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Oral Argument Has Not Been Scheduled

_____________________ No. 11-1117 _____________________

IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
_____________________ UNITED STATES POSTAL SERVICE, Petitioner, v. POSTAL REGULATORY COMMISSION, Respondent. _____________________
On Petition for Review of an Order of the Postal Regulatory Commission

_____________________ BRIEF OF THE UNITED STATES POSTAL SERVICE _____________________ MARY ANNE GIBBONS Executive Vice President & General Counsel Of counsel: R. ANDREW GERMAN Managing Counsel, Legal Strategy United States Postal Service 475 L'Enfant Plaza, SW Washington, D.C. 20260 MICHAEL J. ELSTON* Chief Counsel, Appellate & Commercial Litigation United States Postal Service 475 L'Enfant Plaza, SW Washington, D.C. 20260 (202) 268-7432

Attorneys for the United States Postal Service


FINAL BRIEF: OCTOBER 7, 2011 *Counsel of Record

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CERTIFICATE AS TO PARTIES, RULINGS AND RELATED CASES A. Parties, Intervenors and Amici

Petitioner in this matter is the UNITED STATES POSTAL SERVICE. Respondent in this matter is the POSTAL REGULATORY COMMISSION (PRC). This is a petition for review of an agency decision. Numerous persons and entities filed comments in the agencys docket but did not seek to intervene in the proceedings. The AMERICAN CATALOG MAILERS ASSOCIATION (ACMA) intervened in this review proceeding on behalf of the Postal Service. VALPAK DEALERS ASSOCIATION, VALPAK DIRECT MARKETING SYSTEMS, INC., and L.L. BEAN, INC., intervened on behalf of the PRC. B. Ruling Under Review

The ruling under review is that portion of the Postal Regulatory Commissions 2010 Annual Compliance Determination (ACD) relating to the pricing of Standard Mail Flats. The PRC issued the ACD on March 29, 2011. The PRCs docket number for its review of the Postal Services Annual Compliance Report for fiscal year 2010 was Docket No. ACR2010. C. Related Cases

This matter has not previously been before this Court or any other court. Petitioners counsel are unaware of any related cases pending in this Court or any other court except that in this case the PRC reached a decision that appears to
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contradict another order presently before this Court on a petition for review. See United States Postal Service v. Postal Regulatory Commission, No. 10-1324 (D.C. Cir.) (argued Sept. 21, 2011).

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TABLE OF CONTENTS

Certificate as to Parties, Rulings and Related Cases ..................................................i Table of Authorities ...................................................................................................v Glossary.................................................................................................................. viii Jurisdictional Statement .............................................................................................1 Standing......................................................................................................................1 Statutory Provisions ...................................................................................................3 Statement of the Issues...............................................................................................7 Statement of the Case.................................................................................................8 Statement of the Facts ................................................................................................9 Summary of the Argument.......................................................................................17 Argument..................................................................................................................21 I. The PAEA specifically requires that market-dominant products cover their attributable costs by class while simultaneously requiring each competitive product to cover its own costs by product. Standard Mail Flats is a product within the market-dominant class of Standard Mail, not a competitive product, and thus it is not required by law to cover its own costs; the PAEA requires only that Standard Mail products cover their costs as a class. Thus the PRCs conclusion that the Standard Mail Flats product must cover its own costs is contrary to law, arbitrary and capricious. .........................................21 A. B. Standard of Review .............................................................................21 Analysis ..............................................................................................21

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TABLE OF CONTENTS (continued) II. The PRCs authority in the context of reviewing the Postal Services Annual Compliance Report is limited by 39 U.S.C. 3653 to determinations that any rates or fees in effect during such year (for products individually or collectively) were not in compliance with applicable provisions of [Chapter 36] (or regulations promulgated thereunder). In the 2010 ACD, the Commission concluded that the rates for Standard Mail Flats violated 39 U.S.C. 101(d), which is not in Chapter 36. Thus the PRC exceeded its statutory authority by concluding that the Postal Services rates violated a policy statement found outside of Chapter 36. .........................................................................28 A. B. III. Standard of Review .............................................................................28 Analysis ..............................................................................................28

Under the PAEA, one of the PRCs objectives is [t]o assure adequate revenues, including retained earnings, to maintain financial stability. The PRC failed to even address the argument that its decision could result in the Standard Mail class as a whole making less contribution toward costs because the volume of flats is decreasing while the volume of letters is increasing. Thus the PRCs order requiring the Postal Service to prioritize limited CPI price-cap authority to Standard Mail Flats without regard to the financial consequences is arbitrary and capricious. .....................................................32 A. B. Standard of Review .............................................................................32 Analysis ..............................................................................................32

Conclusion ...............................................................................................................35 Certificate of Compliance ........................................................................................36 Certificate of Service ...............................................................................................37

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TABLE OF AUTHORITIES CASES Assoc. of Data Processing Serv. Orgs. v. Board of Governors of the Fed. Reserve Sys., 745 F.2d 677 (D.C. Cir. 1984) .................................32 *Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc. 419 U.S. 281 (1974).................................................................................32, 34 *Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837 (1984).....................................25 Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971) .................32 *FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, (2000)....................25 Halverson v. Slater, 129 F.3d 180 (D.C. Cir. 1997)................................................31 Morton v. Mancari, 417 U.S. 535 (1974) .......................................................... 26-27 Pharmaceutical Research & Mfrs. of Am. v. Thompson, 251 F.3d 219 (D.C. Cir. 2001).......................................................................25 Pillsbury v. United Eng'g Co., 342 U.S. 197 (1952) ......................................... 30-31 Qi-Zhuo v. Meissner, 70 F.3d 136 (D.C. Cir. 1995)................................................31 Radzanower v. Touche Ross & Co., 426 U.S. 148 (1976).......................................26 Simpson v. United States, 435 U.S. 6 (1978)...........................................................26 S. Cal. Edison Co. v. FERC, 195 F.3d 17 (D.C. Cir. 1999) ....................................25 United States v. Wong Kim Bo, 472 F.2d 720 (5th Cir. 1972) ................................23 USPS v. PRC, 640 F.3d 1263 (D.C. Cir. 2011) .......................................................12 *Wells Fargo Bank, N.A. v. FDIC, 310 F.3d 202 (D.C. Cir. 2002) ........................25 * Authorities upon which we chiefly rely are marked with asterisks.
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TABLE OF AUTHORITIES (continued) STATUTES 5 U.S.C. 706..............................................................................................21, 28, 32 39 U.S.C. 101...........................................................8, 10, 16, 21, 24, 26-27, 28-31 39 U.S.C. 102........................................................................................................22 39 U.S.C. 201..........................................................................................................9 *39 U.S.C. 3622...........................................................11-13, 19, 21-25, 27, 30, 34 *39 U.S.C. 3633..............................................................................................22, 25 39 U.S.C. 3652...................................................................................... 8, 11, 30-31 *39 U.S.C. 3653.................................................................1, 7, 8, 11, 18-19, 28-31 39 U.S.C. 3663..................................................................................1, 9, 21, 28, 32 Postal Accountability and Enhancement Act (PAEA), Pub. L. No. 109-435, 120 Stat. 3198 (2006) ........................................... 7, 10, 17, 22, 23, 29, 32, 33 Postal Reorganization Act of 1970 (PRA), Pub. L. No. 91-375, 84 Stat. 719 (1970) ...................................................9, 29

LEGISLATIVE HISTORY Sen. Rep. No. 108-318 at 8, 10 (2004) ..............................................................10, 23

DECISIONS OF THE PRC Order No. 26, Docket No. RM2007-1 (P.R.C. Aug. 15, 2007) .........................10, 23 Order No. 43, Docket No. RM2007-1 (P.R.C. Oct. 29, 2007) ................................11
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TABLE OF AUTHORITIES (continued) DECISIONS OF THE PRC (continued) Order No. 66, Docket No. R2008-1 (P.R.C. Mar. 17, 2008)...................................10 Order No. 536, Docket No. RM2009-3 (P.R.C. Sept. 14, 2010)................. 18, 23-24

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GLOSSARY

CPI ACR

Consumer Price Index Annual Compliance Report or the 2010 Annual Compliance Report of the U.S. Postal Service (Dec. 29, 2010) Annual Compliance Determination or the 2010 Annual Compliance Determination, PRC Docket No. ACR2010 (Mar. 29, 2011) Postal Accountability and Enhancement Act Postal Reorganization Act Postal Regulatory Commission Postal Rate Commission (prior to 2006)

ACD

PAEA PRA PRC

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JURISDICTIONAL STATEMENT This petition challenges an order of the Postal Regulatory Commission (PRC) issued pursuant to 39 U.S.C. 3653(c). This Court has jurisdiction pursuant to 39 U.S.C. 3663. The final order below was rendered on March 29, 2011, and this petition was timely filed on April 27, 2011.

STANDING The Postal Service has standing under 39 U.S.C. 3663 because it is adversely affected or aggrieved by the PRCs Annual Compliance

Determination. The order declares the Postal Services rates for Standard Mail Flats to be illegal and directs the Postal Service to increase the cost coverage of the Standard Mail Flats product through a combination of above-average price adjustments, consistent with the price cap requirements, and cost reductions until such time that the revenues for this product exceed attributable costs beginning with the next Notice of Market Dominant Price Adjustment. ACD at 106, 107 (J.A. 44, 45). The PRC also ordered the Postal Service to present a schedule of future above-CPI price increases for Standard Mail Flats [w]ithin 90 days of the issuance of the FY 2010 ACD and to update the schedule annually until the revenue of the Flats product exceeds its attributable cost. ACD at 107 (J.A. 45). The statute governing the PRC and the Postal Service, however, does not require that each market-dominant product cover its attributable costs, and correcting the
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long-standing cost-coverage issue with respect to Standard Mail Flats a product with a current downward trend in volume is not in the best interests of the Postal Service. Because such above-CPI price increases must be consistent with the price cap requirements, the PRCs order necessarily curtails the Postal Services limited price-cap increase authority and precludes it from allocating that authority in such a fashion as to maximize our ability to maximize retained earnings and achieve financial stability by, for example, allocating more of that increase to Standard Mail Letters, a product with a trend of increasing volumes. The PRCs order which it lacked authority to issue may well have the perverse effect of decreasing the Standard Mail Classs contribution to attributable costs of the Postal Service at a time when the Postal Service can ill afford to absorb such a loss in contribution. This Court may redress these injuries by granting the petition for review and setting aside the PRCs conclusions as contrary to law, arbitrary and capricious.

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STATUTORY PROVISIONS United States Code Title 39 101. Postal policy *** (d) Postal rates shall be established to apportion the costs of all postal operations to all users of the mail on a fair and equitable basis. *** 3622. Modern rate regulation (a) Authority GenerallyThe Postal Regulatory Commission shall . . . by regulation establish (and may from time to time thereafter by regulation revise) a modern system for regulating rates and classes for market-dominant products. (b) ObjectivesSuch system shall be designed to achieve the following objectives, each of which shall be applied in conjunction with the others: (1) To maximize incentives to reduce costs and increase efficiency. (2) To create predictability and stability in rates. (3) To maintain high quality service standards established under section 3691. (4) To allow the Postal Service pricing flexibility. (5) To assure adequate revenues, including retained earnings, to maintain financial stability. (6) To reduce the administrative burden and increase the transparency of the ratemaking process. (7) To enhance mail security and deter terrorism. (8) To establish and maintain a just and reasonable schedule for rates and classifications, however the objective under this paragraph shall not be construed to prohibit the Postal Service from making changes of unequal magnitude within, between, or among classes of mail. (9) To allocate the total institutional costs of the Postal Service appropriately between market-dominant and competitive products. (c) FactorsIn establishing or revising such system, the Postal Regulatory Commission shall take into account

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*** (2) the requirement that each class of mail or type of mail service bear the direct and indirect postal costs attributable to each class or type of mail service through reliably identified causal relationships plus that portion of all other costs of the Postal Service reasonably assignable to such class or type; *** (d) Requirements (1) In general.The system for regulating rates and classes for marketdominant products shall (A) include an annual limitation on the percentage changes in rates to be set by the Postal Regulatory Commission that will be equal to the change in the Consumer Price Index for All Urban Consumers unadjusted for seasonal variation over the most recent available 12-month period preceding the date the Postal Service files notice of its intention to increase rates; *** (2) Limitations (A) Classes of mailExcept as provided under subparagraph (C), the annual limitations under paragraph (1)(A) shall apply to a class of mail, as defined in the Domestic Mail Classification Schedule as in effect on the date of enactment of the Postal Accountability and Enhancement Act. *** 3633. Provisions applicable to rates for competitive products (a) In GeneralThe Postal Regulatory Commission shall . . . promulgate (and may from time to time thereafter revise) regulations to (1) prohibit the subsidization of competitive products by marketdominant products; (2) ensure that each competitive product covers its costs attributable; and (3) ensure that all competitive products collectively cover what the Commission determines to be an appropriate share of the institutional costs of the Postal Service. ***

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3652. Annual Reports to the Commission (a) Costs, Revenues, Rates, and Service.Except as provided in subsection (c), the Postal Service shall, no later than 90 days after the end of each year, prepare and submit to the Postal Regulatory Commission a report (together with such nonpublic annex the report as the Commission may require under subsection (e)) (1) which shall analyze costs, revenues, rates, and quality of service, using such methodologies as the Commission shall by regulation prescribe, and in sufficient detail to demonstrate that all products during such year complied with all applicable requirements of this title; and (2) which shall, for each market-dominant product provided in such year, provide (A) product information, including mail volumes; and (B) measures of the quality of service afforded by the Postal Service in connection with such product, including (i) the level of service (described in terms of speed of delivery and reliability) provided; and (ii) the degree of customer satisfaction with the service provided. The Inspector General shall regularly audit the data collection systems and procedures utilized in collecting information and preparing such report (including any annex thereto and the information required under subsection (b)). The results of any such audit shall be submitted to the Postal Service and the Postal Regulatory Commission. *** 3653. Annual Determination of Compliance (a) Opportunity For Public CommentAfter receiving the reports required under section 3652 for any year, the Postal Regulatory Commission shall promptly provide an opportunity for comment on such reports by users of the mails, affected parties, and an officer of the Commission who shall be required to represent the interests of the general public. (b) Determination of Compliance or NoncomplianceNot later than 90 days after receiving the submissions required under section 3652 with respect to a year, the Postal Regulatory Commission shall make a written determination as to (1) whether any rates or fees in effect during such year (for products individually or collectively) were not in compliance with applicable provisions of this chapter (or regulations promulgated thereunder); or
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(2) whether any service standards in effect during such year were not met. If, with respect to a year, no instance of noncompliance is found under this subsection to have occurred in such year, the written determination shall be to that effect. (c) Noncompliance With Regard to Rates or ServicesIf, for a year, a timely written determination of noncompliance is made under subsection (b), the Postal Regulatory Commission shall take appropriate action in accordance with subsections (c) and (e) of section 3662 (as if a complaint averring such noncompliance had been duly filed and found under such section to be justified). ***

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STATEMENT OF THE ISSUES I. The PAEA specifically requires that market-dominant products cover

their attributable costs by class while simultaneously requiring each competitive product to cover its own costs by product. Standard Mail Flats is a product within the market-dominant class of Standard Mail, not a competitive product, and thus it is not required by law to cover its own costs; the PAEA requires only that Standard Mail products cover their costs as a class. Is the PRCs conclusion that the Standard Mail Flats product must cover its own costs contrary to law, arbitrary and capricious? II. The PRCs authority in the context of reviewing the Postal Services

Annual Compliance Report is limited by 39 U.S.C. 3653 to determinations that any rates or fees in effect during such year (for products individually or collectively) were not in compliance with applicable provisions of [Chapter 36] (or regulations promulgated thereunder). In the 2010 ACD, the Commission

concluded that the rates for Standard Mail Flats violated 39 U.S.C. 101(d), which is not in Chapter 36. Did the PRC exceed its statutory authority by concluding that the Postal Services rates violated a policy statement found outside of Chapter 36? III. Under the PAEA, one of the PRCs objectives is [t]o assure adequate

revenues, including retained earnings, to maintain financial stability. The PRC failed to even address the argument that its decision could result in the Standard

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Mail class as a whole making less contribution toward costs because the volume of flats is decreasing while the volume of letters is increasing. Is the PRCs order requiring the Postal Service to prioritize limited CPI price-cap authority to Standard Mail Flats without regard to the financial consequences arbitrary and capricious?

STATEMENT OF THE CASE On December 29, 2010, the Postal Service filed its Fiscal Year 2010 Annual Compliance Report (ACR) as required by 39 U.S.C. 3652. After providing for a period of public comment, on March 29, 2011, the Postal Regulatory Commission (PRC) issued its Annual Compliance Determination Report for Fiscal Year 2010 (ACD) as required by 39 U.S.C. 3653. In its ACD, the PRC noted that the postal product known as Standard Mail Flats is covering only 81.6 percent of its costs. Despite the fact that Congress explicitly chose not to require each market-dominant product to cover its costs, the PRC concluded that the prices in effect for the Standard Mail Flats product do not comply with section 101(d) of Title 39 because they do not cover the costs attributable to the product. ACD at 106 (J.A. 44). Accordingly, purporting to act pursuant to its authority under 39 U.S.C. 3653(c), the PRC directed the Postal Service to increase the cost coverage of the Standard Mail Flats product through a combination of above-average price adjustments, consistent with the price cap
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requirements, and cost reductions until such time that the revenues for this product exceed attributable costs. Id. While the PRC did not set a deadline for the Postal Service to exceed full cost coverage for the Standard Mail Flats product, it ordered the Postal Service to present a schedule of future above-CPI price increases for Standard Mail Flats within 90 days1 and to begin the process of transitioning Standard Flats prices to full cost coverage starting with the next Notice of Market Dominant Price Adjustment. ACD at 107 (J.A. 45). On April 27, 2011, the Postal Service filed a timely Petition for Review by this Court pursuant to 39 U.S.C. 3663.

STATEMENT OF THE FACTS Under the Postal Reorganization Act of 1970 (PRA), Pub. L. No. 91-375, 84 Stat. 719 (1970), the Postal Service became an independent establishment of the executive branch of the government of the United States. 39 U.S.C. 201. From 1971 to 2006, the Postal Service initiated rate changes by requesting a recommended decision from the PRCs predecessor agency, the Postal Rate Commission. In 2006, Congress adopted and President George W. Bush signed

On May 17, 2011, the Postal Service moved the PRC to stay those portions of the ACD requiring the Postal Service to provide schedules or take other remedial actions regarding Standard Mail Flats. The Commission granted the Postal Services motion on May 27, 2011, and the stay is in effect until 30 days following the resolution of this petition for review. PRC Order No. 739 (available on-line at http://www.prc.gov/Docs/73/73096/Order_No_739.pdf).
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into law the Postal Accountability and Enhancement Act (PAEA), Pub. L. No. 109-435, 120 Stat. 3198 (2006). The PAEA, among other things, greatly narrowed the PRCs role in pricing decisions, and the Postal Service now may set prices within certain express limitations. The PAEA also directed the PRC to develop a modern system for regulating the prices of market-dominant products, such as Standard Mail Flats, designed to achieve a statutory list of objectives, each of which shall be applied in conjunction with the others. 39 U.S.C. 3622(a)&(b). A prominent goal of the PAEA was to provide the Postal Service with increased flexibility in pricing, as compared to the prior pricing regime. This is evident both from the language of the statute and from its legislative history. See, e.g., 39 U.S.C. 3622(d)(4), (c)(7); Sen. Rep. No. 108-318 at 8, 10 (2004). This is not just the Postal Services view. The PRC has also recognized that increased flexibility is central to the Congressional design of the PAEA. See, e.g., Order No. 66, Docket No. R2008-1, p. 51 (P.R.C. Mar. 17, 2008) (http://www.prc.gov/Docs/59/59312/R2008-1FINAL.pdf); Order No. 26, Docket No. RM2007-1, p. 78 at 3070 (P.R.C. Aug. 15, 2007) (The revamped ratemaking under the PAEA is designed to achieve various goals, principal among them are to afford the Postal Service enhanced pricing flexibility. . . .) (http://www.prc.gov/Docs/57/57348/RM2007-1FINAL.pdf). In another order, the PRC stated as follows: The Commission concludes that one of Congresss main motives in enacting the PAEA was to simplify and expedite
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the setting of postal rates. It further concludes that Congress intended to give the Postal Service wide latitude in designing specific rates and rate relationships, expecting that the Commission would alter those decisions only where disregard of particular statutory standards is clear. Order No. 43, Docket No. RM2007-1, 2025 at p. 11 (P.R.C. Oct. 29, 2007). Price changes for market-dominant products under the PAEA are now an almost annual occurrence. The overall increase for each class of mail products that have been designated as market-dominant products is essentially capped at the level of inflation. 39 U.S.C. 3622(d)(1)(A). Price averaging is allowed within classes to meet the overall cap, but is not allowed between classes. 39 U.S.C. 3622(d)(2)(A). Within 90 days of the end of each fiscal year, the Postal Service is required to submit to the PRC an annual report that, among other things, shall analyze costs, revenues, rates, and quality of service, using such methodologies as the Commission shall by regulation prescribe, and in sufficient detail to demonstrate that all products during such year complied with all applicable requirements of this title. 39 U.S.C. 3652(a). The PRC then provides an opportunity for public comment, id. 3653(a), and makes a written determination regarding, among other things, whether any rates . . . in effect during such year (for products individually or collectively) were not in compliance with applicable provisions of this chapter (or regulations promulgated thereunder), id. 3653(b)(1).

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After the Postal Service submitted its 2010 Annual Compliance Report, the PRC concluded that [c]ost coverage for Standard Mail Flats was 81.6 percent, and that neither commercial flats nor nonprofit flats covered their costs, resulting in a cost coverage below 100 percent for the whole product. ACD at 103 (J.A. 41). As the PRC explained, it had expressed its concerns with what it called a growing intra-class cross subsidy on several occasions since 2008. ACD at 10304 (J.A. 41-42). In the 2009 ACD, for example, the PRC stated that the failure of the Standard Mail Flats product to cover its costs directly implicates the requirement of section 101(d), which directs the Postal Service to apportion [attributable costs] on a fair and equitable basis[,] and section 3622(b)(5), which requires that rates must be set to ensure adequate revenues to maintain financial stability. ACD at 104 (quoting 2009 ACD at 86) (J.A. 42). In response to the directive to devise a plan to improve the cost coverage of the Standard Mail Flats product, the Postal Service presented such a plan in its request for an exigent rate increase. The PRC, however, denied the request for an exigent rate increase. See generally USPS v. PRC, 640 F.3d 1263 (D.C. Cir. 2011) (granting in part petition for review of decision denying exigent rate increase). In its 2010 Annual Compliance Report, the Postal Service stated that the PRCs denial of the exigent rate increase made its plan which had relied on a one-time 5.1 percent increase that could not be made within the limitations of the

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inflation-based price cap unworkable and suggested that the PRC decide whether it could use any of its powers to remedy the cost coverage shortfall of the fourteen products that did not cover full attributable costs, including the Standard Mail Flats product. ACD at 105 (J.A. 43) (quoting ACR at 8-9 (J.A. 14-15)). In addition to the Postal Services comments in the ACR and its reply comments, the American Catalog Mailers Association (ACMA), L.L. Bean, the Public Representative and Valpak submitted comments regarding the cost coverage of Standard Flats. ACD at 105 (J.A. 43). Although the PRC ignored it, one of the most important comments offered was the ACMAs comment regarding the impact on the Postal Services overall revenue of implementing above-CPI changes on Standard Mail Flats. The ACMA wrote as follows: Further, within the framework of a cap for a class of mail with more than one [Section 3622](c)(2) category, (c)(2) is not aimed at any net-income improvements that might result from fixing any shortfall. ACMA noted this phenomenon in its reply comments in Docket No. R2010-4 (pp. 3-5). The workings are reasonably simple. If a shortfall in Category 1 is fixed by raising the rates for Category 1 and lowering them for Categories 2 and 3, staying within a cap, the net effect depends on the various elasticities (own-price and cross-price) and would in all cases be no more than a small fraction of the shortfall at issue. It is obvious, then, that (c)(2) does not highlight money that is available to improve the Postal Services net income position. ACMA Comments at 8-9 (J.A. 62-63).

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Put another way, if the Postal Service implements above-average price increases on one product and below-average price increases on other products within the class in order to comply with the price cap, the result is not necessarily an improvement in the overall contribution that the class of mail makes toward attributable costs. The charts on the next page demonstrate this issue with a simple hypothetical example.2 The chart assumes that the volume of Standard Mail

Letters was 700 in 2009 and the volume of Standard Mail Flats was 100 in 2009, which reflects the approximate ratio of the volumes of the two products. It also assumes a price cap of five percent and a decrease in the volume of flats in 2010 by 10 percent and an increase in the volume of letters by 10 percent, which stands proxy for the present volume trends of these two products.3 The first box assumes

This hypothetical example is in no way intended to be a proxy for the complicated business of ratemaking, and the Postal Service acknowledges that other factors bear on these calculations. For example, changes in price may impact volumes. Instead, the hypothetical is intended merely to illustrate the point that the PRC's approach can result in less money for the Postal Service. To perform all of the actual calculations is beyond the scope of this brief as well as the publicly available data. 3 Compare Annual Compliance Determination: Fiscal Year 2009, Postal Regulatory Commission (Mar. 29, 2010), at Table VII-11 (p. 83) (listing the Fiscal Year 2009 volumes for Standard Mail Letters and Standard Mail Flats), with Annual Compliance Determination: Fiscal Year 2010, Postal Regulatory Commission (Mar. 29, 2011), at Table VII-15 (p. 102) (listing the Fiscal Year 2010 volumes for Standard Mail Letters and Standard Mail Flats, showing a one-year increase in Standard Mail Letters volume of approximately 1.64 billion pieces and a one-year decrease in Standard Mail Flats volume of approximately .75 billion pieces) (both available on-line at www.prc.gov).
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FULL PRICE CAP APPLIED TO LETTERS

Year 2009 2010

Total 5500 7139.5

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Flats

Product Flats Letters Flats Letters

Volume 100 700 90 770

RESULTS Rev / Pc Cost / Pc Cont / Pc Tot Cont 36 44 -8 -800 19 10 9 6300 36 44 -8 -720 20.20714 10 10.20714 7859.5

Letters

INPUTS 2009 Volume 2009 Revenue Per Piece 2009 & 2010 Cost Per Piece 2010 Volume Change % 2010 Price Cap Applied to Flats 2009 Volume 2009 Revenue Per Piece 2009 & 2010 Cost Per Piece 2010 Volume Change % 2010 Price Cap Applied to Letters 100 36 44 -10% 0% 700 19 10 10% 5%

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FULL PRICE CAP APPLIED TO FLATS Year 2009 2010 Product Flats Letters Flats Letters Volume 100 700 90 770 100 36 44 -10% 5% 700 19 10 10% 0%

Total 5500 6970.5

Filed: 10/07/2011

Flats

RESULTS Rev / Pc Cost / Pc Cont / Pc Tot Cont 36 44 -8 -800 19 10 9 6300 44.45 44 0.45 40.5 19 10 9 6930

Letters

INPUTS 2009 Volume 2009 Revenue Per Piece 2009 & 2010 Cost Per Piece 2010 Volume Change % 2010 Price Cap Applied to Flats 2009 Volume 2009 Revenue Per Piece 2009 & 2010 Cost Per Piece 2010 Volume Change % 2010 Price Cap Applied to Letters

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that the entire price increase allowed under the cap is applied to letters while the second box assumes that the entire price increase is applied to flats. Relatively simple math demonstrates that increasing the price for standard flats (a product in decline) while holding the price steady for standard letters (a product with increasing volume) may result in less class-wide contribution toward attributable costs at a time when it is common knowledge that the Postal Service can hardly afford such a course of action. After considering the comments and reply comments, the PRC concluded that despite the price cap the Postal Service has pricing and operational flexibility to increase the cost coverage of Standard Mail Flats but that [i]t has simply chosen not to utilize that flexibility with respect to Standard Mail Flats. ACD at 106 (J.A. 44). As a result, the negative contribution per piece continues to grow. Id. According to the PRC, [t]he Postal Service has lost $1.4 billion in contribution from Standard Mail Flats over the last three years, which reflects an unfair and inequitable apportionment of the costs of postal operations to all Standard Mail users. Id. Based on these reasons, the PRC concluded that the Standard Mail Flats prices in effect for the 2010 fiscal year do not comply with section 101(d) of title 39, id., which provides that [p]ostal rates shall be established to apportion the costs of all postal operations to all users of the mail on a fair and equitable basis. The PRC, however, did not address the ACMAs

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comments regarding the impact of lower Standard Mail Letter rates on the overall contribution of the class of Standard Mail toward the Postal Services attributable costs.

SUMMARY OF THE ARGUMENT The PRCs directives regarding the cost coverage of the Standard Mail flats product should be set aside as contrary to law, arbitrary and capricious because they are contrary to the plain language of the PAEA and inconsistent with other orders of the PRC. When it enacted the PAEA, Congress decided that each

competitive product should cover its attributable costs, but it provided more flexibility to the Postal Service regarding market-dominant products. Market-dominant products need not cover their attributable costs; instead market-dominant classes must cover their costs, and the individual products within any given class may or may not do so. Congress was explicit in this regard. Moreover, price averaging is allowed within classes to meet the overall cap, but is not allowed between classes. To justify its directive to raise the cost coverage of a single, market-dominant product, the PRC relied on a vague, standardless policy statement while at the same time ignoring an entire market-dominant class that fails to cover its attributable costs. Such an interpretation of the PAEA is

impermissible when the traditional tools of statutory constriction are applied to the statute. That analysis reveals Congresss clear intent to allow the Postal Service
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the flexibility to price products within a class in the manner that it thinks will maximize its revenue, even if some products do not individually cover their costs. The PRCs insistence that a single market-dominant product must exceed full cost coverage is inexplicable given that the same PRC wrote in a September 2010 order that [t]he concept of product takes on significance in the system for regulating market dominant services only in areas that are unrelated to price. Order No. 536, Docket No. RM2009-3, p. 27 n.17 (P.R.C. Sept. 14, 2010). This failure to be consistent from order to order is the hallmark of a regulator acting in an arbitrary and capricious fashion. The PRCs order also exceeds its authority in the context of making its annual compliance determination. Congress limited the PRCs authority to

enforcing applicable provisions of this chapter [Chapter 36] (or regulations promulgated thereunder), 39 U.S.C. 3653(b)(1), but the ACD does not conclude that the pricing for Standard Mail Flats violates any provision of Chapter 36. Indeed, it could not do so as Chapter 36 does not require market-dominant products to cover their costs on a product-by-product basis. Instead, the PRC concluded that the pricing of that product violates a standardless policy statement in Chapter 1 of Title 39. If Congress had intended for the PRC to enforce the policy statements in Chapter 1 in the context of the annual compliance determination, it would have written this title rather than this chapter.

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Moreover, the same section of the PAEA that limits the scope of the PRCs enforcement authority to Chapter 36 permits the PRC to provide

recommendations to the Postal Service related to the protection or promotion of public policy objectives set out in this title. 39 U.S.C. 3653(d). That provision hardly suggests that the PRC may enforce those same policy objectives. Finally, the PRCs directives regarding the pricing of the Standard Mail Flats product should be set aside as arbitrary and capricious because the PRC failed to consider the larger picture of the Postal Services financial condition, even though one of objectives Congress established for the PRCs modern system for regulating rates and classes for market-dominant products is [t]o assure adequate revenues, including retained earnings, to maintain financial stability. 39 U.S.C. 3622(b)(5). In the context of an inflation-based price cap, judgments have to be made about how to allocate limited pricing flexibility in order to maximize profit (or contribution to attributable costs). It makes little sense to use a

disproportionate share of the Postal Services limited pricing authority to raise the prices of a product with a trend of declining volumes. But that is precisely what the PRC has ordered here, even though the Postal Service exercising its business judgment has chosen not to do so. It is certainly a possibility that the course of action mandated by the PRC in the ACD will decrease the amount of contribution generated by the Standard Mail class of products as a whole. The Postal Services

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goal at this time in its history must be to maximize contribution, not reduce it; it is unclear why the Postal Services regulator refused to even consider this issue. That refusal renders the PRCs order regarding Standard Mail Flats arbitrary and capricious.

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ARGUMENT I. The PAEA specifically requires that market-dominant products cover their attributable costs by class while simultaneously requiring each competitive product to cover its own costs by product. Standard Mail Flats is a product within the market-dominant class of Standard Mail, not a competitive product, and thus it is not required by law to cover its own costs; the PAEA requires only that Standard Mail products cover their costs as a class. Thus the PRCs conclusion that the Standard Mail Flats product must cover its own costs is contrary to law, arbitrary and capricious. A. Standard of Review

This Courts review of the PRCs order is governed by the Administrative Procedure Act, 5 U.S.C. 706. See 39 U.S.C. 3663. The order below thus must be held unlawful and set aside if, inter alia, it is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. 706(2)(A). B. Analysis

The PRCs decision regarding the pricing of Standard Mail Flats is based on the false premise that every market-dominant product must cover its attributable costs in order to apportion the costs of all postal operations to all users of the mail on a fair and equitable basis. 39 U.S.C. 101(d). But Congress has already spoken to this precise issue and reached the opposite conclusion. Instead of

requiring that each market-dominant product cover its attributable costs, Congress required that each class of market-dominant products cover their attributable costs as a group. Thus the plain language of the statute recognizes that, within a

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particular class of mail, individual products may cover more or less of their attributable costs as long as the class as a whole covers at least 100 percent of its attributable costs. Because the PRCs decision conflicts with the PAEA, it must be set aside as contrary to law. When Congress decided to enhance the pricing flexibility of the Postal Service and restrict the role of the PRC in setting prices, it established a distinction between competitive products and market-dominant products and established different rules for pricing the two types of products. See 39 U.S.C. 102(8)&(9) (defining market-dominant product and competitive product by reference to the subchapter of Chapter 36 of Title 39 that governs each of the two types of products). With respect to market-dominant products, the PAEA requires that each class of mail . . . bear the direct and indirect postal costs attributable to each class . . . plus that portion of all other costs of the Postal Service reasonably assignable to such class or type. 39 U.S.C. 3622(c)(2) (emphasis added). In contrast, Congress decided that the PRC should ensure that each competitive product covers its costs attributable. 39 U.S.C. 3633(a)(2) (emphasis added). Had Congress intended for each individual market-dominant product to cover its costs, it would have written Section 3622(c)(2) to match Section 3633(a)(2). Because it did not do so, the only conclusion that can be drawn from the plain language of the statute is that its intention was to provide the Postal

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Service pricing flexibility for products within each market-dominant class of mail. [W]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion. United States v. Wong Kim Bo, 472 F.2d 720, 722 (5th Cir. 1972). Allowing pricing flexibility within each class of mail is entirely consistent with one of the purposes of the PAEA. As described above, supra pp. 9-11, Congress designed the PAEA to provide the Postal Service with increased flexibility in pricing, as compared to the prior pricing regime. See, e.g., 39 U.S.C. 3622(d)(4), (c)(7); Sen. Rep. No. 108-318 at 8, 10 (2004). Likewise, the PRC has recognized that increased flexibility is central to the Congressional design of the PAEA. See, e.g., Order No. 26, Docket No. RM2007-1, p. 78 at 3070 (P.R.C. Aug. 15, 2007) (The revamped ratemaking under the PAEA is designed to achieve various goals, principal among them are to afford the Postal Service enhanced pricing flexibility. . . .) (http://www.prc.gov/Docs/57/57348/RM20071FINAL.pdf). Moreover, the PRCs decision in this case, which elevates the role of a single product in connection with regulating prices, is strangely at odds with the PRCs order six months earlier establishing an analytical framework for workshare discounts in which the PRC stated that [t]he concept of product takes on significance in the system for regulating market dominant services only in areas

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that are unrelated to price. PRC Order No. 536 at 27 n.17 (Sept. 14, 2010) (emphasis added).4 As the Postal Service pointed out in the ACR, the PRC

concluded that the product level is not the appropriate level for applying pricing standards, suggesting instead that the class level is the appropriate level. (J.A. 1516). The PRC made no effort to explain how it reached the opposite conclusion with respect to the Standard Mail Flats product just over six months later, and thus its decision is arbitrary and capricious in addition to being contrary to law. Allowing pricing flexibility within each class of market-dominant mail products is entirely consistent with the structure of the PAEA. As explained above, the overall increase for each class of mail products that have been designated as market-dominant products is essentially capped at the level of inflation. 39 U.S.C. 3622(d)(1)(A). Price averaging is allowed within classes to meet the overall cap, but is not allowed between classes. 39 U.S.C.

3622(d)(2)(A). It would make little sense to allow price averaging within a class if Section 101(d) required the Postal Service to ensure that market-dominant products such as Standard Mail Flats cover their costs on a product-by-product basis rather than collectively as a class.

Order No. 536 is the subject of a separate petition for review argued before a panel of this Court on September 21, 2011, and still pending as of the date of the filing of this brief. USPS v. PRC, No. 10-1324 (D.C. Cir.).
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No Chevron deference is owed to the PRCs decision on this issue because its decision is directly contrary to the plain language of the statute. Under Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837 (1984), this Court must first exhaust the traditional tools of . . . construction to determine de novo whether the statute unambiguously addresses the matter at issue. Id. at 843 & n.9; S. Cal. Edison Co. v. FERC, 195 F.3d 17, 23 (D.C. Cir. 1999). The traditional tools of statutory construction include the statutes text, structure, purpose, and legislative history. Pharmaceutical Research & Mfrs. of Am. v. Thompson, 251 F.3d 219, 224 (D.C. Cir. 2001). Where Congress has spoken to the precise question at issue, Wells Fargo Bank, N.A. v. FDIC, 310 F.3d 202, 205 (D.C. Cir. 2002) (quoting Chevron, 467 U.S. at 842), the inquiry is at an end; the court must give effect to the unambiguously expressed intent of Congress. FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132 (2000) (quoting Chevron, 467 U.S. at 843). Here, Congress has spoken unambiguously in Sections 3622 and 3633: competitive products must each cover their own costs; market-dominant products need not do so individually but must as a class cover the costs attributable to the class. In these circumstances, the PRCs order requiring the Postal Service to raise prices so that a single market-dominant product covers its costs is contrary to law, and this Courts inquiry should be at an end.

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Section 101(d), which was part of the PRA and was not amended by the PAEA, is a general statement of policy, does not speak to the precise question at issue, and does not create any ambiguity. Section 101 is titled Postal Policy, and subsection (d) provides as follows: Postal rates shall be established to apportion the costs of all postal operations to all users of the mail on a fair and equitable basis. Subsection (d) does not say anything about products market-dominant or otherwise and it does not in any way suggest that the only way to apportion costs in a fair and equitable way is for each market-dominant product to cover its costs. Even if subsection (d) could be stretched to loosely address marketdominant product cost coverage, it would not create an ambiguity in Section 3622(c)(2) because the traditional tools of statutory construction require that the specific controls the general. It is a basic principle of statutory construction that a statute dealing with a narrow, precise, and specific subject is not submerged by a . . . statute covering a more generalized spectrum. Radzanower v. Touche Ross & Co., 426 U.S. 148, 153 (1976); see also Simpson v. United States, 435 U.S. 6, 15 (1978) (Precedence [is given] to the terms of the more specific statute where a general statute and a specific statute speak to the same concern, even if the general provision was enacted later.); Morton v. Mancari, 417 U.S. 535, 550-51 (1974)

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(Where there is no clear intention otherwise, a specific statute will not be controlled or nullified by a general one, regardless of a priority of enactment.) (cited cases omitted). Section 3622(c)(2), enacted in 2006, is a specific statute. It explicitly

requires that each class of mail . . . bear the direct and indirect postal costs attributable to each class . . . plus that portion of all other costs of the Postal Service reasonably assignable to such class or type. 39 U.S.C. 3622(c)(2) (emphasis added). Section 101(d), enacted in 1970, is a general policy statement, and it cannot control or nullify the more specific requirements of Section 3622(c)(2). In sum, Title 39 requires only that the Postal Service sets prices for its market-dominant products so that each class of products covers its costs. The PRCs ACD requires a single market-dominant product in the Standard Mail class to cover its costs, and it relies on Section 101(d) as authority to do so. Section 101(d), however, provides the PRC with no such authority, and thus this Court should set aside the PRCs order regarding the Standard Mail Flats product as contrary to law.

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II.

The PRCs authority in the context of reviewing the Postal Services Annual Compliance Report is limited by 39 U.S.C. 3653 to determinations that any rates or fees in effect during such year (for products individually or collectively) were not in compliance with applicable provisions of [Chapter 36] (or regulations promulgated thereunder). In the 2010 ACD, the Commission concluded that the rates for Standard Mail Flats violated 39 U.S.C. 101(d), which is not in Chapter 36. Thus the PRC exceeded its statutory authority by concluding that the Postal Services rates violated a policy statement found outside of Chapter 36. A. Standard of Review

This Courts review of the PRCs order is governed by the Administrative Procedure Act, 5 U.S.C. 706. See 39 U.S.C. 3663. The order below thus must be held unlawful and set aside if, inter alia, it is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. 706(2)(A). B. Analysis

Even if Section 101(d) required the Postal Service to set the price of the Standard Mail Flats product so as to cover its attributable costs (which it does not), the PRC lacked the authority to order the Postal Service to do so in the context of its Annual Compliance Determination. The PRCs enforcement authority in an ACD proceeding is limited to the requirements of Chapter 36 of Title 39, and Section 101(d) appears in Chapter 1 not Chapter 36. In connection with an annual compliance determination, the PRC has the authority to take appropriate action in accordance with subsections (c) and (e) of section 3662 if a timely written determination of noncompliance is made under
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subsection (b). 39 U.S.C. 3653(c). Subsection (b), in pertinent part, requires the PRC to make a written determination as to . . . whether any rates or fees in effect during such year (for products individually or collectively) were not in compliance with applicable provisions of this chapter (or regulations promulgated thereunder). The words this chapter refer to the chapter in which they appear: Chapter 36. This makes perfect sense, of course, because the general policy statements in Section 101 are given definition by the specific requirements of chapter 36, such as the allocation of institutional costs between the marketdominant and competitive product groupings and the requirement that marketdominant classes and competitive products cover their attributable costs. In other words, Congress authorized the PRC to enforce through the ACD process the specific requirements of the PAEA in Chapter 36, but not the general, standardless policy statements of the PRA in Chapter 1 of Title 39. Moreover, the same section of the PAEA that limits the scope of the PRCs enforcement authority to Chapter 36 explicitly permits the PRC to provide recommendations to the Postal Service related to the protection or promotion of public policy objectives set out in this title. 39 U.S.C. 3653(d). It seems unlikely that Congress would have thought it necessary to authorize the PRC to make recommendations regarding the policy objectives of Title 39 in subsection (d) if it had already given the PRC the authority to enforce those objectives in

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subsections (b) and (c).

Indeed, by explicitly authorizing the PRC to make

recommendations to the Postal Service, Congress implicitly prohibited the PRC from doing more than that. At the very least, subsection (d) provides further support for the intentional use of the words this chapter rather than this title in subsection (b). In any event, as noted previously, the general policy of Section

101(d) finds expression in the specific provisions pertaining to cost in Chapter 36; that is, if rates are in compliance with the specific provisions of Chapter 36, they cannot fail to be in compliance with general guidance of Section 101(d). It is no answer to suggest, as the PRC did in the ACD (ACD at 15 (J.A. 37)), that all of the policies of Title 39 are incorporated within Chapter 36 because those policies are collectively described as a factor the PRC was to take into account in establishing or revising [its] system of modern rate regulation in 39 U.S.C. 3622(c)(14). Congress restricted the PRCs authority in the ACD context to

compliance with applicable provisions of this chapter, 39 U.S.C. 3653(b)(1) (emphasis added), even though the Postal Service is required to report whether all products . . . complied with all applicable requirements of this title, 39 U.S.C. 3652(a)(1) (emphasis added). The PRCs expansive view of its authority in the ACD context renders meaningless Congresss choice of the words this chapter, and therefore violates basic canons of statutory interpretation. See Pillsbury v. United Eng'g Co., 342 U.S. 197, 199 (1952) (holding that Congress is presumed to

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mean different things when it uses different words); Qi-Zhuo v. Meissner, 70 F.3d 136, 139 (D.C. Cir. 1995) (all words in a statute are to be assigned meaning); see also Halverson v. Slater, 129 F.3d 180, 185 (D.C. Cir. 1997) (Congress cannot be presumed to do a futile thing.). If Congress had meant this title in Section 3653, it would have said this title as it did in section 3652. The PRCs directives regarding the cost coverage for Standard Mail Flats are based on the purported failure of the current prices to comply with the requirements of Section 101(d), not the provisions of [Chapter 36] (or regulations promulgated thereunder). The relevant portion of the ACD does not conclude that the prices in effect for Standard Mail Flats are inconsistent with any provision of Chapter 36. It states only that the Commission finds that the prices in effect in FY 2010 for Standard Flats do not comply with section 101(d) of title 39. ACD at 106 (J.A. 44). There is no reference to any regulation of the PRC, let alone one promulgated under the provisions of Chapter 36. Because the PRC lacked the authority to enforce the purported requirements of Section 101(d) in an Annual Compliance Determination proceeding, this Court should set aside its attempt to do so as contrary to law.

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III.

Under the PAEA, one of the PRCs objectives is [t]o assure adequate revenues, including retained earnings, to maintain financial stability. The PRC failed to even address the argument that its decision could result in the Standard Mail class as a whole making less contribution toward costs because the volume of flats is decreasing while the volume of letters is increasing. Thus the PRCs order requiring the Postal Service to prioritize limited CPI price-cap authority to Standard Mail Flats without regard to the financial consequences is arbitrary and capricious. A. Standard of Review

The PRCs directives should be set aside if they are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. 706(2)(A); see also 39 U.S.C. 3663. An agency action is arbitrary and capricious if the decision was not based on a consideration of the relevant factors or if there has been a clear error of judgment. See Bowman Transportation, Inc. v. ArkansasBest Freight System, Inc., 419 U.S. 281, 285 (1974) (quoting Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). Similarly, an agency action that is devoid of needed factual support may be struck down as arbitrary or capricious. Assoc. of Data Processing Serv. Orgs. v. Board of Governors of the Fed. Reserve Sys., 745 F.2d 677, 683 (D.C. Cir. 1984). B. Analysis

It is a matter of public record that the Postal Service is in the midst of a financial crisis and has been for several years. Thus it seems incredible that the Postal Services regulator would make decisions without reference to their impact

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on the overall financial condition of the Postal Service, yet that is exactly what the PRC did when it ordered the Postal Service to increase the cost coverage of the Standard Mail Flats product through a combination of above-average price adjustments, consistent with the price cap requirements, and cost reductions until such time that the revenues for this product exceed attributable costs. ACD at 106 (J.A. 44). As the ACMA pointed out in its comments, requiring above-CPI increases for one product within the framework of a cap for a class of mail may not generate any net-income improvements . . . . ACMA Comments at 8-9 (J.A. 6263). As set forth in the Statement of Facts, supra pp. 13-16, there are

circumstances in which such a course of action will actually result in less coverage of attributable costs for the class of mail. The simple hypothetical example above shows how that can happen when the price-cap authority is used to raise prices on a product with decreasing volumes while no price increase is allocated to a product with increasing volumes. The conclusion is not complicated. If a business is limited to a certain level of price increases that may be allocated to a basket of products, maximization of profit (or, in the Postal Service context, contribution) would usually be best served by allocating the price increase to the product or products with increasing volumes. That is a business judgment left to the Postal Service by the PAEA.

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From fiscal year 2009 to fiscal year 2010, the total volume of Standard Mail Letters increased by approximately 1.64 billion pieces of mail while the volume of Standard Mail Flats decreased by approximately 750 million pieces. See supra p. 14 n.3. In these circumstances, it makes little sense to apply the most significant increases in Standard Mail prices to flats rather than letters for several years running as the PRCs directives contemplate. As the charts above suggest, it is certainly a possibility that such a course of action will decrease the amount of contribution generated by the Standard Mail class of products. The Postal

Services goal at this time in its history must be to maximize contribution, not reduce it. The failure to address the ACMAs argument or even consider the overall impact of the Standard Mail Flats order on the Postal Services overall financial condition satisfies is arbitrary and capricious because the Postal Services financial condition is, by statute, a relevant consideration. See Bowman Transportation, 419 U.S. at 285. Under the PAEA, one of objectives Congress established for the PRCs modern system for regulating rates and classes for market-dominant products is [t]o assure adequate revenues, including retained earnings, to maintain financial stability. 39 U.S.C. 3622(b)(5). This Court should set aside the PRCs order regarding the cost coverage of the Standard Mail Flats product because the PRC failed to even consider a relevant

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factor the impact of the decision on the revenues of the Postal Service and its financial stability. This failure renders the PRCs order arbitrary and capricious.

CONCLUSION For the reasons stated, this Court should grant the petition for review and set aside the PRCs directives relating to the cost coverage of the Standard Mail Flats product as arbitrary, capricious and contrary to law.

Dated: October 7, 2011

Respectfully submitted, MARY ANNE GIBBONS Executive Vice President & General Counsel

/s/ Michael J. Elston MICHAEL J. ELSTON Chief Counsel, Appellate & Commercial Litigation United States Postal Service 475 LEnfant Plaza, SW Washington, DC 20260 (202) 268-7432 michael.j.elston@usps.gov Of Counsel: R. ANDREW GERMAN Managing Counsel, Legal Strategy United States Postal Service 475 L'Enfant Plaza, SW Washington, D.C. 20260

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CERTIFICATE OF COMPLIANCE Certificate of Compliance With Type-Volume Limitation, Typeface Requirements, and Type Style Requirements 1. This brief complies with the type-volume limitation of Fed. R. App. P. 32(a)(7)(B) because: X this brief contains 7,792 words, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii), or this brief uses a monospaced typeface and contains of text, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii). lines

2. This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because: X this brief has been prepared in a proportionally spaced typeface using Times New Roman in 14 point , or this brief has been prepared in a monospaced typeface using with . /s/ Michael J. Elston Attorney for the U.S. Postal Service Dated: October 7, 2011

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CERTIFICATE OF SERVICE I hereby certify that on October 7, 2011, the foregoing brief and its addendum were electronically filed with the U.S. Court of Appeals for the District of Columbia Circuit by using the CM/ECF system. I further certify that counsel for the respondent and intervenors are registered as ECF filers and that they will be served by the CM/ECF system.

/s/ Michael J. Elston MICHAEL J. ELSTON Office of the General Counsel United States Postal Service 475 LEnfant Plaza, SW Washington, DC 20260 (202) 268-7432 michael.j.elston@usps.gov

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