Slamming Allegations

During 1997 and 1998, customer complaints about Vista were received from all over the state by the Commission, Vista, the Federal Communications Commission (FCC), and the Better Business Bureau of Ohio (BBB), where Vista was incorporated. CSD reviewed all 133 written complaints available and personally interviewed 122 complaining customers. Nineteen of the customers interviewed by CSD signed declarations regarding slamming. In its reports in this proceeding, CSD summarizes all written customer complaints. (Exhs. 1, 2, 15 and 18.)

In addition, CSD received a copy of BBB's annual report on Vista. The report states that during 1997, BBB processed a pattern of complaints alleging that Vista used deceptive selling practices. BBB reported that Vista had promptly investigated all complaints forwarded to it by BBB. The report also indicates that the Oregon Attorney General obtained an Assurance of Voluntary Compliance from Vista, and that Oregon's legal action was filed to resolve slamming allegations.

In the written complaints, the customers allege that their long distance service was switched for some months to Vista from their chosen carrier without the customer's knowledge, authorization or consent. Based upon information printed on their bills, the name of the company most customers identified as switching their service was Vista, Vista Communications, USBI-Vista or U.S. Billing. A few customers stated they were switched by WilTel/Vista Group/ U.S. Billing, WilTel/Worldcom, Vista Group International, Vista Pacific, Vista Services, Vista Billing, Enhanced Services Billing, Inc., Vista/Telec, or the First (sic) Group/Vista, U.S. Billing, WilTel, Enhanced Services Billing, Inc. and the Furst Group. These companies are a mix of Vista, its affiliates, and interexchange carriers from whom Vista purchases the service it resells.

Most of the complaining customers stated that the telemarketer contacting the customer claimed to represent a company other than Vista, such as Pacific Bell (Pacific). Thus, Pacific initially filed a civil lawsuit against Vista regarding fraudulent misrepresentation, which was later settled.

An overwhelming majority of the complaining customers indicated that the telemarketer offered to consolidate local and long distance charges into one telephone bill and represented that nothing else would change. Other customers indicated that the telemarketer claimed to be calling to conduct a telephone survey, to obtain billing information, to simplify the company's billing, or to obtain the best long distance rates available for the customer. Ten customers whom CSD interviewed testified at the hearing about their experiences with Vista.

In addition to interviewing nearly all customers who filed written complaints, CSD obtained the following data on total PIC disputes against Vista recorded by various local exchange carriers and underlying interexchange carriers during 1997-1999:

Regarding the above data, it should be noted that customer complaints may be lodged with a local exchange company, long distance carrier, billing agent or reseller. Also, a PIC dispute is recorded for each telephone line involved in the dispute.

CSD called as a witness Pacific's Director of Consumer Protection, Sandy McGreevy, who testified that Pacific categorizes complaints as slams if the customer indicates he or she was switched without authorization. Pacific does not investigate these complaints to ascertain whether the complaint is true. It has a policy of immediately refunding any switching charges ($9.98 per line) without further inquiry. (Exh. 13.) In addition to the slamming PIC disputes recorded, McGreevy indicated that Pacific recorded 629 allegations of misrepresentation by Vista telemarketers during 1997-1999, with only 14 of these instances occurring in 1999. (Exh. 13, Attachment 1.)

At the hearing, CSD stipulated that Vista had verification tapes recorded by a third-party verifier for each customer alleging an unlawful switch in service. A tape of the purported verification was played for many of the customers who testified. On cross-examination, some customers indicated their conversation with the verifier was terminated when they declined to switch service or asked for clarification about the transaction. One customer alleged the verification tape was altered. However, no other evidence of tampering with verification tapes was produced, and CSD does not allege that this occurred. After hearing the verification tapes, all but one of the customers still insisted they did not authorize their service to be switched.

CSD contends Vista has engaged in a scheme of telemarketing to circumvent the requirements of Section 2889.5,3 and has represented itself as other telecommunications companies. Although Vista provided scripts to telemarketers, CSD contends the scripts were confusing, misleading, and drafted to create an illusion of a new billing service that did not require a switch in long distance carriers. CSD based this contention upon Vista's hiring of underlying carriers with "billing" as part of their company name.

CSD contends Vista did nothing to monitor, supervise, or randomly check to see if telemarketers followed the scripts. CSD points out that the dialogue between customer and telemarketer was not recorded. CSD considers Vista's reliance on third-party verification to be misplaced, since customers were placed under a misconception by the telemarketer that their service would not be switched and they must answer all verifier questions "yes" in order to get the combined billing service. CSD argues that it is neither the required third-party verifier's nor the customer's responsibility to detect improper marketing, but Vista's obligation not to market unlawfully.

CSD considers the sales scripts to be inadequate to comply with Section 2889.5 and the verification scripts provided by Vista to be misleading by identifying the third-party verifier as the "verification department" or "verification center" or a place to "confirm account information." CSD contends that only one of four scripts indicates the customer is choosing Vista as its service provider, and that even this one may also be ambiguous, depending on what the telemarketer had told the customer. CSD argues that customers were told that they were getting a new program consolidating two bills into one. When customers asked if switching service providers was involved or tried to confirm there would be no switch, verification was immediately terminated. Moreover, CSD argues, the customer only authorized combined billing, not a switch in provider.

CSD believes Vista's acts to prevent, detect, and rectify marketing abuses were unreasonable since Vista appeared not to believe it had any responsibility to correct any unlawful acts of its telemarketers. CSD argues that Vista violated Section 2889.5 for a long period of time and tolerated telemarketing abuse. CSD contends Vista did not check the verification tape of all customers solicited by each telemarketer found to have committed a misrepresentation. Thus, CSD concludes that Vista failed to do everything necessary to secure regulatory compliance by its agents, a violation of Section 702.4

The status of refunds to complaining customers varies. Some customers testified that they have received refunds of all charges and increased costs related to the switch in service; others have received refunds of switching fees only; and yet others have not received any refunds. However, all complaining customers have been switched back to their long distance carrier of choice. Customers who testified indicated they spent from several hours to several days to reverse the unauthorized switch and obtain refunds. They were all business customers with multiple business lines.

Vista advances numerous arguments regarding the facts and law surrounding this case to show that it has complied with all required statutes.

First, Vista argues that its satisfaction of the FCC's verification requirement is sufficient to comply with the regulations of telemarketing, and any additional state requirements are pre-empted by federal law, citing California vs. Federal Communications Commission, 75 F.3d 1350 (9th Cir., 1996), cert. den. 517 U.S. 1216, 1996. Also, Vista argues that this Commission has no jurisdiction over telemarketers and that Section 7015 may not be extended to the regulation of sales strategies and marketing devices employed by telecommunications carriers, citing Cellular Dynamics, Inc. vs. MCI Telecommunications Corp., 1995 U. S. Dist. LEXIS 4798 (N.D. Ill. 1995), Weinberg vs. Sprint Corporation, 165 F.R.D. 431 (D.N.J. 1996) and Bauchelle vs. AT&T Corp., 989 F.Supp. 636 (D.N.J. 1997).

Vista's Director of Regulatory Affairs, Courtney Maroon, investigated many customer complaints and concluded that most customer switches were not slams. She believes many of these complaints are not viable because, for example, there was miscommunication between the customer and entity recording the complaint; buyer's remorse on the part of customers who later changed their minds; confusion within a company about who authorized the switch; or customer error, such as not remembering that they had authorized a switch. Once the confusion was cleared up in her investigation of individual complaints, Maroon contends the customers often confirmed that they or another authorized person in their company approved the switch to Vista's service.

Vista believes the existence of a verification tape proves authorization was given. Maroon testified that the several customers who objected during their taped verification, in fact, did not have their service switched; therefore, the verification did what it was intended to do--prevent an unauthorized switch. Maroon also testified that Vista's policy was to reimburse complaining customers for all charges and fees, even if Vista had a verification tape.

In her investigation, Maroon found no pattern of rudeness to customers by telemarketers, and telemarketing companies immediately terminated employees named as being responsible for unauthorized misrepresentations of Vista as an LEC. Maroon testified that all telemarketing in California ceased in November 1998. After listening to customers testify at the hearing, she believes some customer witnesses are confusing Vista Group International, Inc. with Vista International, a different carrier.

Maroon considers classifying all PIC disputes as unlawful slams to be an error because LECs do not investigate complaints; instead, the LECs automatically classify as a slam any complaint that service was switched without authority. The LECs also refund the switching fees without investigating the complaint. She believes investigation of each complaint, as she or her staff performed, is needed before such a classification can be accurately made.

For many complainants who testified, Vista played a verification tape purporting to authorize a switch in service. CSD stipulated Vista has such tapes for all switched customers. Vista fails to understand how a customer could complete the verification process without being alerted that the customer was authorizing a change in long distance service provider. Vista argues that any customer could have declined Vista service during this process, yet most did not.

Vista argues that it cannot be held legally responsible for acts outside the scope of the duties of its independent telemarketing contractors. Vista contends its independent contractors are contractually obliged to perform services in accordance with all applicable laws and regulations. Vista contends it specified in written scripts both (1) the approved questions to obtain customer consent for Vista's service, and (2) dialogue to be used during telemarketing that did not include any representation that Vista was an LEC. Thus, any such representation or extraneous dialogue was outside the scope of the telemarketers' duties and not attributable to Vista. Vista alleges penalties may only be assessed for acts within the scope of official duties or employment as a Vista contractor, citing Public Utilities Code Section 2109.6

Vista argues that it cannot be held strictly liable for its contractors' conduct because it made reasonable efforts to insure their compliance with regulations. Vista denies that it condoned improper telemarketer practices and, in fact, had telemarketers terminated who engaged in unauthorized practices. Vista argues that it sent telemarketing scripts to Pacific and the Commission for review, receiving no comments or criticism. Vista contends it called customers solicited by problem telemarketers to verify authorization of switches in service, prohibited telemarketers from referring to LECs, and eventually (in November 1998) voluntarily ceased all telemarketing operations in California.

Last, Vista objects to an LEC recording each PIC dispute as an unlawful slam. According to Vista, this information is collected by LECs and sent to underlying carriers who then send them to Vista. Vista contends the PIC reports are thus unreliable hearsay unsupported by independent investigation of the LEC prior to recording the complaint as an unlawful slam. Vista argues that no direct correlation between these recorded PIC disputes and actual slams has been shown. Vista contends it does not even receive notice of PIC disputes from the LEC or underlying interexchange carrier, only a charge to reverse the switch.

The evidence shows that Vista has violated Sections 702 and 2889.5, but does not show violations of other statutes. Vista advances arguments regarding the law and facts which surround this case in an effort to show it has met its responsibilities as a public utility and no sanctions should be imposed. We reject Vista's arguments, as discussed below.

Vista's jurisdictional arguments are without merit. First, the U.S. Court of Appeals has rejected the argument that the Commission is pre-empted from enforcing anti-slamming statutes in CTS vs. California Public Utilities Commission (1999) 196 F.3d 1011, 1999 U.S. App. LEXIS 28497, cited by CSD:


"The CPUC's actions in fining and temporarily suspending CTS from providing long distance service serve the very purpose specified in § 253(b) of the [Telecommunications] Act and are not `flagrantly and patently' violative of the Constitution. The CPUC has the power to implement regulations that are `necessary' to `protect the public' against slamming, which reasonably may include fines or suspensions needed to prevent such unlawful activity." (CTS, supra, at p. 1017.)

Second, we do not seek to exert jurisdiction over telemarketers, only to evaluate whether Vista, in its use of telemarketers or otherwise, has fulfilled its responsibility as a public utility. Vista argues that under agency law, it is not liable for the unlawful acts of telemarketer agents who are independent contractors. However, in the regulation of public utilities, the principles of agency give way to the theory of non-delegable duties, under which public utilities have regulatory responsibilities and obligations to the public that cannot be avoided by third-party contracts. Thus, the California Supreme Court has held that Section 702 imposes a duty which cannot be delegated to an independent contractor and does not relieve a utility from liability for a contractor's failure to comply with a Commission regulation. (Snyder v. Southern California Edison Co. (1955) 44 C.2d 793, 285 P.2d 912.) Rather, any unlawful acts committed in performance of contractual duties by a third party may be imputed to Vista. (Cellular Resellers Association v. PacTel Cellular (1989) 32 CPUC2d 271, 280.)

Vista also argues that it may not be punished under Section 2109 for acts outside the scope of the independent contractor's duties, especially acts of fraud and misrepresentation. Vista is mistaken. Under civil law, "scope of duties" is defined as acts while engaged in the work for which employed and "during working hours." (Witkin, Agency § 126.) Even if acts are for personal convenience or pleasure, if they are foreseeable to be performed, they are deemed within the scope of duties. This rule may apply even where an agent commits fraud or a criminal act. Thus, if a fraud is committed by an agent to deceive a third-party while the agent is functioning in the position provided by the principal, that is, the agent appears to be acting in the ordinary course of his or her duties, the principal is liable for the fraudulent acts. While any such acts are imputed to the principal, the evidence may serve to mitigate any penalty for the acts if reasonable steps were taken to prevent the acts. (Witkin, Agency, §§ 140; Eamoe v. Big Bear Land & Water Co. (1980) 98 CA2d 370, P.2d 408.)

Section 2889.5 requires that prior to a switch in business service, the telephone corporation must complete all of the following steps:

    1. The telephone corporation, its representatives or agents shall thoroughly inform the subscriber of the nature and extent of the service being offered.

    2. The telephone corporation, its representatives or agents shall specifically establish whether the subscriber intends to make any change in his or her telephone service provider and explain any charges associated with that change.

    3. For sales of residential service, the subscriber's decision to change his or her telephone service provider shall be confirmed by an independent third-party verification company.

The record shows that Vista's telemarketers did not specifically inform the customer that combined billing would require switching long distance provider. If a customer asked about this, the telemarketers denied that a change of service provider would result. Thus, the purpose of the solicitation was withheld, and Vista did not specifically establish that the customer intended to switch service to Vista. One-third of the customers who filed written complaints were solicited by someone who said he or she represented a company other than Vista. The majority of these customers indicated the caller claimed to represent an LEC. Other customers indicated they were called as part of a survey. All appeared to understand that the solicitation involved consolidating their local and long distance telephone bills into one bill. However, many customers specifically indicated that at no time during the solicitation were they informed that their service would be switched to another long distance carrier. Others could not remember if this was mentioned. Still others indicated they did not learn this information until the verifier asked if they agreed to the switch. Given the degree and extent of customer confusion shown on this record, we find that Vista failed to specifically establish the intent to switch, as required by Section 2889.5. Many customers who testified were not even familiar with a company called Vista, which is consistent with their testimony that the telemarketer misrepresented its affiliation. This misrepresentation is also confirmed by customer calls to Pacific to inquire or complain about these solicitations.

Apparently, the conversation with the verifier was also ambiguous and misunderstood. Moreover, the unlawful solicitation is not cured by verification. At least one-third of customers interviewed could not confirm that they were contacted to verify a switch in their long distance telephone service. The verification tapes indicate that the verifier stated various purposes for the call, such as to prevent clerical error, but not to specifically confirm a switch to Vista's service. The verifier asked whether the customer understood that Vista would be performing long distance service. Customers answered, "yes." Those who answered "no" were returned to the telemarketer, who assured them no switch in service would occur.

Regarding the lack of disclosure of rates and switching charges, Vista argues that customers would not incur switching charges if they were already receiving service from an interexchange carrier whose service Vista was reselling. However, many customers in interviews and testimony indicated they did incur these charges. Moreover, a customer would incur switching charges if the customer's interexchange carrier was not one with which Vista had a resale agreement. Therefore, there were charges associated with the switch that should have been explained to all customers during the solicitation. This fact is not in the scripts, nor was this subject mentioned by telemarketers according to customers who testified. This omission violates the requirement in Section 2889.5 to disclose any rates and charges associated with a switch in service.

The testimony and statements of customers are reliable and representative of the thousands of complaints in this proceeding. We reviewed over 100 customer complaints regarding unauthorized switching to Vista's service between January 1997-March 1999. The testimony of customers at the hearing was consistent with all of the written statements. The individual statements are consistent with each other regarding the method of solicitation and lack of customer intent to switch long distance provider. Major points in these statements are corroborated by other testimony or evidence in the record, such as similar complaints to Vista, the Commission, other affiliated carriers, and other agencies. These complaints show a pattern of conduct on the part of telemarketers during the period investigated. The complaints also are among the thousands of PIC disputes lodged against Vista with its affiliates during the same period. The investigation shows unauthorized switches in the cases investigated, and we can only conclude that substantially all of the PIC disputes, if investigated, would reveal the same.

We have no showing that any LEC's procedure for recording disputes over switching service produces inaccurate counts. There has been no miscommunication of the dispute. There is no proven buyers' remorse or domestic confusion that negates the dispute. All customers interviewed and who testified continue to allege that they did not intend to switch to Vista's service. Thus, the sample of disputes analyzed in this proceeding does not support Vista's assertion that the recording of PIC disputes is grossly inaccurate. The evidence is quite the contrary.

Since the customer interviews represented customers who complained to LECs and Vista's-affiliated carriers throughout the state and involved slamming allegations during the period of this investigation against Vista, and since there is no showing of inaccuracy of any carriers in recording or categorizing slams, we are convinced that the customer complaints investigated are representative of the thousands of PIC disputes recorded in this proceeding. Therefore, we accept the previously discussed total of PIC disputes during 1997-1999 (10,773) as the number of unlawful incidents during this period.

The purported verification does not serve to provide authorization to switch providers since customers were not specifically informed that they were being asked to confirm a switch to Vista's service. Moreover, verification was only part of the conversation with the customer, the prior solicitation being ambiguous, deceptive, and in violation of Section 2889.5.

CSD alleges that by not properly monitoring and supervising the telemarketers, Vista also violated Section 702, which requires that every public utility "shall do everything necessary or proper to secure compliance therewith by all of its officers, agents and employees." Vista indicates it complied with this statute by providing a script and causing offending agents to be immediately terminated. Maroon did not know how she could have prevented telemarketers from making statements not in the script. We note, however, that even though Vista had notice of telemarketers' misconduct from customer complaints, it did not routinely monitor the telemarketing solicitation thereafter, or require that its telemarketing houses do so. It solely relied on customers to complain and only reacted if problems persisted, rather than taking affirmative, preventive action. Vista's failure to act constitutes a violation of Section 702.

2 Reported by Furst/Vista and MCI, respectively, as follows: Jan. - Nov. 1998, 499 PIC disputes and Jan. - Jun. 1998, 225 PIC disputes. 3 Section 2889.5 states: "(a) No telephone corporation, or any person, firm, or corporation representing a telephone corporation, shall make any change or authorize a different telephone corporation to make any change in the provider of any telephone service for which competition has been authorized of a telephone subscriber until all of the following steps have been completed: 4 Section 702 states: "Every public utility shall obey and comply with every order, decision, direction, or rule made or prescribed by the commission in the matters specified in this part, or any other matter in anyway relating to or affecting its business as a public utility, and shall do everything necessary or proper to secure compliance therewith by all of its officers, agents, and employees." 5 Section 701 states: "The commission may supervise and regulate every public utility in the State and may do all things, whether specifically designated in this part or in addition thereto, which are necessary and convenient in the exercise of such power and jurisdiction." 6 Section 2109 states: "In construing and enforcing the provisions of this part relating to penalties, the act, omission, or failure of any officer, agent, or employee of any public utility, acting within the scope of his official duties or employment, shall in every case be the act, omission, or failure of such public utility."

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