Sears, Roebuck & Co. v. U.S. Postal Service

Citations: 134 F. Supp. 3d 365; 2015 U.S. Dist. LEXIS 131994; 2015 WL 5729089Docket: Civil Action No. 14-1031 (RMC)

Court: District Court, District of Columbia; September 30, 2015; Federal District Court

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A dispute arises from the failure of Sears, Roebuck and Co., Segerdahl Graphics, Inc., and Aspen Marketing Services, LLC (collectively, Plaintiffs) to properly seal their rectangular folded self-mailers in 2009, resulting in a deficiency assessment of over $1.25 million by the U.S. Postal Service (Postal Service). To qualify for discounted automation rates, Postal Service regulations require that self-mailers be sealed at the top and bottom. The Plaintiffs challenge the Postal Service’s Pricing Classification Service Center's decision as unreasonable and in violation of due process while seeking summary judgment. The Postal Service counterclaims for the deficiencies and seeks partial dismissal and summary judgment on other claims.

The court finds that the Plaintiffs did not comply with the regulations governing mail eligible for discounted rates, affirming the Postal Service's deficiency assessments. The Postal Service, an independent agency, has the authority to create regulations to facilitate its operations, having recognized the need for specific standards for folded self-mailers due to their unique processing challenges since the 1980s. The Domestic Mail Manual (DMM) outlines the rules for mailing standards, which state that lower rates apply to mail that can be processed efficiently on automated systems. The judgment will be entered in favor of the Postal Service, confirming the proper assessment of the postage due.

To qualify for a low automation rate, mailpieces must adhere to specific physical requirements outlined in the Domestic Mail Manual (DMM), particularly DMM. 201.3.0. Non-machinable letters are defined as those not meeting these standards. For folded self-mailers with a final fold on the right, sealing requirements at the time of the Plaintiffs' mailings mandated that the left edge and other open edges be secured with at least one tab or glue line, with the number of tabs dependent on the piece's size and paper weight. Pieces 7 inches or longer required sealing on both the top and bottom. Newsprint paper is permissible if it meets minimum basis weight standards and is certified by a USPS mailpiece design analyst for automated processing.

The Postal Service provided a Quick Service Guide 201b, illustrating the allowed designs and sealing requirements. It indicated that tabs should be placed at the center of the trailing edge, top, and bottom of the mailpiece. Alternatively, the open edge could be glued continuously or spot glued to prevent jamming in high-speed processing equipment, a significant concern for the Postal Service as unenveloped mail could cause operational issues. Self-mailers open on three sides were noted as incompatible with current automation equipment, leading to double feeding and jamming.

Compliance with postal standards is mandatory for all mailings, and the mailer's signature on the postage statement certifies adherence to these standards. The Postal Service retains the right to demand proper payment for mail even after it has been accepted.

Postal customers who do not comply with postal standards for claimed rates are considered to have underpaid postage, defined as a "revenue deficiency" under DMM 604.10.1. The Postal Service has the authority to assess revenue deficiencies against customers who underpay. Three specific mailings by the plaintiffs—self-mailers for Sears promoting a "Sears Days" sale, a "Baby Event," and a "Buick Holiday Event"—were assessed deficiencies due to non-compliance with postal sealing requirements. 

The first mailing, a bi-fold self-mailer for Sears in April 2009, was sent in bulk at a discounted automation rate and printed by Specialty Print Communications, with sorting and mailing done by Team Services. The second was another Sears promotion in August 2009, mailed by Segerdahl Graphics, Inc., with over 500,000 pieces sent at the same rate. The third, a tri-fold advertisement for a General Motors event in December 2009, was designed by Aspen Marketing Services and printed by Segerdahl, totaling over 1.9 million mailers.

All mailers were subject to DMM 201.3.14.1c, which requires that self-mailers longer than 7 inches must be sealed on the top and bottom edges. The Postal Service found that these mailers were not properly sealed, leading to deficiency assessments. The Pricing Classification Service Center upheld these assessments upon appeal, determining that the mailers did not meet requirements for automated processing due to unsecured top and bottom edges. Specifically, a deficiency of $1,033,597.19 was confirmed for the Sears Days mailer, with the debt certified as owed by Sears on March 14, 2012.

The Pricing Center affirmed a deficiency assessment for the Baby Event mailing, stating that although glue lines were present near the top and bottom edges, they did not secure the open edges effectively. Consequently, a deficiency of $94,978.27 was assessed, with the Postal Service certifying the debt as owed by Sears and Segerdahl on March 16, 2012. For the Buick Holiday Event self-mailers, the Pricing Center rejected claims that the mailpiece met the necessary requirements due to unclear DMM specifications regarding the number of tabs and glue lines. Despite assertions from Segerdahl Graphics' agent acknowledging prior mistakes in tabbing, a deficiency of $125,367.01 was similarly assessed, with the debt certified as owed by Aspen on the same date. The total deficiencies surpass $1.25 million. The plaintiffs have filed a five-count Complaint, with four counts still active: Count I challenges the assessments as inconsistent with regulations; Count II alleges a violation of the Fifth Amendment's notice requirement due to retroactive regulation reinterpretation; Count IV claims the assessments are unjust and unrelated to actual Postal Service damages, violating several provisions of 39 U.S.C.; and Count V asserts that the assessments exceeded the Postal Service's actual costs from non-compliance, also violating due process rights.

The Postal Service has filed a five-count Counterclaim against Sears, Segerdahl, and Aspen under the Federal Debt Collection Practices Act (FDCPA). 

- **Count I** seeks judgment against Sears for a debt of $1,033,597.19 related to the Sears Days mailing and asserts joint and several liability with Segerdahl for a $94,978.27 deficiency from the Baby Event mailing.
- **Count II** asserts that Segerdahl is jointly and severally liable with Sears for the $94,978.27 deficiency from the Baby Event mailing.
- **Count III** targets Aspen, claiming liability for a $125,367.01 deficiency from the Buick Holiday Event mailing.
- **Count IV** alleges unjust enrichment, claiming that Sears, Segerdahl, and Aspen benefited by paying less than what was owed for the mailings.
- **Count V** requests a declaratory judgment confirming that Sears, Segerdahl, and Aspen owe the assessed amounts.

Additionally, the plaintiffs are seeking summary judgment, while the Postal Service is moving to dismiss Count IV for lack of jurisdiction, to obtain judgment on the pleadings for Count V, and for summary judgment on other counts. 

In the analysis of Count I, the plaintiffs argue that the deficiency assessments are illegal and unenforceable due to regulatory inconsistencies, which presents a legal question to be resolved through summary judgment. The court notes that while the Postal Service is a government agency, its actions are exempt from the Administrative Procedure Act (APA) review, as specified in 39 U.S.C. 410(a). The Postal Service's application of its own regulations and deficiency assessments, however, is subject to limited judicial review.

The non-APA review assesses whether the Postal Service engaged in "reasoned decision-making," a standard established by the Greater Boston Television case, which requires consideration of all material facts and issues. This standard is applied with a strong presumption in favor of the Postal Service, allowing for overturning decisions only if they are "clearly wrong." Courts grant deference to an agency's interpretation of its own regulations unless it is plainly erroneous or inconsistent with the regulation. This deference is heightened when the agency's area involves technical complexity, leveraging its unique expertise.

Plaintiffs' arguments attempting to avoid this deferential review are rejected. They incorrectly assert that the "reasoned decision-making" standard only pertains to fact-finding and not regulatory interpretation; however, precedent does not support this distinction. The court's role is to ensure that the agency has adequately considered the relevant facts and issues, regardless of whether the matter involves mixed questions of law and fact.

Plaintiffs also argue that ambiguities in postal rates should be construed against the Postal Service, referencing cases related to common carrier tariffs, but these are not applicable since the dispute pertains to DMM regulations interpreting rates, not the rates set by the Postal Regulatory Commission. Lastly, they claim that the Postal Service, as a regulated monopoly, should not receive deference under Auer/Seminole Rock principles. This is contradicted by statutory and Supreme Court precedent identifying the Postal Service as an agency within the U.S. Government.

Auer/Seminole Rock deference to an agency's regulation interpretation is warranted only when the regulation is ambiguous, not merely permissive, as per Plaintiffs' argument. Citing *Christensen v. Harris County*, they assert that deference allows agencies to effectively create new regulations. However, the case is not analogous due to its permissive nature, while the regulation in question (DMM. 201.3.14.1c) is mandatory, specifically requiring that self-mailers longer than 7 inches "must" be sealed on the top and bottom.

The Court supports the Postal Service's interpretation of this regulation, deeming it not plainly wrong. The folded self-mailers must comply with DMM. 201.3.14.1c, which requires sealing at the trailing edge and both the top and bottom to qualify for a low automation rate. Plaintiffs argue that sealing the corners suffices, but the regulation does not specify corner sealing as adequate. The Court will assess the Pricing Center's decision-making against the regulation's language and purpose, as outlined in *Trinity Broadcasting of Florida, Inc. v. FCC*. DMM. 201.3.14.1c mandates securing unenveloped mail to prevent equipment blockage, emphasizing that all provisions of the regulation must be given effect, consistent with the principles of statutory interpretation. Plaintiffs' interpretation is seen as incomplete, as it fails to consider the regulation's full text and intent.

The regulation stipulates that the trailing edge of a folded self-mailer must be secured with at least one tab or glue line, and for self-mailers measuring 7 inches or more, they must also be sealed on the top and bottom. While the Plaintiffs' use of glue on the trailing edge satisfied the first requirement, it did not fulfill the second requirement for sealing the top and bottom. The Pricing Center's determination that glue on the trailing edge was insufficient for sealing the top and bottom was deemed reasonable and not inconsistent with the regulation. Plaintiffs mischaracterized the Pricing Center's requirements, claiming it mandated specific placement of glue spots, which was not the case. It was found that the glue lines did not secure the open edges at the top and bottom, leading to the potential for mailers to “fan open” and obstruct high-speed processing equipment. Historical concerns regarding improperly sealed mail leading to equipment jamming were noted, reinforcing the necessity for enforcement of the sealing requirement to ensure efficient automated processing and maintain low postal rates. The court deferred to the Pricing Center’s interpretation as it was not plainly erroneous. The Plaintiffs acknowledged that their mailers were sealed "near" but not "on" the top and bottom, indicating a failure to meet the sealing requirement.

In April 2009, the Postal Service introduced new 'optional recommendations' for folded self-mailers, allowing sealing with a glue spot close to an edge. However, Plaintiffs did not prove that their mailers complied with these recommendations, as they failed to meet other requirements such as using high tear strength paper and sealing all edges as mandated by existing regulations. The 2011 amendments to the regulations do not retroactively invalidate the 2009 rules, which retained their legal authority at the time the Plaintiffs' conduct occurred. The Postal Service's regulations are subject to change and do not remain static. The Pricing Center's decisions, including deficiency assessments, are upheld due to reasoned decision-making. The Postal Service seeks judgment for the debt owed under the Federal Debt Collection Improvement Act and the Fair Debt Collection Procedure Act, which allow recovery of debts and a 10% surcharge for processing costs. Plaintiffs did not contest the debt amount or the surcharge. The Court will rule in favor of the Postal Service for the debt and surcharge. Additionally, Count II of the Complaint claims a due process violation due to the Postal Service's alleged retroactive reinterpretation of sealing requirements without proper notice to Plaintiffs. The Postal Service has filed for summary judgment on this count.

Summary judgment under Rule 56 of the Federal Rules of Civil Procedure is granted when the movant demonstrates no genuine dispute exists regarding any material fact, entitling them to judgment as a matter of law. A party may be granted summary judgment if, after adequate discovery, they fail to show essential elements for their case on which they bear the burden of proof. Courts must draw all reasonable inferences in favor of the nonmoving party, which must present specific facts indicating a genuine issue for trial rather than relying on mere speculation or conclusory statements. If evidence is insubstantial or merely colorable, summary judgment is appropriate.

The Fifth Amendment's due process clause ensures that no individual is deprived of life, liberty, or property without due process, which includes the right to notice and a fair opportunity to be heard. Plaintiffs claim their due process rights were violated due to the Postal Service's retroactive reinterpretation of self-mailer regulations, asserting a lack of notice regarding sealing requirements. However, regulated parties are considered to have received notice by reviewing existing regulations and published agency guidance, which should provide clear standards. 

It is established that relevant regulations and guidance were published and accessible to the Plaintiffs, outlining the sealing requirements for self-mailers. The regulation explicitly stated that mailers longer than 7 inches needed to be sealed at the top and bottom, and the accompanying guidance illustrated acceptable designs. Additionally, the Plaintiffs had actual notice of these requirements, as a postal employee had previously informed Team Services of the necessary sealing for similar mailers.

Mike Buttita, an employee of Segerdahl Graphics, admitted that a mailpiece sealed only at the trailing edge was improperly sealed, contradicting the claim that it met DMM requirements for folded self-mailers. Buttita acknowledged in a January 12, 2010 email that the tabbing on a similar piece was incorrect and agreed to re-seal the mailpiece in compliance with proper standards. He emphasized that such errors are not typical in their quality control processes. As Segerdahl's principal, Sears is liable for Buttita's knowledge, given the legal precedent that holds principals accountable for their agents' knowledge to prevent unjust avoidance of responsibilities. The record indicates that the plaintiffs had both constructive and actual notice of the self-mailer sealing requirements, leading to a summary judgment in favor of the Postal Service regarding the plaintiffs' procedural due process claim.

In Count IV, the plaintiffs argued that the deficiency assessments were unjust and ultra vires, claiming the Postal Service failed to demonstrate that these assessments were based on actual damages. The Postal Service moved to dismiss this count for lack of subject matter jurisdiction. Under Federal Rule of Civil Procedure 12(b)(1), the defendant can seek dismissal when the court lacks jurisdiction, which is a statutory and Article III requirement. The party asserting jurisdiction carries the burden of proof. When evaluating such motions, courts must interpret complaints liberally but are not obligated to accept unsupported factual inferences or legal conclusions.

A court can examine materials beyond the pleadings to assess jurisdiction. Claims challenging postal rates lack jurisdiction in district courts and must first be presented to the Postal Regulatory Commission. The plaintiffs argue that deficiency assessments related to postal rates are unjust and violate statutory requirements for reasonable and equitable rates (39 U.S.C. § 404(b), § 3622(b)(8), and § 3622(c)(5)). The Postal Regulatory Commission is mandated to establish a nationwide system for regulating postal rates to ensure stability, predictability, and the elimination of price discrimination, as outlined in Title 39. Claims concerning postal rates are specifically excluded from district court jurisdiction and must be appealed directly to the D.C. Circuit. Although the Postal Service did not provide evidence of damages from the mailings in question, it is not obligated to prove damages to assess deficiencies for incorrect postage rates. Allowing discounted rates not earned by plaintiffs would undermine the uniform application of postal rates and contradict the goal of eliminating price discrimination. Postal rates are set uniformly and are not adjusted retroactively based on processing efficiency or actual costs.

Post hoc rate setting is deemed detrimental to the uniformity of postal rates and could lead to extensive litigation. Plaintiffs utilized the most discounted automation rate for three mailings that did not meet the required standards, resulting in a determination by the Pricing Center that they owed the difference between the discounted rate and the higher standard rate. The Postal Service certified this amount as owed due to noncompliance with mailing regulations. In Count IV, Plaintiffs' claim regarding damages from jammed machines is interpreted as a challenge to postal rates, which this Court lacks jurisdiction to adjudicate, leading to the dismissal of Count IV.

Count V asserts a violation of the Due Process Clause of the Fifth Amendment due to revenue deficiencies exceeding the Postal Service's actual costs. The Postal Service moved for judgment on the pleadings for Count V, arguing it fails to establish necessary elements for procedural or substantive due process, such as lack of notice or egregious government conduct. Plaintiffs did not respond to this motion, leading to a concession of the arguments not addressed. Consequently, judgment on the pleadings will be granted in favor of the Postal Service for Count V.

The Court concludes that the factual issues in this case are straightforward, focusing on whether the Plaintiffs' mail pieces were adequately sealed, which they were not. Therefore, Plaintiffs' motion for summary judgment is denied, and the Postal Service's cross motion for dismissal and summary judgment is granted. Counts III and IV are dismissed, with judgment entered in favor of the Postal Service on Count V and all other counts of the complaint and counterclaim. An accompanying Order will be issued.

The parties have refiled their briefs, incorporating citations to appendices relevant to their motions for summary judgment, including Plaintiffs' and Defendants' motions and replies. The regulations referenced are from a May 11, 2009 publication, which contained only minor changes from the previous version dated May 12, 2008. The court's review is limited to the administrative record, emphasizing that it should not duplicate agency findings. The court has confirmed the accuracy of the Plaintiffs' written descriptions of their mailpieces based on line drawings provided. Count III of the Complaint, concerning a rescinded fourth mailing, will be dismissed as moot since the Plaintiffs seek no further relief related to it. The Plaintiffs speculate about the potential overturning of Auer and Seminole Rock by the Supreme Court, but Auer remains a binding precedent. They have not demonstrated compliance with the 2011 regulations nor challenged their constitutionality. To avoid being deemed unconstitutionally vague, a regulation must be reasonably specific; DMM. 201.3.14.1c meets this standard. The Plaintiffs incorrectly assert that the court has jurisdiction over claims of ultra vires actions by the Postal Service, as judicial review must occur before the Postal Regulatory Commission. The distinction between a deficiency and a penalty is clarified, with the court noting that remedial sanctions do not constitute penalties. The Supreme Court has previously rejected individualized rate claims for regulated industries, affirming that agencies may set uniform rates without assessing individual financial circumstances.