Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Sears, Roebuck & Co. v. U.S. Postal Service

United States District Court, D. Columbia

September 30, 2015

SEARS, ROEBUCK AND CO., et al., Plaintiffs,
v.
U.S. POSTAL SERVICE, Defendant

Page 366

[Copyrighted Material Omitted]

Page 367

[Copyrighted Material Omitted]

Page 368

          For SEARS, ROEBUCK & CO., SEGERDAHL GRAPHICS, INC., ASPEN MARKETING SERVICES, LLC, Plaintiffs, Counter Defendants: 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.

          OPINION

Page 369

         ROSEMARY M. COLLYER, United States District Judge.

          This is a case about an extra dab of glue--just an extra bit of stickum worth over $1.25 million. Sears, Roebuck and Co.; Segerdahl Graphics, Inc.; and Aspen Marketing Services, LLC (collectively, Plaintiffs) mailed rectangular folded self-mailers in three separate mailings in 2009. To qualify for the most discounted automation rate, U.S. Postal Service rules required self-mailers to be sealed on the top and bottom with glue or adhesive tabs. Because Plaintiffs' mailpieces were not sealed on the top and bottom, the U.S. Postal Service's Pricing Classification Service Center disqualified the mailings from the lower rate and assessed deficiencies totaling over $1.25 million.

         Plaintiffs challenge the Pricing Center's decisions as unreasonable, ultra vires, and in violation of due process, and have moved for summary judgment. The Postal Service filed a Counterclaim for judgment on the asserted deficiencies; it filed a cross motion to dismiss in part and for summary judgment on the remainder.[1] Plaintiffs failed to follow the rules applicable at the time to their mailings and now they want to avoid paying the postage due. Because their mailpieces did not comply

Page 370

with the regulations specifying the type of mail entitled to the most-discounted rate and the deficiency assessments were proper, judgment will be entered in favor of the Postal Service.

         I. FACTS

         A. Postal Service Regulations for Automated Mail

         The U.S. Postal Service is an independent establishment of the Executive Branch, see 39 U.S.C. § 201, that provides mail services at uniform rates throughout the country. 39 U.S.C. § § 101, 403. The Postal Service is empowered to adopt rules and regulations in furtherance of its functions. Id. § 401(2).

         In the early 1980s, the Postal Service began to purchase and deploy equipment for the automated processing of mail. Compilation of Directory of Firms, 48 Fed.Reg. 28377-01, 28377 (June 21, 1983) (citing Omnibus Budget Reconciliation Act of 1981, Pub. L. No. 97-35). The Postal Service started automated mail processing in 1983, and the processing machines became more sophisticated over time. Eligibility Requirements for Automated Rate Categories, 55 Fed.Reg. 40560, 40560 (Oct. 3, 1990). The Postal Service realized by 1990 that it had presumed erroneously that all mail would be sent inside an envelope when it created standards for mail eligible to receive an automation discount; it had failed to consider the problems presented by automated processing of " non-enveloped mail," that is " folded self-mailers" prepared from a single piece of folded cardstock. Id. at 40561. As a result, the Postal Service established standards for the construction of folded self-mailers to ensure successful automated processing. Id.

         Typically, a folded self-mailer is formed from a single sheet of cardstock that is folded once on the right side (the leading edge), addressed on the front, and sealed to make a letter-sized mailpiece. Such a self-mailer is designed to be mailed without needing to be enclosed in an envelope. DMM § § 201.3.1, 201.3.14.1, at DS11-15; see also Folded Self-Mailers & Unenveloped Mailpieces, 76 Fed.Reg. 74704, 74706 (Dec. 1, 2011), at PS1724-1728.

         The Domestic Mail Manual (DMM or Manual) is a Postal Service regulation that sets forth mailing standards. See 39 C.F.R. § § 111.1, 211.2(a)(2). The Manual establishes rules and requirements governing the products and services described in the Mail Classification Schedule. The Schedule, in turn, lists and describes the Postal Service's products and services and its rates. See 39 C.F.R. § § 3020.10, 3020.13 (describing the Mail Classification Schedule). The Postal Service charges a lower rate for mail that can be processed on high-speed sorting machines and more for mail processed by hand or in other ways. DMM Notice 123 Price List at 11 (May 2009), at DS19.

         To qualify for the low automation rate, mailpieces must comply with the physical requirements set forth in the Manual. DMM § 201.3.0, at DS11; cf. DMM § 201.2.1 (non-machinable letters are those that do not meet the requirements of DMM § 201.3.0), at DS10. The sealing requirements for folded self-mailers designed with a final fold on the right--the requirements in effect at the time Plaintiffs sent the self-mailers at issue here--are as follows:

In specifically identified formats, a self-mailer may have the final fold on the right side (leading edge) of the piece. The left edge (trailing edge) and other open edges must be secured with at least one tab or a glue line. The number of tabs required is determined by the final trim size and paper basis weight of the piece. If the piece is 7 inches long or more, the piece must be

Page 371

sealed on the top and the bottom. In all cases, additional tabs, seals, or glue spots or glue lines may be used. Newsprint paper is acceptable if the basis weight of the paper meets the minimum standards in 3.14.1a and the piece is certified by the USPS mailpiece design analyst to be acceptable for automated processing.

         DMM § 201.3.14.1c (May 11, 2009), at DS15.[2] Thus, as critically relevant to the Plaintiffs' mailings--oblong folded pieces 7 inches long or more with a final fold on the right had to be " sealed on the top and the bottom."

         The Postal Service also published a Quick Service Guide 201b, which included illustrations of the allowed designs and sealing requirements for folded self-mailers. See Guide 201b (May 11, 2009), at PS233-34. The illustration of the design permitted for mailers governed by DMM § 201.3.14.1c, that is, with the final fold on the right side of the rectangular mailpiece, shows tabs in the center of the trailing (left) edge, the center of the top, and the center of the bottom. Id. (placement of tabs and wafer seals), at PS234 (see attached Appendix, p. 1). Guide 201b noted that " as an alternative to tabs or wafer seals, the open edge of the length of the mailpiece may be continuously glued or spot glued." Id., at PS233.

         The reason for sealing self-mailers with tabs or glue is to " prevent the open edges from fanning out and jamming high-speed processing equipment." Folded Self-Mailers--Additional Options, Postal Bulletin (June 5, 1997), at DS21; see also Eligibility Requirements for Automated Rate Categories, 55 Fed.Reg. 40560, 40561 (Oct. 3, 1990) (" Self-mailers . . . that are open on three sides cannot be successfully processed on the current automation equipment." ). The problem of unenveloped mail getting caught in the machines remained a Postal Service concern in December 2008 and May 2009--contemporaneously with the mailings at issue in this case that were sent in April, August, and December of 2009. See New Standards for Letter-Size Booklets and Folded Self-Mailers, 73 Fed.Reg. 79430 (Dec. 29, 2008), at PS1705 (self-mailers " tend to double feed and jam resulting in damage to the equipment and the mail" ; if they jam they must be processed manually or on flat sorting equipment, which is more labor intensive); Guide 201b (May 11, 2009), at PS233 (" Unenveloped letter-sized mailpieces prepared for automation mailings must be secured (tabbed) to prevent an open edge from jamming high-speed processing equipment." ).

         Postal customers are required to comply with postal standards. DMM § 607.1.1, at PS124. When mailings are submitted with a postage statement, the mailer's signature certifies compliance with all applicable standards. Id. The Postal Service may demand proper payment even after acceptance of the mail. DMM § 607.1.2, at PS124. Postal customers who fail to meet postal standards for the rates they claim have underpaid postage. See DMM § 604.10.1 (a " revenue deficiency" is " a shortage or underpayment of postage or fees" ), at PS122. The Postal Service may assess a revenue deficiency against an underpaying customer.

Page 372

         B. Revenue Deficiency Assessed for Plaintiffs' Three Mailings

         The first self-mailer at issue was mailed for Sears, Roebuck and Co. in April 2009 to promote " Sears Days," a nationwide retail sale. The piece was a bi-fold design, printed by Specialty Print Communications who subcontracted with another printer, Team Services, for sorting and mailing. Team Services mailed over 5.8 million Sears Days self-mailers at the discounted automation rate on an account charged to Sears. The second contested mailpiece was also an advertisement for Sears, a bi-fold piece promoting a " Baby Event," that was designed and printed by Segerdahl Graphics, Inc., (Segerdahl) a graphic design, printing, and mail preparation company. In August 2009, Segerdahl mailed over 500,000 Baby Event mailers at the discounted automation rate. The third self-mailer was a tri-fold design promoting a " Buick Holiday Event" for a group of General Motors dealers in the Chicago area. The Holiday Event advertisement was designed by Aspen Marketing Services, LLC, (Aspen) a marketing company; Segerdahl printed and mailed over 1.9 million of these advertisements in December 2009. See Appendix, p. 2 (line drawings of Plaintiffs' mailers, as depicted in Pl. Mot. for Summ. J. [Dkt. 47] at 10-12).

         In each instance the self-mailers were governed by § 201.3.14.1c of the Manual, as the final fold was on the right edge and they were more than 7 inches long. Plaintiffs' self-mailers were sealed with two glue lines or elongated glue spots along the trailing edge, within one inch from the top and bottom edges. See Compl. [Dkt. 1] ¶ ¶ 32-34. To be eligible for the low automation rate under § 201.3.14.1c, the self-mailers had to be " sealed on the top and the bottom." The Postal Service determined that they were not so sealed and assessed deficiencies. Plaintiffs appealed to the USPS Pricing Classification Service Center (Pricing Center), and the Pricing Center issued final agency decisions affirming the deficiency assessments. Regarding the Sears Days mailer, the Pricing Center found that the mailpieces did not meet the requirements for automated processing because the top and bottom edges were not sealed:

The standards provide that the trailing edge and other open edges must be secured, which must include the top and bottom edges if the mailpiece is over 7 inches in length. While the mailpiece in question was secured by a glue line within one inch of the top edge and another within one inch of the bottom edge, the placement of the glue lines near the trailing edge did not serve to secure the top and bottom open edges.

         Sears Days Final Agency Decision, at JA2. The Pricing Center determined that a deficiency of $1,033,597.19 was due, id. at JA3, and the Postal Service certified that the debt was due and owing by Sears on March 14, 2012, at DS1-2. As to the Baby Event mailing, the Pricing Center similarly affirmed the deficiency assessment, noting that " [w]hile the mailpiece in question was secured by a glue line within one inch of the top edge and another within one inch of the bottom edge [on the trailing edge], the placement of the glue lines near the trailing edge did not serve to secure the top and the bottom open edges." Baby Event Final Agency Decision, at JA126. A deficiency of $94,978.27 was assessed, id. at JA127, and the Postal Service certified that the debt was due and owing, jointly and severally, by Sears and Segerdahl on March 16, 2012, at DS3-4. Similarly, with regard to the Buick Holiday Event self-mailers, the Pricing Center decided:

You state that your mailpiece met the DMM requirements for folded self-mailers with a final fold on the leading edge,

Page 373

because DMM language is not clear in specifying the number of tabs, seals, glue lines required. In addition, you state that the glue line on the entire trailing edge ultimately satisfy's (sic) the requirements for sealing the left, top and bottom edges. Your agent, Mike Buttita of Segerdahl Graphics, however, in a January 12, 210 email to Postal Inspector Palmeri acknowledged that the tabbing on a similar piece, sealed the same way, was incorrect.

         Buick Holiday Event Final Agency Decision, JA166.[3] A deficiency of $125,367.01 was assessed, id. at JA167, and the Postal Service certified that the debt was due and owing by Aspen on March 16, 2012, at DS5-6. The assessments together total over $1.25 million.

         Plaintiffs filed a five-count Complaint, four of which remain pending:[4]

Count I alleges that the deficiency assessments were inconsistent with the regulations and thus contrary to law;
Count II alleges that the Postal Service violated the notice requirement of the Fifth Amendment due process clause when it " retroactively reinterpreted" the regulations regarding sealing of self-mailers;
Count IV alleges that the deficiency assessments are unjust, unreasonable, and ultra vires because they are unrelated to any actual damage suffered by the Postal Service, and thus the assessments violate 39 U.S.C. § § 404(b) (postal rates must be reasonable and equitable), 3622(b)(8) (postal rates and classifications must be just and reasonable), and 3622(c)(5) (postal rates should take into account the degree of preparation of mail for delivery into the postal system performed by the mailer and its effect upon reducing costs to the Postal Service); and
Count V alleges that the Postal Service violated the due process clause of the Fifth Amendment because the assessments exceeded the Postal Service's actual costs resulting from non-compliance.

Compl. ¶ ¶ 69-75 (Count I), 76-77 (Count II), 84-93 (Count IV), 94-95 (Count V). The Postal Service filed a five-count Counterclaim:

Counterclaim Count I seeks judgment on a debt under the Federal Debt Collection Practices Act, 28 U.S.C. § § 3001 et seq. (FDCPA), against Sears asserting that it is liable for the deficiency for the Sears Days mailing in the amount of $1,033,597.19 and asserting that it is jointly and severally liable (with Segerdahl) for the deficiency for the Baby Event mailing in the amount of $94,978.27;
Counterclaim Count II seeks judgment on a debt under the FDCPA, against Segerdahl, asserting ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.