4. CPSD Motions for Summary Adjudication
of Facts and to Forego Hearings
CPSD's Motion for Summary Adjudication sought to establish the liability of all Respondents for violation of §§ 2871-2875.5, and adjudication of numerous specific "undisputed facts" regarding the violations. CPSD also moved to forego evidentiary hearings on the ground that liability was undisputed. Respondents jointly filed Opposition to the motions in which they admitted violations of §§ 2871-2875.5. However, Respondents argued they wanted hearings to present evidence to show that (1) their motives were legitimate instead of illegal, (2) the evidence that Calnev and 1st Capital received DAC "may not be accurate," and (3) CPSD's investigator and witness, Kenneth Bruno, was biased against them and misrepresented evidence to the Commission.
CPSD's Reply argued that Respondents had not placed any material facts in dispute, their arguments went to potential penalties that could be imposed, questioned how the aggregator's DAC records were inaccurate, and dismissed allegations of CPSD "bias" as not detailed and merely a difference in opinion as to analysis of the undisputed facts.
At the time CPSD filed the motions, none of the Settlements had been considered by the Commission, no Respondent had submitted any reply testimony or other evidence, and the deadline for submission of reply testimony had passed. The facts have evolved since that date.
First, the motion is moot as to settling Respondents because this decision approves the settlements. Second, the non-settling Respondents (i.e., CSGI, A&M, 1st Capital, Calnev and their owners) have submitted Rebuttal Testimony, followed by CPSD Reply Testimony. Third, at the September 22, 2010 Status Conference, the non-settling Respondents clarified that they did not dispute that they had violated §§ 2871-2875.5 by hooking up ADADs to their COPTS with a pre-recorded message resulting in generation of DAC from the owners of the toll-free numbers called.
To the extent the Opening Testimony, Rebuttal Testimony and Reply Testimony involve facts and issues involving only settling Respondents, they are excluded from the discussion below.
4.1. Standard of Review
The Commission has not established a rule that explicitly governs summary judgment or summary adjudication of issues, so CPSD advanced its motion in terms of the requirements of Code of Civil Procedure (Code Civ. Proc.) § 437c(c) and Rule 11.2. The Commission has previously looked to the requirements of Code Civ. Proc. § 437c(c) for guidance in resolving motions for summary judgment or summary adjudication.40
Code Civ. Proc. § 437c(c) provides in relevant part:
"The motion for summary judgment shall be granted if all the
papers submitted show that there is no triable issue as to any
material fact and that the moving party is entitled to judgment
as a matter of law. In determining whether the papers show
that there is no triable issue as to any material fact the court
shall consider all of the evidence set forth in the papers . . . and all inferences reasonably deducible from the evidence, except summary judgment shall not be granted by the court based on inferences reasonably deducible from the evidence, if contradicted by other inferences or evidence, which raise a
triable issue as to any material fact."
The Commission has also looked to Rule 11.2 (formerly Rule 56), which governs motions to dismiss which are "analogous in several respects to a motion for summary judgment in civil practice" because such a motion permits the Commission to determine prior to hearing whether there are any triable issues of material fact.41 Like a motion for summary judgment under Code Civ. Proc. § 437c(c), a second purpose of a Rule 11.2 motion to dismiss is "that it promotes and protects the administration of justice and expedites litigation by the elimination of needless trials."42 When considering these type of motions, the Commission has said that declarations and evidence offered in opposition to the motion must be liberally construed, while the moving party's evidence must be construed strictly, in determining the existence of a "triable issue" of fact.43
These are the legal standards that provide the analytical framework for consideration of CPSD's motion for summary adjudication of the liability issue.
4.2. The Parties' Positions
The effect of the OII was to place the burden on Respondents to present some defense to the OII's preliminary findings against them. CPSD submitted testimony from analyst Kenneth Bruno which included the Staff Report with attached statements provided by the Respondents.44 The details of the findings in the Staff Report and OII are detailed above. After no evidence was submitted by any Respondent, CPSD's motion argued that the evidence established that all Respondents had violated §§ 2871-2875.5. More specifically, the Motion for Summary Adjudication enumerated a list of "undisputed facts" about Respondents activities drawn from the OII.45
However, after missing deadlines and obtaining new opportunities to express their position, non-settling Respondents submitted Rebuttal Testimony which described their relevant concerns, summarized as follows:46
· Inflammatory language in the Staff Report describes Respondents' activities as a "fraudulent scheme" and Freeman as the "mastermind" when Respondents had no fraudulent intent and no criminal charges were brought;
· CPSD ignored that Freeman had a business plan with other Respondents which included telemarketing outreach through the ADADs;
· CPSD did not properly document that the call patterns establish fraudulent ADAD use and some calls were made by hand prior to installation of the ADAD software;
· The dialing sequences were determined by the ADAD software and did not establish fraudulent intent to capture DAC;
· CPSD's alleged conduct which Freeman contends misled him as to the severity of the matter and was coercive as to settlement;
· The Commission, AT&T, the ADAD software provider, and the call aggregator should have warned Respondents about ADAD rules;
· Respondents' disconnection of the COPTS, disposal of the equipment, and discard of related records implies good faith compliance rather than bad faith and a failure to detect and correct the violations;
· The 2002-2005 use of ADADs by Calnev and 1st Capital is improperly lumped together with the 2007-2008 ADAD use because Freeman was "duped" by a third party in connection with the earlier ADADs and did not substantially profit; and
· The call aggregator, G-Five, and its owner, Robert Berg (Berg), can not authenticate the call records or payments from G-Five's predecessor for 2002-2005;
The Rebuttal Testimony included admissions that Respondents did not follow the restrictions in §§ 2871-2875.5 when using ADADs attached to their COPTs. It also did not dispute CPSD's documentary evidence showing the actual number of calls made or the DAC revenue generated, with the exception of whether Calnev and 1st Capital made the specific calls identified by G-Five and received identified DAC revenue in 2002-2005. No documentary evidence was offered or submitted by Respondents.
In CPSD's Reply Testimony, Bruno denied bias and improper actions during the investigation, supported inferences drawn from its call analysis, and stated the law imposes no duty on the Commission or AT&T to notify Respondents of ADAD laws, particularly when their illegal actions were unanticipated.47 Additionally, Bruno asserted that a finding of fraud is not required to establish liability, even if, as he claims, it is established by Freeman's own admissions. Finally, Bruno pointed to the Staff Report to assert that call and payment records from G-Five's predecessor were provided by G-Five and Respondents offered no basis to dispute their content which supports findings of improper ADAD use by Freeman's companies in 2002-2005 and related DAC payments to them.
To clarify what issues remained in dispute and whether evidentiary hearings were required, a status conference was held. Freeman and Cavallaro, representing the non-settling Respondents, repeated their prior admissions that each of them had violated the ADAD laws through respondent companies, although each claimed ignorance of the law and a valid business purpose, rather than fraud, motivated their actions.48
Freeman continued to object to what he asserted was CPSD's bias and coercion, but agreed that he had not been coerced into stating he had violated the statute when he had not, or into making an involuntary settlement.49 Freeman also could not identify any legal basis for a duty by the Commission, the carrier, or any other person or entity to notify consumers that state law applies restrictions to use of ADADs and conceded instead he thought the Commission should act affirmatively in the future.50
The only remaining liability question centered on the allegations that Freeman's companies, Calnev and 1st Capital, had improperly used ADADs in 2002-2005. Freeman did not dispute that he attached ADADs to the COPTS registered to his companies, but again he disputed his motives were fraudulent and asserted that he did not receive most of the DAC generated by these companies.
Therefore, all participating parties agreed that the Rebuttal Testimony was submitted to mitigate or eliminate potential penalties and other remedies related to the admitted violations of §§ 2871-2875.5. Furthermore, the participating parties all agreed that evidentiary hearings were not required, Respondents had no new evidence to present, and the parties could address the remedy issues by briefs, including arguments related to the Respondents' intent.
4.3. Conclusion
Based on all the evidence in the record, including non-settling Respondents' own admissions, we grant the Motion for Summary Adjudication and find that these Respondents each violated §§ 2872-2875.5, the first issue set forth in the Scoping Memo. We find no triable issues of fact remaining as to this question.
A finding of fraud is not essential to determining that non-settling Respondents violated ADAD laws. Their various claims of CPSD bias were not supported, and, even if non-settling Respondents' statements were liberally construed, they are moot given that Freeman and Cavallaro both agreed they were not coerced into admitting they violated these laws. Finally, since there is no legal duty by a carrier, an aggregator, or the Commission to notify a PSP of ADAD laws, the argument is irrelevant to the presented issue of statutory violation.
The claims by Freeman that the 2002-2005 AT&T call records or payments' summaries from G-Five cannot be authenticated are inconsistent with other undisputed evidence and Freeman's own statements. These are ordinary business records which, absent other evidence, are more likely than not reasonably accurate. Freeman agreed that 204 payphones listed in the Commission's COPT database were registered to Calnev and 1st Capital between 2002-2005. He also admitted he wholly-owned both of the companies.
Freeman offered no evidence to show his companies did not receive the identified DAC payments totaling $47,274.51 to Calnev and $438.48 to 1st Capital which were supported by Berg's declaration that PPON provided the DAC services. In fact, Freeman admitted that the companies received DAC from these payphones, he kept and used some of it, and said he paid Barrett $25-$30,000.00 for services related to the ADAD generation of DAC.51 This is consistent with Freeman's statement he did not keep "most" of the DAC revenue. Therefore, even with a liberal construction of Freeman's statements and strict construction of CPSD's evidence, it is reasonable to infer that the AT&T call records and PPON payment records accurately reflect call activity and DAC payments distributed to Freeman through Calnev and 1st Capital.
As part of granting the motion, we determine the following undisputed facts:
1. The Federal Communications Commission has a compensation plan, known as DAC which compensates all payphone service providers (PSPs) $.494 for every toll free call completed on a payphone line.52
2. G-Five provides DAC services for PSPs, which means that G-Five collects monies from carriers and remits monies to PSPs when end user customers call toll free numbers from the PSP's payphone line.53
3. G-Five handled the DAC services for Respondents during 2007-2008. In 2007, G-Five purchased Private Payphone Owners Network (PPON), a competitor, which handled the DAC in 2002-2005 for Calnev and 1st Capital.54
4. CPSD's investigation of Respondents was initiated by an informal complaint filed by G-Five concerning unusual call activity with respect to DAC generated by Respondents' COPTs.55
5. An average normal payphone generates anywhere from $40 to $50 of DAC per quarter.56
6. Respondents CSGI, A&M, and settling Respondents were averaging combined DAC in the 4th Quarter 2007 ranging from $1,500 to $5,651 per COPT line.57
7. Freeman learned about how DAC worked for PSPs prior to ordering the COPT lines for Calnev, 1st Capital, and CSGI.58
8. At all relevant times, Freeman owned and operated Respondents Calnev, 1st Capital, and CSGI, and was co-owner of A&M.59
9. Prior to 2007, Freeman had experience in the telephone business and had knowledge of the Commission's oversight of carriers.60
10. Calnev ordered 200 COPT lines from SBC61 and operated some or all of them in California between January 2002 and December 2005. At least 553,847 toll free calls were placed from the Calnev COPT lines. G-Five's available records from PPON showed it disbursed to Calnev $47,274.51 in DAC revenue from 59 of those 200 lines.62
11. 1st Capital ordered four COPT lines from SBC and operated them in California between the years 2002-2004. G-Five's records available from PPON showed it disbursed to 1st Capital $438.48 in DAC from these four lines.63
12. In 2007, Freeman ordered a single COPT line at first, collected some DAC, and then helped the other Respondents order their lines for them.64
13. CSGI eventually ordered twelve COPT lines from SBC/AT&T and operated them between April 13, 2007 and March 5, 2008. Two lines, registered solely to CSGI, were located at CSGI's business address in San Jose, CA. Of the remaining 10 lines, CSGI co-registered 8 lines with Intella II and placed them at Intella's San Diego, CA business address. CSGI also co-registered 2 lines with Jose and Barbara Quezada and placed them at their San Jose, CA address.65
14. The twelve CSGI/Intella II/ Jose and Barbara Quezada COPT lines placed 385,326 calls to toll-free numbers. These calls generated $73,138.12 in DAC; of this amount $67,815.83 (plus any accrued interest) is currently held in an escrow account by G-Five.66
15. A&M is an informal partnership between Freeman and Cavallaro. A&M ordered seven COPT lines from SBC/AT&T and operated them between July 2007 and April 25, 2008. Four lines were located at an A&M business address in Santa Clara, CA and three lines were located at Cavallaro's personal address in Menlo Park.67
16. The seven A&M COPT lines placed 118,417 calls to toll-free numbers. These calls generated $25,041.85 in DAC revenue, of which $24,829.92 (plus any accrued interest) is currently held in an escrow account by G-Five.68
17. On behalf of all Respondents operating in 2007-2008, Freeman stated that ADADs were used to dial 1-8xxxxx-xxxx numbers from these Respondents' twenty- four COPT lines for the purpose of soliciting new business for a new telemarketing venture.69
18. Freeman also said that ADADs attached to the COPT lines operated by Calnev and 1st Capital were used to market the services of 1st Capital.70
19. In 2007, Freeman provided technical support to Respondents, including settling parties, acting as the liaison between the software and hardware equipment manufacturer for the ADADs.71
20. The ADADs Respondents used to place calls over their COPT lines disseminated a prerecorded message. A live person was not made available during any of those calls.72
21. Freeman prepared and installed the "telemarketing message" that was played on the ADADs connected to all Respondents' COPT lines.73
22. Jose and Barbara Quezada, Cavallaro of A&M, and John and Norma Tomlinson of TNT Financial provided Freeman with toll-free numbers of businesses found in 8xx directories, to program into the ADAD equipment.74
23. Freeman programmed the toll free numbers into the ADADs that were used to place calls over CSGI's, A&M's, and settling parties' COPT lines.75
24. Respondents did not have prior business relationships with the subscribers of the telephone numbers that were called from Respondents' COPT lines through the use of ADADs.76
25. Subscribers of the telephone numbers that were called from Respondents' COPT lines through the use of ADADs did not request such calls to be placed.77
26. Subscribers of the telephone numbers that were called from Respondents COPT lines through the use of ADADs did not consent to such calls pursuant to a prior agreement with Respondents.78
27. Respondents CSGI and A&M had the ADADs initially programmed to run almost 24 hours a day, Monday through Friday.79
28. Respondents did not receive approval to connect ADADs to their COPT lines from any telephone corporation within whose service area ADAD telephone calls were placed.80
29. After Respondents learned in January 2008 that G-Five was going to withhold DAC payments and report them to the Commission, Freeman contacted the FCC and was informed their use of ADADs was illegal.81
30. After Freeman informed the other Respondents about their illegal use of ADADs, they each disconnected the COPT lines, got rid of the equipment, and disposed of all related papers and files.82
We conclude that based on the foregoing facts, that Respondents CSGI, A&M, Calnev, 1st Capital, Freeman, and Cavallaro have committed multiple violations of §§2871-2875.5, and appropriate remedies should be considered.
40 See, e.g., D.07-01-004 at 3; D.02-04-051 at 6; D.94-04-082, (1994) 54 CPUC2d 244, 249.)
41 D.94-04-082 at 249.
42 Ibid.
43 Sprecher v. Adamson Companies, (1981) 30 C3d 358, 373.
44 Exhs. CPSD-1, CPSD-2.
45 Motion for Summary Adjudication at 7-12.
46 Cavallaro also objected to personal information inadvertently disclosed in the OII which has been removed by CPSD through D.10-10-020, Order Correcting Error.
47 CPSD's Reply Testimony at 3.
48 RT (September 22, 2010) at 3, 10, 14, 16.
49 Id. at 3.
50 Id. at 5.
51 Respondents' Closing Brief at 3; Staff Report, Appendix K (Freeman response to Data Request No. 2.0).
52 Staff Report at 5.
53 Staff Report at 15, Appendix J (Declaration of Robert J. Berg).
54 Ibid.
55 Staff Report at 15.
56 Ibid.
57 Ibid.
58 Staff Report at 21, Appendix K (Freeman response to Data Request 1.0, Information Attachment Letter).
59 Id. at 7-11.
60 Id. at 10; Appendix K (Freeman response to Data Request No. 1.0); Respondents' Closing Brief at 3. (According to public records, Freeman also started a payhone business, ALF Payphones, in 2000).
61 Currently doing business as AT&T.
62 Staff Report at 10, 14, 16, 17.
63 Id. at 10-11.
64 Id. at 21, Appendix K (Freeman response to Data Request 1.0).
65 Id. at 8-10.
66 Id. at 9, 14.
67 Id. at 11; Appendix L (A&M response to Data Request 1.0).
68 Id. at 14.
69 Id., Appendix K (Freeman response to Data Request 1.0).
70 Id., Appendix K (Freeman response to Data Request 2.0).
71 Id. at 21.
72 Id. at 21, 23; Appendix K (Freeman response to Data Request 1.0).
73 Ibid.
74 Staff Report at 21.
75 Ibid.
76 Ibid.
77 Ibid.
78 Ibid.
79 Staff Report, Appendix K (Freeman response to Data Request 1.0).
80 Id. at Appendix K, Appendix L.
81 Id. at 22, Appendix K (Freeman response to Data Request 1.0).
82 Ibid.
