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Southern California Edison v. United States Postal Serv.

United States District Court, D. Columbia

September 29, 2015


Page 312

          For SOUTHERN CALIFORNIA EDISON, Plaintiff, Counter Defendant: David Matthew Levy, John F. Cooney, LEAD ATTORNEYS, Moxila A. Upadhyaya, VENABLE LLP, Washington, DC.

         For UNITED STATES POSTAL SERVICE, Defendant, Counter Claimant: Peter C. Pfaffenroth, LEAD ATTORNEY, U.S. ATTORNEY'S OFFICE, Civil Division, Washington, DC.

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         JAMES E. BOASBERG, United States District Judge.

         The United States Postal Service has established discounted rates for bulk mailers who take steps to ensure their address lists are accurate. USPS here claims that one of its customers, Plaintiff Southern California Edison, wrongfully availed itself of these rates while sending millions of mailpieces to customers at incorrect addresses. As a consequence, USPS slapped Plaintiff with a $7 million revenue-deficiency assessment, which precipitated this suit. At the core of the dispute is the question of what penalty should come from the fact that Plaintiff's procedures for verifying customer addresses -- a requirement for discounted postal rates -- fell short of USPS's standards. While neither party contests that SCE was in partial noncompliance, the parties duel over the extent, significance, and consequences that follow from such failure.

         In prior administrative proceedings, SCE opposed USPS's $7 million assessment, which the agency upheld on appeal. As in many lawsuits challenging administrative adjudications, the parties here preliminarily dispute whether jurisdiction is proper in this Court, whether Plaintiff has failed to exhaust its administrative remedies, and what standard of review this Court should adopt. In response to SCE's lawsuit, moreover, USPS filed a counterclaim of its own, seeking the $7 million as a collection of debts and restitution for unjust enrichment under the Federal Debt Collection Procedure Act, as well as a declaratory judgment under the Declaratory Judgment Act. In now considering the parties' Cross-Motions for Summary Judgment, the Court finds that jurisdiction is proper, and that, even under the deferential " reasoned decisionmaking" standard of judicial review, USPS cannot support a revenue-deficiency assessment of the size entered here. Yet because Plaintiff acknowledges its noncompliance -- and the costs that has imposed on Defendant -- the Court believes some reduced assessment is appropriate. It accordingly remands to

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the Postal Service's appeals body to determine a more reasonable sum.

         I. Background

         Because the dispute between the parties flows from SCE's noncompliance with USPS's complex regulatory scheme governing discounted postal rates for bulk mailing, the Court will, after introducing the parties to the suit, explain that scheme in some detail before turning to the events that led us here.

         A. Parties

         Plaintiff Southern California Edison is a public utility incorporated in California that provides electric power to more than 14 million customers in the southern and central parts of the state. See Compl., ¶ 6. Defendant is the United States Postal Service, an " independent establishment of the executive branch of the Government of the United States." Id., ¶ 7 (quoting 39 U.S.C. § 201). The Postal Service is headquartered in Washington, D.C., and may sue or be sued in its own name. See 39 U.S.C. § 401.

         B. USPS Move-Update Discounts

         With limited exceptions, the Postal Service possesses a legal monopoly over the carriage and delivery of letter mail, including First-Class Mail -- services which are termed " market dominant." See 18 U.S.C. § § 1693-1696; 39 U.S.C. § § 601-606. To this end, Congress has delegated to the Postal Regulatory Commission (PRC) -- a unit of USPS -- the task of establishing " a modern system for regulating rates and classes for market-dominant products." 39 U.S.C. § 3622(a). Congress has limited the rates and fees PRC may set for market-dominant mail services to those that are " reasonable and equitable." Id. § 404(b). PRC establishes regulatory rates in its Domestic Mail Manual (DMM), which also sets forth specific rules and requirements for USPS's various products, services, and postage rates. See 39 C.F.R. § § 111.1, 3020.10, 3020.13. Specific rates and discounts are stipulated in the Mail Classification Schedule, which is also maintained by the PRC. See id. § 3020 et seq. ; 39 U.S.C. § 3622.

         Among the discounted rates Defendant offers is a " workshare" discount for mailers who ease USPS's receipt and delivery of bulk mail by presorting, prebarcoding, handling, and transporting mail before it reaches USPS. See 39 U.S.C. § 3622(e). To qualify for such discounts, mailers must comply with a number of requirements, one of which is the " Move Update" standard, which ensures " address quality standards." DMM § 233.3.3 (May 14, 2007) (Supp. App. 00260). Move Update requires " periodic matching of a mailer's address records with customer-filed change-of-address orders received and maintained by USPS." Id. § (Supp. App. 00260). Compliance with Move Update " saves USPS money by preventing many mailpieces from being undeliverable-as-addressed (UAA), for such misdirected mailpieces must either be returned to the sender or forwarded," efforts that impose additional costs on Defendant. See Def. MTD/MSJ at 2. At the time of the relevant events, mailers like SCE were required to perform such corrections at least every 185 days. See DMM § (Supp. App. 00260).

         Mailers may meet the Move Update standard through several methods, one of which is by comparing their customer addresses with USPS's National Change of Address Linkage System (NCOALink) database. See id. § (Supp. App. 00260). NCOALink incorporates the Postal Service's Change of Address (COA) orders that have been received from individuals, families, and businesses. See Def. MTD/MSJ at 5. When a mailer checks its addresses against the NCOALink database, it

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receives specific codes indicating when there is a conflict between the address in its database and in the NCOALink database. See id. Of relevance to this dispute, a Code A address error means that a newer COA address is available and should be used. See NCOALink End User Licensee Performance Requirements, Exhibit B (NCOALink Return Code Descriptions) at 10 (DS30). A Code 91 error indicates that the address in the NCOALink database has " a secondary number and the input address" does not, and a Code 92 error indicates that " the input address ha[s] a secondary number" that the NCOALink address does not. See id. at 11 (DS31). For example, one address may contain an apartment number that is missing from the other. Where a Code A, Code 91, or Code 92 address error is generated, the Move Update standard requires that a mailer use the updated NCOALink COA address in place of the one in its database. See Def. MTD/MSJ at 5.

         C. SCE's Noncompliance

         Elvis Presley once sang, " I write, 'I'm sorry but my letter keeps coming back.' / So then I dropped it in the mailbox / And sent it special D. / Bright and early next morning, it came right back to me." " Return to Sender," RCA Records (1962). In contrast to Elvis, SCE was apparently not quite so careful when addressing its mail, as USPS found that thousands of mailpieces per day were being returned to sender. Both sides agree that Plaintiff paid reduced workshare rates for its mailpieces and sought to comply with Move Update's requirements by means of the NCOALink database, which it licensed from Defendant. See United States Postal Service NCOALink End User License Agreement with Southern California Edison (DS3). They further agree that, during the relevant period of this dispute -- between May 14, 2007, and November 26, 2008 -- SCE submitted 82,452,608 mailpieces at automated (and reduced) workshare rates. See Pl. MSJ at 3; Def. MTD/MSJ at 6. The parties also concur that some of SCE's address-updating practices during the relevant period were not in compliance with the Move Update standard, although they disagree about the number, reasons for, and significance of the noncompliant mailpieces.

         The dispute began when the U.S. Postal Inspection Service conducted a nationwide review of undeliverable-as-addressed mail and observed that between March and May 2008, a significant number of mailpieces sent by SCE were undeliverable as addressed. See Def. MTD/MSJ at 6-7. Although USPS never identified the precise number of mailpieces in noncompliance, in the revenue-deficiency letter it sent to SCE, it cited " large volumes" of mail -- " approximately 80 pieces per day of forwarding order expired mail" and " over 2,000 pieces per day of Undeliverable As Addressed (UAA) mail." Letter from Scott Jones, Manager, Business Mail, Santa Ana District, to Leon Bass, Senior Attorney, Southern California Edison at 1-2 (Nov. 23, 2009) (JA0246-47) [" Revenue Deficiency Letter" ]. Assuming this rate was constant between May 14, 2007, and November 26, 2008 -- 562 days in total -- the Court calculates that this would constitute at most roughly 1,179,000 mailpieces out of SCE's total of 82,452,608 mailpieces sent at workshare rates during this period, or about 1.4%. (Assuming USPS's daily estimates were for actual mail-delivery days, the true figure would be lower, as this calculation does not exclude non-delivery days such as Sundays and federal holidays.)

         Although the number of UAA mailpieces was what drew the attention of the Postal Inspection Service, USPS based its revenue-deficiency assessment against SCE on its Move Update practices, which the Service

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concluded were noncompliant with the Move Update standard. To the best of the Court's understanding -- having combed through thousands of pages of the parties' briefs and the administrative record -- USPS has nowhere identified a threshold percentage of UAA mailpieces that establishes a per se violation of the Move Update requirements.

         Instead, in its revenue-deficiency letter dated November 23, 2009, the Postal Service identified two failures that warranted the revenue-deficiency assessment: first, Plaintiff's practices justified the assessment " because SCE did not update its mailing list using code 91 or 92 addresses provided from the NCOALink product." Id. at 5 (JA0250) (emphasis added). In other words, although a " large volume" of UAA mail motivated USPS's investigation into SCE's Move Update practices, see id. at 1 (JA0246), the basis for the revenue-deficiency determination rested solely on Plaintiff's failure to update its mailing list when the NCOALink database yielded Code 91 or 92 address errors. Second, USPS found that " address overrides conducted by employees of SCE have resulted in a cumulative and ongoing increase in [return-to-sender undeliverable-as-addressed] mail as COA orders age." Id. at 5 (JA0250). In other words, these addresses yielded Code A address errors that were not being corrected by SCE.

         USPS calculated the costs of these errors at $0.62 for each piece of mail that was returned to sender and $0.29 for each piece of mail that was forwarded, but it did not limit its revenue-deficiency assessment to actual costs incurred by USPS. Although only a fraction of SCE's mailpieces were returned as UAA (as the Court calculated supra, at most 1.18 million, or 1.4% of SCE's total mailpieces sent at the reduced-workshare rate), USPS calculated that SCE should nonetheless be liable for the difference " between the discounted workshare rates and the regular non-discounted rates" for all mailpieces sent at the reduced price. See Def. MTD/MSJ at 9.

         Not only did USPS assess the full revenue deficiency for noncompliance, but it also extended the relevant assessment period. Although deficiency assessments are generally limited to the twelve-month period immediately preceding the date a deficiency is identified, see Management Instruction Assessing and Collecting Deficiencies in Postage or Fees, DM140-2008-1 (JA0002) [" Management Instruction" ], " because SCE's noncompliance was ongoing, Inspectors . . . included a period beyond the 12 month revenue deficiency period." Revenue Deficiency Letter at 5 (JA0250). Deeming Plaintiff noncompliant, USPS sought the entirety of the difference between SCE's claimed workshare rate and the standard non-workshare First Class rate for the eighteen-month-plus period between May 14, 2007, and November 26, 2008. This figure came to $7,551,576.28, the difference between the discounted price and the First Class rate for the 82,452,608 workshare-discounted mailpieces sent by SCE during this time. Defendant requested that SCE remit payment to Carol Bentley, Finance Manager for the " U.S. Postal Serrive [ sic ]." Id. at 6 (JA0251).

         SCE had the right to appeal the decision to the Service's Pricing & Classification Service Center (PCSC), see DMM § 604.10.1.2(a) (PS 3268-69), and it filed an amended appeal on November 21, 2011. See Am. Appeal of Southern California Edison from Decision of Santa Ana District (Nov. 21, 2011) (JA0005-06) [" Am. Appeal" ]. SCE's challenge failed, and on May 30, 2012, Gregory A. Hall, PCSC Manager, upheld the revenue deficiency. See Final Agency Decision of the PCSC (May 30, 2012) (JA0001) [ " Final Agency

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Decision" ]. Closing his letter, he noted that " [t]his is a final agency decision and concludes the appeal process." Id. at 2

         SCE subsequently filed suit in this court, alleging that USPS had violated the postal statutes by acting " ultra vires because the assessment violates the Postal Reorganization Act['s] . . . requirement that rates on market-dominant categories of mail be just and reasonable." Compl., ¶ 82. In addition, Plaintiff also alleged that the amount imposed by Defendant " is excessive in violation of the Due Process Clause of the Fifth Amendment." Id., ¶ 91. In its Amended Answer, the Service denied that this Court properly has jurisdiction over SCE's claim, arguing that it must first " exhaust its administrative remedies" by presenting its claim to the Postal Regulatory Commission. See Def. Am. Answer at 1. Curiously, USPS then filed a Counterclaim -- over which it must believe this Court has jurisdiction -- seeking to collect the $7 million as an alleged debt or as restitution for unjust enrichment, as well as to obtain declaratory relief under the Federal Debt Collection Procedure Act and the Declaratory Judgment Act. See Def. Countercl., ¶ ¶ 35, 49. The parties subsequently filed Cross-Motions for Summary Judgment and a joint appendix (containing the administrative record), and each party also submitted its own supplemental appendices. Plaintiff additionally sought to supplement the administrative record with several additional documents, which Defendant opposed.

         Because the Court must first ensure it has jurisdiction over the claims before proceeding to the merits, it begins by considering USPS's arguments on this point. Once satisfied it possesses jurisdiction over the dispute, the Court then addresses the merits questions after briefly ...

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