ORAL ARGUMENT SCHEDULED FOR MARCH 15, 2011 IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT. No

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1 Case: Document: Filed: 01/06/2011 Page: 1 ORAL ARGUMENT SCHEDULED FOR MARCH 15, 2011 IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT No UNITED STATES POSTAL SERVICE, Petitioner, v. POSTAL REGULATORY COMMISSION, Respondent. On Petition for Review from the Postal Regulatory Commission CORRECTED OPENING BRIEF FOR INTERVENOR NATIONAL POSTAL MAIL HANDLERS UNION Bruce R. Lerner BREDHOFF & KAISER, P.L.L.C. 805 Fifteenth Street, N.W. Washington, D.C (202) blerner@bredhoff.com Counsel for Intervenor National Postal Mail Handlers Union

2 Case: Document: Filed: 01/06/2011 Page: 2 CERTIFICATE OF PARTIES, RULINGS, AND RELATED CASES The National Postal Mail Handlers Union ( NPMHU ) incorporates the certifications with regard to parties, rulings, and related cases from the Opening Brief of Petitioner United States Postal Service, with the caveat that all thenpending motions for leave to intervene including the motion filed by the NPMHU were granted by this Court by Order dated December 21, ii

3 Case: Document: Filed: 01/06/2011 Page: 3 TABLE OF CONTENTS CERTIFICATE OF PARTIES, RULING, AND RELATED CASES... ii TABLE OF CONTENTS... iii TABLE OF AUTHORITIES... iv GLOSSARY OF ABBREVIATIONS... vi SUMMARY OF ARGUMENT... 1 ARGUMENT... 2 CONCLUSION CERTIFICATE OF COMPLIANCE CERTIFICATE OF SERVICE iii

4 Case: Document: Filed: 01/06/2011 Page: 4 TABLE OF AUTHORITIES STATUTES *39 U.S.C. 3622(d)(1)(E)... 1, 2, 3, 4, 5, 9, 11, 12, U.S.C (repealed)... 5 LEGISLATIVE MATERIALS Congressional Research Service, Postal Reform Bills: A Side-by-Side Comparison of H.R. 22 and S. 662 (updated Aug. 4, 2005)... 8 Executive Office of the President, Office of Management and Budget, Statement of Administration Position on H.R. 22 (July 26, 2005) H.R. 22, 109th Cong., 1st Sess., 3622(e) (Jan. 4, 2005)... 6 H.R. 6407, 109th Cong., 2d Sess. (Dec. 8, 2006) H. Rep. No (Part I) (ordered to be printed on April 28, 2005)... 6 Letter from Coalition for a 21st Century Postal Service to Susan Collins, Chairman, Senate Committee on Homeland Security and Governmental Affairs (Apr. 26, 2006) Letter from Labor Organizations and Management Associations to Susan Collins, Chairman, Senate Committee on Homeland Security and Governmental Affairs (March 16, 2006)... 9 Letter from Labor Organizations and Management Associations to Tom Davis, Chairman, House Committee on Government Reform (July 12, 2006)... 9 Letter from USPS Board of Governors to the Honorable Tom Davis, Chairman, House Committee on Government Reform (Sept. 13, 2005)... 9 S. 662, 109th Cong., 1st Sess., 3622(d)(1)(D) (Mar. 17, 2005)... 7, 8, 10 iv

5 Case: Document: Filed: 01/06/2011 Page: 5 S. 1248, 108th Cong., 1st Sess., 3622(e)(1) (June 18, 2003)... 7 S. 2468, 108th Cong., 1st Sess., 3622(d)(4) (Aug. 25, 2004)... 7 Sen. Rep. No (Aug. 25, 2004)... 8 OTHER AUTHORITIES Webster s Third New International Dictionary (1986) *Authorities upon which we chiefly rely are marked with asterisk. v

6 Case: Document: Filed: 01/06/2011 Page: 6 GLOSSARY OF ABBREVIATIONS Commission: CPI: NPMHU: PRC: USPS: Postal Regulatory Commission Consumer Price Index National Postal Mail Handlers Union Postal Regulatory Commission United States Postal Service vi

7 Case: Document: Filed: 01/06/2011 Page: 7 SUMMARY OF ARGUMENT The Postal Regulatory Commission acted contrary to law when it disapproved the U.S. Postal Service request for a rate increase above the rate of inflation. Although the PRC correctly found that the rate request was precipitated by either extraordinary or exceptional circumstances namely, the Great Recession of 2008 and the related drop in mail volume it erred by concluding that the Postal Service did not show that its requested rate increase was due to these circumstances. To reach this result, the PRC imposed an unjustified interpretation upon a simple prepositional phrase due to that is contained in the first part of Subsection 3622(d)(1)(E), effectively adding a third step to a straightforward two-part inquiry set by Congress namely, (1) is the aboveinflation rate request attributable to either extraordinary or exceptional circumstances and, if so, (2) is such adjustment reasonable and equitable and necessary to enable the Postal Service, under best practices of honest, efficient, and economical management, to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States. The PRC s interpretation of Section 3622(d)(1)(E) has no support whatsoever in the plain language of the Postal Accountability and Enhancement Act of 2006, the legislative history of that act, or the statute s underlying purpose. Indeed, a

8 Case: Document: Filed: 01/06/2011 Page: 8 detailed review of the legislative history confirms that the PRC s view of the statute is based on a fundamental misunderstanding of the governing language. ARGUMENT 1. The National Postal Mail Handlers Union ( NPMHU ) has intervened in this case in support of the U.S. Postal Service s ( USPS ) petition for review of a Postal Regulatory Commission ( PRC or Commission ) decision denying a rate adjustment exceeding the rate of inflation pursuant to Section 3622(d)(1)(E) of the Postal Enhancement and Accountability Act of 2006 ( PAEA ), 39 U.S.C. 3622(d)(1)(E). Section 3622 of the PAEA generally requires the PRC to establish a system for regulating rates for market-dominant postal products, and Subsection (d)(1)(e) specifically states that the PRC s system for regulating rates... shall... establish procedures under which rates may be adjusted on an expedited basis due to either extraordinary or exceptional circumstances, provided that the PRC determines after notice, comment, and hearing, but within 90 days that such adjustment is reasonable and equitable and necessary to enable the Postal Service, under best practices of honest, efficient, and economical management, to maintain and continue the development of postal services in the United States. In particular, Section 3622(d)(1)(E) provides as follows: (d) Requirements. 2

9 Case: Document: Filed: 01/06/2011 Page: 9 (1) In general. The system for regulating rates and classes for marketdominant products shall * * * (E)... [E]stablish procedures whereby rates may be adjusted on an expedited basis due to either extraordinary or exceptional circumstances, provided that the Commission determines, after notice and opportunity for a public hearing and comment, and within 90 days after any request by the Postal Service, that such adjustment is reasonable and equitable and necessary to enable the Postal Service, under best practices of honest, efficient, and economical management, to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States. 39 U.S.C. 3622(d)(1)(E). For reasons fully described by the Postal Service in its opening brief, the NPMHU submits that the PRC acted contrary to law when it disapproved the request submitted by the USPS for a rate increase above the rate of inflation. The PRC correctly began its analysis by finding that the USPS rate request was precipitated by either extraordinary or exceptional circumstances namely, the Great Recession of 2008 and the unprecedented drop in mail volume that resulted, at least in substantial part, from that economic crisis. The PRC also did not dispute (or did not decide) whether the rates proposed by the Postal Service were reasonable and equitable across classes of mail, whether the rates were necessary (albeit not by themselves sufficient) to ensure that the Postal Service could continue to operate routine postal services, or whether the Postal Service had 3

10 Case: Document: Filed: 01/06/2011 Page: 10 followed best management practices to operate efficiently and economically (although the Commission did commend USPS efforts to cut its costs, largely through massive reductions in the total number of employees and work hours). Instead, the PRC concluded that the Postal Service did not show that its requested rate increase was due to the economic recession or the decline in mail volume. To reach this result, the PRC imposed an unprecedented and unwarranted interpretation upon a simple prepositional phrase due to that is contained in the first part of Subsection 3622(d)(1)(E). In so doing, the PRC essentially took a straightforward two-part inquiry set by Congress namely, (1) is the aboveinflation rate request attributable to either extraordinary or exceptional circumstances and, if so, (2) is such adjustment reasonable and equitable and necessary to enable the Postal Service, under best practices of honest, efficient, and economical management, to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States and added a separate analytical step that has no support whatsoever in the plain language of the PAEA, the legislative history of that act, or the statute s underlying purpose. In its opening brief, the Postal Service has fully explained why the plain language of the PAEA and underlying purpose of that statute cannot support the PRC s determination. This brief, therefore, focuses on a more detailed description 4

11 Case: Document: Filed: 01/06/2011 Page: 11 of the legislative history of Section 3622(d)(1)(E) of the PAEA, and confirms that the PRC s interpretation of the statute is based on a fundamental misunderstanding of the governing language. Contrary to the PRC s Order in this case, once the PRC concludes that a USPS request for an above-inflation rate increase is precipitated by either extraordinary or exceptional circumstances, then that rate must be approved under Section 3622(d)(1)(E) if it satisfies the reasonable and equitable and necessary standard set out in the same subsection of the PAEA. 2. A careful examination of the legislative development of the relevant statutory language conclusively shows that what is now Section 3622(d)(1)(E) of the PAEA was the result of a legislative compromise reconciling related, but vastly different, provisions contained in the precursor House and Senate bills. As a matter of law, and perhaps of equal importance as a matter of common sense, the terms of this legislative compromise provide the legally binding standard that should have been implemented by the Commission and that should be enforced by this Court. This brief therefore analyzes this compromise in some detail. 1 When they were initially introduced in 2005, during the first session of the 109th Congress, both the House and Senate postal reform bills included a cap on 1 The NPMHU anticipates that either the intervenors supporting the PRC or Senator Susan Collins appearing as amicus curiae may try to argue that the PRC erred when determining that the 2008 economic crisis and the resulting drop in mail volume presented either extraordinary or exceptional circumstances within the meaning of Section 3622(d)(1)(E). This legislative history also is relevant to rebutting any such arguments. 5

12 Case: Document: Filed: 01/06/2011 Page: 12 rate adjustments tied to the Consumer Price Index ( CPI ). Both bills also authorized the Commission to permit rate increases above this cap. The bills differed, however, on the circumstances that would justify such an above-cpi increase. The original House bill, H.R. 22, was introduced on January 14, 2005 by then-representative John McHugh. H.R. 22 would have allowed the Commission to permit a rate adjustment exceeding the CPI if the Commission determined that such [an] increase is reasonable and equitable and necessary to enable the Postal Service, under best practices of honest, efficient, and economical management, to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States. See H.R. 22, 109th Cong., 1st Sess., 3622(e) (Jan. 4, 2005); see also H. Rep. No (Part I), at 46, 47-48, 86 (ordered to be printed on April 28, 2005). It bears noting, moreover, that this House-backed standard in H.R. 22 was substantially similar to a provision on postal rates previously found in 39 U.S.C of the Postal Reorganization Act of 1970 ( [p]ostal rates and fees shall be reasonable, equitable, and sufficient to enable the Postal Service under honest, efficient, and economical management to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States ). See USPS Opening Brief at

13 Case: Document: Filed: 01/06/2011 Page: 13 The relevant Senate bill in the 109th Congress, S. 662, was initially introduced by Senator Susan Collins on March 17, In direct contrast to the House Bill, S. 662 would have imposed a more restrictive standard on above-cpi rate increases, authorizing the Commission to establish procedures whereby rates may be adjusted on an expedited basis due to unexpected and extraordinary circumstances. S. 662, 109th Cong., 1st Sess., 3622(d)(1)(D) (Mar. 17, 2005). The inclusion in this Senate Bill of the phrase due to prior to the phrase unexpected and extraordinary circumstances was without comment, and with no apparent purpose. Indeed, the words due to were first used in an earlier Senate Bill sometime in 2003 or 2004, during the 108th Congress: a Senate Bill first introduced in June 2003 stated that rates could be increased when an unexpected decline in revenue or increase in costs threatens the Postal Service, see S. 1248, 108th Cong., 1st Sess., 3622(e)(1) (June 18, 2003), but then subsequently was revised at some point before August 2004, when the Senate Committee on Governmental Affairs reported out S. 2468, a substitute bill that allowed for expedited and above-inflation rate increases due to unexpected and extraordinary circumstances, see S. 2468, 108th Cong., 1st Sess., 3622(d)(4) (Aug. 25, 2004). Notably, the 2004 Senate Report accompanying this substitute bill (S. 2468), which apparently was the first time that the prepositional phrase due to appeared in this section of any postal reform bill, gave no explanation of 7

14 Case: Document: Filed: 01/06/2011 Page: 14 the due to language, but instead focused on the then-newly revised standard of unexpected and extraordinary circumstances. Sen. Rep. No at 1 (Aug. 25, 2004) ( S grants the new Postal Regulatory Commission the power to institute emergency price increases due to unexpected and extraordinary circumstances ) (internal quotations in original); id. at 11 ( the Postal Regulatory Commission shall establish procedures under which the Postal Service can adjust rates on an expedited basis due to unexpected and extraordinary circumstances ). Returning to 2005 and the 109th Congress, the fundamental differences between H.R. 22 and S. 662 were highlighted in a series of 2005 reports from the Congressional Research Service ( CRS ). For example, in an August 4, 2005 report from the CRS, the analyst noted that significant differences remain[ed] between the House and Senate versions of the new ratemaking system, particularly in the standard provided for exceeding the rate cap for market-dominant prices. After describing the two different standards, the report noted that [t]he Postal Service would like to have [the House] rate-cap escape clause because it believes that staying below the CPI will be extremely challenging. See Congressional Research Service, Postal Reform Bills: A Side-by-Side Comparison of H.R. 22 and S. 662 at 3 (updated Aug. 4, 2005). 2 2 The NPMHU submitted this report from the Congressional Research Service, as well as all of the letters and testimony cited in the following two paragraphs, as exhibits before the Postal Regulatory Commission on August 18, See Initial 8

15 Case: Document: Filed: 01/06/2011 Page: 15 During the following months, various groups of stakeholders debated the impact of the differing standards contained in the bills. The Postal Service and labor and management groups representing Postal Service employees generally urged lawmakers to reject the more restrictive standard contained in S See, e.g., Letter from USPS Board of Governors to the Honorable Tom Davis, Chairman, House Committee on Government Reform at 3 (Sept. 13, 2005) ( The Postal Service s commitment to a CPI rate cap... was made with the understanding that the exigent rate case standard would be reasonable and necessary, rather than unexpected and extraordinary. ); Letter from Labor Organizations and Management Associations to Susan Collins, Chairman, Senate Committee on Homeland Security and Governmental Affairs at 2 (March 16, 2006) ( The Senate approach to PRC exigency is far too narrow, limited only to unexpected and extraordinary circumstances, such as biological or chemical attack on the postal system. It would lead to unnecessary and counterproductive service cuts in the face of serious external shocks that fall short of national emergencies. ); Letter from Labor Organizations and Management Associations to Tom Davis, Chairman, House Committee on Government Reform at 1 (July 12, 2006) ( We... urge you to resist the pressure... to accept the exigency language Comments of the National Postal Mail Handlers Union Regarding Postal Service Request for a Rate Adjustment Due to Extraordinary or Exceptional Circumstances (Docket No. R2010-4) (Aug. 18, 2010). They are not included in the Joint Appendix before this Court, but are part of the official record before the PRC. 9

16 Case: Document: Filed: 01/06/2011 Page: 16 in the Senate postal reform bill. A price indexing system will only work in the postal industry if there is sufficient flexibility for the Postal Service to seek the revenues it needs.... The exigency language in Section 3622(e) of your bill, H.R. 22, provides that flexibility. The language in the Senate bill does not. ). Mailing groups representing large postal customers and the Bush Administration generally preferred the Senate version. See, e.g., Letter from Coalition for a 21st Century Postal Service to Susan Collins, Chairman, Senate Committee on Homeland Security and Governmental Affairs at 1 (Apr. 26, 2006) ( We support the Senate provision on the price index for rate setting for market dominant classes of mail, including... the exigency clause for exceeding the index. ); Executive Office of the President, Office of Management and Budget, Statement of Administration Position on H.R. 22 (July 26, 2005) at 1 (urging adoption of Senate proposal in S. 662 for a rate cap with a strict exigency requirement ). Ultimately, however, a compromise was reached. The compromise language, which now appears in Section 3622(d)(1)(E), first appeared in an updated and amended version of the Senate bill that was circulated to interested stakeholders by Senator Collins in October 2006, 3 and was formally introduced in 3 Relevant excerpts from this draft Senate Bill were included as Exhibit 7 to the NPMHU s filing before the PRC. See note 2 supra. 10

17 Case: Document: Filed: 01/06/2011 Page: 17 the House as H.R. 6407, 109th Cong., 2d Sess. (Dec. 8, 2006). 4 As eventually adopted into law, that provision unequivocally authorized the Commission to approve an expedited rate increase, above that allowed by the CPI cap, if the adjustment is based on either extraordinary or exceptional circumstances, and if the Commission finds, after notice and hearing, that the adjustment is reasonable and equitable and necessary to enable the Postal Service, operating under best practices of honest, efficient, and economical management, to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States. In short, after more than two years of congressional debate and consideration, this final compromise language essentially incorporated the standard originally contained in H.R. 22, and combined that House-initiated standard with a substantially more flexible version of the standard that initially was contained in S. 662 when the Senate Bill was first introduced at the start of the 109th Congress in The final language contained in this compromise provision is significant in a number of different respects: 4 Meetings and discussions between postal stakeholders continued throughout calendar year The final bill including the compromise included in Section 3622(d)(1)(E) was introduced in the House as H.R on December 7, 2006 and passed the House on December 8, The Senate passed H.R on December 9, The bill was signed into law by President George W. Bush on December 20,

18 Case: Document: Filed: 01/06/2011 Page: 18 First, the compromise language eliminates S. 662 s conjunctive requirement that circumstances be both unexpected and extraordinary and replaces that conjunctive language with explicitly disjunctive language that circumstances be either extraordinary or exceptional (emphasis added). To ensure that there would be no doubt about this change, the statute as finally enacted includes not only the disjunctive or, but also adds the word either at the beginning of this phrase to emphasize that either an extraordinary circumstance or an exceptional circumstance, standing alone, would provide an independent basis for allowing a rate increase above the CPI cap. Second, although the compromise provision retains the word extraordinary from the earlier Senate version in S. 662, it substantially increases the flexibility granted by that term by allowing it to stand on its own as an independent basis for Commission approval of an above-cpi rate increase, rather than limiting the permissible basis for such a rate increase to circumstances that were both unexpected and extraordinary. Third, the compromise language of Section 3622(d)(1)(E) allows for an above-cpi adjustment because of circumstances that may properly be characterized as exceptional, rather than S. 662 s earlier requirement that the circumstance be unexpected, or more accurately both unexpected and extraordinary. This change makes clear that even completely foreseeable 12

19 Case: Document: Filed: 01/06/2011 Page: 19 circumstances properly may form the basis for granting a Postal Service request to increase rates above CPI. By eliminating the word unexpected, and substituting the word exceptional, Congress flatly rejected a foreseeability standard by rejecting the requirement that circumstances be unexpected. Furthermore, even if the substitute exceptional standard were to be read to include, in part, some reference to foreseeability, the fact that the statutory provision is now expressly disjunctive and that circumstances that are either extraordinary or exceptional will justify an increase means that reliance on the foreseeability of a circumstance as the sole basis for rejecting an above-cpi rate request would be contrary to the statutory language. Finally, the compromise provision also incorporated H.R. 22 s requirement that the Commission find that an adjustment is reasonable and equitable and necessary to enable the Postal Service under best practices of honest, efficient, and economical management, to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States. As noted, this standard is substantially similar to the standard that was applied by the former Postal Rate Commission when it considered rate increases under the PRA, looking to the financial needs of the Postal Service in future years. See USPS Opening Brief at

20 Case: Document: Filed: 01/06/2011 Page: 20 What is most notable especially in light of the PRC decision under review in this Court is that none of the distinctions or debates between the House and the Senate, none of the differences between the early Senate versions of the PAEA and the final version of the PAEA, and none of the letters and other documents memorializing the debate between and among postal stakeholders makes any mention whatsoever of the due to phrase upon which the PRC decision under review has placed such great emphasis. There is no indication, either in the plain language of Section 3622(d)(1)(E) or in its legislative history, of any congressional intent to give special meaning or emphasis to that prepositional phrase, beyond its ordinary dictionary definition of because of or attributable to. See, e.g., Webster s Third New International Dictionary at 699 (1986). At bottom, the PRC has unilaterally elevated a simple prepositional phrase never once the subject of separate comment during the congressional debate into an independent legal standard that has no basis in the PAEA s language or purpose. 3. In short, the PRC correctly found that the rate adjustment requested by the Postal Service was precipitated by an extraordinary or exceptional circumstance namely, the Great Recession of 2008 and the unprecedented drop in mail volume resulting therefrom and the PAEA only requires that the PRC next determine whether the requested rate increase is reasonable and equitable and necessary under the governing statutory language found in Section 3622(d)(1)(E). 14

21 Case: Document: Filed: 01/06/2011 Page: 21 Because the PRC imposed a wholly unsupported meaning upon the prepositional phrase due to, and used that interpretation to reject the Postal Service s rate request, the PRC has acted in violation of its governing statute. CONCLUSION For the foregoing reasons, and for the reasons stated by the Postal Service, the petition for review should be granted. Respectfully submitted, /s/ BRUCE R. LERNER Bredhoff & Kaiser, P.L.L.C. 805 Fifteenth Street, N.W. Washington, DC (202) blerner@bredhoff.com Counsel for Intervenor National Postal Mail Handlers Union Date: January 6,

22 Case: Document: Filed: 01/06/2011 Page: 22 CERTIFICATE OF COMPLIANCE I hereby certify that this brief complies with the length limitation established by this Court s Order of December 21, 2010 because this brief contains 3,160 words, as counted by Microsoft Word, excluding the parts of the brief exempted by Federal Rule of Appellate Procedure 32(a)(7)(B)(iii). Date: January 6, 2011 /s/ Bruce R. Lerner Counsel for Intervenor 16

23 Case: Document: Filed: 01/06/2011 Page: 23 CERTIFICATE OF SERVICE I hereby certify that on January 6, 2011, I electronically filed the foregoing Corrected Opening Brief for Intervenor National Postal Mail Handlers Union by using the appellate CM/ECF system. All participants are registered CM/ECF users, and will be served by the CM/ECF system. Date: January 6, 2011 /s/ Bruce R. Lerner Counsel for Intervenor 17