United Parcel Serv. v. Postal Regulatory Comm'n

96 F.4th 422

UNITED PARCEL SERVICE, INC., Petitioner v. POSTAL REGULATORY COMMISSION, RespondentAmazon. Com Services, LLC, et al., Intervenors

No. 23-1006

United States Court of Appeals, District of Columbia Circuit

Argued December 5, 2023

Decided March 22, 2024

On Petition for Review of an Order of the Postal Regulatory Commission

Kathleen M. Sullivan argued the cause for petitioner. On the briefs were David M. Cooper and Steig D. Olson.

Michael Shih, Attorney, U.S. Department of Justice, argued the cause for respondent. With him on the brief were Brian M. Boynton, Principal Deputy Assistant Attorney General, Michael S. Raab and Kevin J. Kennedy, Attorneys, David A. Trissell, General Counsel, Postal Regulatory Commission, Lauren A. D'Agostino, Deputy General Counsel, and Reese T. Boone, Attorney.

John Longstreth argued the cause for respondent-intervenors. With him on the brief were Eric P. Koetting and Morgan E. Rehrig, Attorneys, U.S. Postal Service, and Michael F. Scanlon.

Before: Srinivasan, Chief Judge, Garcia, Circuit Judge, and Rogers, Senior Circuit Judge.

Rogers, Senior Circuit Judge:

The Postal Regulatory Commission determines an "appropriate share" of the Postal Service's institutional costs to be covered by the Service's "competitive" products, such as package delivery. 39 U.S.C § 3633(a)(3), (b). In 2020, the court remanded the Commission's Order adopting a formula for the appropriate share, with instructions to better explain its reasoning in accounting for certain statutory cost categories. United Parcel Serv., Inc. v. Postal Regul. Comm'n ("UPS II"), 955 F.3d 1038 (D.C. Cir. 2020). On remand, the Commission revised its analysis while readopting the same "dynamic formula[.]" Order No. 6399, Dkt. Nos. RM2017-1, RM2022-2 (Jan. 9, 2023) ("2023 Order") at 2. Upon review of this Order, the court concludes that the Commission adequately addressed the issues identified in UPS II and reasonably exercised its statutory discretion in adopting the appropriate share formula. The court therefore denies United Parcel Service's ("UPS") petition for review.

I.

The background to this appeal is set forth in UPS II and United Parcel Service Inc. v. Postal Regulatory Commission ("UPS I"), 890 F.3d 1053 (D.C. Cir. 2018). The Postal Accountability and Enhancement Act ("Act"), Pub. L. No. 109-435, 120 Stat. 3198 (2006), divides the Service's products between "market dominant" products like standard mail, where the Service holds a near monopoly, and "competitive" products, like package delivery where the Service competes with private companies like UPS. UPS I, 890 F.3d at 1055-56. The Commission allocates the Service's costs "attributable" to a particular product as "direct and indirect [ ] costs" identified "through reliably identified causal relationships." 39 U.S.C. § 3631(b). All other "residual" costs are classified as "institutional costs." UPS I, 890 F.3d at 1055-56. The court upheld as reasonable in UPS I, id. at 1069, the Commission's current methodology for identifying "attributable" costs.

In ratemaking, the Commission's competitive products must cover both their "attributable" costs plus an "appropriate share" of the Service's institutional costs. 39 U.S.C. § 3633(a), (b). The Commission, in setting an "appropriate share" figure must "consider" certain factors, including "the degree to which any costs are uniquely or disproportionately associated with any competitive products." Id. § 3633(b). The court in UPS II, 955 F.3d at 1041-42, remanded the Commission's last attempt with instructions to explain more thoroughly two conclusions. First, how 39 U.S.C. § 3631(b)'s definition of costs attributable to" competitive products "through reliably identified causal relationships" and Section 3633(b)'s category of costs "uniquely or disproportionately associated with competitive products" either "have similar meanings" or could otherwise "coincide in application," despite being "distinct in meaning." Id. at 1050. Second, the court instructed the Commission to evaluate the relevance of "any costs" fitting Section 3633(b)'s description, including "attributable costs" that the Commission may have "already accounted for" in promulgating separate anti-subsidization regulations under Section 3633(a)(1) - (2). Id. at 1050-51.

II.

Definition of costs "uniquely or disproportionately associated with competitive products." On remand, the Commission recognized a textual distinction between Section 3631(b) and Section 3633(b)'s cost groups, see 2023 Order at 8-11, 77-78, and explained that the two categories were functionally coextensive because there was "no way to determine which portion of institutional costs" relate to competitive products. Id. at 79. The Commission defined costs "uniquely or disproportionately associated" with competitive products, 39 U.S.C. § 3631(b), as those costs that can be linked through "economically sound" relationships. 2023 Order at 105. Because the Commission's cost-attribution model reaches the "outer limits of all costs that can be linked . . . in any way using existing costing methodologies," the Commission explained that it has already treated as "attributable" any cost that exhibits an economically sound relationship to any product. 2023 Order at 61. Thus, by "their very nature," id. at 100, none of the Service's remaining institutional costs possess an "economically sound" connection to competitive products. Id. at 236-37. The Commission confirmed, by "review[ing] all the Postal Service's accrued costs," that no non-attributed institutional costs exhibited any such connections. Id. at 60.

This approach comports with the Act and UPS II, 955 F.3d at 1051, where the court contemplated that the Commission might "decide against revising its bottom-line judgment" given "the latitude that the [statute] affords the Commission in making a final determination." Section 3633(b) requires the Commission to analyze costs bearing a "unique[ ] or disproportionate[ ]" relationship with competitive products, what the court characterized in UPS II as costs "related in some meaningful way" to competitive products. Id. at 1045 (emphasis added). The Commission's decision to interpret the text as requiring an association that can be established in an "economically sound" manner reflects a reasonable construction of ambiguous statutory phrasing. See id. at 1047-48 (applying the two-step framework of Chevron, USA, Inc. v. NRDC, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984)). The Commission's interpretation fits within the definitional space UPS II, 955 F.3d at 1048-49, identified in Section 3633, which describes a cost category that is both broader than Section 3631(b)'s conservative and causally limited test for "attributable" costs, yet rigorous enough to encompass only those costs exhibiting a "unique[ ]" and disproportionate[ ]" relationship to competitive products. 39 U.S.C. § 3633(b) (emphasis added).

UPS, although maintaining that the Commission's interpretation is "obviously different" from Section 3633(b) and the interpretive gloss in UPS II, Pet. Br. 25; Reply Br. 5, fails to point to a textual or structural conflict with the statutory terms. UPS instead focuses on the Commission's application of the "economically sound" test. It objects that the Commission's failure to identify any costs satisfying the standard, beyond those already classified as "attributable," evinces that the Commission's interpretation is merely a "sleight-of-hand" and impermissibly conflated the definition in Section 3633(b) with Section 3631(b)'s narrower standard. Pet. Br. 25-27. But, as the court observed in UPS II, if substantiated, there is nothing intrinsically flawed with the notion that the two cost categories, "even if distinct in meaning," might "nevertheless coincide in application." 955 F.3d at 1050-51.

UPS contends that there is a meaningful relationship between institutional costs and competitive products. But the Commission has offered a detailed explanation why the specific cost categories UPS highlights — most notably peak-season costs, delivery vehicle costs, city carrier assistant costs, and package-scanning equipment costs — either lack any "economically sound" connection with competitive products or are already treated as "attributable" costs. 2023 Order at 177-218. For example, the Service has hired thousands of "city carrier assistants" not because of increased competitive products volumes as UPS proposed in its comments, see UPS Initial Comments on Supplemental Notice of Proposed Rulemaking (Feb. 25, 2022) at 23, but rather due to broader changes to the Service's staffing model across products. 2023 Order at 200-02. In any event, the Commission's cost attribution model already captures the specific proportion of these employees' time spent on competitive products and attributes them accordingly. Id. at 202. The Commission's analysis of the other cost categories identified by UPS is similarly persuasive. See id. at 179-218.

UPS' challenge to this analysis fails to undermine the Commission's conclusion that, in practice, the only costs exhibiting an "economically sound" link to competitive products are already treated as "attributable" costs. Cf. Pet. Br. 27-35. UPS has not pointed to specific errors in the Commission's analysis, "nor adduced any data or studies that [it] overlooked." In re Polar Bear Endangered Species Act Listing & Section 4(d) Rule Litig., 709 F.3d 1, 3 (D.C. Cir. 2013). Instead, UPS suggests that the Commission was required to construct and exhaust an unspecified set of novel econometric tests before it could reasonably conclude that it lacked any way of identifying further "economically sound" relationships to competitive products within the Service's institutional costs. Reply Br. 6-10.

The Commission, however, engaged with UPS' proposed regression approach, identifying it as technically flawed and in conflict with the broader statutory regime. 2023 Order at 256-65; see id. at...