Quinn Emanuel recently achieved an appellate victory in the D.C. Circuit on behalf of longtime client United Parcel Service, resulting in a remand order requiring the US Postal Service to price package delivery more accurately.
This important decision by the D.C. Circuit will help make sure that the Postal Service competes fairly against the private sector when it comes to delivering e-commerce and other packages and does not use its monopoly over letter delivery to give it an advantage.
With the advent of email, the Postal Service saw its bread-and-butter of letter delivery drying up. Because it is a government agency, and not a private company, it had potential incentives to find ways to maintain its large size (as opposed to cutting costs). Around 2008, therefore, the Postal Service started focusing on competing with the private sector (UPS, FedEx) to deliver packages. Congress allowed this, but passed a law mandating that the Postal Service could not use its monopoly over letter delivery to gain an unfair advantage in package delivery. Basically, the package delivery business had to stand on its own feet and set prices at levels sufficient to cover the costs of that business. This raised the potential that the Postal Service might misclassify its costs—as being either part of the letter-mail monopoly business or as “institutional” costs of the enterprise as a whole. Congress designated a regulatory agency—the Postal Regulatory Commission—with making sure the Postal Service was accounting for the costs of delivering packages accurately.
At issue here was how the Commission set the “appropriate share” of “institutional” costs to be paid for by the Postal Service’s package-delivery business. Due to significant economies of scale and scope at the Postal Service, institutional costs make up approximately half of all Postal Service costs, or over $30 billion dollars. The Commission had issued an Order setting the appropriate share percentage to be less than 10% even though packages represent over 30% of Postal Service revenues. UPS argued that there were significant shortcomings in the Commission’s analysis. In April of 2020, Quinn Emanuel obtained a favorable opinion from the D.C. Circuit declaring the Commission’s Order arbitrary and capricious, and remanding the case to the Commission for further proceedings. The D.C. Circuit further described the Commission’s interpretation of the relevant statute as “incomprehensible and, thus, unreasonable.”
This case represents a significant win for UPS, because the deference doctrine announced in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) instructs courts generally to defer to agency expertise. Chevron deference presented a particularly uphill battle here because the agency had incorporated highly technical jargon and formulas in its Order, which at face value could be interpreted as an agency deploying specialized expertise beyond the reach of the judiciary. This case is also an important precedent for agency law generally, as it demonstrates the D.C. Circuit will in fact rein in agencies that overstep their authority and defy the statutory requirements for its decision making, even if the agency decision has the veneer of technical expertise.