The Settlement Agreement

Summary

The Settlement Agreement does the following: it sets out the conditions for CPSD's withdrawal of its Protest; it memorializes that Devine has stipulated to a judgment in the civil action; it memorializes Devine's agreement that failure to pay civil penalties required by the judgment may subject it to revocation of its license to operate; and it memorializes Devine's agreement to identify this Settlement and concomitant Stipulated Judgment in any future Commission Application. A copy of the Settlement Agreement is attached as Appendix A.

Adoption of the Settlement Agreement

Before we may approve a settlement agreement, we must determine that it meets the requirements of Commission Rule 12.1(d), in that it is 1) reasonable in light of the whole record, 2) consistent with law, and 3) in the public interest. The All-Party Settlement Agreement meets these requirements, and we therefore approve it.

First, the Settlement Agreement is reasonable in light of the whole record. We have previously found that a proposed settlement is reasonable if it saves the Commission significant expenses and use of its resources, when compared to the risk, expense, complexity, and likely duration of further proceedings. (In re Southern California Gas Co., D.00-09-034, pp. 20-21). While the Settlement Agreement does not require Devine to admit culpability or wrongdoing, it does appropriately require Devine to comply with California law governing telecommunications carriers and file an application for registration and pay civil penalties.

The Settlement Agreement also reaffirms the Commission's authority to oversee and regulate the prepaid phonecard industry, and to register both prepaid and postpaid resellers of telecommunications service. Devine's application for registration demonstrates its intention to comply fully with California law in the future. Finally, the Settlement Agreement resolves this matter in a way that will save the Commission time, expense, and resources that would otherwise be committed to administrative hearings and resolution of contested issues. Based on its approval of the Stipulation and Judgment, the Commission has signaled its opinion that the civil penalty, which represents a substantial portion of net revenues earned by Devine, is reasonable.

Since the Settlement Agreement reaches a solution that ensures Devine will comply with Pub. Util. Code §§ 885-86 and B&P Code §§ 17200, 17500, and 17538.9; that requires Devine to pay civil penalties; and that saves the Commission the expense and resources involved in proceeding with the complaint and investigation, we find that it is reasonable in light of the whole record.

Second, the Settlement Agreement is consistent with law. The Settlement Agreement is consistent with the registration requirements and disclosure laws in Pub. Util. Code §§ 885-56 and B&P Code §§ 17200, 17500, and 17538.9. The disclosure requirements in the Judgment were designed to tailor the injunction to requirements of the statute and specific business practices at issue in the Devine case. The Settlement Agreement allows Devine to operate in a lawful manner and does not bless an unlawful arrangement.

The Settlement Agreement both penalizes Devine and requires that Devine comply with California law with provisions that should Devine fail to comply or pay the civil penalties, CPSD may refile a Protest and/or the Commission may suspend or revoke any license issued.

The Settlement Agreement preserves Commission jurisdiction over this matter, is governed by the laws of California, is intended to enforce California law, and does not violate any existing statutes. We therefore find that the Settlement Agreement is consistent with law.

Third, the Settlement Agreement is in the public interest. The Commission's previous decision in the CPI indicates the importance of enforcing statutes intended to ensure that telecommunications carriers do business fairly and legitimately. Furthermore, since phonecard providers often target insular and vulnerable minority populations, enforcement of such statutes, as reflected in the Stipulation and Judgment, is in the public interest. The CPSD states that it believes that the Settlement Agreement, along with the Stipulation and Judgment entered by the San Francisco Superior Court, sends a message to consumers and the industry that accountability and fair dealing will be required in the future, and we agree. The Settlement Agreement was part of negotiations between CPSD and Devine and enforces existing regulations designed to protect consumers, and we therefore find that it is in the public interest.

Because we find that the Settlement Agreement is reasonable in light of the whole record, consistent with law, and in the public interest, it meets each of the three criteria for approval, and should be approved. Concurrent with the Settlement Agreement's approval, this proceeding should be closed.

Granting of Devine's Telecommunications Carrier Application

The Settlement anticipates that upon CPSD's withdrawal of its protest, the application will be processed by the Commission "under its normal procedures." Upon review of Devine's application, we grant their registration request.

While Devine was not initially qualified to use the registration process, it has now established such qualification (subject to the conditions imposed herein and in the Settlement Agreement). It has, through amendment of its application, complied with the filing requirements for a registration application. On December 6, 2006, Devine filed an amendment to add a correct agent for service of process. Again, on April 4, 2007, Devine filed a lengthier amendment pursuant to discussions with the CPSD.

These amendments followed an initial protest filed by the CPSD on November 21, 2006, and the amended protest filed on January 10, 2007. The protest was filed because: (1) Devine had been under investigation by the CPSD and AG; (2) Devine had failed to file an application to register with the Commission for several years despite a warning by the Commission staff in July 2000 that registration requirements applied to sellers of prepaid phonecard service; (3) Devine's application originally failed to disclose the fact that the AG had been investigating Devine for potential violations of California false advertising laws and other consumer protection statutes; and (4) Devine had failed to disclose in its application the existence of an affiliate corporation, Megalink Telecom, Inc., through which it accomplished a good portion of its phonecard business (Protest, at 1-2).

A final amendment to the application, which integrated the changes made to the amended application and contained the updated signature of the company's principal Douglas Devine as verification of the application as a whole, was filed on July 26, 2007. Pursuant to the portion of this decision approving the Settlement Agreement, the CPSD protest has been withdrawn.

The draft tariffs submitted were not rejected by the Commission's Communications Division. Therefore, pursuant to the authority granted to the Executive Director by D.97-08-050, the applicant should be granted a certificate of public convenience and necessity to provide this service, subject to the conditions appended to this decision.