Permanent Subcommittee On Investigations
With Respect To S.
May 19, 1999
The Free Speech Coalition, Inc. (FSC), founded in 1993, is a nonpartisan group of ideologically diverse nonprofit organizations and the for-profit organizations which help them raise funds and implement programs. Our purpose is to protect First Amendment rights and reduce or eliminate excessive regulatory burdens. Most of FSCs members rely upon direct mail fundraising, some of which includes sweepstakes, as a principal method of generating funds and carrying out their programs. FSCs members, therefore, are subject to the United States Postal Services (Postal Service) authority, and are very concerned about certain provisions in S.335, particularly its proposal to dramatically increase the Postal Services enforcement power.
FSC appreciates and commends the Postal Service for the manner in which it provides its core services. We are concerned, however, with the bills proposal to grant the Postal Service even greater enforcement authority than it currently possesses, including the ability to levy punitive fines of up to $2 million, and to stop mail deliveries to targeted recipients. The Postal Services enforcement track record in civil fraud cases under 39 U.S.C. 3005, and in other matters, raises questions whether those subject to its proposed new authority will necessarily be treated as Congress apparently intends.
Pursuant to Section 3 of S.335, the Postal Service would have virtually unfettered discretion to decide what matter is mailable and to stop an organization from mailing before making a final determination that the organization has violated the statute. For small organizations that depend upon the mail for the funds they need to operate, after-the-fact exoneration from wrongdoing would be of little value because of the economic ruin caused by the Postal Services preemptive stop mail power.
FSC urges the Subcommittee to consider alternatives to proposing new legislation. If, however, it deems new federal legislation appropriate, then the bill should thoroughly define what materials cannot be mailed, and enforcement authority should be given to a government agency other than the Postal Service. The Department of Justice or the Federal Trade Commission, for example, would be better suited for such a role.
Like a business, the Postal Service is governed by an 11-member Board (of Governors). See 39 U.S.C. 202(a). The Board of Governors has the power to appoint and remove the Postmaster General, as well as determine postal rates and fees. See 9 U.S.C. 202(b) and 3621. Hence, like a business, the Postal Service is not burdened by direct public and political accountability as are true executive agencies. Yet, unlike other businesses, the Postal Service already possesses vast governmental powers, including rulemaking, adjudicative and subpoena power. The Supreme Court has long been concerned with congressional attempts to delegate legislative power. See generally .L.A. Schecter Poultry Corp. v. United States, 295 U.S. 495, 529, 541-542 (1935).
S.335 would delegate even greater power to the Postal Service via a broad and essentially undefined grant of authority. For example, the bill allows the Postal Service to refuse to mail a letter if it relates to a sweepstakes and indicates that persons who fail to purchase a product may not receive future mailings, or suggests that making a purchase will increase the odds of winning, or suggests that making a purchase will result in special treatment. See S.335, Section 3 (emphasis added). Terms such as relates, indicates and suggests are so extraordinarily vague and subject to reasonably different interpretations that mailers would be placed in the untenable position of having to guess the meaning of such terms and hoping that their guess accords with the Postal Services view. See American Trucking Associations, Inc. v. Environmental Protection Agency, No. 97-1440 (D.C. Cir. 1999) (unconstitutional delegation of powers where no intelligible principle to channel application of factors apparent in statute).
Even more troubling than these vague terms is the carte blanche that would be given the Postal Service to refuse to deliver any letter that does not meet any other requirement the Postal Service shall prescribe by regulation. Id. (emphasis added). This provision would grant the Postal Service the unfettered authority to expand the statutory standards in any way it sees fit. It is not proper for the Congress to delegate such open-ended rulemaking authority, particularly when that authority would be exercised by an independent establishment in such a way that could impinge on First Amendment rights by denying an organization the right to mail. See A.L.A. Schecter Poultry Corp., supra 295 U.S. at 541-542 (concluding that code-making authority delegated to the President was unconstitutional and noting that because of the few restrictions that are imposed, the discretion of the President in approving or prescribing codes, and thus enacting laws for the government of trade and industry throughout the country, is virtually unfettered.).
Allowing the Postal Service free rein to effectively amend the statutory standards by adding whatever other prohibitions it deems fit through the simple means of promulgating a regulation would also create tremendous uncertainty on the part of mailers, thus imposing an improper chilling effect. If the goal of S. 335 is to provide clear and understandable rules, then it should use precise terms and specify in the bill everything that is required.2 (In doing this, however, Congress should avoid trying to prescribe the exact words mailers must use. Mandating speech is not the appropriate course of action.)
The Supreme Court has declared that "any system of prior restraints of expression bear[s] a heavy presumption against its constitutional validity." New York Times Co. v. United States, 403 U.S. 713, 714 (1971) (citation omitted). S. 335 invites the "heavy presumption against its constitutional validity" by proposing an administrative enforcement mechanism that fails to provide the appropriate due process safeguards.
Section 4 of S. 335 would amend 39 U.S.C. 3005 by increasing the Postal Service's authority to issue orders to stop an organization from receiving mail and to cease and desist from certain activities. The enforcement scheme under 39 U.S.C. 3005, both currently and as proposed under S. 335, is problematic for several reasons.
First, the Postal Service acts as both prosecutor and judge in proceedings it initiates pursuant to 39 U.S.C. 3005, and is under no time constraint in concluding such proceedings. Delay in these matters can equal a death sentence for organizations that depend upon the mail.
As the data presented below show, in the past 10 years, when the Postal Service institutes proceedings under 39 U.S.C. 3005, it is almost certain to win the case. From 1989 through 1998, of 143 Postal Service proceedings brought pursuant to 39 U.S.C. 3005, the Postal Service prevailed over 85 percent of the time. These 143 cases are broken down as follows:
Postal Service Won/Loss Record Under 39 U.S.C. 3005
Regrettably, meaningful judicial review of the Postal Services administrative ruling is not available. Absent extraordinarily flagrant abuse, courts defer to the Postal Service's action. As one court observed when it reviewed a decision by the Postal Service that found an organization had violated 39 U.S.C. 3005, the court might well take a slightly different or even contrary view if it were its responsibility to make the initial findings of fact and conclusions of law [regarding whether a violation of Sec. 3005 occurred], but the court is not permitted to do so. Directory Publishing Services, Inc. v. Runyon, 851 F. Supp. 484, 489 (D.D.C. 1994). An appeal to an Article III court, therefore, does not bring a fresh set of eyes to the proceedings.
This is borne out by the data on appeals from Postal Service decisions under Sec. 3005. A computerized search on Lexis of all federal cases in the past 10 years encompassing appeals of cases involving Sec. 3005 yielded only 24 cases, of which 8 involved judicial review of a Postal Service ruling. As testament to the great deference given the Postal Services rulings, all eight affirmed the Postal Service's prior rulings.
A similar scenario arises with respect to the Postal Services initiation of injunctive proceedings pursuant to 39 U.S.C. 3007. This statute permits the Postal Service to petition a court to enter an injunction allowing the Postal Service to detain all of an organization's incoming mail until the Postal Service has time to conclude its proceedings under 39 U.S.C. 3005.
Augmenting the Postal Services already sweeping authority under 39 U.S.C. 3005 without providing any of the constitutional protections against prior restraint risks further abuses. For this and the other reasons discussed herein, the Postal Service is not the proper repository of the authority to be delegated by S.335.
Chief Financial Officer M. Richard Porras announced a net income at the close of Quarter II of $761 million. He indicated today that the U.S. Postal Service is taking aggressive action to ensure it ends its fiscal year in September with a surplus of at least $200 million, consistent with its operating plan.3
The bill wrongly creates tremendous incentive for the Postal Service to increase its business profits on the backs of mailers by imposing fines (up to $2 million) which, despite being labeled as Civil Penalties, can in fact be punitive. Indeed, a nonprofit newsletter reported that postal inspectors are assigned revenue targets.
S. 335 would give the Postal Service additional means to meet its revenue targets, using the general subpoena power set forth in Section 7. Pursuant to this section, the Postal Service could issue a subpoena for any records which the Postmaster General finds relevant or material to the investigation. S. 335, Section 7. This means that a subpoena for any records could issue even if the Postmaster General did not have a reasonable belief that a violation of the statute has occurred.
The bill also fails to provide safeguards against abusive use of subpoena authority, or specify that such a subpoena may be challenged in court. Cf. F.R.Civ.P. Rule 45(c) (setting forth protections afforded to persons subject to subpoena).
The Postal Services proposed power to issue subpoenas and levy punitive fines is particularly troubling given the previously discussed vague language used in Section 3 of S. 335 regarding what mailings can violate the statute, and the bill's failure to provide any guidance whatsoever in the Postal Services application of the fines. For example, should first time offenders pay the maximum fine? Should an inadvertent violation trigger a full fine? Should the amount of funds received from the alleged improper mailing be considered when determining the amount of the fine? As S.335 is currently drafted, the Postal Service would be free to impose the maximum fine for any and all violations without regard to any of these types of factors.
A $2 million fine is punitive for for-profit entities, but even more so for nonprofit organizations. Since the Postal Service can count on winning at the administrative and federal court levels nearly all the time, the risk of attempting to vindicate ones rights is so great it results in mailers forfeiting their rights by settling the case. Lacking the economic means to vindicate one's rights, as a practical matter, can result in forfeiting that right.
FSC recognizes that S.335 is not intended to grant the Postal Service free rein to issue subpoenas and extort punitive fines. The reality, however, is that the bill gives the Postal Service the means to do so -- contrary to due process. To avoid this, subpoenas should not be permitted unless there is a reasonable belief that a statutory violation has occurred, enforcement should proceed only in accordance with F.R. Civ.P. Rule 45, and aggrieved parties should have the express right to seek judicial relief in the form of a motion to quash or modify the subpoena.
A. The Postal Service is Ill-Suited
to Enforce S.335.
For example, in 1990, the Postal Reorganization Act was amended to declare that a special reduced rate of postage available to nonprofit organizations could not be used in connection with mailings that promoted any of the following three types of items: (A) any credit, debit, or charge card, or similar financial instrument or account, provided by or through an arrangement with any person or organization not authorized to mail at the [reduced] rates ; (B) any insurance policy, unless the organization which promotes the purchase of such policy is authorized to mail at the [reduced] rates ; or (C) any travel arrangement, unless the organization which promotes the arrangement is authorized to mail at the [reduced] rates 39 U.S.C. 3626(j).
Although the statute is straightforward in describing the three types of materials that cannot be mailed at the reduced rate, the Postal Service has interpreted its authority under this statute in an extraordinarily expansive manner. Since the statute was enacted by Congress, the Postal Service has claimed the right not only to disallow the reduced mailing rate for the three matters identified by Congress in 39 U.S.C. 3626(j), but also for many other matters. Cases have been brought under this statute for contracts between nonprofits and fundraisers which the Postal Service felt were inappropriate, for instance, where fundraisers own a list generated for a nonprofit, and for a mailer retaining a copyright on a package mailed by a nonprofit. None of the examples concerned travel, or credit cards or insurance, yet 39 U.S.C. 3626(j) was cited as the statute that was violated. In lieu of conducting a formal rulemaking procedure, the Postal Service issued Publication 417A, entitled "Customer Guide to Cooperative Mailings," which lists some of the factors it considers in deciding whether to allow a mailer to use the reduced rate.
Thus, while 39 U.S.C. 3626(j) on its face identified what was not mailable at the reduced rate, the Postal Service now makes ad hoc decisions as to what does and does not comply with the statute. This type of situation would be even more intolerable under S. 335, because the Postal Service's authority would extend not just to the rate of postage, but also to whether the material could be mailed at all, as well as the imposition of monetary penalties.
Stopping fraudulent and deceptive sweepstakes is an important matter. It must be done, however, with due regard to the rights of all concerned parties, including the accused mailer. Both experience and the Postal Services unique legal status show that the Postal Service is not as well-suited as federal agencies to be the enforcer of S. 335. The Department of Justice or the Federal Trade Commission would be better choices for this role.
Anecdotes about senior citizens being misled by some sweepstakes are emotionally moving, although the actual extent to which sweepstakes deceive is debatable.4 What is not debatable, however, is the existence of a plethora of state and local law regulating sweepstakes. As recent and well-publicized state lawsuits against some of the larger for-profit sweepstakes operators show, the states are not reticent in bringing actions to enforce alleged violations of their sweepstakes laws. Attorneys General now operate in concert. They routinely file 20 to 30 separate lawsuits in so-called multistate actions. This type of legal assault will bring even the largest and most determined offenders to their knees. Thus, there is no demonstrated state failure with regard to legislation or enforcement in this regard.
These types of state consumer protection actions are the classic and proper function of the states. Congress has historically rejected creating a Federal Consumer Protection Agency. This does not represent a failure of will or acceptance of fraud on the part of the Congress. Rather, it marks a respect for the separation of that which is properly within the federal purview and that which is in the states.
Though well-intentioned, S. 335 federalizes crimes that, for good reason, have been left to the states. Certainly, absent proof that the states have been derelict or unable to enforce their sweepstakes laws, Congress should refrain from federalizing sweepstakes.