[Federal Register Volume 61, Number 151 (Monday, August 5, 1996)]
[Notices]
[Pages 40671-40675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19754]


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POSTAL RATE COMMISSION

[Order No. 1128; Docket No. C96-1]


Complaint of Coalition Against Unfair USPS Competition; Order 
Denying Motion of United States Postal Service To Dismiss Proceeding 
and Notice of Formal Proceedings

July 30, 1996.
    The Commission has before it a Complaint against the United States 
Postal Service pursuant to 39 U.S.C. Sec. 3662 which concerns a ``Pack 
& Send'' service, hitherto unknown to and never reviewed by the 
Commission, and the rates or fees which the Service is charging for 
providing that service. Complainant, a coalition consisting of 
organizations and individuals doing business in the Commercial Mail 
Receiving Agency (``CMRA'') industry, alleges that the Postal Service 
is charging rates which do not conform to the policies of the Postal 
Reorganization Act, inasmuch as it is rendering a postal service 
without first having requested a recommended decision on the service 
and its rates from the Commission. The Postal Service concedes that it 
is offering the service on a trial basis at a limited number of 
facilities, but denies that its ``Pack & Send'' service is within the 
Commission's jurisdiction under Sec. 3662 because it is not ``postal'' 
in character. On that ground, it moves to dismiss the complaint.
    The factual assertions of Complainant and the Postal Service 
conflict on some, but not all, points. Furthermore, the information 
offered to support the conflicting factual claims is incomplete, and 
does not justify a conclusion at this time either that Pack & Send is, 
or is not, postal in character. However, some of the information 
already presented would tend to support an inference that Pack & Send 
is a postal service, and the Commission believes that further inquiry 
into this matter would be appropriate. Because the Commission reaches 
the preliminary conclusion that the Complaint may be justified, 
depending on the ultimate state of the facts concerning the Pack & Send 
service offering, the Postal Service's motion to dismiss shall be 
denied. Formal proceedings to develop an evidentiary record will be 
conducted in this docket.
    Substance of the Complaint. In its Complaint filed May 23, 1996, 
the Coalition Against Unfair USPS Competition identifies its membership 
as organizations engaged in the franchising of stores in the CMRA 
industry, together with individual franchisees who independently own

[[Page 40672]]

and operate CMRA stores nationwide. According to the Complaint, 
``[e]ach of the individual stores offer pack and send services as part 
of the overall retail value-added services provided in these stores.'' 
Complaint at 2. Consequently, the Complaint alleges, by offering the 
Pack & Send service the Postal Service ``is in effect going into direct 
competition with the CMRA industry * * *'' Ibid.
    The Complaint is accompanied by several attachments intended to 
document particulars of the Pack & Send service, its competitive 
purpose, and the terms under which it is being offered. Complaint, 
Attachments 2-3, 5. Also included is an affidavit reporting the 
experience of an individual customer who purchased Pack & Send service 
in a Postal Service retail store in Anchorage, Alaska. Id., Attachment 
4.
    Complainant alleges that the Postal Service is providing the Pack & 
Send service as a postal service, but without having submitted a 
request to the Commission as required by the Reorganization Act. 
According to Complainant, the status of Pack & Send as a postal service 
is established by the fact it is being ``bundled'' with acceptance for 
mailing by postal clerks; by a description in the 1995 Annual Report of 
the Postmaster General that casts the service as part of a mailing 
transaction; and by the Service's failure to include the Pack & Send 
service with other non-postal services specified in connection with its 
request in Docket No. MC96-2. Id. at 4-5. The Coalition identifies 11 
areas where the Postal Service is offering the Pack & Send service, and 
assert on the basis of anecdotal evidence ``that the implementation of 
this service is burgeoning.'' Id. at 5. Citing a Postal Service 
publication which discloses an average packing charge of $3.24, the 
Complaint also claims that, ``the Postal Service is not pricing this 
service based on any attribution of costs * * * pricing is based on 
`what our competitors charge.'' Id. at 3, quoting Attachment 2.
    The Coalition observes that the Domestic Mail Classification 
Schedule contains no classification provision for Pack & Send, and that 
no reference can be found for an approved rate for the service. 
Complainant also states it has no knowledge that the service has ever 
been submitted for a rate or classification decision by the Commission. 
The only rationale that would support these omissions as lawful under 
the Reorganization Act, Complainant states, would be a conclusion that 
Pack & Send is not a postal service. Citing court decisions which dealt 
with distinguishing ``postal'' from ``non-postal'' services, the 
Coalition argues that this conclusion would not be justified for the 
Pack & Send service because the terms under which it is offered prove 
``that Pack & Send is a service so closely related to the delivery of 
mail that it clearly is a postal service.'' Id. at 8.
    In response to its Complaint, the Coalition requests that the 
Commission provide relief in the following forms: (1) issuance of an 
opinion that the Postal Service is offering Pack & Send in violation of 
the Reorganization Act; (2) initiation of a proceeding pursuant to 
sections 3622 and 3623 leading to a recommended decision on the Pack & 
Send service to the Governors; (3) transmission of the opinion in item 
1 to the Governors, together with a request that the Postal Service be 
directed to suspend its offering of Pack & Send until it has submitted 
the service to the Commission for a recommended decision; and (4) any 
other appropriate relief consistent with the requests in the first 
three items.
    Postal Service Answer. The Postal Service responded to the 
Complaint in an Answer filed on June 24, 1996. The Service denies that 
it is offering Pack & Send service on a nationwide basis, but states 
that it ``has begun to offer packaging on an experimental basis at a 
few selected retail outlets.'' Answer at 2. The Service also denies 
that Pack & Send is a ``bundled'' service that necessarily entails 
mailing. It asserts that ``Pack & Send'' refers only to the packaging 
of items by the Service, and that: ``Customers of the packaging service 
need not send their packaged items through the Postal Service in order 
to have them packaged.'' Id. at 9.
    The Postal Service denies that, by offering a packaging service, it 
has ``launched itself into competition with the CMRA industry[.]'' 
Instead, the Service claims, ``any existing competition between the 
Postal Service and the CMRA industry was created by the CMRA 
industry.'' Id. at 3. The Service also denies that there is any 
foundation for Complainant's characterization of Pack & Send as not 
being priced on the basis of attributed costs. Id. at 9. The Postal 
Service does admit that the packaging service has not been the subject 
of a rate or classification proceeding pursuant to 39 U.S.C. Secs. 3622 
or 3623 respectively, and that the Domestic Mail Classification 
Schedule does not include a separate classification for packaging. Id. 
at 2, 5 and 7.
    In response to sections 84 (b) and (c) of the rules of practice, 
the Postal Service takes the position that the Complaint is not 
properly before the Commission. The Service claims that the subject of 
the Complaint is no more than a ``limited parcel packaging trial,'' 
(id. at 8), and asserts that it ``is not a postal service, within 
previous interpretations of the term.'' Id. at 9. Because, in the 
Service's view, the Commission lacks jurisdiction to review the 
Complaint, the Postal Service also claims that a hearing is unnecessary 
and the relief requested is inappropriate. Therefore, the Service 
asserts, the Commission should dismiss the Complaint.
    Postal Service Motion to Dismiss and Memorandum. Three days after 
filing its Answer, the Postal Service submitted a motion to dismiss the 
proceeding with prejudice ``on the grounds that the subject matter of 
this proceeding does not fall within the scope of 39 U.S.C. 
Sec. 3662.'' Motion of the United States Postal Service to Dismiss 
Proceeding, June 27, 1996, at 1. The Service also filed a memorandum in 
support of its motion, accompanied by an annotated copy of the 
Complaint and a Declaration of a Postal Service manager. Memorandum in 
Support of Motion of the United States Postal Service to Dismiss 
Proceeding, June 27, 1996.
    The Postal Service's memorandum consists of factual statements 
which describe the parcel packaging service and legal arguments which 
rely on those statements. The statements of fact are based on the 
attached Declaration of Hugh McGonigle, who states he is the Manager of 
Alternate Retail Services. On the basis of the McGonigle Declaration, 
the Postal Service states that parcel packaging service is currently 
available on a limited, trial basis at approximately 230 post offices 
in various areas throughout the United States; that it was initiated to 
provide a convenience to customers; and that the purpose of the limited 
testing has been measurement of customer interest and assessment of the 
service in operation. Memorandum at 1-2.
    The Postal Service Memorandum also draws from the McGonigle 
Declaration to describe the transaction whereby an interested customer 
can procure packaging service from a window clerk at a facility which 
offers Pack & Send. According to the Service's description, at one 
point in the transaction the customer is free to ``choose whether he or 
she wants to send the package through the Postal Service, to pay for 
and accept only the packaging, or to retrieve the item and terminate 
the transaction entirely.'' Id. at 2. The Service represents that the 
experience reported in the affidavit appended to the Complaint 
(Attachment 4)--in which Ms. Chou reports being told by a

[[Page 40673]]

window clerk that she could not purchase Postal Service packaging 
unless the item to be wrapped was also mailed through the Service--``is 
contrary to the Postal Service's intent in offering packaging[,]'' and 
that there is ``no reason to consider this occurrence anything other 
than an isolated incident.'' Id. at 3. However, the Service also notes 
that, ``system-wide operational instructions have not been finalized 
and distributed [for Pack & Send].'' Ibid. In light of the assertions 
in the Coalition's Complaint, and in order to ensure consistency in 
conducting the Pack & Send trial, the Service states that it has issued 
a directive to remind postal personnel that customers may purchase only 
packaging, if desired. Ibid. That directive is attached to the 
McGonigle Declaration.
    Based on its representations of fact, the Postal Service presents 
several arguments against Complainant's assertion that Pack & Send is a 
``postal'' service. First, the Service cites the decision in Docket No. 
R76-1, in which the Commission found the Postal Service's offering of 
``postal related products'' such as padded shipping bags, postal scales 
and packing material, to be ``too attenuated'' in their relation to the 
carriage of mail to place them within the Commission's jurisdiction. 
Id. at 4, quoting PRC Op. R76-1, Vol. 2, App. F at 20-21. The Service 
argues that packing service properly belongs in the same non-postal 
category as these shipping products, and that its relationship to 
collection, transmission and delivery of mail is insufficiently close 
to deem it a postal service. Memorandum at 5.
    The Postal Service also argues that Complainant's assertions fail 
to justify any departure from this conclusion. The Service cites the 
McGonigle Declaration to rebut Complainant's claim that packaging 
service is necessarily bundled with mailing. Ibid. It also denies that 
Attachment 2 to the Complaint, which Complainant terms an advertising 
circular but the Service characterizes as a ``motivational tool 
directed to postal personnel,'' (id. at 6), amounts to a statement of 
Postal Service policy, or supports any inference that the Service 
recognizes Pack & Send as a postal service. Id. at 6-7. The Service 
also denies that its Compliance Statement filed with its Request in 
Docket No. MC96-2 supports such an inference, as parcel packaging ``was 
not widely available on a permanent basis[]'' when that filing was 
made. Id. at 7. Finally, the Postal Service disputes that Attachment 5 
and anecdotal evidence cited in the Complaint establish that Pack & 
Send is available on a nationwide basis. Id. at 8-9.
    The Postal Service's Memorandum concludes with arguments that the 
judicial authorities cited by Complainant do not support the conclusion 
that Pack & Send is a postal service. The Service asserts that parcel 
packaging clearly does not fall within the ATCMU court's standard of 
``very closely related to the delivery of mail'' 1 or the NAGCP 
court's standard of ``clearly involv[ing] an aspect in the posting, 
handling and delivery of mail matter.'' 2 To the contrary, the 
Service argues that packaging is more similar to the sale of packing 
and wrapping materials, which the Commission found not to constitute 
postal service in the decision in Docket No. R76-1. The Service notes 
that packaging service is not limited exclusively to the mailing 
function; that close (if not identical) substitutes are available from 
other sources such as Complainant's membership; and that Pack & Send is 
not tied to postal services in any manner that would change its non-
postal character. Id. at 9-11.
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    \1\ Associated Third Class Mail Users v. United States Postal 
Service, 405 F. Supp. 1109, 1115 (D.D.C. 1975), aff'd, National 
Association of Greeting Card Publishers v. U.S. Postal Service, 569 
F.2d 570 (D.C. Cir. 1976), vacated on other grounds, United States 
Postal Service v. Associated Third Class Mail Users, 434 U.S. 884 
(1977).
    \2\ National Association of Greeting Card Publishers v. U.S. 
Postal Service, 569 F.2d 570, 596 (D.C. Cir. 1976).
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    Response of Complainant. The Coalition responded to the Postal 
Service's Motion to Dismiss in an Opposition filed on July 8, 1996. It 
challenges the Service's arguments that the Pack & Send service is non-
postal, particularly the analogy to the sale of packing materials. 
Complainant argues that the more persuasive and relevant analogy is to 
the sale of postal money orders, which was found to be a regulated 
postal service by the court in the ATCMU case on the ground that the 
vast majority of money orders sold at post offices are actually sent by 
mail. Even if a postal customer is allowed to procure Pack & Send 
service without mailing the package, Complainant asserts, ``it is 
extremely unlikely that a postal customer will use another shipping 
service when that service is not available at the postal facility.'' 
Opposition at 4.
    Complainant also challenges the Postal Service's interpretations of 
the information attached to the Complaint, and argues that the totality 
of Postal Service material available on the Pack & Send service 
indicates a goal of providing a service that is integrated with 
mailing. As support for this position, the Coalition cites the ``box 
it, pack it, and send it'' characterization in the Annual Report of the 
Postmaster General; the similar description in the advertising circular 
at Attachment 5 to the Complaint; the $2-off coupon which reads ``Let 
Us Box, Pack and Ship Your Gifts''; and the reference to ``truly one-
stop shopping for [customers'] mailing needs'' in the June 1995 issue 
of USPS Update also included in the Attachment. Opposition at 5-6. 
Additionally, Complainant suggests that the Postal Service's declared 
policy in favor of selling Pack & Send service separately, stated in 
the McGonigle Declaration and attached Memorandum of June 24, may have 
been crafted to avoid the Commission's jurisdiction, and in any event 
``is subject to change on a moment's notice. * * *'' Id. at
4-5.
    Complainant also argues against the Postal Service's denial that it 
is offering Pack & Send service nationwide, and claims the Service is 
relying on an erroneous legal premise. The Coalition notes that the 
Complaint does not allege that the service is available nationwide, and 
that declarant McGonigle admits that Pack & Send is available in 
various areas throughout the United States. In any event, Complainant 
argues, whether or not the service is nationwide is essentially 
irrelevant because applicable law requires a rate request to the 
Commission even for temporary, limited or experimental postal services. 
Id. at 6-7.
    Finally, Complainant suggests that additional factual questions 
about Pack & Send are raised by the Postal Service's specific denial 
that packaging service is performed by postal clerks. The Coalition 
states that its allegation that postal clerks perform the Pack & Send 
service was intended as no more than a routine factual recitation, and 
that the Service's denial without further elaboration leaves questions 
about who will perform the service unresolved. Complainant argues that 
these outstanding factual issues provide another reason for denying the 
Postal Service's motion.
    Disposition of the Motion to Dismiss. As both the Coalition and the 
Postal Service have recognized, the pivotal issue posed by the 
Complaint at this juncture is whether the Pack & Send service is 
``postal'' or ``non-postal'' in character. If the service is deemed 
``postal'' in nature, Complainant's challenge of the rates or fees 
charged is appropriate for consideration under the terms of 39 U.S.C. 
Sec. 3662. On the other hand, if the service is found to be ``non-
postal,'' then the rates or fees charged

[[Page 40674]]

are outside the purview of Sec. 3662, and the appropriate disposition 
of the complaint is dismissal.3
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    \3\ The Coalition correctly notes that the geographic extent of 
the locations in which Pack & Send service has been offered is 
essentially irrelevant to this determination. The provision of Pack 
& Send service on a ``nationwide or substantially nationwide basis'' 
[39 U.S.C. Sec. 3661(b)] could be a ground of jurisdictional dispute 
in a proceeding to consider a proposed change in the nature of 
postal services pursuant to Sec. 3661, but the Commission has no 
such Postal Service proposal before it.
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    Determining whether the Pack & Send service is ``postal'' or ``non-
postal'' in character requires the application of legal standards to 
the available facts. While it has been stated in a variety of ways, the 
primary standard 4 that has been applied in analyzing different 
services is:
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    \4\ One alternative basis for finding a service to be ``non-
postal'' applies where the service relates exclusively to 
performance of an activity, independent of the carriage of mail, 
which the Postal Service is required or authorized to perform. Such 
activities include the sale of migratory bird hunting stamps and 
philatelic transactions. See PRC Op. R76-1, Vol. 2, App. F at 1-2; 
Docket No. C95-1 (Complaint of David B. Popkin), Order Dismissing 
Complaint (Order No. 1075), September 11, 1995, at 3-5. The Postal 
Service has not claimed that the Pack & Send service is ``non-
postal'' by virtue of its relationship to any such activity.

* * * the relationship of the service to the carriage of mail. Those 
which can fairly be said to be ancillary to the collection, 
transmission, or delivery of mail are postal services within the 
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meaning of Sec. 3622.

PRC Op. R76-1, Vol. 2, Appendix F at 3. Application of this standard 
looks not only at the intrinsic features and terms of the service, but 
also considers the extent to which use of the service culminates in use 
of the mails.5
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    \5\ This latter consideration was the basis on which the sale of 
money orders was found to be a postal service in the ATCMU case, 
supra. The Postal Service notes that the Commission ``has 
questioned'' the validity of this jurisdictional analysis with 
respect to money orders in the R76-1 decision. Postal Service 
Memorandum at 10, n. 6. The Commission did express doubt regarding 
the jurisdictionality of money orders in the R76-1 decision, and 
opined that a standard more strict than that applied by the District 
Court in ATCMU would be appropriate. PRC Op. R76-1, Vol. 2, App. F 
at 12. Nevertheless, the Court of Appeals subsequently relied on the 
same rationale employed by the District Court in finding the 
provision or money orders to be postal in nature. NAGCP, supra, 569 
F.2d 596.
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    The facts presented thus far regarding the Pack & Send service are 
fragmentary and to some extent controverted. However, even when viewed 
in a light favorable to the Postal Service, the available facts do not 
warrant a summary determination at this time that the service is non-
postal in character.
    First, regardless of whatever relation Pack & Send may have to 
other activities that are recognized as postal, the packaging service 
itself is a form of mail preparation activity that is familiar in the 
postal marketplace. It is a type of work that can be performed by the 
shipper, the carrier, or a third party intermediary such as one of the 
Coalition's members. Thus, the Postal Service's provision of the Pack & 
Send service could be viewed as a form of worksharing in reverse--
compensation of the Postal Service for a mail preparation activity that 
would otherwise be performed by the sender of the parcel or a third 
party.
    Second, it appears that the Postal Service has structured the 
transaction in which the Pack & Send service is provided in a manner 
which closely associates payment for the service with payment for 
packing materials and payment of postage. Postal Service Memorandum at 
2; Declaration of Hugh McGonigle at 1-2. The use of an Integrated 
Retail Terminal (IRT) to calculate and sum the respective charges for 
packing materials, the Pack & Send packaging service, and applicable 
postage is neither unreasonable nor sinister. However, this arrangement 
does raise the question of the extent to which purchase of the Pack & 
Send service, and payment of the applicable rate or fee, is 
disaggregated from payment of postage. Even after reading Mr. 
McGonigle's description of the transaction, it is far from clear how a 
customer is separately charged for packing materials and the Pack & 
Send service.6
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    \6\  In his description of how the parcel packaging service 
works, Mr. McGonigle states that a customer submits an item to a 
window clerk, who weighs the item on an IRT. The clerk determines 
the appropriate box size, the fragility of the item to be packaged, 
and ``the price and weight of the selected box.'' Declaration at 1. 
At this point, apparently, the charge for packing materials has been 
established. The clerk then adds the weight of the packaging to the 
weight of the item, enters that total on the IRT, and enters the 
class of service selected by the customer and the destination ZIP 
Code to calculate the total postage that would apply to the piece. 
Then, according to Mr. McGonigle, ``[t]he clerk enters the box price 
into the IRT, which generates the total price for packaging and 
mailing the piece.'' Id. at 2. (Emphasis added.) On the basis of 
this description, it is impossible to identify a separate charge for 
the packaging service. Additionally, the photocopies of Postal 
Service receipts appended to Ms. Chou's affidavit (Complaint, 
Attachment 4) shed no light on this question; no separate charges 
for packing materials or the Pack & Send service appear on the 
receipts.
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    Finally, even if one assumes that the policy directive (attached to 
the McGonigle Declaration) to provide Pack & Send service without also 
requiring mailing is observed scrupulously throughout the Postal 
Service, that fact alone would not necessarily establish the non-postal 
status of the service. It is possible, as Complainant argues, that the 
vast majority of customers who purchase the Pack & Send service go on 
to pay postage and deposit the parcel in the mail. The extent to which 
this is the case may bear importantly on the postal or non-postal 
character of the service, as the courts found in the ATCMU and NAGCP 
decisions.
    In light of the incomplete state of the facts available concerning 
the Pack & Send service, the Commission is not prepared to declare at 
this time that it is, or is not, postal in character. For this reason, 
the Postal Service's motion to dismiss the proceeding shall be denied. 
Furthermore, because some of the information already presented would 
tend to support an inference that Pack & Send is a postal service, 
there is reason to believe that the Coalition's Complaint may be 
justified. Inasmuch as the Pack & Send service and its rates or fees 
have not been the subject of a Postal Service request and scrutiny in a 
public proceeding before the Commission, the rates or fees charged may 
prove not to conform to the policies of the Reorganization Act if the 
Pack & Send service is shown to be postal in nature.
    Proceedings to Consider Complaint. Given the nature of this 
controversy, there appears to be little likelihood that the matter 
could be settled or resolved under informal procedures. Because, in the 
Commission's view, resolution of this Complaint would be assisted by 
the production of additional facts concerning the Pack & Send service 
and development of a public record, the Commission has determined under 
Sec. 86 of the rules of practice that a formal proceeding pursuant to 
39 U.S.C. Sec. 3624, with an opportunity for hearing, should be held in 
this docket. This will enable Complainant and other interested parties 
to develop information through discovery and to make evidentiary 
presentations, as well as allow the Postal Service to present its 
response.
    In order to develop a procedural schedule for this docket, 
Complainant is directed to provide a statement, due 10 days from 
issuance of this order, estimating the amount of time it will require 
to develop and file a case-in-chief. The Commission will thereafter 
issue a procedural schedule and special rules of practice, if any.
It is ordered:
    (1) The Motion of the United States Postal Service to Dismiss 
Proceeding, filed June 27, 1996, is denied.
    (2) Proceedings in conformity with 39 U.S.C. Sec. 3624 shall be 
held in this matter.
    (4) The Commission will sit en banc in this proceeding.
    (5) Notices of intervention shall be filed no later than August 26, 
1996.

[[Page 40675]]

    (6) W. Gail Willette, Director of the Commission's Office of the 
Consumer Advocate, is designated to represent the general public in 
this proceeding.
    (7) Complainant shall provide a statement, due August 12, 1996, 
estimating the amount of time it will require to develop and file a 
direct case in this proceeding.
    (8) The Secretary shall cause this Notice and Order to be published 
in the Federal Register.


    By the Commission.
Cyril J. Pittack,
Acting Secretary.
[FR Doc. 96-19754 Filed 8-02-96; 8:45 am]
BILLING CODE 7710-FW-P