Petition — MAGAZINE PUBLISHERS ASSN. v. U. S. POSTAL SERVICE (Nos. 79-378, 79-377, 79-379)

IN THE

Supreme Court of the Anited States

OCTOBER TERM 1978

No. 49-378

MAGAZINE PUBLISHERS ASSOCIATION, INC.

and

TIME INCORPORATED,

Petitioners,

UNITED STATES POSTAL SERVICE,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

JOHN M. BURZIO JUSTIN R. WOLF

JAMES H. HELLER LOUISE C. POWELL

1220 19th Street, N.W. 1625 K Street, N.W.

Washington, D.C. 20036 Washington, D.C. 20006

Attorneys for Magazine Publishers Attorneys for Time Incorporated

Association, Inc.

September 6, 1979

Washington, D.C. e CLB PUBLISHERS’ e LAW PRINTING CO. e (202) 393-0625

(i)

TABLE OF CONTENTS

Page

Oe l

EE 2

EE 2

STATUTORY PROVISIONS INVOLVED ............... 3

I a ce et ce cee 4

REASONS FOR GRANTING A WRIT ................ 12

I. The Decision of the Court Below Has A

Profound Effect on Postal Ratemaking And

Poses New Questions of Federal Law That

eee 12

Il. The Court Below Has Read Into the Postal

Reorganization Act A Ratemaking Methodo-

logy That Is Contrary To the Words Of the

Act, To the Intent of Congress, And to the

Expert Judgment Of the Agencies Vested

With Ratemaking Responsibility ............... 4

A. Deference Due to Agency Interpretation ....... 16

er 17

C. The Legislative History of the Act. ............ 18

1. The Influence of the Kappel Commission

ES 18

2. The House Bill (H.R. 17070) Versus The

I ee 22

3. The Meaning of the Conference Commit-

os oss a se ee a ee 24

I IES 27

[THE APPENDIX IS SEPARATELY BOUND]

(ii)

TABLE OF AUTHORITIES

Cases:

Association of American Publishers v. Governors of

the United States Postal Service, 485 F.2d 768

Gi POTN ioe vc cn van veusdeuics

FPC v. Transcontinental Gas Pipe Line Corporation,

S23 Ue SOO CIFTE) 2 cba dices venvesaverse

National Association of Greeting Card Publishers v.

United States Postal Service, 569 F.2d 570

is, FOUR co ok ois ve chs vbsoenes

Train v. National Resources Defense Council, Inc.,

WE ED TIN ois kc chaneess

Udall v. Tallman, 380 U.S. 1 (1965) ............

United States Postal Service v. Associated Third

Class Mail Users, 434 U.S. 884 (1977) ........

Vermont Yankee Nuclear Power Corporation v. Na-

tional Resources Defense Council, Inc., 435 U.S.

519 (1978)

Statutes:

Postal Reorganization Act of 1970, 84 Stat. 719, er

seq., as amended, 39 U.S.C. §101, et seq. ......

MG EEE oi sna a a hk aoe a eh ee ha

Be ee a re ee ek eee eens

Be a re er

ee SEED =e ae od ss eo be wo Ce

ae Stairs OS Sg ek ieee eh avec dese

Re Eo ae bv kes enema cea

Pe Ws EE 5s 6 ke aha sos 6 vk ae alk

oP Se EE kg 8 a a we ee ea

pO oa re re are ge

Be Shs ND 0.46600 00 tess 0 we 6b 6 tes

ge eae errr er reer er ree

PP Wes BOUROD nee bbe tae oewseeess

Oe AEs EE vk a 8 eo wae wee he a

ee es SE ic oe oa a ee ee ele eke eee

Se ee a Soe a a ee A ee ee ee ee ee a ae oe

Rrazetets 12

Passim

passim

ere

(iii)

Page

Pub. L. No. 94-421, §10, 90 Stat. 1303, 1311 (1976) ...... 26

ee, ED i ne re eee eee BO eee 2

DOA OPER Sirk tA rl ee eee hee ere ee es 14

PD Ue Ry TRO kb eR i ee eV eo 13

Legislative Materials:

H.R. 11750, 91st Cong., Ist Sess. (1969) .......... 19,20,22

H.R. 17070, 91st Cong., 2d Sess. (1970) ............. 22,23

S. 3842, Gist Comg., 26 Bess. (197G) «we ees 22,23 ,24

116 Cong. Rec. 27602, 27606 (1970) 2... cece ec eeees 25

121 Cong. Rec. 30777-84 (1975) wc cc cece eens 26

122 Cong. Rec. 29747-48 (1976) 2... cece ee ce eee eee 26

Postal Modernization, Hearings Before the Senate

Comm. on Post Office and Civil Service, 9\st

Cong., let Sees. (1969) 6c ccc cee tcc e reeves 21

Postal Rates and Revenue And Cost Analysis, Hear-

ings Before the House Subcomm. on Postal

Rates, 91st Cong., 2d Sess. (1970) ........20005. 21,22

S. Rep. No. 91-912 , 91st Cong., 2d Sess. (1970) ........ 23

H.R. Rep. No. 91-1363, 91st Cong., 2d Sess.(1970) ........ 25

Administrative Decisions:

Opinion and Recommended Decision of the Postal

Rate Commission (PRC Docket R71-1) (June 5,

STEN cS Bae ASMA CONE oe A Ae ee ess 6

Decision of the Governors of the United States

Postal Service (PRC Docket R71-1) (June 29,

| ae RPE arta sare tae ay orn ar aera arse era er or ee ae 6

Opinion and Recommended Decision of the Postal

Rate Commission (PRC Docket R74-1) (August

Eo ) rg leer tara re Aer ern era Sara e ae 7,8,16

Opinion and Recommended Decision of the Postal

Rate Commission (PRC Docket R76-1) (June

8 | ee ee err ee re fer ee ee ees 7,16

(iv)

Page

Opinion and Recommended Decision of the Postal

Rate Commission (PRC Docket R77-1) (May 12,

TFTED is tlawcn ee ca Venere 2,10,11,14,15

Decisions of the Governors of the United States

Postal Service (PRC Docket R77-1) (May 19,

TT). vn vcisesblvaakacere eee 2,11,15

Miscellaneous:

President’s Commission on Postal Reorganization,

Towards Postal Excellence (June 1968) (“Kappel

Common") oes Jiao eee §,18,19,21

IN THE

Supreme Court of the Anited States

OCTOBER TERM 1978

No.

MAGAZINE PUBLISHERS ASSOCIATION, INC.

and

TIME INCORPORATED,

Petitioners,

V.

UNITED STATES POSTAL SERVICE,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

The petitioners, Magazine Publishers Association, Inc.

(MPA) and Time Incorporated (Time Inc.), respectfully

pray that a writ of certiorari issue to review the

judgment and opinions of the United States Court of

Appeals for the District of Columbia Circuit entered on

June 8, 1979 in the consolidated proceedings, National

Association of Greeting Card Publishers, et al. v. United

States Postal Service, No. 78-1448, et al.

OPINIONS BELOW

The opinions of the court of appeals (Per Curiam,

Leventhal, J. and Tamm, J.), not yet reported, are set

forth at Appendix A (App. A). The decisions of the

Governors of the United States Postal Service dated

May 19, 1978 are set forth at Appendix B (App. B).

Nine copies of the two-volume, unreported Opinion and

Recommended Decision of the Postal Rate Commission

dated May 12, 1978 have been lodged with the Clerk of

the Court.

JURISDICTION

The judgment of the court of appeals was entered on

June 8, 1979. The jurisdiction of this Court is invoked

under 28 U.S.C. §1254(1).

QUESTIONS PRESENTED

(1) Whether in requiring the United States Postal

Service and the Postal Rate Commission to apply the

court of appeals’ interpretation of the ratemaking pro-

visions of the Postal Reorganization Act of 1970, the

court failed to give due deference to the agencies’

contemporaneous, consistent, and reasonable interpreta-

tion of those provisions.

(2) Whether the court below correctly interpreted

the ratemaking provisions of the Act:

(a) as requiring the attribution of postal costs to

the mail classes, to the maximum extent

possible, on the basis of cost-of-service prin-

ciples which the Postal Service and the Postal

Rate Commission had determined were un-

reliable as a test of cost causality; and

(b) as further requiring the assignment of postal

costs to the mail classes, to the maximum

extent possible, on the basis of those prin-

ciples, so as to leave only a small residuum of

postal costs to be assigned on the basis of the

noncost factors specified in 39 U.S.C.

§ 3622(b).

3

STATUTORY PROVISIONS INVOLVED

Pertinent sections of the Postal Reorganization Act

of 1970, 84 Stat. 719, et seqg., as amended, 39 U.S.C.

§101, et seqg., are set forth at Appendix C (App. C).

The section directly at issue in this case, 39 U.S.C.

§ 3622, is also printed below:

§3622. Rates and fees

(a) From time to time the Postal Service shall

request the Postal Rate Commission to submit a

recommended decision on changes in a rate or

rates of postage or in a fee or fees for postal

services if the Postal Service determines that such

changes would be in the public interest and in

accordance with the policies of this title. The

Postal Service may submit such suggestions for rate

adjustments as it deems suitable.

(b) Upon receiving a request, the Commission

shall make a recommended decision on the request

for changes in rates or fees in each class of mail or

type of service in accordance with the policies of

this title and the following factors:

(1) the establishment and maintenance of a

fair and equitable schedule;

(2) the value of the mail service actually

provided each class or type of mail service to

both the sender and the recipient, including, but

not limited to the collection, mode of trans-

portation, and priority of delivery;

(3) the requirement that each class of mail or

type of mail service bear the direct and indirect

postal costs attributable to that class or type

plus that portion of all other costs of the Postal

Service reasonably assignable to such class or

type;

(4) the effect of rate increases upon the

general public, business mail users, and enter-

4

prises in the private sector of the economy

engaged in the delivery of mail matter other

than letters:

(5) the available alternative means of sending

and receiving letters and other mail matter at

reasonable costs;

(6) the degree of preparation of mail for

delivery into the postal system performed by

the mailer and its effect upon reducing costs to

the Postal Service;

(7) simplicity of structure for the entire

schedule and simple, identifiable relationships

between the rates or fees charged the various

classes of mail for postal services;

(8) the educational, cultural, scientific, and

informational value to the recipient of mail

matter; and

(9) such other factors as the Commission

deems appropriate.

STATEMENT OF THE CASE

This case involves (1) the correct interpretation of 39

U.S.C. §3622, the key ratemaking provision of the

Postal Reorganization Act of 1970 and (2) the proper

role of the courts in reviewing the decisions of the

administrative agencies authorized to establish postal

rates under that Act.

Prior to reorganization the postal system of the

United States was operated by the Post Office Depart-

ment (the Department). The Department for many

years maintained a ‘“‘Cost Ascertainment System,”

which was a “full cost” accounting system whereby all

costs of the postal system were “allocated’”’ to the

various classes and subclasses of mail. The Congress

itself, however, directly established postal rates.

A near national catastrophe, precipitated by the

shutdown of the Chicago post office in October 1966,

generated a movement for reform of the postal system.

On April 8, 1967, President Johnson established the

Commission on Postal Organization (the “Kappel Com-

mission’). After extensive study the Kappel Commis-

sion in June 1968 published its report, Towards Postal

Excellence. The report, highly critical of the existing

postal organization and particularly the use of the Cost

Ascertainment System in postal ratemaking, recom-

mended drastic changes in postal organization and

postal ratemaking.

Postal reform bills were introduced in Congress early

in 1969 and again in 1970, followed by extensive

hearings and floor debates. Differences between postal

reform measures passed by the House and Senate were

compromised in Conference and the Postal Reorganiza-

tion Act was enacted on August 12, 1970. !

The Act created two new agencies, the United States

Postal Service (Postal Service) and the Postal Rate

Commission (PRC), and designated each an independent

establishment of the executive branch of _ the

Government. 39 U.S.C. §§201, 3601. Congress dele-

gated its legislative authority to establish postal rates

and fees to these new agencies and specified the

procedures and substantive standards to govern the

exercise of that authority. 39 U.S.C. §§3621, 3622,

3624,3625.

The Postal Service initiated the first rate proceeding

under the new postal statute on February 1, 1971 by

requesting the PRC to submit a recommended decision

on a Postal Service proposal for increases in postal

'The legislative history of the ratemaking provisions of the

Act is discussed at pages 18-26 of this petition.

rt eee

6

rates. PRC Docket R71-1. After extensive evidentiary

hearings, briefing, and argument, the PRC issued its

Opinion and Recommended Decision, which was

approved by the Governors of the Postal Service on

June 28, 1972, and ordered placed into effect pursuant

to 39 U.S.C. §3625(b).

In its Docket R71-1 Decision, the PRC made some

adjustments to the postal rates initially proposed by the

Postal Service; both agencies, however, evidenced the

same general understanding of the Congressional direc-

tive set forth in §3622(b). The Postal Service and the

PRC determined that approximately half of postal

system costs varied with the volume of mail and were

“attributable costs” within the meaning of the first part

of §3622(b)(3). All other costs were treated as a pool

of “‘institutional”’ costs and were assigned, among the

non-preferred classes of mail, on a judgmental basis in

accordance with the noncost factors specified at

§3622(b). Consistent with §3626(a)(1) none of these

institutional costs was assigned to the preferred classes

of mail.

On June 26, 1973, in appellate proceedings instituted

pursuant to 39 U.S.C. §3628, the Court of Appeals for

the District of Columbia Circuit affirmed the

Governors’ order. Association of American Publishers Inc.,

et al. v. Governors of the United States Postal Service, 485

F.2d 768 (1973). In a concurring opinion by Judge Baze-

lon, however, the court said that “[s]lection 3622(b)(3) is

susceptible of a variety of interpretations” and sug-

gested that, in future rate proceedings, the PRC should

take a “hard look” not only at the manner in which

the Postal Service assigned unattributable costs but also

at the amount of costs designated as “‘unattributable.”

Id. at 779.

The next two postal rate proceedings, Dockets R74-1

and R76-1, culminated in opinions and recommended

decisions by the PRC dated August 28, 1975 (R74-1)

and June 30, 1976 (R76-1). These decisions contained

refinements,2 but made no basic change, in costing

methodology and pricing principles. The PRC specifi-

cally rejected the use of accounting formulae for the

“attribution” of fixed costs to the various classes of

mail.> Referring to §3622(b) the Commission in R74-1

stated: .

The statute that Congress enacted requires us to

distinguish between attributing costs on a causal

basis and assigning the remaining mass of common

costs which benefit all or a limited number of

services. The key to this distinction lies in an

analysis of cost behavior which will lead to a

separation of the costs caused by the classes and

services from all other costs.... Before we can

distribute costs on that basis, however, we need to

know which specific costs change in relation to

changes in output or volume. It is by the con-

sistent application of this principle that we can

safely say that costs are “‘caused’’ by the classes

and services. (PRC Opinion, Docket R74-1, Vol. 1,

pp. 570-71.)

The Governc 's approved and adopted both PRC recom-

mended decisions.

Petitions for review and appeals from the Governors’

orders were again filed in the United States Court of

Appeals for the District of Columbia Circuit. That court

heard oral argument on the R74-1 appeals and issued its

judgment thereon in a Per Curiam opinion dated

*Refinements in methodology and different cost data led to

increased attributions of postal costs—52.5% in R74-1 and 60%

in R76-1.

3“Snecific fixed costs” caused solely by service to a class of

mail were attributed to that class.

December 28, 1976. National Association of Greeting

Card Publishers, et al. v. United States Postal Service,

569 F.2d 570 (1976) (NAGCP I, reproduced at

Appendix D). The appeals arising from the third postal

rate case (R76-1) were eventually dismissed as moot.

In its Per Curiam opinion in NAGCP J, the court

chose not to dismiss that case even though the R74-1

rates had been overtaken by new permanent rates.‘

Instead, the court of appeals proceeded to interpret

§3622(b) as a “clear” and “express” statutory com-

mand of the Congress that cost-of-service principles

(sometimes referred to by the court as “‘cost accounting

principles”)* must be applied to the fullest extent

possible in both attributing and assigning postal costs

for purposes of postal ratemaking. The court declared

that the Postal Service and PRC had “flouted” that com-

mand. App. D40-41.

Although the court disclaimed an intent to prescribe

a particular costing methodology or an acceptable per-

centage of attribution, it did, in fact, dictate a three-

step methodology for postal ratemaking as follows:

Subsection 3622(b)(3) provides, in short, that

the Postal Rate Commission must first of all

attribute to each mail class or postal service all

postal costs which may reasonably be determined,

through variability theory as well as through other

reasonable inferences of causation, to be the con-

sequence of providing the service. It must then

distribute among the mail classes and services that

significant portion of all remaining costs of the

*The court found that “the instant controversy falls squarely

within the ‘capable of repetition, yet evading review’ exception

to mootness....”” App. D14-15, fn. 21.

5See App. D26,31.

s

Postal Service that may reasonably” be assigned to

each on the basis of best available cost-of-service

estimates. The residuum of costs is subject to

discretionary allocation in accord with the noncost

factors set forth in the Act.

We emphasize that “reasonably” as used in subsection

3622(b)(3) in connection with assignable costs must be

read against the overall purpose of the section, which is to

maximize the use of cost-of-service principles throughout

postal ratemaking. Simply put it means that all reasonable

efforts must be made to assign unattributed costs to the

various classes of mail and service by use of acceptable

cost-of-service estimates rather than to allocate them dis-

cretionarily as residual costs. (App. D40.)

In support of its construction of §3622(b) as com-

pelling maximum use of “cost-of-service principles,” the

court relied heavily upon the word “requirement”

which appears in subsection 3622(b)(3) and excerpts

from the legislative history which, according to the

court. indicated an aim of the Congress to “get politics

out of the Post Office.”” App. D30-31, 36-37.

A different view of §3622(b) was taken by Judge

MacKinnon, a member of the NAGCP J panel. In a

concurring opinion, he said:

A mere reading of this section indicates that

Congress intended to vest a substantial discretion

in the Commission to recommend rates and fees

that are “fair and equitable,” that relate to the

value of the postal service provided to users, that

consider competition, the effect upon the general

public and business interests, the ease of handling

certain mailable matter, the simplicity of the entire

rate structure and such other factors as the Com-

mission might deem appropriate. But if the Per

Curiam opinion regarding section (b)(3) is to be

construed as requiring that the attribution and

assignment of practically ali costs be on a strained

10

cost-of-service basis, these discretionary factors

may never have any substantial effect. How could

the Commission recommend a rate for a particular

class of mail that it found would be “‘fair and

equitable” and would not adversely affect legitimate

business interests if practically all the relevant costs

were required to be attributed or assigned according

to an almost absclute cost-of-service straight jacket?

To mate the seven discretionary standards mean-

ingful Congress must have intended that there be

some substantial volume of costs that are available

for assignment. (App. D74.)

The Postal Service filed a Petition for Rehearing and

Suggestion for Rehearing En Banc, contending, inter

alia, that the interpretation of §3622(b) made by the

majority of the NAGCP J panel was erroneous and ‘“‘a

radical revision of the statute rather than a reading of

it.’ The court denied the Petition for Rehearing; no

party sought certiorari.’

The instant case commenced with the filing by the

Postal Service on July 13, 1977 of its fourth proposal

since reorganization to increase postal rates. PRC

Docket R77-1. That proposal and the PRC’s decision

reflect the impact upon the agencies of the interpreta-

tion of §3622(b) imposed by the Per Curiam opinion

in NAGCP I. Departing materially from their previous

principles, the agencies not only used extended “‘infer-

ences of causation’’ to maximize attributable costs but

also adopted a new three-step methodology, in response

to the directive of the court quoted above at pages 8-9.

Appellee’s Petition for Rehearing and Suggestion for Rehear-

ing En Banc, D.C. Cir. Nos. 75-1856 and 1857, at page 6.

’The decision in NAGCP J did not disturb then existing

postal rates. This fact may explain why the Postal Service did

not seek review of that decision by this Court. MPA and Time

Inc. were not parties io the proceedings at NAGCP J, hence they

had no standing to seek further review.

1]

This new methodology treats fixed system delivery

costs (termed “‘service related’’ costs) as “reasonably

assignable” to first, second, and fourth class mail. The

result is that postal costs attributed and assigned on the

basis .of ‘‘cost-of-service principles” have now risen to

74.54 percent of total postal costs (PRC, Vol. 1, p. 93).

dramatically reducing the costs that may be judgmental-

ly allocated on the basis of the noncost factors in

§3622(b).

The Governors approved the PRC’s decision on May

19, 1978. App. B. Review was sought by several parties

including MPA and Time Inc. The court below heard all

of these appeals in a consolidated proceeding entitled,

National Association of Greeting Card Publishers, et al. v.

United States Postal Service, No. 78-1448, et al.

(NAGCP III). MPA and Time Inc. vigorously contended

that the panel which decided NAGCP / had seriously

misinterpreted 39 U.S.C. §3622(b). They also sub-

mitted a Suggestion for Hearing En Banc, which was

denied.

On June 8, 1979, the court of appeals entered its

judgment in this case, NAGCP J//. The court summarily

rejected the contention of MPA and Time Inc. that

NAGCP I was wrongly decided, holding:

If we were convinced NAGCP I was fatally flawed,

our recourse would lie in a request for en banc

consideration. We do not initiate that course.

(App. A23, fn. 23.)

The court continued its overriding emphasis upon cost-

of-service principles. See App. Al4, 18-21, 30-32,

95. It affirmed the decisions of the PRC and

Governors as “‘an acceptable first effort at meeting the

strictures of NAGCP I.” App. A36. “[G]eneral satis-

faction” with the cost allocation decisions made by the

PRC responsive to NAGCP J was coupled with a

12

demand for “[f]urther improvements.” App. A59.

REASONS FOR GRANTING A WRIT

Petitioners are requesting this Court to consider, for

the first time, important questions concerning the

meaning of the ratemaking provisions of the Postal

Reorganization Act of 1970.8

I

The Decision Of The Court Below Has A Profound

Effect On Postal Ratemaking And Poses New Ques-

tions Of Federal Law That This Court Should Settle.

The importance to the Nation of the postal system

and of postal rates is reflected in the expression of

postal policy appearing in the first paragraph of the

first section of the Act of 1970, which states:

§101. Postal Policy

(a) The United States Postal Service shall be

operated as a basic and fundamental service pro-

vided to the people by the Government of the

United States, authorized by the Constitution,

created by Act of Congress, and supported by the

people. The Postal Service shall have as its basic

function the obligation to provide postal services

to bind the Nation together through the personal,

educational, literary and business correspondence

of the people. It shall provide prompt, reliable, and

efficient services to patrons in all areas and shall ren-

der postal services to all communities. The cost of

establishing and maintaining the Postal Service

shall not be apportioned to impair the overall

value of such service to the people.

*The only decision by this Court in a case arising under the

Act is a memorandum decision remanding a case to the court of

appeals “in light of ...amended provisions of the Board of

Governors’ internal operating procedures.” United States Postal

Service v. Associated Third Class Mail Users, 434 U.S. 884

(1977).

13

To effectuate its policy concerning the apportion-

ment of postal costs, Congress specifically mandated in

§3622(b) the application of nine factors in postal

ratemaking, seven of which are noncost factors. The

opinions of the court of appeals, however, compel the

postal agencies to apply cost accounting principles to

the fullest extent possible in both the attribution and

assignment of postal costs in derogation of the Act’s

noncost factors and the policy of not apportioning

postal costs so as “to impair the overall value of such

service to the people.”

The cost and pricing principles used in setting postal

rates determine not only the rates and fees paid by mail

users (now yielding well over $15 billion in revenues)

but also the level of appropriations for revenue fore-

gone from free and preferred rate mail categories under

§ §3217, 3403-05 and 3626(a)(1) of the Act.’ Rigid

adherence to accounting cost-of-service principles that

are unrelated to true cost causality precludes effective

consideration of market demand factors in postal

pricing. This will affect mail volume, mail revenues, and

the employment of 660,000 postal workers. The pricing

of mail services above mail user demand may cause

significant declines in volume in those classes of mail

(e.g., second and fourth) which are not subject to the

postal monopoly.'°

This Court should exercise its supervisory power to

determine now whether the Court of Appeals for the

9The total annual revenues for the Postal Service were deter-

mined by the PRC to be $17,586,375,000. The PRC found that

those revenues would be recovered as follows: $15,565 ,329,000

from postage, rates and fees, $1,844,581,000 from appropria-

tions and $176.465,000 from “other income.” See PRC, Docket

R77-1, Vol. 2, App. A and App. L.

See 18 US.C. §§1693-1699, 1724 and 39 US.C.

§ §601-606.

14

District of Columbia Circuit has erroneously imposed its

own interpretation of §3622(b) upon the federal

agencies responsible for postal ratemaking. Although

§3628 of the Act permits appeals to be taken to any

court of appeals, judicial review of agency decisions in

all of the first four postal rate proceedings conducted

under the Postal Reorganization Act has been in the

D.C. Circuit.

In view of this history and the fact that both the

Postal Service and the PRC are located in Washington,

D.C., there is a strong likelihood that venue on appeal

in future postal rate cases will be in the same circuit.!!

Even if a petition for review is first filed with the court

of appeals in another circuit, it is a virtual certainty

that that court would either transfer the appeal to the

D.C. Circuit or follow its teachings, reasoning that the

remedy for any misinterpretation of §3622(b) lies with

this Court. Hence, the chance of a future conflict of

decisions between two courts of appeals is remote.

Unless this Court grants certiorari, the ratemaking prin-

ciples laid down by the court below will, in effect, have

the same finality as a decision of this Court would have

and will govern the future course of postal ratemaking.

II

The Court Below Has Read Into The Postal Reorgani-

zation Act A Ratemaking Methodology That Is Con-

trary To The Words Of The Act, To The Intent Of

Congress And To The Expert Judgment Of The Agen-

cies Vested With Ratemaking Responsibility.

On its face the decision of the court in NAGCP III is

an affirmance of a decision of the PRC and the

Governors in the fourth postal rate case, PRC Docket

R77-1. In reality, however, the court itself is the

principal architect of the decisions issued by the postal

‘Section 3628 provides that 28 U.S.C. §2112 shall apply to

such appeals.

15

agencies in this case, ‘responsive’ to the “strictures of

NAGCP I.” See App. All, 36, 59.

Under those strictures, the postal agencies have

departed radically from the two-step methodology they

applied in the first three postal rate cases. The prime

example of change is the new “service related” cost

concept, born of the postal agencies’ court-mandated

search for tenuous “inferences of causation.’’ See PRC,

Docket R77-1, Vol. 1, pp. 87-89, 121-24.

The decisions of the PRC and the Governors in the

fourth postal rate case plainly state their disagreement

with the court’s interpretation of §3622(b). The PRC

said:

We would mislead the reader if we left the

impression that we regard NAGCP / as unquestion-

ably sound and our previous methods as incom-

patible with the Act. On the contrary, and with all

due respect to the court, we believe that the

NAGCP I ruling was not inevitably required by the

statute and has caused us difficulties in its applica-

tion. Whether or not it remains the law, however,'

it is the law today and we are bound to follow it

to the best of our ability. (PRC, Docket R77-1,

Vol. 1, pp. 9, footnote omitted.)

The Governors of the Postal Service agreed. App. B6.

The PRC said that, responsive to the NAGCP /

decision, it had ‘“‘both extended attributions beyond the

levels previously attained and added... reasonable

assignments of the type called for by NAGCP /.”” PRC,

Docket R77-1, Vol. 1, pp. 9-10. This resulted in an

increase in cost “attributions” from 60 to 65 percent of

total postal costs and in the “reasonable assignment” of

$1.763 billion of ‘“‘service related’ and contingency

costs‘? that would otherwise have been judgmentally

12Cervice related’’ costs of $1.256 billion plus a contingency

allowance of $507 million. See PRC Opinion, Docket R77-1,

Vol. 1, p. 156.

16

allocated on the basis of the noncost criteria of the Act

under the ratemaking principles set forth by the PRC in

its Opinions in Dockets R74-1 and R76-1. In “extended

attributions” the court usurped the agencies’ ratemaking

function by imposing a costing methodology different

from the one chosen by the agencies. In “assignments”

the same judicial interference inheres and, in addition.

the court’s interpretation is contrary to the plain langu-

age of the Act.

A. Deference Due to Agency Interpretation.

In its opinion in NAGCP III, the court below

repeatedly characterized its decision as one of restraint

and deference to the PRC’s expert judgment. App.

A21-22, 28, 41-46, 57, 59. But the deference went only

to the details of the methodology developed by the

agencies within the rigid constraints of NAGCP I.

Rather than an example of judicial ‘restraint,’ the

decisions of the court are the type of judicial inter-

vention in agency discretion which this Court con-

demned in FPC y. Transcontinental Gas Pipe Line

Corporation, 423 U.S. 326, 333-34 (1976) and in

Vermont Yankee Nuclear Power Corporation y. Na-

tional Resources Defense Council, Inc., et al., 435 US.

519 (1978). By its continuing supervision of postal

ratemaking the court below is inexorably imposing on

the Postal Service and the PRC the cost-based rate-

making methodology which “‘the judges of the Court of

Appeals ... would have reached had they been members

of the decisionmaking unit of the agency.” Jd., 435

U.S. 519, 558.

This Court has repeatedly held that an appellate

court may not substitute its own interpretation of a

regulatory statute for that of the agency charged with

17

its administration, if the agency’s construction is reason-

able. Udall v. Tallman, 380 U.S. 1 (1965) and cases

cited therein at page 16. See also, Train v. National

Resources Defense Council, Inc., et al., 421 U.S. 60,

75, 87 (1975).

The court’s substitution of its interpretation of

§3622(b) for that of the agencies can be sustained only

if it is true, as the court claims, that the Congress has

so “expressly” and ‘“‘plainly’”’ mandated the maximiza-

tion of cost-of-service principles that the agencies’ dif-

ferent statutory interpretation (which gave significant

effect to noncost factors) amounted to a “flouting” of

the statutory command. See App. D 40-47 and App.

A 19-21 But there is no such express and piain man-

date. The court itsel‘ said that the statute “‘is sus-

ceptible to a variety of interpretations” (App. D29, fn.

54) and referred to “the formidable tas of definitively

interpreting subsection 3622(b)(3).” App. D29. The

fact is the court’s interpretation cannot be reconciled

with the language of the statute or its legislative

history.

B. The Language of the Act.

The court below concluded that the use of the single

word “requirement” in §3622(b)(3) evidenced Con-

gress’ intent that costs, whether they are to be

attributed or assigned, must be allocated, to the maxi-

mum extent possible, on cost-of-service principles. But,

as Judge MacKinnon said in his concurring opinion in

NAGCP T:

The word ‘“‘shall” at the forepart of section 3622

is just as mandatory as the word ‘“‘requirement,” in

the same section, if not more so, since it applies to

the entire section—but the Per Curiam opinion

overemphasizes the latter and refuses to recognize

18

the former. (App. D77.)

By its overemphasis on (b)(3) as the only “require-

ment”’ among the nine statutory factors in §3622(b),

the court of appeals has, in effect, rewritten that

section. The court’s interpretation reads into the statute

the words “‘cost-of-service principles” and “accounting

principles,’ which the Congress did not use, and robs

the noncost factors, which the Congress did specify, of

any real significance.

C. The Legislative History of the Act.

1. The Influence of the Kappel Commission Report.

The court’s interpretation of §3622(b) is not con-

sistent with the legislative history of the Postal Reor-

ganization Act of 1970, as the court contends. In its

review Of the legislative history the court below ignored

the substantial background of events which prompted

the executive branch to propose postal reorganization

and the legislative materials reflecting these events

which provided the factual and conceptual foundation

for the 1970 Act. The report of the Kappel Commis-

sion is not mentioned by the court, even though that

report greatly influenced the development of postal

reform legislation.

The Kappel Commission declared that the then

existing postal rate structure was “irrational” and

strongly condemned the Cost Ascertainment System

upon which it was based. That System used the type of

cost accounting formulae and cost-of-service principles

which the court below said the 1970 Act requires the

Postal Service and the PRC to use today. The Kappel

Commission said:

The Post Office uses a Cost Ascertainment System,

authorized by a 43-year-old statute, for deter-

mining the revenues, volume and cost of each class

19

of mail. For determining costs, it uses the “‘fully-

allocated’” method through which every postal

expense is charged to some class of mail or special

service. A large segment of postal costs, however,

does not result from handling a particular class of

mail but is the cost of maintaining the postal

system itself. The allocation of such institutional

costs to specific postal products, despite pain-

staking attempts to achieve fairness, is not only

arbitrary but uninformative. (The Report of the

President’s Commission on Postal Organization, p.

30 (1968); emphasis supplied.)

As a substitute, the Kappel Commission recom-

mended the development of a functional cost system

based on long run variable costs, i.e., costs that vary

with mail volume. It recommended further that postal

rates for each mail class cover those costs “‘which it

alone causes... whether these costs are capital costs or

operating costs’’ plus an appropriate share of all other

costs based on market demand considerations. /d. at

131. The Kappel Commission made a distinction be-

tween postal costs that are (1) “the actual cost of

providing the specific service” and (2) “the share of

institutional postal costs which each class is asked to

bear.” Jd. at 130. The Commission’s Report said that

there was no undue discrimination in postal rates so

long as each class paid ‘‘as a minimum, the long-run

variable costs ascribable to it—the full added costs

demonstrably related to that class.” Jd. at 131;

emphasis supplied.

The Kappel Commission’s cost and ratemaking

recommendations were contained in the original ad-

ministration postal reform bill. H.R. 11750, 91st Cong.,

Ist Sess. (1969). The ratemaking section provided that

each class bear ‘‘at least those costs demonstrably

20

related to the class of service in question.”'? The Postal

Service was required to “take into account the financial

impact upon affected users of the various classes of

the mail” in allocating other postal costs to achieve the

breakeven mandate that revenues from mail users plus

appropriations equal total postal costs.'*

In explaining the ratemaking provisions of H.R.

11750 to the Senate Post Office and Civil Service

Committee, the Postmaster General said:

Except for free and reduced-rate mail, no

postage rate would be set at a level below

demonstrably related costs for the particular class

or subclass involved. This provides a floor upon

which a rate can be built to recover not only the

demonstrably related costs but also an appropriate

amount of the remaining costs, not traceable to

any one service. The proposed legislation does not

establish a rigid formula specifying how such allo-

cation of nontraceable costs shall be made, al-

though undue discrimination and preferences are

expressly prohibited and all rates are required to

be fair and reasonable. The determination as to

how nontraceable costs shall be allocated can be

made in the light of current economic conditions,

and will depend upon the type, value, and quality

of service rendered, and such market factors as the

ability of users to pay and elasticity of demand.

The Kappel Commission made an important

contribution to the rationality of the ratemaking

process when it pointed out the shortcomings of

the present cost ascertainment system, under

which all costs, direct and indirect, are arbitrarily

prorated among the several classes of mail without

taking into account the differences in service and

the differences in market conditions affecting the

'SH.R. 11750, 91st Cong., Ist Sess. (1969), §1201(c);

emphasis supplied.

‘474. §1201(d).

21

various classes.

Only a costing system which shows what it

actually costs to carry each class of mail can be

helpful in determining the minimum price the

various classes should pay. A supplemental ac-

counting system needed to determine the costs

demonstrably related to each class of mail is now

being designed, and this system should provide

reliable data from which a more rational rate

structure can be developed.'*

The new functional cost system, developed by the

Department in response to the Kappel Commission

recommendations, was called the Revenue and Cost

Analysis. It presented two types of costs, demonstrably

related costs and institutional costs. Each amounted to

approximately 50 percent of total postal costs. Demon-

strably related costs were defined as:

Those costs, direct or indirect, which by empiri-

cal or deductive analysis can be demonstrated (1)

to vary in response to changes in volume of a

particular class, subclass, or category of service, or

(2) even though fixed, to be the consequence of

providing one specific class, subclass, or category

of service.'® |

Institutional costs were defined as:

Costs which are not directly responsive to changes

in postal volume and which are not the conse-

quence of providing a specific class, subclass, or

category of service. Institutional costs are the total

costs of the postal service, less demonstrably

'S Postal Modernization Hearings Before the Senate Committee

on Postal Office and Civil Service, 91st Cong., 1st Sess. (1969), at

page 506.

‘Postal Rates and Revenue and Cost Analysis, Hearings

Before the House Subcommittee on Postal Rates, 91st Cong.,

2nd Sess. (1970), at page 75.

related costs.!’

2. The House Bill (H.R. 17070) Versus the Senate Bill

(S. 3842).

The House of Representatives eventually passed H.R.

17070, 91st Cong., 2nd Sess. (1970). That bill con-

tained verbatim the ratemaking language of §1201(c) of

H.R. 11750, the original administration bill, which

established “demonstrably related costs” as the rate

floor for non-preferred mail classes.'® As had H.R.

11750, the House-passed bill also provided for continu-

ation of certain statutory rates for preferred mail

classes’? and for Congressional veto of the rates de-

veloped under the new regulatory type proceedings.?°

The Senate, on the other hand, considered S. 3842.9 1st

Cong., 2nd Sess. (1970). That bill established an inde-

pendent rate commission to set postal rates:?! there was no

provision for Congressional veto. S. 3842 contained no

minimum rate floor; it only required the rate commis-

sion to consider all costs ‘properly assignable”’ to each

class of mail and several noncost factors.?? Those

noncost factors were not contained in H.R. 17070, but

they were similar to the considerations the Postmaster

General said should be used in allocating institutional

costs. S. 3842 continued no statutory rate preferences,

but provided for a phasing-in period for certain rate

categories to adjust to whatever higher rates were

recommended by the independent rate commission.23

"Id.

‘H.R. 17070, §1201(c).

'"7Td., §1202.

Td. §1254.

*1§. 3842, §3702.

*?Id., §3704(g).

3 Id., §3704(i).

:

23

The Senate Committee report stated that the Commit-

tee had rejected a fully allocated cost approach using

arbitrary cost accounting formulae and had refused to

endorse any “‘particular cost accounting system.”4

Going into conference, then, the major differences

over postal ratemaking were:

(1) Congressional veto (continued congressional

involvement in ratemaking—H.R. 17070) ver-

sus independent rate commission (getting

“politics out of the Post Office,” j.e.,elimina-

ting any congressional role in ratemaking—S.

3842);

(2) Minimum rate floor for each nonpreferrea

class (demonstrably related costs—H.R.

17070) versus no rate floor for any class,

whether preferred or not (rates to be set by

an independent commission based on its con-

sideration of cost and newly added noncost

factors—S. 3842); and

(3) Continuation by statute of preferred rate

categories (H.R. 17070) versus no statutory

rate preferences, but a phasing-in period for a

transition to higher postal rates (S. 3842).

The NAGCP I court believed that the Senate bill

was the genesis for the Act’s “requirement” language on

cost allocations and that the Senate prevailed over the

House in the compromises that were made on this

critical issue. App. D38-39. The contrary is true. The

“demonstrably related costs” recovery section of the

House bill was the genesis for the ‘‘requirement” langu-

age.

45 Rep. 91-912, 91st Cong., 2nd Sess., at page 17.

24

3.The Meaning of the Conference Committee Com-

promises.

The Senate prevailed in “‘getting politics out of the

Post Office,” but that meant establishing an inde-

pendent rate commission (39 U.S.C. §3601) and elimi-

nating any Congressional ratemaking involvement via a

veto power. It did not mean that subjective judgments

based on noncost factors were to be proscribed or

relegated to little importance in postal ratemaking. The

Senate was the branch of Congress that specified the

noncost factors.

A compromise was reached on the preferred rate

categories by adopting the phasing-in period contained

in S. 3842 (39 U.S.C. §3626) and by establishing an

“attributable cost” rate ceiling on preferred rates (39

U.S.C. §3626(a)(1)) identical to the minimum rate

floor for nonpreferred classes (39 U.S.C. §3622(b)(3)).

Continuation of statutorily prescribed rates was elimi-

nated.

The House prevailed in its minimum rate floor,

although this floor was described as the ‘“‘direct and

indirect cost attributable to” a class of mail, rather than

as “demonstrably related costs.” 39 U-S.C.

§3622(b)(3). The House also persuaded the Senate

conferees that the statutory rate ceiling for the pre-

ferred classes should be based on these same attribu-

table costs. The noncost criteria in S. 3842 were

included as factors the Commission ‘“‘shall’”’ consider. 39

U.S.C. §3622(b).

Since it was the House version that contained the

minimum rate floor and the statutory rate preferences

for preferred classes which prevailed in the conference,

the most reliable indication of Congressional intent is

the Statement of the Managers on the part of the

House. The House Managers said:

25

The conference substitute adopts the Senate pro-

vision with an amendment which incorporates the

standard that each class of mail or type of mail

service should bear the direct and indirect postal

costs attributable to that class or type plus that

portion of other costs of the postal service reason-

ably assignable to such class or type.

The provision in the conference substitute with

respect to costs attributable to a class of mail or

type of service establishes a floor for each class of

mail equal to costs which consist of those costs,

both direct and indirect, that vary over the short

term in response to changes in volume of a

particular class or, even though fixed rather than

variable, are the consequence of providing the

specific service involved. In addition, the confer-

ence substitute provides for a judgmental assign-

ment of some part of the remaining costs.?5

With respect to statutory rate preferences the House

Managers said:

The conference substitute adopts the Senate prc-

visions [for a phasing-in period] with an amend-

ment which provides that revenues from rates on

nonprofit preferred rate mailings shall not, after 10

years, exceed postal costs for such mail excluding

any portion of overhead or institutional costs.?6

In the House debate on the Conference Report, Con-

gressmen Derwinski and Udall, both key House con-

ferees, equated “attributable costs” with “demonstrably

related costs.’’?’

Thus the legislative history contradicts the NAGCP /

court’s conclusion that Congress intended that postal

?SStatement of Managers on the part of the House, H.R. Rep.

No. 91-1363, 91st Cong., 2nd Sess. (1970), at page 87.

*6/d. at page 86.

27See 116 Cong. Rec. 27602, 27606 (1970).

26

costs be both attributed and assigned to the maximum

extent possible using cost-of-service principles. Congress

intended that rates for nonpreferred classes cover at

least attributable costs; all other costs were to be

assigned on the basis of the noncost criteria. Rates for

the preferred classes were limited to attributable costs.

This reading of the Act is buttressed by subsequent

legislative activity. Prompted by its concern that the

PRC had given insufficient consideration to noncost

criteria in setting postal rates, Congress, prior to the

NAGCP I decision, added a new noncost criterion, “‘the

educational, cultural, scientific, and informational value

to the recipient of mail matter.’’?* Also, in the House,

an amendment was offered by Representative Schroeder

to require allocation of costs utilizing the type of

cost-of-service principles the NAGCP J court subse-

quently read into the Act. It was defeated.??

Nowhere, then, does the legislative history support

the version of Congressional intent expounded by the

NAGCP I court and reaffirmed in NAGCP III.

*®Public Law 94-421, 94th Cong., 2d Sess., September 24,

1976, §10, 90 Stat. 1303, 1311. Also see Rep. Ford’s statement

in the floor debates on the Conference Report. 122 Cong. Rec.

29747-48 (1976).

9See 121 Cong. Rec. 30777-84 (1975).

27

CONCLUSION

For the reasons stated above, a writ of certiorari

should issue to review the judgment and opinions of the

Court of Appeals for the District of Columbia Circuit.

September 6, 1979

Respectfully submitted,

JOHN M. BURZIO

JAMES H. HELLER

1220 19th Street, N.W.

Washington, D.C. 20036

(202) 833-9040

Attorneys for Magazine Publishers

Association, Inc.

JUSTIN R. WOLF

LOUISE C. POWELL

1625 K Street, N.W.

Washington, D.C. 20006

(202) 737-2413

Attorneys for Time Incorporated