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Northern Air Cargo, et al v. United States Postal Service and Peninsula Airways

April 3, 2012

NORTHERN AIR CARGO, ET AL.,
APPELLANTS
v.
UNITED STATES POSTAL SERVICE AND PENINSULA AIRWAYS, INC., APPELLEES



Appeals from the United States District Court for the District of Columbia (No. 1:09-cv-02065)

The opinion of the court was delivered by: Silberman, Senior Circuit Judge.

Argued February 3, 2012

Before: SENTELLE, Chief Judge, SILBERMAN and WILLIAMS, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge SILBERMAN.

Concurring opinion filed by Chief Judge SENTELLE.

This case is a partial primer as to how not to defend or adjudicate a challenge to agency action in federal district court. The Postal Service determined, in two informal adjudications, that Peninsula Airways ("PenAir") was qualified to carry (could be "tendered") "non-priority bypass mail" on five Alaska routes. This awkward term refers to types of freight - not ordinary mail - which are carried by planes to small communities in that vast state that are largely unreachable by surface transportation.*fn1 Presumably, by shipping such goods under the auspices of the Post Office, the federal government defrays part of the cost. The word "bypass" is used because the freight is never handled by the Post Office's processing facilities. The word "non-priority" apparently refers to a slower delivery time than "priority" mail, but since the parties do not suggest a difference relevant for this case between priority and non-priority bypass mail, we will, henceforth, use only "bypass mail" to refer to the types of freight at issue.

The Postal Service acted pursuant to the Rural Service Improvement Act of 2002 ("the Act"), which permitted PenAir to enter the five routes as what is termed a "mainline bypass mail carrier" (essentially those that fly large planes) only if it met certain statutory conditions.

Three competing carriers, who presently divide the market, sued twice to challenge the Postal Service's determinations as contrary to the Act. Although it initially issued an extraordinary injunction preventing the tender to PenAir, the district court ultimately concluded that the Postal Service's position was authorized. The three competing carriers appealed, and PenAir cross-appealed part of the district court's initial determination.

Contrary to the district court, we think that the three relevant statutory sections are quite ambiguous - indeed one is hopelessly so - and because we have no authoritative Postal Service interpretations of the statute before us, we vacate the district court's judgment with instructions to remand to the Postal Service.

I

The small towns involved in this case, Dillingham, King Salmon, Aniak, McGrath and Unalakleet, can be accessed only by plane or boat, and they depend on bypass mail for food, hospital supplies, generators and other necessities. Although small towns, these locations are called "hub points" from which even smaller settlements are reached. All bypass mail sent to them originates in either Anchorage or Fairbanks. The private air carriers who deliver bypass mail are compensated by the Postal Service (with Department of Transportation involvement), depending on the type of aircraft the carrier operates and the number of similar carriers serving the same route. Carriers operating smaller planes whose payload capacity is less than 7,500 pounds are termed "bush carriers." Carriers operating larger planes are called "mainline carriers" and they receive slightly lower rates. Under the Postal Service's "equitable tender" practice, planes of each type get an equal share of the relevant category of bypass mail (mainline or bush) on each route. Thus, each market entrant dilutes the existing carriers' shares proportionately.

To enter the bypass mail market, carriers must apply to the Postal Service for equitable tender of bypass mail on a particular route. The Postal Service then determines whether the carrier satisfies certain eligibility requirements. The Act places particular limitations on a carrier's eligibility for equitable tender on routes that go from Anchorage or Fairbanks to hub points. Ordinarily, the Postal Service can only tender bypass mail on those routes to "existing mainline carriers" (essentially, carriers who were certified and providing mainline bypass mail service as of January 1, 2001). But under an exception at issue here, the Postal Service can also tender to a "new 121 mainline passenger carrier" if the new carrier provides substantial passenger service and meets other requirements.*fn2

Appellants Northern Air Cargo, Tatonduk Outfitters Limited (Events Air Cargo), and Lynden Air Cargo are all existing mainline carriers who have received equitable tender of mainline bypass mail on some or all of the five routes from Anchorage to the hubs of Dillingham, King Salmon, Aniak, McGrath, and Unalakleet. Though appellants provide bypass mail and other freight services on these routes several days a week, none provide regular passenger service.

Until 2009, appellee PenAir served these five routes as a bush carrier, primarily carrying passengers. Before 2001 - this becomes controversial - PenAir also carried some bush bypass mail on these routes. In July and August of 2009, after upgrading its fleet to include larger planes, PenAir requested equitable tender of mainline bypass mail on these routes as a new 121 mainline passenger carrier. PenAir emphasized its plans to provide daily passenger as well as cargo service, which would make it the only regular provider of mainline passenger service on the five routes. The Postal Service granted PenAir equitable tender on all five routes in two letters written by the Program Manager of Intra-Alaska Air Transportation Policy in August and September 2009. The only explanation offered was that "[h]aving reviewed the matter, we have concluded that your letters describe service which would make you eligible ...


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