Carlson v. Postal Regulatory Comm'n, 18-1328

938 F.3d 337

Douglas F. CARLSON, Petitioner

v.POSTAL REGULATORY COMMISSION, Respondent

Pitney Bowes Inc. and United States Postal Service, Intervenors

No. 18-1328

United States Court of Appeals, District of Columbia Circuit.

Argued May 10, 2019

Decided September 13, 2019

Douglas F. Carlson, Pro se, argued the cause and filed the briefs for petitioner.

Joshua M. Salzman, Attorney, U.S. Department of Justice, argued the cause for respondent. With him on the brief were Michael S. Raab, Attorney, David A. Trissell, General Counsel, Postal Regulatory Commission, Anne J. Siarnacki, Deputy General Counsel, and Laura E. Zuber, Attorney.

Before: Millett, Katsas, and Rao, Circuit Judges.

Rao, Circuit Judge:

Wedding invitations, birthday cards from grandma, and electricity bills all travel through the United States Postal Service with a simple first-class stamp. Perhaps unnoticed by many who use the "Forever Stamp," in January 2019, the Postal Service raised the price of this stamp by five cents, a ten-percent increase. Douglas Carlson’s pro se petition challenges this stamp price hike, which is part of Postal Regulatory Commission Order 4875,¹ as inconsistent with the Administrative Procedure Act (APA).

We agree with Carlson that the stamp price hike did not meet the APA’s requirements for reasoned decisionmaking. The Commission failed to provide an adequate explanation of the increase and, relatedly, failed to respond to public comments challenging the increase under relevant statutory factors and objectives included in the Commission’s organic statute, the Postal Accountability and Enhancement Act (PAEA). Accordingly, we grant the petition for review and vacate the part of Order 4875 addressing rate adjustments for the category of first-class mail. Because the category of first-class rates is severable, we leave the remainder of the Order intact.

I.

We begin with the statutory requirements governing the Commission. In enacting the PAEA, Congress moved from an adjudicatory model of postal rate review to a regulatory one. "[A]dministrative procedures are divided into two categories," adjudication and rulemaking, with the latter defined as "prospective decisions of general applicability focusing on policy." 2 Charles H. Koch, Jr. & Richard Murphy, Administrative Law & Practice § 5:1 (3d ed. 2019). Regulation "is primarily concerned with policy considerations" while "adjudication is concerned with the determination of past and present rights and liabilities." Bowen v. Georgetown Univ. Hosp. , 488 U.S. 204, 219, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988) (Scalia, J., concurring) (quoting Attorney General’s Manual on the Administrative Procedure Act 14 (1947) ("AG Manual")).

Before the PAEA, adjudication of postage rates was a lengthy process that delayed rate changes by as much as eighteen months. S. Rep. No. 108-318, at 3–4 (2004). The PAEA reconstituted the Postal Rate Commission as the Postal Regulatory Commission, an agency headed by five commissioners appointed by the President and removable only for stated causes.² See 39 U.S.C. §§ 501 – 02. The PAEA strengthened the role of the Commission by repealing the Postal Service’s authority to modify rates without the Commission’s approval. See PAEA, Pub. L. No. 109-435, § 201(b), 120 Stat. 3198, 3205 (2006) (repealing 39 U.S.C. § 3625 ). The PAEA also abolished the requirement for the Commission to hold a hearing on the record prior to adopting any rate change. Id. (repealing 39 U.S.C. § 3624 ). Instead, Congress directed the Commission to establish "a modern system for regulating rates and classes for market-dominant products." 39 U.S.C. § 3622(a).

Rather than adjudicate rates through fact-intensive hearings, the PAEA requires the Commission to establish a regulatory system for rate approval and then evaluate and approve specific postal rates through rulemaking, subject to review under the standards of the APA. Id. §§ 3622, 3663. Because "[t]he APA does not contemplate the use of adjudication to develop rules," Ala. Power Co. v. FERC , 160 F.3d 7, 11 n.5 (D.C. Cir. 1998), Congress’s decision to replace the Commission’s adjudicatory model with a regulatory model guided by APA standards is significant. See Bowen , 488 U.S. at 218, 109 S.Ct. 468 ("The entire [APA] is based upon a dichotomy between rule making and adjudication." (quoting AG Manual)).

The PAEA dictates that the Commission’s regulatory system "shall be designed" to achieve nine statutory objectives and "shall take into account" fourteen statutory factors. 39 U.S.C. § 3622(b) – (c) (reproduced in Appendix, infra ). The Commission established the required "modern system for regulating rates" in November 2007. See generally Postal Regulatory Comm’n, Order No. 43, 72 Fed. Reg. 63,662 (Nov. 9, 2007) (the "system regulation"). The part of the system regulation relevant to this case addresses rate adjustments of general applicability. See 39 C.F.R. pt. 3010, subpart B. Under the system regulation, the Postal Service initiates a proposed rate change by providing notice to the public and to the Commission. Id. § 3010.10(a). Such notice must be provided at least forty-five days prior to a rate change, and the Postal Service is encouraged to provide as much advance notice as practicable. Id. § 3010.10. The Postal Service’s notice must include, among other things, "[a] discussion that demonstrates how the planned rate adjustments are designed to help achieve the objectives listed in 39 U.S.C. § 3622(b) and properly take into account the factors listed in 39 U.S.C. § 3622(c)." Id . § 3010.12(b). The notice must also include any "other information" that would assist the Commission in issuing "a timely determination of whether the planned rate adjustments are consistent with applicable statutory policies." Id . § 3010.12(b)(12). The Postal Service’s notice serves as the proposed rule before the Commission issues a final regulation, i.e., the rate approval order.

After receiving notice from the Postal Service, the Commission establishes a docket allowing twenty days for public comment on the proposed change. Id . § 3010.11(a). Within fourteen days of the end of the comment period, the Commission must "issue an order announcing its findings." Id . § 3010.11(d). The system regulation does not specify how the Commission must consider the PAEA’s objectives and factors; however, rate adjustments must be "consistent with applicable law." Id . § 3010.11(e), (i). If the Commission finds that a proposed rate adjustment is inconsistent with applicable law, the Postal Service must amend its notice, include "sufficient explanatory information to show that all deficiencies identified by the Commission have been corrected," and allow an additional seven-day period of public comment. Id . § 3010.11(f), (g).

The Postal Service proposed the stamp price hike in October 2018 as part of a series of adjustments to the category of first-class postage rates.³ See U.S. Postal Serv., Notice of Market-Dominant Price Change, Dkt. No. R2019-1 (Oct. 10, 2018), J.A. 1. Under the proposal, the rate for a one-ounce, stamped letter would increase from fifty cents to fifty-five cents. This ten percent increase required the Service to adjust other classes of first-class postage rates in order to stay within the overall statutory price increase cap of about 2.5 percent. See 39 U.S.C. § 3622(d)(1)(A). The proposal thus decreased the price of some first-class mail products and increased others by a smaller percentage. The stamp price hike, however, was remarkable—the largest absolute increase in the price of stamps since 1863.⁴ As a percentage, it was the largest increase since 1995.⁵

The Postal Service justified the magnitude of the stamp price hike by asserting an interest in keeping the price of stamps "at round numbers divisible by five." J.A. 8. According to the Postal Service, this approach helps to achieve "simplicity of structure"—one of the fourteen factors under the PAEA, see 39 U.S.C. § 3622(c)(6) —by "facilitat[ing] convenience for retail customers" through "a straightforward, understandable pricing structure." J.A. 8–9. The Postal Service sought to minimize concern about the size of the stamp price hike by asserting that corresponding reductions in postage rates for first-class mail products with nonstandard weight or shape would mitigate the impact of the increased price of first-class letter stamps. Moreover, the Service stated its intent to keep stamp prices divisible by five in future years, suggesting that a large increase in the price of stamps in 2019 might postpone the need for another increase, "subject to the business conditions that obtain in coming years." J.A. 9.

The Commission opened a docket to receive public comment for the required twenty days. See Postal Regulatory Comm’n, Order No. 4851, 83 Fed. Reg. 52,242 (Oct. 16, 2018). During this time, the Commission received thirty-four comments, including a comment from Carlson, a postal customer and watchdog. See Carlson v. U.S. Postal Serv. , 504 F.3d 1123 (9th Cir. 2007).

Carlson raised a series of arguments against the stamp price hike, including that the Service failed to account for several statutory objectives and factors. First, Carlson argued that keeping the price of a stamp divisible by five did not promote the value of "simplicity of structure" under 39 U.S.C. § 3622(c)(6). J.A. 95–100. Second, he disputed the Postal Service’s evaluation of the stamp price hike’s likely impact and argued that the detrimental "effect of rate increases upon the general public" weighed against the Postal Service’s proposal under 39 U.S.C. § 3622(c)(3). J.A. 103–05. Third, he argued that raising the price of stamps by five cents was inconsistent with the statutory objective of "establish[ing] and maintain[ing] a just and reasonable schedule for rates" under 39 U.S.C. § 3622(b)(8). J.A. 104. The Greeting Card Association similarly commented on flaws in the Postal Service’s simplicity-of-structure rationale and...