In the Matter of the Complaint Against

STATE CENTRAL COMMITTEE
INDEPENDENT PARTY OF UTAH
1800 Beneficial Life Building
Salt Lake City, UT 84111-1481
P.S. Docket No. PF-74

THE UTAH STATE DEMOCRATIC
COMMITTEE
453 Bearcat Drive
Salt Lake City, UT 84115-2519

P.S. Docket No. PF 94-6

APPEARANCE FOR POSTAL SERVICE:
Geoffrey A. Drucker, Esq.
Nan K. McKenzie, Esq.
Enforcement Division
United States Postal Service
475 L’Enfant Plaza, SW
Washington, DC 20260-1148

APPEARANCE FOR RESPONDENTS:
STATE CENTRAL COMMITTEE
INDEPENDENT PARTY OF UTAH:
Ronald J. Yengich, Esq.
Hakeem Ashola, Esq.
Yengich, Rich & Raiz
175 East 400 South, Suite 400
Salt Lake City, Utah 84111

UTAH STATE DEMOCRATIC
COMMITTEE:
Deanna D. Sabey, Esq.
Patricia A. O’Rorke & Associates
6995 Union Park Center
Midvale, Utah 84047

This proceeding arises out of two Complaints issued by the Reviewing Official of the United States Postal Service under the Program Fraud Civil Remedies Act of 1986, Pub. L. 99-509, 31 U.S.C. §§3801-3812, and 39 C.F.R. Parts 273 and 962. In the Complaints, the Postal Service alleged that Respondents violated 31 U.S.C. §3802(a)(1) by giving false information to postal officials in order to gain entitlement to mail individual political candidates’ campaign materials at a discounted rate of postage.

The allegation against the Independent Party is based on five separate mailings between September 11 and October 28, 1992, each alleged to constitute a false claim under 31 U.S.C. §3802. The Postal Service alleges that the difference between the postage paid and the postage that should have been paid was $19,898.98. The Postal Service asks for an assessment equal to twice that amount, $39,797.96, plus a penalty of $2500 for each false claim, for a total liability of $52,297.96.

The allegation against the Democratic Committee is based on ninety-six separate mailings between August 3 and November 1, 1992, each alleged to constitute a false claim, the difference in postage being $29,984.60. The Postal Service asks for an assessment equal to twice that amount, $59,969.20, and a $2500 penalty per claim, for a total of $299,969.20.

Both Respondents filed timely requests for hearing, and the two cases were consolidated. Respondents filed a Motion for Summary Judgment on January 23, 1995. They argued that the postal regulations in issue were unenforceable because: (1) they amount to an arbitrary interpretation of the statute upon which they are based and are contrary to Congressional intent; and (2) they violate due process requirements of the Fifth and Fourteenth Amendments to the United States Constitution. They also argued that the specific rule regarding political mailings was unenforceable against them because it was not published in the Federal Register as required by 5 U.S.C. §552. After written briefs and oral argument, via telephone conference on February 28, 1995, the motion was denied on March 2, 1995, based on a finding that issues of material fact remained in dispute.¹  A hearing was held in Salt Lake City, Utah on March 15-17, 1995. All parties were represented by counsel, who presented documentary evidence, and examined and cross-examined witnesses. The Postal Service presented testimony from four supervisors and two postal clerks from the Salt Lake City Post Office, and the Postal Inspector who investigated the case. The Independent Party presented testimony from two of its 1992 candidates, the Party Secretary, and a mailing agent. The Democratic Committee presented testimony from fifteen witnesses, which included several candidates, campaign workers and party administrative officials, the current and former State Party Chairmen, and the party’s Executive Director.

Illness of the Postal Service attorney, and reassignment of the cases to another attorney, delayed post-hearing briefs, but initial briefs were filed on July 7, 1995, and reply briefs on August 1, 1995. The findings of fact and conclusions of law set forth below are based on the entire record, including observation by the Administrative Law Judge of the witnesses and their demeanor, and on the written briefs.

The dispute in these cases is over Postal Service implementation of a statute that permits certain nonprofit organizations, and political committees, to mail at special third-class rates. 39 U.S.C. §3626(e), which was drafted to give qualified political committees the same bulk mail rates as nonprofit organizations, provides as follows:

(e)(1) In the administration of this section, the rates for third-class mail matter mailed by a qualified political committee shall be the rates currently in effect under former section 4452 of this title for third-class mail matter mailed by a qualified nonprofit organization.

(2)(A) the term "qualified political committee" means a national or State committee of a political party . . .; (C) the term "State committee" means the organization which, by virtue of the bylaws of a political party, is responsible for the day-to-day operation of such political party at the State level.

The Postal Service has implemented this statute by various provisions in the Domestic Mail Manual (DMM). Section E370.5.1 states:

An organization authorized to mail at the special bulk rates may mail only its own matter at those rates. An authorized organization may not delegate or lend the use of its authorization to mail at the special bulk rates to any other person or organization. (emphasis added)

Section E370.5.7²  provides specific rules for political mailings, and lists examples of mailings that would not qualify:

a. A mailing containing material identified as having been paid for by the campaign committee or treasurer of an individual candidate.
b. A mailing containing circulars, flyers, brochures, or other printed matter prepared or printed by a political candidate or his or her campaign organization.
c. A mailing on which the postage is paid for by a political candidate or his or her campaign organization.
d. A mailing made on behalf of a candidate in return for a contribution to the qualifying political committee.

At the time of the alleged violations, the summer of 1992, the former provision (E370.5.1) was found in DMM section 625.51. The latter provision (E370.5.7) was not contained in the DMM, but was contained in another postal regulation, the Postal Operations Manual (POM), at §454.7.³  It did not appear in the DMM until July 1993. Publication in the DMM equates to publication in the Federal Register, and the public is deemed to have constructive knowledge of regulations published therein.⁴  The same is not true of the Postal Operations Manual, and rules found therein are enforceable only against persons who have "actual and timely notice of the terms thereof."⁵  The factual issue litigated at the hearing on March 15-17, 1995, therefore, was whether the Respondents had actual and timely notice of the rules quoted above, that were then prescribed in §454.7 of the Postal Operations Manual.

1. At all times relevant to this case, the Independent Party held Salt Lake City Post Office bulk mail permit number 5725 (PF-74 Complt. ¶3, Pet. ¶4a). At all times relevant to this case, the Democratic Committee held Salt Lake City Post Office bulk mail permit number 2285 (PF 94-6 Complt. ¶14, Pet. ¶14).

2. These permits entitled the two political parties to mail materials at a lower rate of postage, i.e. the rate for nonprofit organizations, than was available to persons or organizations that did not hold such a permit. No individual candidate, or committee for the election of any individual candidate, involved in this case held a permit that would have entitled them to mail at the special (nonprofit) bulk rate.

3. When an organization obtains a bulk mail permit, they are given a folder of information that includes the general rule formerly contained in DMM § 625.51 (now DMM § E370.5.1). This information does not (at least as of 1992) include the specific rules pertaining to political parties and candidates. (Transcript 572-73, 579.)⁶ 

4. The procedure for mailing material of the type involved in this case was that the material would be delivered in person to the Bulk Mail Acceptance Unit (BMAU) at the Post Office,⁷  where it would be examined by a postal clerk to see that it was properly packaged and labeled, and that it qualified for the rate requested. To be mailed at the lower, nonprofit rate, the material had to be accompanied by a Postal Service Form 3602-N, which is titled: Statement of Mailing with Permit Imprints, Third-Class Mail (Nonprofit Rates Only). (Tr. 23-25, PS Ex. 22.)

5. The Form 3602-N has a section in which to write the permit number and the name and address of the permit holder, and a small box to check whether the permit holder is authorized to use nonprofit rates. Immediately below this section is a section containing the words, "Name & Address of Individual or Organization for Which Mailing is Prepared (If other than permit holder)." This section also contains a small box to check whether this other individual or organization is authorized to use nonprofit rates. Of the 96 forms pertaining to the Democratic Committee mailings in issue, 40 contained a name in the section designated for "other than permit holder." On only four of these was a box checked to indicate that the "other" was authorized to use nonprofit rates. On the remaining 36, neither box was checked. Of the five forms pertaining to the Independent Party, three contained names in the "other" section and no box was checked to indicate whether or not the "other" person was authorized to use the nonprofit rate. (All the Forms 3602-N pertaining to the Democratic Committee are in PS Ex. 22. Those pertaining to the Independent Party are in PS Ex. 24.)

6. In 1992 the nonprofit rate was approximately 45 percent lower than the regular third-class bulk rate. This is demonstrated by comparison of Postal Service Exhibits 23 and 25, with Postal Service Exhibits 22 and 24.

7. The Form 3602-N contains a "Certification" block, which requires the signature of the "Permit Holder or Agent." Immediately above the signature line are the following warnings:

The signature of a mailer certifies that: (1) the mailing does not violate DMM 625; (2) only the mailer’s matter is being mailed; (3) this is not a cooperative mailing with other persons or organizations that are not authorized to mail at special bulk third-class rates at this office; (4) this mailing has not been undertaken by the mailer on behalf of or produced for another person or organization not authorized to mail at special bulk third-class rates at this office; and (5) it will be liable for and agrees to pay, subject to appeals prescribed by postal laws and regulations, any revenue deficiencies assessed on this mailing, whether due to a finding that the mailing is cooperative or for other reasons. (If this form is signed by an agent, the agent certifies that it is authorized to sign this statement, that the certification binds the agent and the nonprofit mailer, and that both the nonprofit mailer and the agent will be liable for and agree to pay any deficiencies.)

The submission of a false, fictitious or fraudulent statement may result in imprisonment of up to 5 years and a fine of up to $10,000 (18 USC 1001). In addition, a civil penalty of up to $5,000 and an additional assessment of twice the amount falsely claimed may be imposed (31 USC 3802).

8. The holder of a bulk mail permit may also use the permit to mail material at the regular third-class rate if the material does not qualify for the nonprofit rate. This material would be accompanied by a PS Form 3602-R, titled, "Statement of Mailing with Permit Imprints, Third-Class Mail (Regular Rates Only). This form is nearly identical to the form 3602-N, except that it does not include the small boxes asking about authorization to use the nonprofit rates, and does not include the warning pertaining to violation of DMM 625. (PS Ex. 38.)

9. Neither Respondent disputes the fact that the costs of preparation and postage for the mailings in issue were paid for with funds that ultimately came from the individual candidates, or from the candidates’ campaign committees. (Tr. 350.)⁸  Respondents’ defense is that, if the manner in which this was done violated postal regulations, neither the candidates nor any of Respondents’ agents were aware of it.

10. For the Democratic Committee, the standard procedure in 1992 was that a candidate, or candidate’s representative, would come to party headquarters, get a Form 3602-N, which would be signed by someone as agent for the party, fill out the form, get a check from the Committee payable to the post office, and take the Form 3602-N and the check to the post office with the material to be mailed. The candidate, or candidate’s representative, would reimburse the Committee for the amount of the check, sometimes before taking the material to the post office, sometimes after. (Tr. 438, 442, 482-83, 502-03, 556, 565, 614, 618-19, 630.)

11. The procedure described above had been used by the Democratic Party in other political campaign years, prior to 1992. (Tr. 436-37, 503, 561, 565.)

12. At least one Independent Party candidate followed substantially this same procedure in both 1990 and 1992, and the procedure was very similar for all of the five mailings that form the basis for charges against the Independent Party in this case. (Tr. 390, 427.) The Independent Party of Utah was formed in 1988. (Tr. 424.)

13. The postal clerks who worked at the Bulk Mail Acceptance Unit in 1992, and their supervisors, were aware of the rule that mailings paid for by individual candidates, or the candidate’s campaign committee, did not qualify for the nonprofit rate. (Tr. 29, 85-86, 264-65, 280, 309; PS Ex. 6.) Accordingly, if a clerk was presented with a mailing using a party’s permit number, but containing a label, or statement, that said "Paid for by [candidate]," or "Paid for by Committee to Elect [candidate]," the clerk would not accept the mailing at the nonprofit rate.

14. Postal clerks had no authority to make exceptions to this rule, but would refer a customer to one of the supervisors if the customer wished. (Tr. 268, 310). If the supervisor was satisfied, after discussion with the customer, that the political party had actually paid for the mailing even though some labeling on the mailing indicated otherwise, the supervisor could, and sometimes did, approve mailing at the nonprofit rate. (Tr. 50-55, 82, 86-90; Resp. Ex. 15; PS Exs. 16 and 17.)

15. Investigation of this case began after one of the clerks at the Salt Lake City BMAU wrote an anonymous letter to the Regional Manager, Rates & Classification in November 1992. (Tr. 331.) The letter, with some sample pages from political mailings attached, expressed concern over money the Postal Service was losing because supervisors were approving some of these mailings at the nonprofit rate although the clerks did not believe they qualified. (Resp. Ex. 15; Tr. 270.)⁹ 

a. Seminars

16. By a letter dated March 17, 1992, addressed "Dear Candidate or Political Committee Member," the post office invited addressees to attend a "special Political Mailing Seminar" on March 31, 1992. (PS Ex. 1.) This letter stated, "We will cover all of the requirements that you’ll follow in order to take advantage of the lower, non-profit and/or regular Third-Class Bulk Business mailing postage rates." Attached to the letter was a map, with directions to the seminar location, and a two-page list of tips/instructions for preparing political mailings. The letter did not include a statement of the rules that are in dispute in this case, and that were then contained in POM section 454.

17. The material for this seminar was prepared and presented by Janet Arakaki, a postal clerk from the BMAU. (Tr. 303.) The first topic, after welcoming statements and introduction of some post office supervisors, was titled, "How Political Campaign Mail Qualifies for Nonprofit Rates." (PS Ex. 6.) Ms. Arakaki prepared, as part of a packet handed out to all attendees, a one and one-half page handout titled, "Special Instructions for Political Campaign Mailings Qualifying for Nonprofit Rates." This handout clearly and accurately summarized the rules then contained in the POM that mailings paid for by a candidate, or a candidate’s campaign committee, could not be mailed at the nonprofit rate under a party’s permit. (PS Ex. 6, p. 2-3.) Ms. Arakaki read this summary aloud to those attending the seminar. (Tr. 262, 306.)

18. It is uncertain how many people attended this seminar. Ms. Arakaki estimated "60 plus," (Tr. 307), but one of the supervisors estimated "15 to 20." (Tr. 155.) An attendance list, created at the time, can no longer be found and postal employees are unable to name any individual who attended. (Tr. 155, 287-88, 317-18.)

19. After the seminar, copies of the same packet of information that was handed out at the seminar were also mailed to other candidates, who did not attend the seminar. (Tr. 153-57, 263, 308.)

20. By a letter dated September 2, 1992, almost identical to the March 17 letter, candidates and political committee members were invited to a second "informative seminar," to be held on September 11, 1992. (PS Ex. 2.) Like the earlier letter, it did not make reference to the specific rules regarding use of a party’s permit by individual candidates, that were contained in POM section 454.

21. Ms. Arakaki also presented this seminar, and the agenda was the same as the March seminar. (Tr. 307.) She recalls that attendance was small, and she is unable to recall any specific person who was there. (Tr. 318.)

22. No precise list of candidates to whom the packets were mailed, after either seminar, was kept, although the lists of candidates that postal officials used, both for seminar invitations and mailing the information packets, were obtained from the political parties. (Tr. 91-94, 260-61; PS Exs. 7-10.)

23. No witness who testified at the hearing acknowledged receiving this packet of information, or that they had ever seen Postal Service Exhibit 6, containing the summary of the rules prepared by Ms. Arakaki.

b. Direct Communication with Independent Party

24. On September 11, 1992, the Salt Lake City Post Office accepted, at the nonprofit rate, a mailing on behalf of Independent Party candidate for Governor, Merrill Cook. This was done even though the mailing had a label that said, "Paid for by Merrill Cook for Governor," and asked for contributions to "Merrill Cook for Governor." (PS Ex. 14.) An exception to approve this mailing was granted after postal supervisor Margaret Parsons talked to the owner of a business called Progressive Direct Mail Advertising, a mailing agent that packaged and mailed campaign materials for Mr. Cook. (Tr. 199-201.) After a discussion about the requirements for getting the nonprofit rate, Ms. Parsons was satisfied that the Independent Party had paid for the mailing, and that the mailing had not been labeled accurately.

25. As a follow-up to granting this exception, Ms. Parsons asked her subordinate, Connie Snyder, to prepare a letter to the Independent Party. (Tr. 158.) Ms. Snyder called the Party and spoke with Mr. Chris Larsen, the Party Secretary. In the course of a discussion of the problems with the Cook mailing, Mr. Larsen told her that the party had paid for the mailing. (Tr. 160-62, 173.) Ms. Snyder then prepared a letter to Mr. Larsen, for Ms. Parsons’ signature, which was dated September 15, 1992. The pertinent portions of this letter state:

This one mailing (copy enclosed) was granted non-profit bulk business mail rates even though it did not qualify, as noted below:

1. PROBLEM: Mail piece cannot reflect "Paid for by Merrill Cook for Governor" CORRECT NON-PROFIT FORMAT: "Paid for by the Independent Party of Utah."

2. PROBLEM: Return address used on this mail piece was "Merrill Cook, 2026 Beneficial Life Tower, Salt Lake City UT 84111." CORRECT NON-PROFIT FORMAT: "Independent Party of Utah, 2026 Beneficial Life Tower, Salt Lake City UT 84111."

To confirm my telephone conversation with Lynette Nelson, Progressive Direct Mail Advertising, we made a one-time exception on the mailing noted above. All future mailings must adhere to current Domestic Mail Manual regulations covering non-profit mailings. One important fact that we must reiterate is that mailings made by non-profit organizations, including the Independent Party of Utah, must be owned by that organization. This means that they paid for the artwork, printing, mail preparation and postage. A mailer cannot produce a mail piece and use a non-profit permit owned by another organization to lower postage costs. (PS Ex. 3.)

c. Direct Communication with Democratic Committee

26. In mid-October 1992, postal officials questioned a mailing on behalf of Democratic candidate Dan Tuttle because the mailing did not say that it had been paid for with party funds. (Tr. 95.) Postal supervisor Denise Stewart called Democratic Committee headquarters and spoke to James Roberts, Executive Director. In response to Stewart’s question, Roberts told her the party had paid for the Tuttle mailing, and she then asked Roberts to send a letter so stating. (Tr. 96-7.) Mr. Roberts signed and sent a letter, dated October 18, 1992, reading as follows:

United States Postal Service

TO WHOM IT MAY CONCERN,

Because of the large volume of mail being sent by the Democratic party on behalf of our candidates, we are, regrettably unable to review every piece prior to distribution.

Apparently this oversight has caused a problem with our mailing of a piece for Dan Tuttle. Please be advised, despite the lack of a proper disclaimer, this mailing has been paid for with Democratic Party funds.

Thank you for your assistance. Please call me with questions. (PS Ex. 15.)

Ms. Stewart approved the Tuttle mailing at the nonprofit rate on October 19, 1992. (Tr. 95, PS Ex. 15.)

27. On October 27, 1992, Ms. Stewart called Mr. Roberts again with a similar problem about a mailing for a Democratic candidate. She does not recall who the candidate was. (Tr. 98.) After some discussion about establishing a way to handle these matters without the need for a separate phone call each time a question arose, Stewart and Roberts had a second phone conversation the same day, this time with Stewart’s supervisor, Margaret Parsons, also on the line. (Tr. 99-100, 203.) As a result of one, or both, of these conversations, Roberts agreed to, and did that same day by telephone fax, send Stewart a printed list of Democratic Party candidates. (PS Ex. 5, Tr. 100, 205.)

28. After these telephone conversations, and receipt of the fax list, Ms. Stewart wrote a letter, for Ms. Parsons signature, to Mr. Roberts. (Tr. 101-02, 207.) That letter stated as follows:

Dear Mr. Roberts:

On Tuesday, October 27, 1992, the Salt Lake City Bulk Mail Acceptance Unit contacted you regarding political mailings being submitted for non-profit rates by the Utah State Democratic Committee. You FAXed a list of candidates the party will be paying all printing costs and postage for on all of their mailings. We have allowed these mailings to go at the non-profit bulk business rate even though they do not qualify as noted below:

1. PROBLEM: Mail piece cannot reflect that it is paid for by a committee or any other organization other than the State or National Party. CORRECT NON-PROFIT FORMAT: "Paid for by the Utah Democratic Party."

2. PROBLEM: Indicia cannot reflect "Bulk Rate." CORRECT FORMAT: Indicia must state: "Non-Profit Org.; U.S. Postage Paid; Salt Lake City, Ut; Permit No. 2285."

To confirm my conversation with you, we have made exceptions for these mail pieces as noted above. All future mailings must adhere to current Domestic Mail Manual regulations covering non-profit mailings. One important fact that we must reiterate is that mailings made by non-profit organizations, including the Utah Democratic Party, must be owned by that organization. This means that they paid for the artwork, printing, mail preparation, and postage. A mailer cannot produce a mail piece and use a non-profit permit owned by another organization to lower postage costs. (PS Ex. 4.)

1. One of the elements of a false claim, in violation of 31 U.S.C. §3802(a)(1), is that a respondent "knows or has reason to know" that the claim is false. This term is further defined in the statute to include "actual knowledge" that the claim or statement is false, "acts in deliberate ignorance of the truth or falsity," and "acts in reckless disregard of the truth or falsity." 31 U.S.C. §3801(a)(5). The legislative history has this to say:

The "knows or has reason to know" standard for establishing liability under this section is intended to capture those persons who recklessly disregard facts which are known or readily discoverable upon reasonable inquiry, while excluding those persons who submit false claims or make false statements through mistake, momentary thoughtlessness, or inadvertence. The definition clarifies, therefore, that a person who makes a false claim or statement through mere negligence does not meet the requisite scienter requirement and would not be held liable under the Act. Only those individuals who are extremely reckless, who demonstrate an extreme departure from ordinary care, would be subject to liability. 86 U.S. Code Congressional and Administrative News 3902, at 3903-04.

2. Because publication in the Domestic Mail Manual equates to publication in the Federal Register, Respondents are charged with constructive knowledge of the general rule stated in former DMM §625.51 (now DMM § E370.5.1).¹⁰ 

3. The rules contained in Section 454.7 of the Postal Operations Manual at the times pertinent to this case (now in DMM § E370.5.7) were required to be published in the Federal Register because they are "substantive rules of general applicability adopted as authorized by law, and statements of general policy or interpretation of general applicability formulated and adopted by the agency."¹¹  Therefore, because they were not published, they are enforceable against Respondents only if Respondents had "actual and timely notice of the terms thereof."¹² 

4. On the facts of this case, the general rule of former DMM §625.51 (quoted on p. 5 above) was not sufficient to put these Respondents on notice that individual candidates were not permitted to use their Party’s bulk mail permit to mail campaign material at the nonprofit rate. The fact that candidates had followed the same procedure for mailing their material with their party’s permit in prior election years (see Findings of Fact, paras 11 and 12), and the fact that nearly one-half of the Forms 3602-N in evidence, which were approved for mailing, contained the name of a candidate as being an "Individual or Organization for Which Mailing is Prepared," without any indication as to whether such individual was authorized to use nonprofit rates (see Findings of Fact, para 5), contribute to this conclusion. The record contains credible testimony from several witnesses that they always assumed that candidates were part of the "party," and that a party was therefore not lending its nonprofit authorization to "any other person or organization," as was proscribed in the DMM and printed on the Form 3602-N.¹³  The issue to be decided, then, is whether the efforts of post office officials to make the parties and their candidates aware of the unpublished portion of the rules were sufficient to provide the "actual and timely notice" of the unpublished rules, as required by the statute.

5. Postal Service Contentions. The Postal Service arguments may be summarized as follows:

a. Their affirmative efforts to give notice of the specific rules which prohibited use of a party’s nonprofit permit for an individual candidates’s campaign mailings, via the two seminars and the written summary (PS Ex. 6) that was both handed out and mailed, fulfilled the requirement of "actual and timely notice." They are not required to prove that any specific person actually heard the seminar presentation, or actually read the summary.

b. Respondents cannot escape liability by showing that their agents failed to pay attention to what postal officials were telling them, or failed to read handouts and letters that were sent to them.

c. The telephone conversations with Mr. Larsen of the Independent Party, and Mr. Roberts of the Democratic Committee, and the follow-up letters, had to have put these party representatives on notice that postal officials were concerned about something more than a "format problem." Even though Ms. Parsons’ letters did not spell out the rule, as did Ms. Arakaki’s handout, the combination of the phone calls and the letters constituted sufficient notice. From references to "artwork, printing, mail preparation," Larsen and Roberts had to know that merely having a party check to pay for postage did not cure the problem.

d. As to the Democratic Committee, the fact that several of their candidates in 1992 paid the higher, regular rate for postage must have made party officials aware that there was a question over who could lawfully use the nonprofit permit. This, along with questions raised by the post office about several specific mailings, placed some responsibility on party officials to ascertain whether they were properly following the rules.

6. Respondents’ Contentions. The arguments of the Independent Party and the Democratic Committee are summarized as follows:

a. Proof of "actual notice" requires more than an "opportunity" to have learned of the rules. Without a showing that some specific responsible party official attended the seminars, or actually received the written explanation of the rules, the fact that the seminars were held and that handouts were mailed to some people does not prove actual notice. There is no proof that the handouts were even mailed to party officials - only to candidates.

b. Based on the prior history of how political mailings were done in Utah, nothing that any postal employee told any candidate or party official who gave testimony at the hearing triggered the thought that substantive rules regarding entitlement to particular rates of postage were being violated. The mind-set of all who had direct contact with the post office about any of these mailings was only on learning the packaging and format requirements.

c. No one ever told a candidate or party official that the so-called two-step check procedure, i.e., a candidate writing a check to the party, and receiving back a party check in an equal amount payable to the post office, was a violation of rules. The fact that much of the money a party raised came from candidates, especially in the case of the Independent Party and Merrill Cook, and that the parties also dispensed money to candidates to use in their campaigns, made it natural for candidates and party workers to assume there was nothing improper in the direct transfer of money to pay for postage.

d. The letters from Margaret Parsons to Mr. Larsen (PS Ex. 3) and Mr. Roberts (PS Ex. 4) could be reasonably perceived as addressing "format" problems. The "Problems" listed in those letters used the term "Format," and the letters did not spell out the rules that Respondents are now charged with violating. These letters could easily have been made clear and precise, either by quoting the rules as they were then contained in POM Section 454, or by including a copy of Ms. Arakaki’s handout. Instead, the letters only included a paraphrase of the general rule from the DMM.

e. The October 27, 1992 phone calls and letter to Mr. Roberts, even if they gave clear notice of the rule, did not give timely notice, because they were so close to the election they did not give adequate time to fix the problem.

f. The form used by the Salt Lake City Post Office for granting exceptions did not give notice that anything more than a format problem was in issue. The printed portion of the form gave no statement of the rules, and the two examples that were introduced into evidence contained only a handwritten explanation stating that the mailpiece lacked a "disclaimer" saying, "paid for by Demo Party." (PS Ex. 16 and 17.)

g. Mr. Larsen and Mr. Roberts, in phone conversations with postal supervisors in mid-September 1992 and on October 18, 1992, respectively, answered honestly when asked if their party had paid for the mailings in question. Since they believed the only requirement was that checks to the post office come from the party, not the candidate, they believed that the party had paid for the mailings.

7. Decision. The charges against Respondents have not been proven by a preponderance of evidence.

8. There is no persuasive evidence that any candidate, or campaign worker, knowingly gave false information to the post office, or that any of them testified falsely at the hearing. The evidence is more persuasive that, although most of them knew that the accepted procedure required them to pay postage with a party check, they gave little or no thought to the reasons for this procedure, and did not know that postal service rules did not permit them to first provide the funds to the party or to reimburse the party.

9. Without any evidence as to who attended either of the seminars, or proof that the written handouts were sent to party officials, these efforts by the post office do not establish "actual and timely notice." Evidence shows that the parties had an "opportunity" to learn the rules, and that the information was "available" to them, but that is not sufficient. Appalachian Power Co. v. Train, 566 F.2d 451, 456 (4th Cir. 1977). The invitation letters themselves (PS Exs. 1 and 2), did not alert invitees that there was a question over their entitlement to use the nonprofit permits. Based on the past history of using party permits, as well as the attachment to the March 17, 1992 invitation letter, it is likely that invitees expected to learn about technical preparation and format requirements. (See Findings of Fact, para 16.) Therefore, failure to attend the seminars is not indicative of an intention to "deliberately ignore," or "recklessly disregard" pertinent information.

10. To a degree, the evidence supports an argument that Mr. Larsen, for the Independent Party, and Mr. Roberts, for the Democratic Committee, acted in "deliberate ignorance," of what they were told by postal supervisors, and that they chose to "play dumb." If so, the law of agency would impute their "knowledge" to their principals, and would support holding their parties liable for their failures to see to it that postal rules were complied with after their direct communications from Ms. Snyder, Ms. Parsons and Ms. Stewart. U.S.v. One Parcel of Land, 965 F.2d 311, 315-16; First National Bank of Cicero v. U.S., 625 F. Supp. 926, 931 (N.D. Ill. 1986). However, it is at least as plausible to believe that neither Larsen nor Roberts really understood what the problem was. They were confronted with references to "format" problems, and no one ever spelled out the rules for them that were contained in POM Section 454. Even the reference in the follow-up letters, although it might have caused the light to dawn, was to the general rule that mailings "must be owned" by the permit holder. In the context of this case, with the mind-set based on past practices that candidates were allowed to use a party’s mailing permit, the message was not clearly conveyed.

11. The "actual notice" provision of 5 U.S.C. §552(a)(1) requires not only that there be an affirmative effort to give notice, which postal officials did make, but also that the notice be precise. U.S. v. Articles of Drug, 634 F. Supp. 435, 459 (D.C. Ill. 1985); U.S. v. Anaconda, 445 F. Supp. 486, 497 (D.D.C. 1977); Northern California Power Agency v. Morton, 396 F. Supp. 1187, 1191 (D.D.C. 1975). The phone calls and letters to Larsen and Roberts do not meet this test. The fact that postal officials did not choose a better means of communicating the rules, such as a personal meeting with a copy of the POM in hand, or a verbatim copy of the pertinent provisions delivered directly to the party chairmen, is not necessarily fatal. When such means of giving "actual and timely notice" were available, however, and some less efficient and less easily provable means is used, the burden of proof becomes difficult to carry.

12. The fact that several Democratic Party candidates apparently did not use the party’s permit to obtain nonprofit rates, but paid the regular third-class rate instead, does not prove that those who did use the nonprofit permit did so dishonestly. In the absence of any testimony from the former group as to why they did not use the party’s permit for nonprofit rates, or that they had some discussion with party officials about it, this argument requires too much speculation to be probative.

The Respondents did not submit false claims within the meaning of 31 U.S.C. §3802(a)(1), and are not liable for the penalties and assessments sought by the Postal Service.

Bruce R. Houston
Acting Chief Administrative Law Judge

¹ The Summary Judgment ruling also concluded that the Postal Service was correct in its assertion that an Administrative Law Judge has no authority to declare a postal regulation invalid or unconstitutional. Charles H. Koch, Jr. and Ronald F. Wright, Jr., Administrative Law and Practice, Vol. 1, §6.59 (1995); Manual for Administrative Law Judges, Administrative Conference of the United States, p. 107 (3d edition, 1993); Joseph Zwerdling, Reflections on the Role of an Administrative Law Judge, 25 Admin. L. Rev. 9, 12-13 (1973); Iran Air v. Kugelman, 996 F.2d 1253,1260 (D.C. Cir. 1993); David Sellers, P.S. Docket No. 37/153 (P.S.D. 1993); Columbia Flyer, P.S. Docket No. 26/17 (P.S.D. 1988).

² When this case was initiated, these provisions were numbered E371.5.1 and E371.5.7. The current version of the DMM changed only the numbers, not the substance.

³ Pertinent excerpts from the 1992 versions of the DMM and the Postal Operations Manual are contained in Postal Service Exhibits 18 & 19. Some of the briefs cite section 454.5 as the pertinent section of the POM. Apparently the numbering of this manual has changed from time to time. There is no dispute, however, over the language in issue. In the version of the POM that was introduced in evidence as PS Ex. 19, this language is found in section 454.7.

⁴ 39 C.F.R. §§111.1 and 111.4.

⁵ 5 U.S.C. §552(a)(1).

⁶ Hereafter, references to the transcript are designated Tr., Postal Service Exhibits are PS Ex., and Respondents' Exhibits are Resp. Ex.

⁷ This unit has since been re-named the Business Mail Entry Unit.

⁸ Under Utah law, political parties and candidates must file Contribution & Expenditure Reports, detailing how campaign funds are obtained and disbursed. As part of the investigation of this case, the Postal Inspector did a compilation and analysis of these reports, in comparison with the Forms 3602-N. (Tr. 335-37; PS Exs. 30-37.) As the Respondents do not dispute this evidence, further discussion of it is unnecessary.

⁹ During the discovery process in preparation for hearing, the author of this letter acknowledged writing it, and also testified at the hearing.

¹⁰ 5 U.S.C. §552(a)(1); 39 C.F.R. §§111.1 and 111.4; Federal Crop Ins. Corp v. Merrill, 332 U.S. 380, 384-85 (1947).

¹¹ 5 U.S.C. §552(a)(1)(D); Guo Chun Di v. Carroll, 842 F. Supp 858, 868 (E.D. Va. 1994).

¹² 5 U.S.C. §552(a)(1).

¹³ Note that this conclusion is not a holding that such an assumption is correct, or that the Statute, 39 U.S.C. §3626(e), makes no distinction between a party and its candidates. It is simply a conclusion that these witnesses were not dishonest in giving this testimony.