Decision 98-04-024 April 9, 1998 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Investigation on the Commission's own motion into the operations, practices, and conduct of Brittan Communications International Corp. (BCI) to determine whether it has violated the laws, rules, and regulations governing the manner in which California consumers are switched from one long distance carrier to another. I.97-04-045 (Filed April 23, 1997) Nossaman, Guthner, Knox & Elliot, by Jose E. Guzman, Jr., Attorney at Law, for Brittan Communications International Corp., respondent. Monica McCrary, Attorney at Law, and Linda Woods, for the Consumer Services Division OPINION Summary This decision grants a joint motion for approval of a Settlement Agreement between the Commission's Consumer Services Division (CSD) and respondent, Brittan Communications International, Inc. (BCI). The agreement resolves CSD and customer allegations that respondent violated Public Utilities (PU) Code § 2889.5 by switching the long distance carrier of customers without authority between September 1995 and October 1997. Without admitting liability, BCI agrees to deposit $702,480 at the Commission to provide restitution to at least 35,007 customers who complained to local exchange carriers (LECs) about unlawful switching and 117 customers who made similar complaints to the Commission. BCI further agrees to suspend its service in California for 24 months. Background The Commission instituted this proceeding to investigate whether BCI had violated the requirements of PU Code § 2889.5. In 1995-96, this statute required that prior to switching a telephone customer's long distance service to a different carrier, the switching carrier must take the following steps. [Footnote 1] If the subscriber is solicited by telephone, or other than in person: a. Thoroughly inform the subscriber of the nature and extent of the service being offered, b. Specifically establish whether the subscriber intends to make any changes in telephone service and explain any associated charges, c. Verify the customer's order, and [Footnote 2] d. Mail the subscriber a packet of information with confirmatory information seeking written authorization to make the change. If the subscriber is solicited in person: a. Thoroughly inform the subscriber of the nature and extent of the service being offered, b. Specifically establish whether the subscriber intends to make any changes in telephone service and explain any associated charges, c. Obtain the subscriber's signature on a document which fully explains the nature and extent of the action, and d. Furnish the subscriber with a copy of the document. Failure to comply with these requirements constitutes an unlawful act called "slamming." BCI alleges it obtained customer authorization from entry forms attached to boxes or otherwise made available, placed in public locations which advertised winning a new car ("box program") or through its clipboard program where BCI representatives manned booths at fairs or festivals. In addition to entering the signatory in the sweepstakes, the entry form for this program contained language authorizing the switch from the service of the existing long distance carrier to that of BCI. Many customers complained that they did not understand or intend to switch their long distance service by completing the sweepstakes entry form. Others stated that unauthorized friends or related minors completed the form and caused the customer's long distance service to be switched to BCI. CSD presented to the Commission the affidavits of customers who swore that these allegations were true. Thus, the Commission found there was probable cause to institute this proceeding. The Commission also implemented two restraints pending completion of this proceeding to protect the public from probable unlawful acts. The Commission prohibited BCI from submitting PIC changes to local exchange carriers in California ("PIC freeze") and from selling its existing customer base. The Commission set a date for a limited hearing in which BCI was provided the opportunity to address the issues of probable cause to investigate and to continue the named restraints. Interim Decision The limited hearing was held on May 13 and 14, 1997, before Administrative Law Judge (ALJ) Patricia A. Bennett. BCI and CSD presented 18 witnesses and documentary evidence to address probable cause to institute the investigation and continue the restraints. CSD argued that public harm will still occur without the restraints. BCI alleged that its box and clipboard programs provided lawful customer authority to switch long distance service. BCI also asserted that effective January 1, 1997, it had completely complied with all state law regarding authorization to switch long distance service when it voluntarily stopped submitting PIC changes to local exchange carriers. Therefore, it argued that the initial restraints were not necessary. After considering this evidence, the Commission concluded that the restrictions established in the initial order should continue pending the conclusion of this proceeding. (Interim Decision (D.) 97-12-046.) Mediation Efforts After the conclusion of the limited hearing, the parties noticed and held four settlement meetings on the following dates: August 11, September 8 and 30, and October 16, 1997. ALJ Robert Ramsey acted as mediator in the settlement meetings. Simultaneous with the settlement meetings, between May and September 1997, the parties engaged in discovery to prepare for an evidentiary hearing on all issues in the proceeding. Evidentiary Hearing At the scheduled evidentiary hearing on November 17, 1997, the parties jointly introduced into evidence Exhibit 29, an executed Settlement Agreement. ALJ Bennett instructed the parties to file a joint motion to approve the agreement. Settlement Agreement On November 21, 1997, the parties filed a Joint Motion For Approval Of Settlement. The parties assert that the Settlement Agreement complies with all Commission requirements and should be approved. The Settlement Agreement, which is attached as Appendix A, was signed by both parties in this proceeding, BCI and CSD, on November 7 and 10, 1997, respectively. The agreement disposes of the two major disputed issues in this proceeding: whether BCI engaged in unlawful switching of customer long distance service between September 1995 and October 1997; and, if so, what remedies for the affected customers and/or sanctions against BCI are appropriate. In addition, the parties request the Commission to order affected local exchange companies to cooperate with the terms of the agreement, that is, by providing the CSD with the identity of a complaining BCI customer and waiving any switching costs for a BCI customer qualified under the agreement to switch to another carrier. BCI will pay these costs pursuant to paragraph 5 of the Settlement Agreement. The parties also request that the Commission's final decision in this proceeding be made effective on the date it is issued. There are five major terms in the agreement. 1. Restitution BCI agrees to deposit with the Commission $702,480 as restitution for customers who have complained to the Commission that their service was switched to BCI without authorization, or customers who have filed primary interexchange carrier (PIC) disputes with LECs alleging unauthorized switching to BCI. BCI deposited with the Commission $350,000 at the time the proposed Settlement Agreement was executed. The remainder will be paid in four monthly installments in December 1997 and January, February and March 1998. The majority shareholder of BCI, Jim Edwards, in his individual capacity, personally guarantees the payment to the Commission of the stated restitution. Under the terms of the agreement, the Commission will allocate to qualifying consumers who have complained of unauthorized switching a minimum of $20 per customer. The agreement establishes a mediation/ arbitration program to disburse additional funds for damages. The parties agree that there are 35,007 customer disputes regarding the unauthorized switching of service to BCI filed with various LECs and 117 written consumer complaints lodged with the Commission. The parties request that unclaimed restitution be deposited into the Consumer Protection and Prosecution Trust Fund as established by the Alameda Superior Court in People v. ITT Consumer Financial Corporation, et al. (Civil No. 65038-0, September 1989) or to any other fund, trust or account the Commission chooses. Alternatively, the parties request that these unclaimed funds, if possible, be used to provide education and/or protection of consumers involved in slamming issues. 2. Temporary Suspension of Operating Authority BCI agrees to cease service in this state for a period of 24 months effective the date this decision is adopted. During a 60-day transition period, while BCI may continue to serve existing customers, CSD will notify customers of its service suspension and provide time for existing customers to locate other service. 3. Payment of Costs by BCI BCI agrees to pay all costs associated with the Settlement Agreement. 4. Future Certification Proceedings In the future, any officer, director, or major shareholder with 10% or greater ownership in BCI who applies to this Commission for a certificate of public convenience and necessity to provide telecommunications services within California must disclose in its filing its relationship with BCI. The applicant must concurrently notify the Director of the CSD of such filing. The agreement lists the individuals to whom this provision applies. 5. Enforcement of Terms Should BCI violate the agreement, CSD reserves the right to initiate a formal proceeding to seek the appropriate remedies, including additional suspension or revocation of BCI's operating authority in California. 6. Other Terms In addition, the parties request the Commission to order affected local exchange companies to cooperate with the terms of the agreement, that is, by providing the CSD with the identity of complaining BCI customers and billing any switching costs for BCI customers required under the agreement to switch to another carrier to BCI rather than the individual customers. The parties also request that the Commission's final decision in this proceeding be made effective on the date it is issued. Rule 51.5(e) The parties allege that the Settlement Agreement meets the requirements of Rule 51.1(e) of the Commission's Rules of Practice and Procedure. This rule requires that a Settlement Agreement be reasonable in light of the whole record, consistent with the law and in the best interest of the public. Reasonable In Light of Entire Record In addition to the written pleadings and briefs, the entire record in this proceeding without an evidentiary hearing includes the affidavits of numerous BCI customers, the sworn testimony of twelve complainants, [Footnote 3] the testimony of two CSD investigators with voluminous investigation reports, and five witnesses testifying in respondent's defense. Witnesses for CSD assert the unlawful behavior of BCI. Witnesses for BCI deny any wrongdoing. On one hand, the Settlement Agreement addresses the alleged violations by providing restitution of roughly $20 per complaining customer to make whole those who have incurred fees and higher rates by switching long distance carriers. The agreement removes from California for 24 months the possibility of any further harm from similar behavior by this carrier. These are substantial sanctions for grave, widespread allegations of unlawful behavior. On the other hand, inspite of these voluntary sanctions, BCI admits no guilt of the alleged unlawful behavior. In fact, the agreement expressly outlines this provision. The Settlement Agreement is between the only two parties in the proceeding, CSD and BCI, and resolves all issues disputed between them. Thus, in light of the record in this proceeding, that is, CSD's evidence of alleged unlawful behavior and BCI's denial of such behavior, the Settlement Agreement is reasonable. Lawfulness of the Agreement The Settlement Agreement contains terms and conditions previously approved by the Commission and unchallenged by parties in prior slamming enforcement proceedings. (Sonic Communications, dba SCI Communication, 1995 Cal. PUC LEXIS 176 *6 (D. 95-04-029); Heartline Communications, D. 96-12-031; and, Cherry Communications, D. 96-09-041.) However, as in prior proceedings, we specify that unclaimed funds will escheat to the State pursuant to Code of Civil Procedure § 1579.5. (L.D. Services, D.97-11-079.) With this clarification, the Settlement Agreement in this proceeding does not contravene existing law. In The Public Interest Based upon the record in this proceeding, it is reasonable to assume that the evidentiary hearings would consume the five to seven days scheduled. After the evidentiary hearing, briefs would be filed and the matter submitted for a proposed decision by the assigned ALJ and a final decision by the Commission. Instead, the Settlement Agreement avoids any further litigation thereby reducing attorney's fees, the consumption of Commission resources and the time it takes to close this proceeding. The payment of customer switching costs to return to their chosen carrier, restitution for any additional fees and higher rates and the temporary suspension of California service are the same remedies the Commission routinely imposes for the unlawful switching of customer long distance service. Thus, the agreement offers reasonable and immediate recompense for service which the public perceives as unauthorized and unsatisfactory. In addition, the agreement acts to deter unlawful switching which decreases the likelihood that customers and competitors will be subjected to such future unlawful acts. For these reasons, the Settlement Agreement is in the public interest. Judicial Review Judicial review of Commission decisions is governed by Division 1, Part 1, Chapter 9, Article 3 of the PU Code. The appropriate venue for judicial review is dependent on the nature of the proceeding. This is an enforcement proceeding brought by the Commission against BCI, and so this decision is issued in an "adjudicatory proceeding" as defined in § 1757.1. Therefore, the proper court for filing any petition for writ of review is the Court of Appeal if any subsequent decision disposes of a timely application for rehearing of this decision. (PU Code § 1756(b).) Comments on Proposed Decision Based upon the timely comments on the Proposed Decision filed by the parties, we have made minor non-substantive changes to clarify this decision and make it more accurate. Findings of Fact 1. The Commission issued this enforcement, adjudicatory investigation based upon probable cause that BCI had violated PU Code § 2889.5. 2. The Commission prohibited BCI from submitting PIC changes to local exchange carriers in California ("PIC freeze") and from selling its then-existing customer base until completion of this proceeding. 3. Interim D. 97-12-046 retained the two initial restraints. 4. On November 17, 1997, at the scheduled evidentiary hearing, BCI and CSD jointly sponsored Exhibit 29, an executed Settlement Agreement. 5. On November 21, 1997, the parties filed a Joint Motion For Approval Of Settlement. In addition to approval of the Settlement Agreement, the parties jointly request that local exchange companies with complaining BCI customers be ordered to identify these customers and waive any applicable switching fees for BCI customers required to switch service to another carrier. The parties also request that the decision approving the agreement be effective on the date issued. 6. The Settlement Agreement resolves all of the disputed issues between all of the parties in this proceeding. 7. The Settlement Agreement considers the entire record in this proceeding, namely CSD and customer allegations of unlawful behavior, as well as BCI's assertions of innocence. 8. Approval of the Settlement Agreement avoids further litigation, attorneys' fees, and consumption of limited Commission resources. 9. The Settlement Agreement provides reasonable restitution to aggrieved customers which will deter similar unlawful acts by BCI and other interexchange carriers providing such service in this state. 10. The terms and remedies of the Settlement Agreement are similar to those approved in prior Commission "slamming" proceedings. 11. A Commission order in this proceeding made effective today will expedite the temporary cessation of unsatisfactory service and provision of restitution to qualified aggrieved customers. Conclusions of Law 1. The Settlement Agreement attached as Appendix A to this decision is reasonable in light of the entire record, not contrary to the law, and in the public interest, therefore, meets the requirements of Rule 51.1(e). 2. Unclaimed restitution funds under the Settlement Agreement shall escheat in the State pursuant to Code of Civil Procedure § 1579.5. 3. BCI admits no violations by executing the Settlement Agreement. 4. The Settlement Agreement should be approved and made effective immediately. 5. This is an enforcement proceeding, and so the decision herein is issued in an "adjudicatory proceeding" as defined in PU Code § 1757.1. Therefore, the proper court for filing any petition for writ of review will be the Court of Appeal if any subsequent decision disposes of a timely application for rehearing of this decision. ORDER IT IS ORDERED that: 1. The Settlement Agreement attached as Appendix A is approved and the Commission selects the alternative option in paragraph 13 that escheats uncollected funds to the state. 2. Local exchange companies affected by this Settlement Agreement will cooperate in implementing the terms of the agreement which affect their respective operations. 3. Investigation 97-04-045 is closed. This order is effective today. Dated April 9, 1998, at San Francisco, California. RICHARD A. BILAS President P. GREGORY CONLON JESSIE J. KNIGHT, JR. HENRY M. DUQUE JOSIAH L. NEEPER Commissioners (SEE FORMAL FILES FOR APPENDIX A) FOOTOTES [1] Effective January 1, 1997, the steps for third-party verification were specified and must be performed by an independetn company meeting specific criteria. [2] The specific verification requirements of Code 2889.5 also changed from 1995 to 1996. [3] CSD contends there are many other customers willing to provide testimony at any evidentiary hearing inthe proceeding.