This article was originally published in Venable's All About Advertising Law blog on December 23, 2014.
You're sitting in the offices of your on-line business, going through your in-box. Your mail includes a letter from the U.S. Postal Service. The letter claims that you owe a six- or seven-figure sum—more than your profits last year—because you didn’t pay enough postage on parcels of merchandise that you mailed to consumers one, two or three years ago. You have 30 days to appeal—to another Postal Service official—or pay up. "We appreciate your business," the letter ends.
You sit there in disbelief. Your company has a dedicated in-house shipping department. You've faithfully paid the postage on your outgoing parcels with a postage meter for several years—maybe even with a computerized meter and data link that enable the Postal Service to debit your postage instantly from your bank account whenever you mail. None of the post office employees who deal with your shipping department have ever raised any underpayment issue before. How are you going to reconstruct what you mailed several years ago? And, if you owe more postage, how will you ever be able to get your customers to reimburse you? This seems Kafkaesque.
How should you respond?
Businesses that mail merchandise to consumers need to know how to deal with Postal Service underpayment claims. The Postal Service considers nonpayment or underpayment of postage on business mailings to be turnstile jumping—trivial in isolation, but a serious financial threat if enough customers do it. Business mailings of parcels are a special concern. Unlike bulk advertising mailing, a mailing of parcels typically includes a mix of pieces of varying weight, shape and contents—and varying rates of postage. In addition, commercial senders of parcels typically use postage meters strips or labels, not preprinted bulk mailing permit markings, to show the payment of postage. For this kind of mailing, the Postal Service normally verifies only a tiny fraction of the pieces before accepting them for processing.
In the past few years, the Postal Service's internal Office of Inspector General has concluded that this process lacks adequate controls against short-payment or non-payment of postage on meter mailings. The Postal Service has responded by stepping up its enforcement efforts. When the Postal Service receives evidence that a business mailer may be underpaying postage, the Postal Inspection Service—the Postal Service’s in-house law enforcement force—investigates. The inspectors visit the mail processing site (or sites) where the mailer enters its outbound parcels, and pull one or more samples of the mailers' parcels for inspection. The inspectors weigh, measure, photograph, and test each sampled parcel to verify how much postage should have been paid. Then the inspectors compare the total postage owed on the sampled pieces with the total actually paid. If the former is larger than the latter, the resulting ratio is multiplied by the total amount of postage actually paid by the mailer on its entire universe of mailings during the past year or so. The inspectors submit an investigative report to the district office where the parcels were entered, and the district office sends the mailer a decision demanding additional payment.
At least that's how the process is supposed to work. In practice, investigations and reports can be sloppy, and unjustified underpayment claims can result. Here are some examples we’ve seen in actual recent cases:
- The Postal Service fails to produce the investigative report and workpapers of the Postal Inspection Service. Without this supporting information, verifying the validity of an underpayment claim can be impossible.
- The Postal Inspection Service workpapers are incomplete or nonexistent.
- The file lacks photographs, videos or other documentary evidence needed to document the test results. This is especially important, for example, when the Postal Service claims that required information or markings were missing from the face of the mailpiece, or the piece was too big, small, rigid, flexible or uneven in thickness to qualify for the rates claimed.
- The Postal Service fails to credit the mailer for all of the postage that it paid for the mailings.
- The Postal Service fails to show how the pieces were sampled, or demonstrate that the sample was representative of the universe of mailings. (This is especially important when a mailer uses multiple mailpiece shapes or multiple classes or products of mail.)
- The Postal Service uses a sample of pieces mailed during a brief period to claim underpayment during a much longer period.
How to respond to a Postal Service underpayment decision depends on the specific facts and circumstances of each case. But here are some useful starting points:
Request a copy of the complete investigative report, and all of the underlying workpapers and documentary evidence. You should ask that any spreadsheets be produced in electronic form. You should also ask that the deadline for filing an administrative appeal (normally 30 days) be extended until 30 days after you have received the requested material. These requests should be in writing.
If the Postal Inspection Service prepared an investigative report, the Postal Service usually will produce it. If not—or if the Postal Service promises the material but then goes silent—the investigative report probably didn't exist, and whatever you eventually receive will have been created after the fact.
If the Postal Service acknowledges having an investigative report but refuses to produce it, consider filing a request under the Freedom of Information Act.
The Postal Service usually suspends the deadline for filing an administrative appeal until the requested material has been produced. If the Postal Service declines to do that, or fails to respond before your appeal is due, you should file a protective appeal. Apart from any defenses you have against the substance of the claim, you should argue that assessing a monetary claim against a mailer without disclosing all of the underlying evidence and analysis is a denial of due process.
If you receive the documentation, you should carefully study all of the steps of the Postal Service's analysis, including the bullet points listed above, and make the most effective case you can. Unlike trials and appeals in court, your initial written appeal will be your main opportunity to make your case with the Postal Service.
Finally, unless the amount of the underpayment claim is trivial, you should notify your company's law department promptly. Don't assume that you can resolve the dispute informally because you're a valued customer of the Postal Service. You may have a warm and friendly relationship with your local postmaster, or have been singled out for praise or recognition by your sales, marketing or customer relations contacts at the Postal Service. You may have even received a plaque for being an outstanding postal "partner." None of this will count with the Postal Service's revenue protection branch if you don't submit a strong case on appeal.