Petition to review an order of the Board of Governors of the United States Postal Service modifying postal rates and fees pursuant to 39 U.S.C. § 3625(d) (1976). Remanded for further proceedings in light of this opinion.
Lumbard, Moore and Meskill, Circuit Judges.
This is the second matter before this Court arising from the fifth general rate-making proceeding since the enactment of the Postal Reorganization Act of 1970, 39 U.S.C. §§ 101 et seq. (Act). In Newsweek, Inc. v. United States Postal Service, 663 F.2d 1186 (2d Cir. 1981), cert. granted, 456 U.S. 925, 72 L. Ed. 2d 439, 102 S. Ct. 1969, 50 U.S.L.W. 3832 (1982), we addressed the lawfulness of certain changes in postal rates and fees which took effect on March 22, 1981 under protest by the Board of Governors of the United States Postal Service (Board). Shortly before Newsweek was decided, the rates and fees were modified by the Board pursuant to 39 U.S.C. § 3625(d). Those modifications are the subject of this proceeding.
A variety of challenges have been raised to the Board's modifications. Several parties argue that the Board was without authority to exercise its modification powers in this instance. Others rest on much narrower grounds, contending that the Board offered inadequate explanations for its individual modifications. For purposes of this opinion, we will assume familiarity with Newsweek and with the structure of the Postal Service, which is discussed therein, id. at 1190-91.
The rate-making proceeding underlying this case, Docket R80-1, commenced on April 21, 1980 when the Postal Service transmitted a request to the Postal Rate Commission (PRC) for a recommended decision on changes in postal rates and fees, see 39 U.S.C. § 3622(a). J. App., Vol. 3 at 1064-68. The request was accompanied by a schedule of rates and fees proposed by the Postal Service supported by testimony of eleven witnesses and thousands of documents. As set forth in greater detail in Newsweek, 663 F.2d at 1191-92, the PRC conducted extensive hearings pursuant to 39 U.S.C. § 3624 and issued a recommended decision on February 19, 1981. Opinion and Recommended Decision of the Postal Rate Commission (Feb. 19, 1981), J. App., Vol. 5 (First Recommended Decision). The Board, however, was dissatisfied with the recommended decision primarily because it considered the proposed rates insufficient to meet the Postal Service's anticipated revenue requirements.*fn1 Accordingly, for the first time since the Act's enactment in 1970, the Board elected not to accept a rate decision recommended by the PRC. Instead, the Board allowed the recommended rates to take effect under protest and returned the decision to the PRC for reconsideration and a further decision pursuant to 39 U.S.C. § 3625(c). Decision of the Governors of the United States Postal Service on Rates of Postage and Fees for Postal Services (Mar. 10, 1981), J. App., Vol. 1 at 205-323. The Board's order allowing the rates to take effect under protest constituted a decision reviewable by "any court of appeals of the United States," 39 U.S.C. § 3628, and this Court was ultimately asked to scrutinize the new rates in Newsweek.
Meanwhile, the PRC reconsidered its decision and issued a second recommended decision. Opinion and Recommended Decision Upon Reconsideration (June 4, 1981), J. App., Vol. 7 (Second Recommended Decision). The PRC substantially reaffirmed its first recommendation, asserting that the Board had exaggerated the Postal Service's revenue needs. On June 29, the Board rejected the PRC's Second Recommended Decision in its entirety, but left intact the rates which had taken effect under protest on March 22. Decision of the Governors of the United States Postal Service on the Postal Rate Commission's June 4, 1981 Recommended Decision Upon Reconsideration (June 29, 1981), J. App., Vol. 1 at 324-339. The Board returned the matter to the PRC for reconsideration and a third recommended decision, which was issued on September 17, 1981. Opinion and Recommended Decision Upon Further Reconsideration (Sept. 17, 1981), J. App., Vol. 8 (Third Recommended Decision). The September 17 recommendation was identical to the Second Recommended Decision, as the PRC steadfastly clung to its position that the Board had overstated the Service's revenue needs.
On September 29, 1981, the Board issued the order challenged in this proceeding. Decision of the Governors of the United States Postal Service on Rates of Postage and Fees for Postal Services (Sept. 29, 1981), J. App., Vol. 1 at 340-416 (Modification Decision). The Board, pursuant to its modification powers, see 39 U.S.C. § 3625(d), drastically revised the PRC's Third Recommended Decision, in many particulars by simply installing those rates originally proposed by the Postal Service in commencing the rate proceeding. The Board issued a twenty-seven page statement of justification for the modifications, prefacing its remarks by reiterating the fundamental problem it found in each PRC decision:
The rates recommended to us as Governors by the Postal Rate Commission, in its September 17, 1981 Recommended Decision Upon Further Consideration, are patently inadequate. The rates recommended by the Commission, on the basis of the record before the Commission and the Governors, will not provide the Postal Service with sufficient revenues to meet its costs.
Modification Decision at 1, J. App., Vol. 1 at 340. The Board, however, chose not to "address the [PRC's] positions point by point, but instead present[ed] the reasons for [its] modification actions." Id. at 6, J. App., Vol. 1 at 345. The Board did "incorporate by reference" its prior decisions of March 10 and June 29 as rationale for the new rates. Id.
The Board's explanation for the class by class modifications was limited to a seven-page conclusory discussion. While the Board stated that the new rates were "reasonable, equitable, and fiscally responsible" and "based on extensive record evidence," id. at 18, J. App., Vol. 1 at 357, the Board cited no evidence in the record. The Board asserted that it had "consider[ed] all of the rate schedules in order to develop rates that are rationally interrelated and harmonious," id., but offered no explanation of why and how the modified rates achieve this goal. And unlike the PRC, which had issued hundreds of pages of detailed explanations discussing the arguments for and against each recommended rate, the Board gave little indication that it had even considered much of the record evidence, often stating that the rates adopted for various classes were simply "those which the Postal Service proposed in its initial Request." Id. at 19, 21, 22, 23, J. App., Vol. 1 at 358, 360, 361, 362.
On October 29, 1981, two days before the modified rates were to take effect, two complaints were filed in district courts seeking injunctions to prevent the modified third class bulk rates from taking effect. Both complaints were dismissed for lack of jurisdiction. United Parcel Service, Inc. v. United States Postal Service, 524 F. Supp. 1235 (D. Del. 1981); Direct Mail/Marketing Association v. United States Postal Service, 524 F. Supp. 1219 (S.D.N.Y. 1981). The appeal from the latter case has been consolidated for our review.
On November 1, the modified rates took effect. A day later, Newsweek, which in large part upheld the legality of the rates which had taken effect under protest on March 22, 1981, was decided. Our discussion of several issues in Newsweek bears heavily on this proceeding and merits brief repetition. First, we rejected several decisions of the United States Court of Appeals for the District of Columbia Circuit which required the PRC to employ cost-of-service principles to the maximum extent possible in devising the postal rates.*fn2 See National Association of Greeting Card Publishers v. United States Postal Service, 197 U.S. App. D.C. 78, 607 F.2d 392 (D.C. Cir. 1979), cert. denied, 444 U.S. 1025, 100 S. Ct. 688, 62 L. Ed. 2d 659 (1980) (NAGCP III); National Association of Greeting Card Publishers v. United States Postal Service, 186 U.S. App. D.C. 331, 569 F.2d 570 (D.C. Cir. 1976), vacated as to other issues, 434 U.S. 884, 98 S. Ct. 253, 54 L. Ed. 2d 169 (1977) (NAGCP I). We declined, however, to hold the cost allocation methodology mandated by NAGCP I and III unlawful and stated that it could be used at the PRC's option. 663 F.2d at 1201. In addition, we reviewed the nearly $1 billion in Postal Service revenues slashed by the PRC in formulating rates. See note 1, supra. These revenue reductions were in large part the cause for the Board's ultimate decision to modify the rates. We held in Newsweek that the PRC's reduction of the Service's revenue requirements was an unlawful encroachment upon the policy-making domain of the Board and ordered the PRC to "refrain from making arbitrary adjustment of the Postal Service's [revenue] estimates." Id. at 1205. Significantly, because Newsweek was filed after the Board exercised its modification powers, the PRC was never given the opportunity to comply with our mandate that it accede to the Service's revenue needs as anticipated by the Board.
Finally, we addressed the Board's implementation of temporary third class bulk rates under 39 U.S.C. § 3641. We held that the PRC's First Recommended Decision had included a third class bulk rate which was "legally and practically speaking, impossible to implement." Id. at 1207. Accordingly, we found that the Board had acted properly by treating the PRC's proposed rates as a legal nullity and implementing temporary rates pursuant to section 3641(a). Id. at 1206-07. Notably, the Board's modified rates, which took effect on November 1, included permanent third class bulk rates. Modification Decision, Schedules D-2, D-3, J. App., Vol. 1 at 379-80.
The initial issue for resolution is whether the Board was empowered to modify the PRC's Third Recommended Decision. The United Parcel Service (UPS), joined by the American Bankers Association (ABA), vehemently argues that once the Board allowed the PRC's First Recommended Decision to take effect under protest, it forever abandoned its authority to modify a later recommended decision in the course of this rate proceeding. To resolve this issue, we must construe 39 U.S.C. § 3625, which we set forth in pertinent part below:
(a) Upon receiving a recommended decision from the Postal Rate Commission, the [Board] may approve, allow under protest, reject, or modify that decision in accordance with the provisions of this section.
(b) The [Board] may approve the recommended decision and order the decision placed in effect.
(c) The [Board] may, under protest, allow a recommended decision of the [PRC] to take effect and (1) seek judicial review thereof under section 3628 of this title, or (2) return the recommended decision to the [PRC] for reconsideration and a further recommended decision, which shall be acted upon under this section and subject to review in accordance with section 3628 of this title.
(d) The [Board] may reject the recommended decision of the [PRC] and the Postal Service may resubmit its request to the [PRC] for reconsideration. Upon resubmission, the request shall be reconsidered, and a further recommended decision of the [PRC] shall be acted upon under this section and subject to review in accordance with section  of this title. However, with the unanimous written concurrence of all of the Governors then holding office, the [Board] may modify any such further recommended decision of the [PRC] under this subsection if the [Board] expressly find[s] that (1) such modification is in accord with the record and the policies of this chapter, and (2) the rates recommended by the [PRC] are not adequate to provide total revenues so that total estimated income and appropriations will equal as nearly as practicable estimated total costs.
UPS submits that "once the [Board] elected to accept the [PRC's] rates by ordering them to take effect under § 3625(c), the [Board] at that same time elected to give up [its] option to 'reject' those rates under § 3625(d)." Brief for Petitioner UPS at 15. Under UPS' position, the Board would have to reject the initial PRC recommended decision and thereby forego the additional revenues it would generate in order to employ the modification power at a later time. We reject this position.
We begin our analysis with the language of section 3625(c). See Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 108, 64 L. Ed. 2d 766, 100 S. Ct. 2051 (1980). That section, in authorizing the Board to allow a recommended decision to take effect under protest, does not limit the Board's options with respect to a requested further recommended decision. Quite the contrary, section 3625(c) states that "a further recommended decision . . . shall be acted upon under this section and subject to review in accordance with section 3628 of this title." (emphasis added). This language indicates that a further recommended decision is to be treated by the Board exactly like an initial decision, with the full panoply of options set forth in section 3625(a) -- including rejection and subsequent modification under section 3625(d).*fn3
What sparse legislative history exists on section 3625(d) confirms that Congress did not intend to remove the Board's rejection and modification options once it allowed a decision to take effect ...