United States v. Office Depot, Inc.

• Court: District Court, District of Columbia
• Decided: October 31, 2024
• Docket: Misc. No. 2024-0034
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES,

Petitioner,

v. Case No. 1:24-mc-00034 (TNM)

OFFICE DEPOT,

Respondent.

MEMORANDUM OPINION

The Fourth Amendment is a tricky thing for government contractors. On one hand, it

protects businesses from onerous government searches. Morton Salt. Co. v. United States, 338

U.S. 632, 652 (1950). But on the other, companies doing business with Uncle Sam can find

themselves enduring internal probes they would never face from another private party. See Zap

v. United States, 328 U.S. 624, 628 (1946), vacated on other grounds, 330 U.S. 800 (1947). This

case presents just such a situation. The U.S. Postal Service Inspector General’s Office sent

Office Depot a subpoena for voluminous business documents to verify the company’s

compliance with the parties’ three-year contract. Office Depot now resists what it calls

“burdensome” production. ECF No. 8 at 7.

Negotiation has narrowed the subpoena’s scope. Id. Now, each party argues that its new,

more modest suggestion meets the contract’s requirements and that the other party’s demand

flouts their agreement. Neither is fully right. The Court thus will modify the terms of the

subpoena according to its own judgment about the contract’s terms. In this modified form,

USPS’s petition to enforce the subpoena will be granted in part and denied in part. I.

Office Depot and USPS have a longstanding business relationship. ECF No. 8 at 1.

Their most recent contract became effective in February 2020. ECF No. 2-2. The parties’

dispute about that contract centers on a provision that they call the “Most Favored Customer

Pricing” Clause. See, e.g., ECF No. 8 at 3; ECF No. 11 at 2. In that Clause, leaving disputed

terms aside or highly generalized, Office Depot promises to give USPS the same pricing as its

“top customers” that purchased certain products “in an amount closest to the amount purchased

by the Postal Service”—that is, in bulk. ECF No. 8 at 4. Those certain products that receive

special pricing are called “Core Products,” defined as 20% of the items USPS bought that

represented 80% of the purchasing volume. ECF No. 2-2 at 32. 1 So USPS would receive

discounts on the products it purchased in the highest quantities, and those discounts would be

similar to comparator customers’ pricing. As part of the Clause, the parties appear to agree that

Office Depot promised some type of reporting that allowed USPS to verify that it had received

the correct Most Favored Customer Pricing. ECF No. 8 at 4; ECF No. 5–6. Mechanically, the

parties arranged the pricing in the form of a rebate; Office Depot would calculate the appropriate

price, then send a rebate for the prior year to USPS to reimburse it for any difference between the

Most Favored Price and the price that USPS had paid. ECF No. 8 at 4.

In September 2021, USPS requested its rebate for the 2020 year. ECF No. 8 at 4. Office

Depot sent a rebate and, alongside it, a comparator report with four other customers to justify the

rebate. Id. About eight months later, USPS asked Office Depot why there were only four

comparator customers instead of ten. Id. The company explained that its position as an

“essential service” during the pandemic limited the pool of customers purchasing products in

1 All citations use general CM/ECF numbering rather than internal exhibit pagination.

2 quantities similar to USPS. Id. During that same month, May 2022, Office Depot submitted

rebate calculations for the 2021 year that provided only one comparator. Id. In June, USPS

asked for an explanation again; the company insisted that it had only identified one customer that

qualified as a similar customer to USPS because a comparator (1) had to have purchased a

quantity within 20% higher and 15% lower than USPS and (2) it could not be a conglomerate or

purchasing organization. Id. USPS approved all rebates for the three-year contract—for years

2020, 2021, and 2022. Id. at 4–5.

In November 2022, the USPS Office of the Inspector General sent Office Depot a

subpoena requesting data for “all sales transactions to USPS and Non-USPS customers for all

SKUs/items sold to the Postal Service” under the first and second year of the contract. ECF No.

2-1 at 3. Office Depot produced “some of the requested documents” but, instead of fully

complying, disputed the scope of the subpoena. ECF No. 8 at 5. Specifically, the company

claimed that the investigation should extend only to comparator customers rather than all

customers. Id. Its production left out records pertaining to Non-USPS customers for all of the

SKUs that USPS had requested. ECF No. 1-2 ¶ 30. The OIG then agreed to request only ten

other customers who bought high volumes of the same items as USPS. ECF No. 8 at 7. Office

Depot countered that it could offer customers with sale volumes that are 50% above and 50%

below that of USPS, but OIG did not respond. Id. at 9.

Before turning to the legal standards, one final factual note remains. Office Depot

proffers extensive data predicting that the USPS OIG’s production request will be arduous to

fulfill. The company claims that its computers “cannot support searches of more than 100,000

rows at a time, and even searches at that size take upwards of 40 minutes to load.” ECF No. 8 at

6. For large-volume SKUs—those that OIG requests—each query would return over 1,000,000

3 rows of data. Id. Office Depot estimates requiring 10 queries to capture the appropriate

information for one year for each SKU, which would take about 500 minutes. Id. This process

must be manually monitored and “very large data pulls sometimes crash the system.” Id. Office

Depot states that fulfilling OIG’s request would require 280 SKUs, or at least 112,000 minutes,

or 1,867 hours. Id. Quality checking and anonymizing would compound that time. Id. On top,

the subpoena requests contractual terms with other customers. Id. All in, the company forecasts

a “herculean effort that would likely take more than a year.” Id.

This Court has subject matter jurisdiction over the matter. See 5 U.S.C. App. § 6(a)(4)

(“[A] subpoena, in the case of contumacy or refusal to obey, shall be enforceable by order of any

appropriate United States district court[.]”); 28 U.S.C. § 1331 (conferring “original jurisdiction

of all civil actions, suits, or proceedings commenced by the United States”). The parties’ dispute

is now ripe for consideration.

II.

The government has broad authority to inspect its civil programs. USPS is one of many

agencies that have an Office of the Inspector General to perform these auditing and investigative

duties. 2 Congress tasked OIGs with “supervising the performance of investigative activities”

relating to civil-service operations. 5 U.S.C. App. § 3(d)(2). To perform those functions,

Congress authorized OIGs to investigate programs’ administration when doing so is, “in the

judgment of the Inspector General, necessary or desirable,” and “to require by subpoena the

production of all information . . . necessary.” 5 U.S.C. App. § 6(a)(4); see Resol. Tr. Corp. v.

2 Statutory Inspectors General in the Federal Government: A Primer, CONG. RESEARCH SERV. (Nov. 13, 2023), https://crsreports.congress.gov/product/pdf/r/r45450; About Us, OFF. INSPECTOR GEN. (2024), https://www.uspsoig.gov/about-us.

4 Thornton, 41 F.3d 1539, 1544 (D.C. Cir. 1994) (“Administrative agencies wield broad power to

gather information through the issuance of subpoenas.”).

Courts have narrowed administrative agencies’ broad statutory powers to satisfy the

Fourth Amendment. The Supreme Court has identified both relevance and burdensomeness as

the limiting principles. Morton Salt. Co., 338 U.S. at 652; See v. City of Seattle, 387 U.S. 541,

544 (1967) (“It is now settled that, when an administrative agency subpoenas corporate books or

records, the Fourth Amendment requires that the subpoena be sufficiently limited in scope,

relevant in purpose, and specific in directive so that compliance will not be unreasonably

burdensome.”); accord SEC v. Arthur Young & Co., 584 F.2d 1018, 1031 (D.C. Cir. 1978).

Courts can modify administrative subpoenas to conform to these constitutional limits as

part of their statutory authority over enforcement. Arthur Young & Co., 584 F.2d at 1033

(“Surely, then, in formulating protective conditions for administrative subpoenas, courts may

resort analogously to techniques conventional to judicial subpoenas . . . .”). Doing so is a

common practice in this circuit. See, e.g., FTC v. Owens-Corning Fiberglas Corp., 626 F.2d

966, 970 (D.C. Cir. 1980); SEC v. McGoff, 647 F.2d 185, 187 (D.C. Cir. 1981).

It is the subpoena opponent’s burden to show that the request is overly burdensome or

irrelevant. FTC v. Texaco, Inc., 555 F.2d 862, 882 (D.C. Cir. 1977). As for relevance, the D.C.

Circuit has “held that the agency’s own appraisal of relevancy must be accepted so long as it is

not obviously wrong.” Linde Thomson Langworthy Kohn & Van Dyke, P.C. v. Resol. Tr. Corp.,

5 F.3d 1508, 1516 (D.C. Cir. 1993) (cleaned up). As for burdensomeness, “some burden on the

subpoenaed party is to be expected.” FTC v. Boehringer Ingelheim Pharms., Inc., 898 F. Supp.

2d 171, 175 (D.D.C. 2012). And courts have enforced subpoenas when the “breadth complained

of is in large part attributable to the magnitude of the producers’ business operations.” FTC v.

5 Texaco, Inc., 555 F.2d 862, 882 (D.C. Cir. 1977). But they also have considered modifying

investigative subpoenas when “compliance threatens to unduly disrupt or seriously hinder

normal operations of a business.” Id.

Finally, the Supreme Court has held that “when petitioner[s], in order to obtain the

government’s business, specifically agree[] to permit inspection of [their] accounts and records,

[they] voluntarily waive[] such claim to privacy which [they] otherwise might have had as

respects business documents related to those [government] contracts.” Zap, 328 U.S. at 628.

Morton Salt provides a general test for agency subpoenas’ enforcement and Zap, contemporary

with Morton Salt, applies the Fourth Amendment specifically to government contractors

challenging those subpoenas.

III.

This Court will hew to the parties’ contract to narrow the subpoena’s scope. Other courts

have enforced subpoenas beyond the bounds of government contractors’ terms. See e.g., United

States v. Westinghouse Elec. Corp., 788 F.2d 164, 171 (3d Cir. 1986). The Fourth Amendment

waiver is a floor, not a ceiling, on the Inspector General’s subpoena authority. But here, Office

Depot has made a substantial burdensomeness argument that implicates “disrupt[ion]” of normal

business. OIG has not questioned the company’s claims on this score. So the burdensomeness

showing counsels against granting the subpoena in full. The relevance consideration has little

bearing on this decision because OIG’s assessment is not “obviously wrong.” The Court also

declines to fully reject the subpoena because the Circuit has done so rarely, and primarily when

the OIG lacks statutory authority to pursue the investigation. See Consumer Fin. Prot. Bureau v.

Accrediting Council for Indep. Colls. & Schs., 854 F.3d 683 (D.C. Cir. 2017). Throughout the

Court’s analysis, the contract provides both a source of law for the scope of Office Depot’s

6 Fourth Amendment waiver and a source of facts informing what burden the company may have

considered proper to contractually assume.

On to the contract. There appear at first glance to be two dispositive sections: the

definition provision and the Most Favored Customer Pricing Clause.

The first one ends up being illusory. The definition for “examination of records” simply

refers to the contents of the Most Favored Customer Pricing Clause. ECF No. 2-2 at 40, cl. 4-2.

It defines “records” in a generic fashion, and goes on to state that “[i]f the supplier is required to

furnish cost, funding or performance reports, the contracting officer or any authorized

representative of the Postal Service will have the right to examine and audit the supporting

records and materials . . . .” Id. cl. 4-2(b)(1), (4) (emphasis added). The Postal Service’s

contractual investigative authority hinges on whether the Most Favored Customer Pricing Clause

requires the supplier to furnish the reports in the first place. The definitions provision does

nothing to expand the more specific comparator terms.

Turn now to the central debate: the meaning of the Most Favored Customer Pricing

Clause. The Court interprets the parties’ briefing to present three questions.

First, does the Clause require that Office Depot provide ten comparators, or only its top

ten customers in the aggregate? Office Depot points to Section (b) of the Clause:

[T]he supplier shall prepare and provide a comparative report of Postal Service’s and ten

(10) of the supplier’s top customers’ purchase and pricing data, including rebates and

discounts, by the top items that represent 80% of the Postal Service sales volume and

quantity for the prior contract year (the “Top Items”) . . . .

ECF No. 2-2 at 33, cl. 2-48; ECF No. 8 at 9.

7 That sentence admittedly is unclear about whether the company can aggregate its

customer lists.

OIG counters that the contracting officer requires ten comparators for each product to

verify that the company is complying with the Clause Pricing for each product; otherwise, it is

impossible to verify that USPS is receiving the same as the lowest price for the top ten

comparators for each SKU. ECF No. 11 at 5.

Neither party points toward the final sentence in section (b): “For purposes of identifying

other customers to include in the report for each of the Top Items, the supplier shall include at

least ten (10) other customers that purchased the Top Items in an amount closest to the amount

purchased by the Postal Service.” ECF No. 2-2 at 33, cl. 2-48 (emphasis added). The Court

finds this sentence dispositive on the first question. So the contract requires a comparative list of

ten other customers for each SKU.

Next, section (b)’s comparator requirement discusses “Top Items” rather than “Core

Products,” though the parties mainly debate the latter phrase’s meaning. This leads to the second

question: What is the difference? And does the distinction mean that non-“Core Products” relate

to the contract so that OIG can request information about them?

Office Depot contends that non-Core Products are not included because the language at

the top of section (a) governs: “[T]he following Most Favored Customer Pricing (MFCP) clause

shall apply to all Core Products . . . .” Id. at 32, cl. 2-48; ECF No. 8 at 10. So all following

comparator report requirements, the company reasons, must only apply to Core Products.

Two features of the contract counsel in USPS’s favor. First, the language discussing

“Core Products” only appears as part of section (a), whereas section (b), governing comparator

reports, is separate. ECF No. 2-2 at 32–33. Office Depot acknowledges that the beginning of

8 section (a) is not “explicitly” referenced in section (b). ECF No. 8 at 10. But Clause 2-48, the

Most Favored Customer Pricing Clause, is separated into multiple distinct sections so that it

would make little sense to read one provision as governing the other without language so

indicating. ECF No. 2-2 at 32–33. Office Depot points to no such text.

Second, section (b) uses the phrase “Top Items” rather than “Core Products.” Id. That

section also defines “Top Items” as, to reiterate, “the top items that represent 80% of the Postal

Service sales volume and quantity for the prior contract year.” Id. The difference between this

definition and that of Core Products? The Core Products Clause contains a “20 rule” in addition

to the 80% parameter, defining the 20% of the items that make up 80% of the sales. Id.

Though these two sets would largely overlap, they may not entirely. If USPS had

purchased a greater diversity of items one year so that the top 25% of SKUs purchased

comprised 80% of their purchasing volume, then the SKUs on the 20–25% margin presumably

would fall within the Top Items but outside the Core Products definitions. The potentially

broader category of items captured in section (b) can act as a check for USPS in evaluating

Office Depot’s compilation of Core Products. In any event, the Top Items definition controls the

comparator reports, not the Core Products one. So the contract requires Office Depot to provide

data from sales of non-Core Products that fall within the definition of Top Items. OIG is well

within its rights to subpoena this information.

Finally, the parties debate whether OIG can request data for all customers or just those

purchasing in bulk, or, more precisely, “in an amount closest to the amount purchased by the

Postal Service.” ECF No. 2-2 at 33; ECF No. 8 at 9. Recall that the parties’ negotiations broke

down over how similar the comparators’ purchases had to be to USPS’s purchases. Though

USPS does not insist on its right to data from all customers in its reply brief, ECF No. 11, the

9 original subpoena contains such sweeping language. ECF No. 2-1 at 3 (requesting “all sales

transactions to USPS and Non-USPS customers for all SKUs/items sold to the Postal Service

under the [instant] contract”).

For this third issue, the contract favors Office Depot. As before, the comparator clause is

in section (b), which requires a report with at least ten customers “that purchased the Top Items

in an amount closest to the amount purchased by the Postal Service.” ECF No. 2-2 at 33. This

clause clearly delineates the comparator data among only those customers with similar

purchasing volume, not all customers buying the same items as USPS. Even though OIG could

theoretically subpoena information beyond its contracted reporting rights, here requiring all

customers’ data would be exceedingly burdensome. See ECF 8 at 6.

The Court thus will modify OIG’s subpoena to reflect USPS’s contractual rights. For the

same time periods that OIG has already requested (February 1, 2020–January 1, 2021, and

February 1, 2021–January 31, 2022), Office Depot must produce a comparator report with the

top ten customers for each of the Top Items including customers who have purchased the Top

Items in “an amount closest to the amount purchased by the Postal Service.”

To the extent that the parties disagree about the “amount closest” language, Office Depot

will provide the ten customers that bought the amount closest in absolute value to USPS. The

percentage points of purchasing volume are irrelevant, despite the parties’ back-and-forth on the

topic, because the Court has no evidence that this understanding was incorporated into the instant

contract. ECF No. 5 at 5; Pazerunas Decl. ¶ 12; Gaab Decl. ¶ 14.

10 IV.

For these reasons, the petition to enforce the subpoena is granted in part and denied in

part. The Court will enforce the subpoena as modified in this opinion. A separate order will

issue today.

2024.10.31 12:00:20 -04'00' Dated: October 31, 2024 TREVOR N. McFADDEN United States District Judge