings in which nonprofit permit holders team with commercial vendors to market products or services through use of the nonprofit permit, and the Postal Service's stepped up actions to restrict such mailings." H.R.Rep. No. 101-419 (1990). Ultimately, Congress amended § 3626 of the PRA to expressly exclude several types of mail from the nonprofit rate, first in 1990 and then again in 1993. See Postal Service Appropriations Act, 1991 (" 1991 Appropriations Act" ), Pub. L. 101-509, § 1, 104 Stat. 1389 (1990) (codified at 39 U.S.C. § 3626(j)(1)(A)-(C)); Revenue Forgone Reform Act, Pub. L. 103-123, § 705, 107 Stat. 1267 (1993) (codified at 39 U.S.C. § 3626(j)(1)(D)).
In 1990, Congress added subsections (j)(1)(A)-(C) which excluded from the nonprofit rate, subject to certain conditions, " mail which advertises, promotes, offers, or, for a fee or consideration, recommends, describes, or announces the availability of
(A) any credit, debit, or charge card, or similar financial instrument or account, provided by or through an arrangement with any person or organization not authorized to mail at the [nonprofit] rates ...;
(B) any insurance policy, unless the organization which promotes the purchase of such policy is [a qualified nonprofit organization], the policy is designed for and primarily promoted to the members, donors, supporters, or beneficiaries of the organization, and the coverage provided by the policy is not generally otherwise commercially available; or
(C) any travel arrangement, unless the organization which promotes the arrangement is [a qualified nonprofit organization], the travel contributes substantially (aside from the cultivation of members, donors, or supporters, or the acquisition of income or funds) to one or more of the purposes which constitutes the basis for the organization's authorization to mail at such rates, and the arrangement is ...