5. Did MPower's Attempts to Bill and Collect from Edelweiss for Unauthorized International Calls Violate Pub. Util. Code § 2890?
As noted above, one of UCAN's principal contentions here is that Mpower's insistence on billing for the disputed international calls violates subsections (a) and (e) of Pub. Util. Code § 2890, which is popularly known as the "anti-cramming" statute. Subsection (a) of § 2890 provides that "a telephone bill may only contain charges for products or services, the purchase of which the subscriber has authorized." Subsection (e) of § 2890 speaks to a carrier's obligations after a customer disputes a charge:
If any entity responsible for generating a charge on a telephone bill receives a complaint from a subscriber that the subscriber did not authorize the purchase of the product or service associated with that charge, the entity, not later than 30 days from the date on which the complaint is received, shall verify the subscriber's authorization of that charge or undertake to resolve the billing dispute to the subscriber's satisfaction.
In its papers here, UCAN contends that Mpower violated § 2890 by billing Edelweiss for the unauthorized long-distance calls even after Edelweiss insisted the calls had not been made from its premises.
A. UCAN's Contentions
UCAN's argument that Mpower has violated § 2890 rests on several foundations. First, although UCAN concedes that § 2890 (d)(2)(D) provides that "evidence that a call was [direct] dialed is prima facie evidence of authorization," UCAN argues that two factors serve to overcome that presumption in this case. The first factor is that, as the Joint Stipulation indicates, Mpower acknowledges it received similar complaints about unauthorized satellite calls from six other customers, and that through its participation in an industry task force, it learned these calls were most likely the result of hacking. (UCAN Opening Brief at 13.) The second factor is that Ms. Stepanova vigorously denies the calls were made from her shop, a denial supported by the facts that (a) the disputed numbers had never appeared on her bills before, and (b) the calls were made outside of normal business hours. (Id. at 15-16.)13 Based on these factors, UCAN argues that the presumption in § 2890 (d)(2)(D) has been rebutted, and that the burden therefore shifts to Mpower to prove that the disputed calls were authorized.
The second foundation for UCAN's cramming argument is Commission precedent, especially D.02-10-059, our decision concerning an investigation into the billing practices of Qwest Communications Corporation (Qwest) and one of its subsidiaries. In that investigation, Qwest challenged a report prepared by Pacific Bell and relied on by our Consumer Services Division (CSD) to establish the number of cramming complaints lodged against Qwest and its subsidiary during the relevant time period. In rejecting Qwest's argument that only a handful of crams had been proven, we said:
Qwest believes that when the customer denies making the call, or has a complaint regarding a calling card billing, these are not crams but rather billing disputes. However, § 2890 provides that a customer may only be billed for authorized charges for products and services. If a customer denies making the call, this is a complaint for an unauthorized charge. (D.02-10-059 at 35.)
B. MPower's Contentions
Mpower argues that the term "authorize" is ambiguous as it is used in § 2890, and that since the statute can be read to support either UCAN's or Mpower's interpretation, the Commission should construe the statute in a way that avoids conflict with federal law:
In this case, Mpower and the complaining customer were parties to an agreement that specifically included Mpower's provision of international long distance service as one of the services to be furnished to the customer. In Mpower's view, Mpower was thus authorized by the customer to provide such service. UCAN, on the other hand, will undoubtedly contend that, notwithstanding the agreement that the service to be provided . . . included international toll service[,] and that customer is responsible for protecting the customer's computer network . . . and other . . . equipment from unauthorized access by third parties, the customer did not authorize (within the meaning of § 2890) the specific international calls that were placed over the customer's lines[,] or Mpower's billing the customer therefor . . .
There is nothing in the language of § 2890 that resolves this readily apparent ambiguity . . . except that [UCAN's] construction would cause the statute to run afoul of the Supremacy Clause of the United States Constitution to the extent that the statute conflicts with the FCC's adopted policy regarding assignment of responsibility for toll fraud. Thus, given the choice between these two constructions, Mpower submits that the construction that avoids preemption is the appropriate one . . . (Mpower Opening Brief, pp. 18-19.)
Mpower also argues that what UCAN is really advocating here is a requirement the carrier verify that each individual call is authorized, and that such a requirement would be unworkable:
The hurdle that UCAN must, but cannot, overcome is the fact that the affected customer did authorize Mpower to provide international calling, which is the service for which the disputed charges were assessed. Further, there is no evidence that Mpower failed to follow any applicable verification requirements . . .
To hold, as UCAN contends, that separate authorization and verification is required for each individual call that is made from a customer's premises would be unworkable. To sustain any billed charge, a carrier would have to establish and impose some sort of per-call verification process, which obviously would be extremely burdensome on both the carrier and any customer desiring to make a long distance call. Otherwise, as UCAN argues, a customer could avoid any charges simply by denying that the customer made the call and denying that permission was given to the customer's . . . employee[] or any other person to make the call . . . (Mpower Reply Brief at 9-10.)
C. Discussion
Although we think both parties have taken extreme positions on the cramming issue, we believe that on balance, the facts to which they have stipulated demonstrate that Mpower did meet the minimum obligations that § 2890 imposes on it. However, we also think the record shows that Mpower was very slow to conduct an adequate investigation into Ms. Stepanova's complaints that the international calls at issue were unauthorized. Once Mpower did conduct such an investigation, it became apparent that similar complaints from other customers, as well as Edelweiss's calling history, lent considerable credence to Ms. Stepanova's allegations of fraud. Under these circumstances, Mpower should have reevaluated its decision not to give Ms. Stepanova a credit for the disputed calls.
Before examining the evidence concerning the disputed calls, it is appropriate to address Mpower's federal preemption argument. As noted in the summary of its position above, Mpower asserts that to accept UCAN's interpretation of § 2890 would "conflict[] with the FCC's adopted policy regarding assignment of responsibility for toll fraud." (Mpower Opening Brief at 19.) However, as we have demonstrated in Section IV.C. of this decision, the policies toward toll fraud that the FCC and the federal courts have articulated in their decisions are not what Mpower claims. Contrary to Mpower's assertions, we believe that federal cases dating back to the mid-1990s have recognized that where, as here, a small business customer has used reasonable measures to protect its telephone system against hacking, the customer should not be held liable for unauthorized calls, even if the anti-hacking measures prove to be unsuccessful. Thus, the federal decisions do not serve to preempt anti-cramming statutes such as § 2890.
We begin our analysis under § 2890 with the question of authorization. Although it is not conspicuously stated on the Service Order Form included in the service agreement that Edelweiss signed, the Service Order Form does indicate, as Mpower notes in its opening brief, that Mpower was to be Edelweiss's "New Carrier (PIC)" for international calling. The Service Order Form also states that "LD Rates are domestic rates, except for Alaska and Hawaii; International rates vary by country and are identified on the Mpower website." (Joint Stipulation, Exh. A; Mpower Opening Brief at 4.)14 Thus, the underlying service agreement between Mpower and Edelweiss does provide that the former is to be the latter's carrier for any international calls, and states how the rates for such calls can be determined.15
In addition to this written authorization, the Joint Stipulation states that on September 11, 2006 - the first date on which Ms. Stepanova contacted Mpower to complain about unauthorized charges on her September bill - Mpower verified from its call records that the disputed calls had been direct-dialed from Edelweiss's fax line. (Joint Stipulation, ¶ 9.)
However, the general authorization to provide international service that Edelweiss's owners signed is not sufficient to defeat UCAN's claim of a § 2890 violation. As UCAN points out on pages 12-13 of its opening brief, D.02-10-059 rejected the argument that authorization to provide a particular type of service means that a customer cannot challenge the validity of an individual call. In response to such an argument from Qwest, the Commission stated:
According to Qwest, CSD has not met its burden of proof because § 2890(e)(D) provides, with regard to direct dialed telecommunications services, evidence that a call was dialed is prima facie evidence of authorization. However, here, we have a complaint from the subscriber rebutting that presumption. Moreover, this same statute provides that in the case of a dispute, there is a rebuttable presumption that an unverified charge for a product or service was not authorized by the subscriber and that the subscriber was not responsible for that charge. (D.02-10-059, p. 35, n. 35; emphasis added.)
UCAN notes that § 2890 makes rebuttable the presumption that direct-dialed calls are authorized, and argues that it has presented sufficient evidence to overcome that presumption here. As noted above, the Joint Stipulation states that Mpower received similar complaints about unauthorized international calls from at least six other customers, and learned through its participation in the "informal industry security task force" that other carriers' customers had also been victims of this fraud. (Joint Stipulation ¶ 19.) Further, once Mpower commenced a substantive investigation into the Edelweiss matter, it was able to determine from its call detail recordings that none of the numbers relating to the disputed charges had ever been called previously either by Edelweiss or Ms. Stepanova. (Id. ¶ 21.) UCAN argues that on the basis of these facts, the burden should shift to Mpower to show that the calls were authorized, that Mpower cannot do so, and thus that a violation of § 2890 has occurred.
Although UCAN's argument has considerable appeal, we decline to adopt it because the facts on which UCAN is relying apparently came to light only after Mpower's fraud department commenced a special investigation into Ms. Stepanova's allegations. According to the Joint Stipulation, this special fraud investigation began on October 20, 2006, three days after Ms. Stepanova's attorney had sent a letter to Mpower (1) reiterating that no one at Edelweiss had made the disputed calls, and (2) enclosing a check for undisputed charges. Thus, the fraud investigation began about five and one-half weeks after Ms. Stepanova had first contacted Mpower to protest the unauthorized charges on her September bill.
As noted above in Section 3, the Joint Stipulation refers to one other brief investigation Mpower undertook. On October 10, 2006, the day after Ms. Stepanova had faxed a second complaint to Mpower about the charges for unauthorized calls, "Mpower's staff began a review of the Customer's account at 11:25 a.m." (Id. ¶ 16.) Less than 20 minutes later,
Ms. Stepanova called Mpower to inquire about the disputed charges and asked to be connected to a supervisor. Ms. Stepanova was advised by the customer service representative that time was needed to review the account and was placed on hold, but the connection was inexplicably interrupted before Mpower could respond to her inquiry. (Id.)
The Joint Stipulation does not state what, if anything, Mpower did on October 10 to complete the account review its staff had begun.16
As noted above, a thorough review of Ms. Stepanova's complaints did not begin until October 20, 2006, three days after Ms. Stepanova's attorney sent Mpower the letter described above. Paragraph 19 of the Joint Stipulation describes the progress of that investigation, which was conducted by Mpower's fraud department, as follows:
The fraud department's review indicated that if the calls were not completed by persons located at the Customer's premises, then it was likely that the calls were made through a fraudulent scheme. In the following months, the fraud department noted that six other Mpower customers had made similar complaints to Mpower regarding allegedly unauthorized charges for calls completed to GlobalStar satellite telephone numbers. In addition, during conference calls with other carrier representatives who participated with Mpower in an informal industry security task force, Mpower learned that customers of other carriers had been similarly affected by an alleged fraudulent scheme to complete calls to GlobalStar numbers. No minutes of the discussions with the security task force were kept and Mpower has no documents regarding the discussions that took place. (Emphasis supplied.)
We draw several conclusions from this chronology of the various examinations Mpower undertook of the Edelweiss matter. First, even under a strict reading of D.02-10-059, we think that Mpower met its minimum obligations under § 2890(e). On September 11, 2006, the day Ms. Stepanova first complained about her September bill, Mpower checked its call records, which showed that the calls in dispute had been direct-dialed on Edelweiss's fax line. Twenty-nine days later, when Ms. Stepanova called after faxing a second complaint about unauthorized charges, Mpower began a review of Edelweiss's account, but the review was apparently cut short when Ms. Stepanova tired of being placed on hold and hung up. Although these steps were minimal and they leave unanswered questions, we cannot say that they were insufficient to meet the requirement of § 2890(e) that Mpower, "not later than 30 days from the date on which the complaint is received, shall verify the subscriber's authorization of [the disputed] charge or undertake to resolve the billing dispute to the subscriber's satisfaction."
However, it is also clear to us that Mpower did not make any serious effort to investigate Ms. Stepanova's concerns until five and one-half weeks after her initial complaint, and a few days after it had received the letter from her attorney. Over the next several months, Mpower learned enough from the fraud investigation to indicate that Ms. Stepanova was not exaggerating when she referred to "stolen call charges" and "stolen identity charges" on her bills. (Joint Stipulation, Exh. E.) First, although dates are not given, the fraud department learned that at least six other Mpower customers had made complaints similar to Ms. Stepanova's, all relating to international calls made over GlobalStar satellite facilities. Even though GlobalStar denied that its records showed such calls being made, the complaints about unauthorized calls ceased after GlobalStar was contacted. (Id. ¶ 20.)
Mpower also learned from its participation in the informal industry security task force that other carriers' customers had also been victims of the same scheme; i.e., hacking the customers' computer and telecommunications systems to make international calls over GlobalStar satellite facilities. However, Mpower chose not to share this information, either with Ms. Stepanova, with the six other customers who had complained to Mpower,17 or with the Commission's CAB after Ms. Stepanova filed an informal complaint with the CAB. (Id. ¶ 34.) By proceeding in this manner, Mpower was behaving like a company that knew it had information adverse to its position and did not want this information to come to light.
The Joint Stipulation also does not explain why Mpower did not perform prompt records checks that would have helped to determine whether or not Ms. Stepanova was being candid in her complaints about her bills. For example, although the Joint Stipulation states that "none of the phone numbers listed for the disputed charges on the September 1 and October 1, 2006 bills had ever previously been called by the Customer or Edelweiss Flowers," we are not told when the record check leading to this conclusion was undertaken. (Id. ¶ 21.)
To summarize, even though we conclude that Mpower's conduct here met the minimum requirements of § 2890, that conduct was nothing to be proud of. As the Legislature stated in 1998 when it enacted SB 378, the bill that became § 2890, the purpose of the measure was to "reduce the inclusion of unauthorized charges on a subscriber's telephone bill by encouraging the verification of telephone charges, and providing an effective way to resolve disputes." If § 2890 is to have real meaning, it surely contemplates more of an investigation after a customer disputes a charge than a quick records check, or a perfunctory verification that a disputed call was direct-dialed. As the chronology above demonstrates, by delaying its substantive review of Edelweiss's account until after it had received a letter from Ms. Stepanova's attorney, Mpower was less than conscientious in seeking to resolve her billing dispute.
13 Although UCAN asserts that the disputed calls were made outside of normal business hours, the Joint Stipulation acknowledges only that the calls were made to numbers that had never appeared on Edelweiss's or Ms. Stepanova's bills before. (Joint Stipulation, ¶ 21.)
14 It took considerable effort on our part to decipher this language in the Service Order Form included in the Joint Stipulation, since the copy provided was nearly illegible.
15 Although the Joint Stipulation is silent on the subject, we assume that at the time the service contract was signed, there was also some oral discussion between Mpower's sales agent and Edelweiss's personnel that made clear international calling was included within the telecommunications package Edelweiss was purchasing.
16 It should be noted that while Ms. Stepanova was sending complaints to Mpower and having her attorney contact the company about the disputed calls, Mpower was energetic in pursuing payment of the full amounts it had billed her. The Joint Stipulation states that Ms. Stepanova was advised on September 20, 2006 that no credit would be given due to Mpower's new policy of not giving credits in connection with fraudulent calls. (Id. ¶¶ 8, 10.) On September 29, Mpower phoned Ms. Stepanova again to tell her no adjustment would be made to her bill, and that her service would be disconnected unless she paid the full amount due. (Id. ¶ 12.) On October 19, an Mpower collections representative called Ms. Stepanova to pursue payment of the current and past-due balances on her account. (Id. ¶ 18.) On October 30, 2006, Mpower phoned Ms. Stepanova again to tell her that she would not be given a credit in connection with the disputed calls on her September bill. (Id. ¶ 23.)
17 On the issue of complaints from other Mpower customers, paragraph 38 of the Joint Stipulation makes clear that not all the customers were treated equally:
The other six customers who Mpower believes may have been victims of the fraudulent calling scheme that may have affected the Customer [i.e., Edelweiss] were initially pursued for payment. The total dollar amount of related usage charges, including those billed to the Customer, was $5,331.93. One of the other six customers who complained of the charges was given a credit at the discretion of Mpower in order to settle the matter after the Customer began taking action that Mpower believed would unduly disrupt its relationships with other existing and future customers.
