[Federal Register Volume 73, Number 154 (Friday, August 8, 2008)]
[Notices]
[Pages 46339-46341]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-18292]


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POSTAL REGULATORY COMMISSION

[Docket No. C2008-3; Order No. 92]


Complaint of Capital One Services, Inc.

AGENCY: Postal Regulatory Commission.

ACTION: Notice.

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SUMMARY: The Commission has initiated a case to address allegations of 
undue discrimination and other issues raised by Capital One Services, 
Inc. (Capital One) in a formal complaint. The allegations stem from 
Capital One's interest in obtaining a rate agreement from the Postal 
Service on terms that are the same as or similar to those another major 
mailer has received. Accepting the case will provide an opportunity for 
review of pertinent issues.

DATES: Notices of intervention are due on August 13, 2008. A prehearing 
conference will be held on August 14, 2008.

ADDRESSES: Submit comments electronically via the Commission's Filing 
Online system at http://www.prc.gov.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
202-789-6820 and [email protected].

SUPPLEMENTARY INFORMATION: The Complaint of Capital One Services, Inc. 
Regarding Discrimination and Other Violations of Law by the United 
States Postal Service (Complaint) was filed on June 19, 2008. The 
Complaint asserts several claims concerning Capital One's unsuccessful 
attempts to enter into a negotiated service agreement similar to the 
agreement that the Postal Service recently commenced with Bank of 
America. In support of the Complaint, Capital One filed the Declaration 
of Ben Lamm, and correspondence between Capital One and the Postal 
Service dated May 15, 2008, May 27, 2008, May 30, 2008, and June 4, 
2008.\1\
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    \1\ The May 30, 2008 correspondence includes a copy of a 
negotiated service agreement proffered by Capital One to the Postal 
Service.
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    The Answer of the United States Postal Service (Answer) in response 
to the Complaint was filed on July 21,

[[Page 46340]]

2008, together with a Motion of the United States Postal Service to 
Dismiss Complaint (Motion to Dismiss). On July 28, 2008, the Opposition 
of Capital One Services, Inc. to Motion to Dismiss of the United States 
Postal Service (Opposition to Dismiss) was filed in response to this 
motion.
    The Commission finds that the Complaint raises material issues of 
fact and law, and shall begin proceedings to hear the issues involved. 
39 U.S.C. 3662(b). The Motion to Dismiss does not persuade the 
Commission that Capital One should not be provided an opportunity to 
present evidence and argument in support of its Complaint, and thus, 
the Motion to Dismiss is denied.

I. The Capital One Complaint

    Capital One asserts that it has repeatedly approached the Postal 
Service in attempts to obtain a negotiated service agreement that is 
similar to the agreement that the Postal Service entered with Bank of 
America Corporation.\2\ It alleges that the Postal Service refuses to 
enter into a similar agreement and insists that any agreement with 
Capital One would have to include mailer-specific baselines and reduced 
per-piece discounts.\3\ Complaint at 3. Capital One contends that 
because the Postal Service insists on an agreement incorporating 
mailer-specific baselines and reduced per-piece discounts, Capital One 
is not being offered an agreement on similar terms to Bank of America.
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    \2\ See PRC Op. MC2007-1. The Bank of America negotiated service 
agreement requires Bank of America to implement several advanced 
mailing practices and provides Bank of America discounts for proven 
performance improvements relative to six negotiated baselines.
    \3\ Capital One argues that requiring Capital One to use mailer-
specific baselines in place of the Bank of America baselines (which 
were developed from dated industry averages) radically alters the 
incentives (and implicitly the agreement) available to Capital One. 
Complaint at 16.
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    By denying Capital One a negotiated service agreement under the 
same terms, Capital One contends that (1) the Postal Service has unduly 
or unreasonably discriminated among users of the mails and granted an 
undue or unreasonable preference in violation of 39 U.S.C. 403(c); (2) 
the Postal Service has created a special classification not available 
on public and reasonable terms to similarly situated mailers, which 
creates unreasonable harm to the marketplace in violation of 39 U.S.C. 
3622(c)(10); and (3) the Postal Service has violated Commission rules 
3010.40 et seq. because the rules incorporate by reference the legal 
standards of 39 U.S.C. 3622(c)(10). Id. at 17-19.
    Capital One contends the Postal Service should not be allowed to 
deny an agreement to Capital One on the same terms granted to Bank of 
America. Capital One also argues the Postal Service should not be 
allowed to contest whether the Bank of America agreement is a pay-for-
performance agreement, arguing that this was fully litigated and 
resolved in Docket No. MC2007-1. Id. at 19-20.
    Capital One requests relief in the form of a ruling that the Postal 
Service has violated 39 U.S.C. 403(c), 39 U.S.C. 3622(c)(10), and/or 
Commission rules 3010.40 et seq. It requests a ruling stating that 
Capital One is entitled to an agreement with the same substantive 
terms, or at a minimum, includes the same financial incentives offered 
to Bank of America. It requests any other relief deemed appropriate, 
including but not limited to the Commission ordering approval of a new 
product (agreement) substantively identical to the Bank of America 
agreement, without further need for negotiations between the Postal 
Service and Capital One. Id. at 22.

II. The Postal Service Motion to Dismiss

    The Postal Service argues that the Complaint fails to establish 
that the Postal Service unduly discriminated against Capital One or 
otherwise violated title 39. Motion to Dismiss at 2-4. In support of 
this argument, the Postal Service asserts that it has long been 
established that functional equivalence does not mean identical, and 
that all agreements, including functionally equivalent agreements, are 
tailored to each partner's unique situation and to how the agreement 
then benefits the Postal Service. It quotes Commission holdings that a 
proposed functionally equivalent agreement must primarily rest on the 
same substantive functional elements as the identified baseline 
agreement, and must provide a comparable benefit to the Postal 
Service.\4\ It argues that an analysis of functional elements would 
allow for a far wider range of functionally equivalent agreements than 
Capital One's argument allows. It concludes that the Postal Service's 
refusal to approve just one example of a functionally equivalent 
agreement as presented by Capital One does not constitute an undue or 
unreasonable preference or create a special classification not 
available on public and reasonable terms to similarly situated mailers.
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    \4\ Id. at 3. See also Docket No. MC2007-4, Order Regarding 
Limitation of Issues and Establishing Procedural Schedule, September 
7, 2007, at 2 referencing Docket No. RM2003-5, PRC Order No. 1391, 
February 11, 2004, at 49-51.
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    The Postal Service further contends that the Complaint is premature 
because the parties never engaged in, or exhausted, reasonable efforts 
to negotiate a functionally equivalent agreement. Id. at 4-7. It 
asserts that the Postal Service was and remains prepared to continue 
negotiations with Capital One.
    In response, Capital One contends that reference to its Complaint 
at 3 and 12-15, and the Opposition to Dismiss at 9-12, present ample 
indications that despite its extended good faith efforts to negotiate, 
additional discussions would be futile.

III. Commission Analysis

    The Postal Service asserts that Capital One fails to establish 
undue discrimination. Id. at 2-4. Capital One discusses the importance 
of the opportunity to bring complaints under the Postal Accountability 
and Enhancement Act (PAEA) and suggests a standard for the legal 
sufficiency of complaints similar to the standard set forth in the 
Federal Rules of Civil Procedure. Opposition to Dismiss at 4-5. The 
Commission has previously applied a ``colorable claim'' standard. See 
PRC Order No. 1307 at 9. The Commission finds this an applicable 
standard to apply under section 3662. Under this standard, Capital One 
does not have to establish undue discrimination as argued in the Motion 
to Dismiss; it only has to establish a colorable claim raising material 
issues of fact or law for the Commission to initiate a proceeding. Once 
a colorable claim is established, the complainant is provided an 
opportunity to develop its case, and the respondent is given an 
opportunity to refute the allegations.
    Capital One contends that it has not been able to obtain a 
negotiated service agreement with the Postal Service on similar terms 
to the agreement that the Postal Service has with Bank of America. 
Complaint at 3, para. 6. The Postal Service appears to acknowledge that 
any agreement with Capital One must use mailer-specific baselines, and 
that the discounts will have to be reduced to reflect that Capital One 
was not the first adopter. See Complaint at 15, para. 42 and Answer at 
7, para. 42. Capital One alleges this constitutes undue or unreasonable 
discrimination in violation of 39 U.S.C. 403(c).
    The Postal Service argues that negotiations have not been given an 
opportunity to run their course. Motion to Dismiss at 4-7. Capital One 
contends that negotiations are at a standstill. Opposition to Dismiss 
at 9-12.

[[Page 46341]]

    The Commission finds that this exchange raises issues of both law 
and fact relevant to whether or not the actions, or inactions, of the 
Postal Service rise to the level of undue or unreasonable 
discrimination among users of the mails, or to the granting of undue or 
unreasonable preferences to any such users in violation of 39 U.S.C. 
403(c).
    The pleadings raise several other mixed issues of law and fact. 
These include whether Capital One and Bank of America are ``similarly 
situated,'' what constitutes a ``functionally equivalent'' agreement in 
this situation, and what, if any, harm Capital One has or will incur.
    Capital One contends that because the Postal Service only addresses 
one of the six claims presented by Capital One, the claims that were 
not addressed are properly before the Commission. Id. at 14-15. For 
example, Capital One raises claims concerning the factor of the PAEA 
that encourages special classifications, available on public and 
reasonable terms to similarly situated mailers, which do not cause 
unreasonable harm to the marketplace. See 39 U.S.C. 3622(c)(10). The 
Postal Service does not specifically address these claims other than 
offering a denial. Motion to Dismiss at 3. The Commission shall hear 
all issues presented by the Complaint.

IV. Opportunity for Intervention

    Any interested person may file a notice of intervention, consistent 
with the Commission's rules of practice, as a full or limited 
participant. See 39 CFR 3001.20 and 3001.20a. The notice of 
intervention shall be filed using the Internet (Filing Online) at the 
Commission's Web site (http://www.prc.gov), unless a waiver is obtained 
for hard copy filing. See 39 CFR 3001.9(a) and 3001.10(a). Notices of 
intervention are due no later than August 13, 2008.

V. Discovery

    Capital One, the Postal Service, and the Public Representative may 
begin discovery immediately. Discovery may begin upon intervention by 
others. See 39 CFR 3001.25-28.

VI. Prehearing Conference

    A prehearing conference is scheduled for August 14, 2008, at 2:30 
p.m. in the Commission's hearing Room. Capital One shall be prepared to 
discuss any additional time needed for discovery, and the time needed 
to prepare to present its case. In light of the representations made as 
to the potential for further negotiations (Motion to Dismiss at 6), the 
parties are encouraged to search for common ground and report on any 
progress during the prehearing conference.

VII. Representation of the General Public

    Pursuant to 39 U.S.C. 505, E. Rand Costich is appointed to serve as 
officer of the Commission (Public Representative) to represent the 
interests of the general public in the above-captioned docket.

It is Ordered

    1. The Commission finds that the Complaint of Capital One Services, 
Inc., Regarding Discrimination and Other Violations of Law by the 
United States Postal Service, filed June 19, 2008, raises material 
issues of fact or law and shall begin proceedings in this Complaint.
    2. The Motion of the United States Postal Service to Dismiss 
Complaint, filed July 21, 2008, is denied.
    3. The Commission will sit en banc in this proceeding.
    4. The deadline for filing notices of intervention is August 13, 
2008. Notices shall indicate whether the intervening party intends to 
participate in the hearing and the nature of that participation.
    5. A prehearing conference will be held in the Commission's hearing 
Room on August 14, 2008, at 2:30 p.m.
    6. The Commission appoints E. Rand Costich as Public Representative 
to represent the interests of the general public in this proceeding.
    7. The Secretary shall arrange for publication of this order in the 
Federal Register.

    By the Commission.
Steven W. Williams,
Secretary.
[FR Doc. E8-18292 Filed 8-7-08; 8:45 am]
BILLING CODE 7710-FW-P