WASHINGTON (CN) - The U.S. Postal Service improperly assessed a $3.5 million revenue deficiency against a company over nonprofit mailing rates, a federal judge ruled.
Congress first authorized a reduced rate for certain mail sent by qualified nonprofit organizations in 1951. Over the years, however, lawmakers have excluded several types of mail, including missives that advertise products for a fee or consideration.
A Postal Service revenue assurance analyst decided in 1997 to investigate millions of pieces of mail that a company called Reese Brothers had posted at the nonprofit rate.
Reese Brothers, a Pennsylvania corporation, dedicated a significant part of its business to fundraising for nonprofit organizations.
Pursuant to its contracts with nonprofit clients, Reese Brothers raised money by contacting potential donors by telephone, soliciting charitable donations, and then mailing a "pledge notice" to collect the promised donation.
After sending the initial pledge notice at the first-class mailing, Reese Brothers would send up to six subsequent mailings at the nonprofit rate if the pledge was not fulfilled.
The Postal Service notified Reese Brothers on June 1, 1998, that certain of the mailings it sent at the nonprofit rate from Jan. 1, 1993, through December 31, 1997, were ineligible. It then assessed a "revenue deficiency" of $3.2 million to make up the difference, and told Reese Brothers to immediately discontinue mailing at the nonprofit rate.
The Northern Virginia Rates and Classification Service Center subsequently rejected the Reese Brothers' appeal, and the Postal Service upheld the calculation in a March 2000 final agency decision.
After agreeing to mitigate the dispute with Reese Brothers, the Postal Service recalculated the debt in 2001 to $1.6 million.
Facing money problems around this time, Reese Brothers sold its assets in 2002 to Reese Teleservices, which is controlled by The Resources Group dba TRG Holdings.
In 2006, Reese Brothers sued the Postal Service to set aside its final agency decision. The complaint alleges that the Postal Service's Cooperative Mailing Rules are unconstitutional, contrary to congressional intent, and arbitrary and capricious. The Postal Service then demanded the full $3.6 million deficiency in a counterclaim, naming Reese Teleservices and TRG Holdings as liable third parties,
Both sides moved for summary judgment and found some relief from U.S. District Judge Ellen Huvelle on Tuesday.
Huvelle upheld the final agency decision, but set aside the assessed deficiency as arbitrary and capricious. The Postal Service can renew its counterclaim to collect the deficiency after it recalculates it.
"Even though the court has rejected RBI's facial challenge to the cooperative mailing rules and its challenge to the Postal Service's application of the cooperative mailing rules to RBI, the court concludes that RBI's claim as to the deficiency amount is meritorious," Huvelle wrote.The judge scheduled a status conference to address further proceedings for Dec. 18