[Federal Register Volume 74, Number 134 (Wednesday, July 15, 2009)]
[Notices]
[Pages 34373-34375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-16782]
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POSTAL REGULATORY COMMISSION
[Docket No. C2009-1; Order No. 235]
Complaint of GameFly, 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 GameFly, Inc. (GameFly)
in a formal complaint related to sending and receiving DVDs. Accepting
the case will provide an opportunity for review of pertinent issues.
DATES: 1. Joint prehearing conference memorandum is due July 20, 2009.
2. Notices of intervention are due July 22, 2009.
3. A prehearing conference will be held July 23, 2009 (10 a.m.).
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 GameFly, Inc. (Complaint)
was filed on April 23, 2009. The Complaint asserts several claims that
concern unreasonable discrimination and other undue preferences allowed
by the United States Postal Service in violation of the law. In support
of its Complaint, GameFly, Inc. (GameFly) alleges that the Postal
Service extended preferential services and inequitable rates to certain
high volume rival mailers who similarly use First-Class Mail to send
and receive DVDs.
GameFly specifically contends its pieces are being processed
through the automated letter mail processing equipment that continues
to cause damage, and that the favored high volume DVD mailers are not
suffering the high level of broken DVDs. It further alleges that ever
since it resorted to higher cost flat rates and inserts to reduce
breakage, it is still suffering more damage than these other mailers,
while it is also paying the additional ounce postage charges and more
for the flats shape of its pieces.
The Answer of the United States Postal Service (Answer) in response
to the Complaint was filed on May 26, 2009, together with a Motion of
the United States Postal Service for Partial Dismissal of Complaint
(Motion for Partial Dismissal). The Answer denied that the Postal
Service's updated policy favors special handling by hand for inbound
pieces, even though some exceptions arise in the field. The Motion for
Partial Dismissal asserts that GameFly's reliance upon 39 U.S.C. 404(b)
for jurisdiction appears misplaced. On June 2, 2009, GameFly, under a
Motion of GameFly, Inc. for Leave to File Reply to Requests of the USPS
for Disposition of Complaint (Motion for Leave), filed a Reply of
GameFly, Inc. to Requests of the USPS for Disposition of Complaint
(Reply).
For the reasons explained below, the Commission concludes it has
jurisdiction over the dispute, grants GameFly's Motion for Leave, and,
upon a review of the pleadings, denies the Postal Service's Motion for
Partial Dismissal. The Commission also concludes 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).
I. The GameFly Complaint
GameFly claims that the rates and services extended to some high
volume DVD mailers violate 39 U.S.C. 101(d), 403(c), 404(b) and
3622(b)(8), which prohibit undue discrimination. Complaint at 1. It
explains that it, like many other businesses that rent DVDs to
consumers, uses a two-way DVD mailer. Id. at 3. It distributes game
DVDs to
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subscribers via First-Class Mail, and subscribers usually return the
DVDs to GameFly in prepaid mailers via First-Class Mail Business Reply
Mail (BRM). Id.
The Complaint alleges that the DVD is small enough so that when it
is mailed in a lightweight mailer, the combined mailpiece can qualify
as a one-ounce letter. Id. at 4. However, when the DVDs were enclosed
in lightweight mailers without protective inserts, the company
experienced breakage of DVDs in the mail. Id. GameFly alleges that the
``breakage occurs during the processing of DVD mailers on Postal
Service automated mail processing equipment'' for letters. Id. at 5. To
reduce breakage, GameFly began to insert cardboard protectors into its
DVD mailers in 2002. Id.
While reducing breakage, the protectors ``increased the size and
weight of the mailpieces * * * to * * * two-ounce flats.'' Id. This
raised GameFly's postal rates for this higher total weight. Id. at 6.
In 2007, the rising postal rates on flats led GameFly to test other
mailpiece designs without a protector to reduce breakage at less cost,
but these tests did not succeed. Id. The Postal Service also declined
GameFly's request to reduce rates as to the second ounce. Id. at 7.
GameFly contends that ``the Postal Service failed to stop breaking
GameFly DVDs'' despite charging the higher rates for flats. Id. at 5.
On account of the higher postage for flats, surcharges for the extra
ounce, and certain other losses for theft, GameFly claims that it has
incurred ``greatly increased mailing costs,'' that on average are
almost 88 cents per piece more than the postage for a one-ounce letter.
Id. at 6-7.
GameFly alleges that the Postal Service gave preferential treatment
for certain high volume movie DVD mailers who also faced significant
DVD breakage.\1\ It claims that ``the Postal Service has adopted a
practice of manually culling out the DVD mailers of two high volume
shippers of DVDs, Netflix and Blockbuster, for special processing.''
\2\
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\1\ Id. at 8-9. GameFly cites a report from 2007 that allegedly
found that most of the two-way DVD mailpieces from one unnamed high
volume DVD rental company received manual processing. See Complaint
at 8, para. 36, citing USPS Office of Inspector General, Audit
Report No. MS-AR-08-001, Review of Postal Service First-Class Permit
Reply Mail (November 8, 2007) (OIG Report).
\2\ Id. at 8; see also OIG Report at 5, n.9. The term
``culling'' usually refers to removing, by hand, non-letter mail
from letter mail, and non-machinable mailpieces from automation rate
pieces.
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GameFly asserts that the Postal Service's practice of giving manual
processing to DVDs from certain high volume mailers has continued since
the OIG Report. Complaint at 9. It alleges that, despite its requests,
the Postal Service has declined to give GameFly's DVD mailers
processing on terms and conditions comparable to those offered to the
two high volume mailers. Id. It alleges that Blockbuster is a rival
that is entering the market for game DVD mailpieces. Id.
Counts I and II assert undue discrimination under sections 3662(a)
and 403(c).\3\ Under counts III and IV, GameFly contests postal rates
charged for DVDs entered by GameFly as First-Class flats as
inequitable, in violation of 39 U.S.C. 404(b).\4\ Each of the counts
includes the first 39 paragraphs of the Complaint. GameFly requests
relief, following a hearing, in an order that prescribes the same rates
and terms of service that the Postal Service provides to Netflix and
Blockbuster. Id. at 13.
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\3\ The Postal Service's Motion for Partial Dismissal, discussed
below, does not separately challenge GameFly's first two counts,
raised under section 403(c), either based upon any defect of
pleading or jurisdiction.
\4\ Count III asserts the rates are unfair because the Postal
Service processes the same DVDs on letter-sorting equipment, unless
the mailer also pays second-ounce postage. Count IV asserts that
they are unfair because the Postal Service fails to process the DVDs
on flats-sorting equipment.
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II. The Postal Service's Answer and Motion for Partial Dismissal
The Postal Service responds to the Complaint with a timely answer,
which denies most of the material allegations directly, and adds
certain affirmative allegations. The Postal Service also denies any
preferential practices of unfair rules, inequitable rates, or
processing standards, as well as any liability, losses, causation, and
injury. See, e.g., Answer at paras. 2, 12, 16, and 19. It separately
submits a Motion for Partial Dismissal to assert that the Commission
lacks jurisdiction to hear counts that assert violations of 39 U.S.C.
404(b). Motion for Partial Dismissal at 1.
Aside from its Motion for Partial Dismissal, addressed below, the
Postal Service alleges that it does not have a ``policy'' of manually
processing mail entered by other high volume DVD mailers for delivery
to or from its customers. Answer at para. 49. The Postal Service
explains that while it has no current practice of manually culling
incoming DVDs, it admits that ``some culling of the incoming DVDs
(returns from customers) may * * * occur despite the change in
policy.'' Id. at para. 37. It also denies that ``any significant volume
of outgoing DVD mail pieces (from the mailer to the customer) are
processed manually.'' Id.; see also para. 38.
The Postal Service urges that its procedures for letter sorting
streams and flat sorting streams are justifiably different. Id. at
para. 39. It asserts that mailpieces very close to the size of the
envelopes that complainant currently uses would typically not be
extracted as a flat. Id. at para. 22. It explains that each mailer's
mailpiece design controls the processing of the mailpiece. See, e.g.,
Answer at paras. 12, 17, 23.
The Motion for Partial Dismissal explains that the Commission's
jurisdiction to hear complaints is ``narrowly specified'' in a quoted
portion of 39 U.S.C. 3662(a). The Postal Service mainly assails
paragraphs 53 and 55 of the Complaint. It observes that the Complaint
improperly alleges that the Postal Service practices have violated 39
U.S.C. 404(b). Motion for Partial Dismissal at 2. The Postal Service
submits that ``subsection [404(b)] is not one of the specific
provisions * * * that are identified in subsection 3662(a).'' Id. Nor
is the cited statute in chapter 36. Id. On these grounds, it contends
that a ``complaint filed under subsection 3662(a) alleging a violation
of subsection 404(b) fails to state a cause of action for which the
Commission may grant relief.'' Id.
III. Commission Analysis
The Postal Service's Motion for Partial Dismissal aims at
eliminating allegations by GameFly under 39 U.S.C. 404(b), and
particularly defeating counts III and IV. See id. at 2. Section 404(b)
mainly empowers the Governors ``to establish reasonable and equitable
classes of mail and reasonable and equitable rates of postage''
consistently with chapter 36. 39 U.S.C. 404(b). Section 404(b) is not
included in the grounds for complaints listed in section 3662.
GameFly asserts, by its Reply, that section 3662(a) incorporates
section 101(d). Reply at 5-6. It adds that ``[b]y operation of Sections
401(2) and 101(d), the substantive standard of section 404(b) thus is
clearly justifiable in a complaint filed under section 3662(a).'' Id.
at 6. Section 101(d) is included in the grounds for complaints listed
in section 3662(a).
In view of these contentions, it is appropriate to explore whether
the counts are properly based upon statutory authority that satisfies
the usual notice pleading requirements. Each count includes by
reference the first 39 paragraphs of the Complaint. See Complaint at
paras. 52 and 54. Thus, each count properly may be read to assert a
violation under sections
[[Page 34375]]
101(d) and 403(c), unless the allegations otherwise fail to state a
colorable claim.\5\
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\5\ See Complaint at para. 2 (the rates and services offered to
high volume DVD mailers violate sections 101(d) and 403(c), which
prohibit undue discrimination, and inequitable rates and
practices.); see also Answer at para. 2; and see generally Docket
No. C2001-1, Order Partially Denying Motion of United States Postal
Service to Dismiss Complaint and Notice of Formal Proceedings, March
20, 2001, at 9 n.11.
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The Postal Service's dismissal motion overlooks that the contested
counts expressly include other allegations based upon section 101(d).
Each count plainly has at least one clear statutory basis upon which to
seek recourse. Thus, despite its apparent reliance on section 404(b) at
the very end of the counts, GameFly still satisfies the standards of
pleading statutory authority at this juncture. See Complaint at 1,
citing 39 U.S.C. 101(d), and 403(c). The Commission has determined that
the Postal Service's Motion for Partial Dismissal must therefore be
denied.
The Commission finds that the pleadings raise issues of both law
and fact relevant to whether or not the actions, or inactions, of the
Postal Service violate 39 U.S.C. 101(d) or 403(c), either by (a) Rising
to the level of undue discrimination or preferences among users of the
mails, or (b) charging rates inequitably among such mailers. 39 U.S.C.
3662(b).
IV. Prehearing Conference and Public Representation
A prehearing conference is scheduled for July 23, 2009 at 10 a.m.
in the Commission's hearing room.
GameFly and the Postal Service must meet and confer at least two
weeks before the conference date to consider the appropriate scope and
timeframes for discovery. Discussion should separately address each of
the categories mentioned in the Complaint. See Complaint at para. 41.
They shall jointly prepare a prehearing conference memorandum that
identifies relevant undisputed facts. They shall offer suggestions, and
be prepared to discuss the proper scope of discovery and the dates to
complete discovery and to present their cases. They are urged to
stipulate to an orderly process that streamlines the discovery schedule
so as to reduce the need for motions on any special challenges. Where a
mutually acceptable process cannot be agreed to, GameFly and the Postal
Service shall fashion a joint statement clarifying areas of contention.
The joint prehearing conference memorandum, with any related proposed
stipulations, must be filed no later than July 20, 2009.
V. Opportunity for Intervention
Except as otherwise specified above, 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 July 22,
2009.
Pursuant to 39 U.S.C. 505, E. Rand Costich and John Klingenberg are
appointed to serve as officers of the Commission (Public
Representative) to represent the interests of the general public in the
above-captioned docket.
VI. Ordering Paragraphs
It is ordered:
1. The Commission finds that the Complaint by GameFly, Inc., filed
April 23, 2009, regarding violations of law by the Postal Service,
raises material issues of fact and shall begin proceedings in this
Complaint.
2. The Motion of GameFly, Inc. for Leave to File Reply to Request
of the United States Postal Service for Disposition of Complaint, filed
June 2, 2009, is granted.
3. The Motion of the United States Postal Service for Partial
Dismissal of Complaint, filed May 26, 2009, is denied.
4. The Commission will sit en banc in this proceeding.
5. The deadline for filing any notices of intervention is July 22,
2009. Notices shall indicate whether the intervening party intends to
participate in the hearing and the nature of that participation.
6. A prehearing conference will be held in the Commission's hearing
room on July 23, 2009 at 10 a.m. At least two weeks before the
conference, the parties shall meet and confer on discovery. They shall
prepare a joint prehearing conference memorandum that must be filed no
later than July 20, 2009.
7. The Commission appoints E. Rand Costich and John Klingenberg as
Public Representative to represent the interests of the general public
in this proceeding.
8. The Secretary shall arrange for publication of this order in the
Federal Register.
By the Commission.
Judith M. Grady,
Secretary.
[FR Doc. E9-16782 Filed 7-14-09; 8:45 am]
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