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Peoples Gas v. United States Postal Service

decided: August 18, 1981.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 81-C-146 -- Milton I. Shadur, Judge .

Before Swygert, Senior Circuit Judge, Pell, Circuit Judge, and Campbell,*fn1 Senior District Judge.

Author: Swygert

This appeal requires us to determine whether procurement decisions of the United States Postal Service are subject to judicial review and, if so, whether the plaintiff had standing to challenge the decision involved in this case.

Defendants-appellants, the United States Postal Service, the Postmaster General of the United States, William F. Bolger, the Regional Postmaster General, John P. Doran, and the Regional Director of the Real Estate and Buildings Department, E. P. Gailmard, appeal from a preliminary injunction granted on February 25, 1981 in favor of the Peoples Gas, Light and Coke Company, a Chicago-based public utility. Peoples Gas sought to enjoin the Postal Service from proceeding with an invitation for bids to construct an electrically-powered plant to heat the Chicago Main Post Office. In its complaint for injunctive and declaratory relief, Peoples Gas alleged injury by the Postal Service's failure to comply with the capital investment and contracting requirements of applicable postal regulations. The district court held a hearing in early February 1981 and shortly thereafter granted the preliminary injunction. Defendants' appeal followed.

The Chicago Main Post Office Building, one of the largest buildings in Chicago, has been heated since its construction in 1933 by steam purchased from the Chicago Union Station Company. The Union Station Company generates steam from natural gas purchased from Peoples Gas. In September 1979 the Union Station Company notified the Postal Service of its intention to cancel its steam contract as of September 30, 1982. Postal Service officials therefore commissioned the architectural and engineering firm of Perkins and Will to make an economic analysis and an environmental assessment of available heating sources. As the study progressed, various heating sources were considered, including solar heat, oil, and coal, but all were eliminated from serious consideration for a variety of reasons with the exception of a central high pressure gas plant and a central high pressure electric plant.

The Perkins and Will study concluded that gas was the economically superior alternative but rejected it because of the potential delay that could be caused by environmental considerations. Perkins and Will had been specifically instructed by postal officials that it was essential for the Service to have a replacement plant by September 1982, when its present steam heating contract would terminate. It was further understood that the scheduling requirements of the project would not allow enough time for the filing of an Environmental Impact Statement. Accordingly, the Perkins and Will study noted that although a gas burner plant would present negligible environmental impact, a variance would be required from the City of Chicago to reduce the height of the exhaust stack of a gas plant in order to minimize the possibility of an impact statement. Moreover, developers or residents in the vicinity of the plant might consider a high stack aesthetically unpleasant, or a source of high pollution, which might in turn require an impact statement. Since an electric boiler plant was the only alternative which presented no environmental or aesthetic problems, the Perkins and Will study recommended that an electric heating plant be constructed.*fn2

The defendant Postal Service officials had reached the same conclusion that the more cost-effective gas heating plant alternative should be eliminated for environmental reasons at a meeting held on May 14-15, 1980, one month prior to the completion of the Perkins and Will study. The officials were concerned that there would be opposition from the City of Chicago or some other interested group on environmental grounds to a plant that would have smoke stack projections or emissions that could be perceived as pollutant. A Draft Decision Analysis Report, dated May 16, 1980, summarized the decision reached by Postal Service officials at the meeting in May and was later put into final form in the Decision Analysis Report issued on June 17, 1980. The final report presented the alternative of a gas fired boiler plant:

Gas-Fired Boiler Plant

This option would present a negligible environmental impact, according to the Perkins and Will engineering report; an aesthetic problem would exist with the height of the stack.

However, the City of Chicago has advised in a letter (dated May 13, 1980), that construction of a steam generating plant in the vicinity of Harrison and Canal Streets or at almost any other location in that vicinity, must be analyzed carefully in terms of environmental impacts, both actual and potential, attendant to such a facility. Also, the City states, any major projecting structure (such as a stack), and the potential impact on air quality from combustion of fossil fuels on site might collectively indicate a need for an environmental impact analysis.

Although construction of a gas-fired boiler is economically superior to an electric boiler over the analysis period, this alternative was eliminated due to the possibility that an Environmental Impact Statement would be required, and this action would delay the completion of the proposed plant beyond the September 1982 cut-off date for providing a replacement source of steam.

This analysis was based in part upon the mistaken assumption of Regional Director Gailmard, the contracting officer involved in the project, that an applicable Postal Service regulation required the filing of an Environmental Impact Statement whenever a proposed project could be considered environmentally controversial. When the decision was made in May to eliminate the gas alternative, Gailmard was unaware of the fact that the regulation which would have required an impact statement had been superseded six months earlier in November 1979. 39 C.F.R. § 775.4(4) (July 1977). Under the new regulation, if a site-planning environmental assessment indicates that a particular project poses no significant environmental impact, the responsible officials are required to issue a finding to that effect. Pursuant to the amended regulation, Gailmard should have issued a no-impact statement for gas after the Perkins and Will environmental assessment indicated that a gas heating plant would have only a negligible environmental impact.

The defendant Postal Service officials sent the final Decision Analysis Report to the Capital Investment Committee. The Capital Investment Committee made some modifications to the report and then presented it, together with the Perkins and Will study, to the Board of Governors, an eleven member board consisting of nine presidential appointees, the Postmaster General, and the Deputy Postmaster General, for final approval of the capital investment proposal. The Board of Governors adopted the recommendations of the committee on August 5, 1980.

Following the decision of the Board of Governors, Peoples Gas was in constant contact through its representatives and correspondence with Postal Service officials regarding the selection of electricity over gas. Peoples Gas submitted its own estimate of annual operating costs for a gas heating plant to show that gas was substantially less costly than electricity. At one meeting on October 22, Postal Service representatives confirmed that Perkins and Will had on its own figures recalculated the initial annual fuel cost savings of gas to be over one million dollars as opposed to the $996,500 calculated in its original report. Nonetheless, Postal Service officials repeatedly denied the requests of Peoples Gas for a copy of the Perkins and Will study and related documents. It was not until after those documents were dislodged by two Freedom of Information Act requests filed by Peoples Gas that it became clear to Peoples Gas that environmental considerations were the basis for the rejection of the gas fired alternative. To counter the environmental concerns, Peoples Gas submitted a letter to defendant Regional Postmaster General Doran, dated November 17, 1980, from the City of Chicago, indicating that the city would look favorably upon a request for a variance from the stack height requirement. Peoples Gas sought to demonstrate through subsequent correspondence with Postal Service officials, including the United States Postmaster General Bolger, and during a meeting with Assistant Postmaster General Craig on December 5, 1980, that the Perkins and Will study greatly underestimated the cost advantage of the gas alternative and was mistaken on environmental factors as well.

Meanwhile, on November 21, 1980, the Postal Service issued an invitation for bids for the construction of a steam boiler plant powered by electricity. On December 29, 1980, Peoples Gas filed a protest against the invitation for bids under the Postal Contracting Manual, which governs the Postal Service procurement decisions. The bid opening was delayed by the Postal Service two weeks until January 20, 1981, in order to allow the Office of the General Counsel an opportunity to respond to the protest. The General Counsel's response was issued on February 4, 1981, and addressed each of the claims raised by Peoples Gas. The plaintiff filed its complaint in the district court on January 12, 1981, alleging the same violations of the Postal Contracting Manual and the two internally-promulgated Capital Investment Implementation Instructions, Publications Nos. 190 and 191, as were alleged in its bid protest.

During the course of the hearing on plaintiff's motion for preliminary injunction in the district court, Peoples Gas representatives testified regarding the variances between their studies of fuel and construction costs and those of Perkins and Will. The district court specifically noted in its memorandum opinion that Gailmard's decision to disqualify the gas alternative on environmental grounds was based on a prior Postal Service regulation on Environmental Assessment and Impact Statement Procedures that had been recently superseded. This error, in the court's view, fatally infected the entire decisional process running all the way up through the Postal Service chain of command, causing the final decision by the Board of Governors to be based on a flawed analysis of the alternatives. Observing that under Publication No. 191, § 3.14, usually the most effective capital investment proposal is chosen unless the alternative is fully justified, the court added: "We cannot presume that the Board of Governors would have viewed the selection of electricity as "fully justified' if the presentation given was that gas was economically superior and that USPS would not require an Environmental Impact Statement for either gas or electricity." The district court further noted specific errors contained in the Perkins and Will study and identified matters which should be taken into consideration by the Postal Service during a reevaluation of its decision. The court enjoined the Postal Service from awarding a contract under the invitation for bids by memorandum opinion dated February 19, 1981 and order entered on February 25, 1981. The defendants were directed to make a prompt reevaluation of the project's comparative economics using applicable Department of Energy escalation rates and to make a finding of negative environmental impact for both gas and electricity to be transmitted through appropriate administrative procedures for final decision of the Board of Governors. This appeal followed. We reverse.


Our first consideration is subject matter jurisdiction which, in the context of this case, requires a determination of whether the district court had authority to review the procurement decision that was made by the Postal Service. Following our discussion of subject matter jurisdiction, we will consider whether Peoples Gas had standing to bring this action.*fn3

The district court, 508 F. Supp. 808, found subject matter jurisdiction in two statutes: (1) 28 U.S.C. § 1339 ("The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to the Postal Service.") and (2) 39 U.S.C. § 409(a) ("Except as provided in section 3628 of this title (inapplicable in this case), the United States district courts shall have original but not exclusive jurisdiction over all actions brought by or against the Postal Service."). We hold that neither statute provides an independent basis for jurisdiction. To each of these provisions there must be added a substantive legal framework to afford subject matter jurisdiction. It is our view that these two statutes serve to remove any barrier that might otherwise exist by reason of the doctrine of sovereign immunity. They permit the Postal Service, an independent executive establishment created by Congress, to sue and to be sued. As such they form no basis for a cause of action.

The district court cited National Assoc. of Postal dSup'rs v. United States Postal Service, 195 U.S. App. D.C. 242, 602 F.2d 420 (D.C.Cir.1979), as support for its holding. In that case three associations of postal service supervisory personnel filed an action against the Postal Service, alleging that its denial of future cost of living raises and reduction of salary differentials violated section 1004(a, b) of the Postal Reorganization Act, 39 U.S.C. § 1004(a, b). Although in that case Judge MacKinnon expressly acknowledged that 28 U.S.C. § 1339 provided a basis for entertaining the action, it is clear from his opinion that section 1004(a, b) provided the substantive law upon which the case was decided. That provision thus served as the essential predicate for the cause of action asserted therein. Accordingly, National Assoc. of Postal Sup'rs does not support the district court's holding.

We agree with the United States that the Postal Reorganization Act contains no provision which governs the manner by which the Postal Service may enter into procurement contracts. But that does not end our inquiry into whether a substantive basis exists for jurisdiction. Section 401(3) of the Act, 39 U.S.C. §§ 101 et seq., gives the Postal Service general powers "to enter into and perform contracts ... and determine the character of, and necessity for, its expenditures" and section 401(2) authorizes the Postal Service "to adopt ... such rules and regulations as it deems necessary to accomplish the objectives of this title." Thus it is clear that these two provisions of section 401 do authorize the Postal Service to make rules and regulations pertaining to its procurement needs. Pursuant to its statutory authority, the Postal Service has promulgated the Postal Contracting Manual and Publications Nos. 190 and 191. Whereas the plaintiff refers generally to these Postal Service regulations as being relevant to its claim, only one specific regulation was expressly relied upon by the district court to establish a violation: Section 3.14 of Publication No. 191, Capital Investment Implementation Instructions, which states, "Usually the most cost effective solution that meets capacity and environmental standards is selected. Other alternatives recommended or selected in lieu of the most cost effective one must be fully justified." Unquestionably this provision sets forth a cost effective standard that the Postal Service must apply in making procurement decisions. Consequently, there is a law to apply in this review action, contrary to the defendants' suggestion, and a substantive basis for jurisdiction.

The United States concedes, as it must, that a validly-issued regulation may provide an independent basis for jurisdiction. Goldman v. First Federal Savings and Loan Assoc. of Wilmette, 518 F.2d 1247 (7th Cir. 1975). The United States, however, urges that once the foundation is laid by a validly-enacted regulation under a general empowering statute, we must further inquire into whether the regulation affords a private right of action enforceable in a federal court. In that regard the United States points to the absence of any specific language in the Postal Reorganization Act which can be read as creating a right of review. Additionally, the defendants note that the plaintiff has not shown how Publications Nos. 190 and 191 create an enforceable private right of action or cited legislative history indicative of congressional intent to create a right of review.

In this inquiry we are guided by the principle that nonreviewability of administrative actions taken pursuant to a statute or regulation is "not lightly to be inferred." Barlow v. Collins, 397 U.S. 159, 166, 90 S. Ct. 832, 837, 25 L. Ed. 2d 192 (1970). "Indeed, judicial review of such administrative action is the rule, and nonreviewability an exception which must be demonstrated." Ibid. The Supreme Court has repeatedly emphasized that "only upon a showing of "clear and convincing evidence' of a contrary legislative intent should the courts restrict access to judicial review." Abbott Laboratories v. Gardner, 387 U.S. 136, 141, 87 S. Ct. 1507, 1511, 18 L. Ed. 2d 681 (1967), quoting Rusk v. Cort, 369 U.S. 367, 379, 380, 82 S. Ct. 787, 794, 7 L. Ed. 2d 809 (1962). See Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 410, 91 S. Ct. 814, 820, 28 L. Ed. 2d 136 (1971). Of course, a clear statutory command will preclude review, Barlow v. Collins, supra, but where the relevant statute, such as the Postal Reorganization Act here, does not contain an express prohibition, it is the party asserting nonreviewability that has "the heavy burden of overcoming the strong presumption that Congress did not mean to prohibit all judicial review." Dunlop v. Bachowski, 421 U.S. 560, 567, 95 S. Ct. 1851, 1857, 44 L. Ed. 2d 377 (1974). Thus it has been said that, "The question is phrased in terms of "prohibition' rather than "authorization' because a survey of our cases shows that judicial review of final agency action by an aggrieved person will not be cut off unless there is persuasive reason to believe that such was the purpose of Congress." Abbott Laboratories v. Garder, 387 U.S. at 140, 87 S. Ct. at 1511; see Dunlop v. Bachowski, 421 U.S. at 560, 95 S. Ct. at 1854. The foregoing decisions make clear that, contrary to the position taken by the United States Attorney, it is incumbent upon the United States to demonstrate that Congress intended to preclude judicial review and not for the plaintiff to demonstrate that judicial review was authorized under the relevant regulatory scheme.*fn4

In the absence of a clear statutory command, congressional intent to preclude judicial review may be shown by the overall purpose or design of the relevant statute as viewed within the context of the entire legislative scheme. Abbott Laboratories v. Garder, 387 U.S. at 141, 87 S. Ct. at 1511. As the Supreme Court observed in Assoc. of Data Processing Service Org. v. Camp, 397 U.S. 150, 157, 90 S. Ct. 827, 832, 25 L. Ed. 2d 184 (1970), there is a presumption in favor of judicial review "unless a contrary purpose is fairly discernible in the statutory scheme." Various standards have been employed in determining whether agency action is nonreviewable. A recent pronouncement in National Assoc. of Postal Sup'rs v. United States Postal Service, supra, offered the following factors for consideration: "A judicial determination of Congressional intent, the functional needs of the agency for flexibility and discretion, and the capacity of the courts to resolve issues presented to them." 602 F.2d at 429.

The United States contends that a congressional intent to preclude review can be inferred from the fact that Congress exempted the Postal Service from all federal law dealing with public or federal contracts, as well as the Administrative Procedure Act. The Administrative Procedure Act has been widely interpreted as being merely declaratory of the common law of reviewability and standing existing at the time of the statute's enactment in 1948. See, e. g., Arnold Tours, Inc. v. Camp, 408 F.2d 1147, 1161 (1st Cir. 1969), vacated, 397 U.S. 315, 90 S. Ct. 1109, 25 L. Ed. 2d 333 (1970); Kansas City Power & Light Co. v. McKay, 96 U.S. App. D.C. 273, 225 F.2d 924, 931-32 (D.C.Cir.), cert. denied, 350 U.S. 884, 76 S. Ct. 137, 100 L. Ed. 780 (1955). Contra, e. g., Scanwell Labs, Inc. v. Schaeffer, 137 U.S. App. D.C. 371, 424 F.2d 859, 872 (D.C.Cir.1970). See generally, 6 Jaffe, Judicial Control of Administrative Action, at 372, 528-30 (1965) (hereinafter cited as "Jaffe, at ......"). As such, the Administrative Procedure Act embodies the basic common law presumption of judicial review. Abbott Labs, Inc., 387 U.S. at 140, 87 S. Ct. at 1511, citing Shields v. Utah Idaho Central RR, 305 U.S. 177, 59 S. Ct. 160, 83 L. Ed. 111 (1938); Stark v. Wickard, 321 U.S. 288, 64 S. Ct. 559, 88 L. Ed. 733 (1944); American School of Magnetic Healing v. McAnnulty, 187 U.S. 94, 108, 23 S. Ct. 33, 38, 47 L. Ed. 90 (1902); Jaffe, at 372; H. Saferstein, supra n. 4, at 374. It can be reasonably assumed, therefore, that an agency's exemption from the provisions of the Administrative Procedure Act does not negate the applicability of common law review principles that preexisted and operate apart from the subsequent codification. The exemption of the Postal Service from all federal law dealing with public or federal contracts pertains only to the ...

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