7. Assignment of Proceeding
Nancy E. Ryan is the assigned Commissioner and Melanie M. Darling is the assigned Administrative Law Judge in this proceeding.
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.
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.
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.
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.
5. An average normal payphone generates anywhere from $40 to $50 of DAC per quarter.
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.
7. Freeman learned about how DAC worked for PSPs prior to ordering the COPT lines for CALNEV, 1st Capital, and CSGI.
8. At all relevant times, Freeman owned and operated Respondents Calnev, 1st Capital, and CSGI, and was co-owner of A&M.
9. Prior to 2007, Freeman had experience in the telephone business and had knowledge of the Commission's oversight of carriers.
10. Calnev ordered 200 COPT lines from SBC 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.
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.
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.
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.
14. The 12 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.
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.
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.
17. On behalf of all Respondents operating in 2007-2008, Freeman admitted 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.
18. ADADs attached to the COPT lines operated by Calnev and 1st Capital were also used to market the services of 1st Capital.
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.
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.
21. Freeman prepared and installed the "telemarketing message" that was played on the ADADs connected to all Respondents' COPT lines.
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.
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.
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.
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.
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.
27. Respondents CSGI and A&M had the ADADs initially programmed to run almost 24 hours a day, Monday through Friday.
28. Respondents did not receive approval to connect ADADs to their COPT lines from any telephone corporation within whose service area telephone calls through the use of ADADs were placed.
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.
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.
31. Freeman should receive a higher fine than other Respondents due to his leadership of the illegal activities.
32. Freeman is unemployed, financially distressed, and has serious health problems which may lead to permanent disability.
33. Cavallaro is unemployed and financially distressed.
34. All issues in this proceeding regarding TNT, Intella, and Limo Services are encompassed by, and resolved in, the Settlement Agreements with CPSD.
35. The Settlement Agreements convey to the Commission sufficient information to permit it to discharge its future regulatory obligations with respect to the parties and their interests.
36. The Settlement Agreements between CPSD and TNT, Intella, and Barbara and Jose Quezada are reasonable in the light of the whole record, consistent with the law, and in the public interest.
37. It is financially infeasible for G-Five to administer the refund of the $0.494 DAC to each of the hundreds of thousands of toll-free subscribers through the dozens of carriers.
1. CSGI, A&M, Freeman, and Cavallaro each committed multiple violations of §§ 2871-2875.5 in 2007 and 2008 by placing hundreds of thousands of non-consensual telephone calls on their COPTS by use of ADADs programmed with a pre-recorded message.
2. CSGI, A&M, Freeman, and Cavallaro have not met their burden of proof to show cause why the Commission should not penalize them for the violations of §§ 2871-2875.5.
3. Calnev, 1st Capital, and Freeman committed multiple violations of §§ 2871-2875.5 in 2002-2005 by placing hundreds of thousands of non-consensual telephone calls on their COPTS by use of ADADs programmed with a pre-recorded message.
4. Calnev, 1st Capital, and Freeman have not met their burden of proof to show cause why the Commission should not penalize them for the violations of §§ 2871-2875.5.
5. To avoid excessive fines derived from a mechanical application of the statutory maximum of $500 per violation, fines calculated pursuant to § 2876 may be determined by use of the criteria set forth in D.01-04-035.
6. Freeman should pay a fine of $13,451.33, release and/or relinquish any of his or his companies' claims or rights to the DAC funds held in escrow by G-Five, should immediately discontinue any use of ADADs, and should be barred from future operation of COPTs.
7. Cavallaro should pay a fine of $1,462.45, release and/or relinquish any of his or A&M's claims or rights to the DAC funds held in escrow by G-Five, should immediately discontinue any use of ADADs, and should be barred from future operation of COPTs.
8. The Settlement Agreements fully resolve and settle all disputed issues among CPSD, TNT, Intella, and Limo Services concerning the issues raised in the OII, including substitution of Barbara and Jose Quezada for Limo Services as Respondents.
9. The Settlement Agreements are reasonable in light of the whole record, consistent with law, and in the public interest and, therefore, should be approved.
10. CPSD's Motion for Summary Adjudication should be granted because there is no disputed material fact as to any non-settling Respondent's violation of §§ 2871-2875.5.
11. Where the refund of illegally generated Dial Around Compensation is administratively infeasible, the Commission has equitable authority to make an alternate distribution through application of cy pres which will benefit telephone consumers.
12. This decision should be effective today so that the Settlement Agreements may be implemented expeditiously and the DAC funds recovered promptly.
13. I.10-02-004 should be closed.
IT IS ORDERED that:
1. The Motion for Summary Adjudication as to the Facts Regarding Liability filed on July 14, 2010 by the Commission's Consumer Protection and Safety Division is granted.
2. The Joint Motion filed by Limo Services, Inc. and the Consumer Protection and Safety Division to dismiss Limo Services, Inc. and to substitute Barbara and Jose Quezada as Respondents is granted.
3. The Settlement Agreement between the Consumer Protection and Safety Division and TNT Financial Services as set forth in Attachment A to the Joint Motion for Approval of Settlement Agreement filed July 14, 2010 is approved.
4. The Settlement Agreement between the Consumer Protection and Safety Division and Intella II, Inc. as set forth in Attachment B to the Joint Motion for Approval of Settlement filed July 14, 2010 is approved.
5. The Settlement Agreement between the Consumer Protection and Safety Division and Limo Services, Barbara Quezada and Jose Quezada as set forth in Attachment A to the Joint Motion for Approval of Settlement filed July 21, 2010 is approved.
6. Alterber Tekulsky Freeman shall pay a fine of $13,451.33, release and/or relinquish any of his or his companies' claims or rights to the Dial-Around Compensation funds held in escrow by G-Five LLC, will immediately discontinue any use of Automatic Dialing- Announcing Devices, and shall be barred from future operation of Customer Owned Pay Telephones.
7. Cavallaro shall pay a fine of $1,462.45, release and/or relinquish any of his or A&M Communications' claims or rights to the Dial Around Compensation funds held in escrow by G-Five LLC, will immediately discontinue any use of Automatic Dialing-Announcing Devices, and shall be barred from future operation of Customer Owned Pay Telephones.
8. Within 120 days of the effective date of this decision, Alterber Tekulsky Freeman shall submit $13,451.33 to the State of California General Fund. Proof of payment shall be filed and served on the service list and shall be provided to the Executive Director of the California Public Utilities Commission within five days of payment.
9. Within 120 days of the effective date of this decision, Massimo Cavallaro shall submit $1,462.45 to the State of California General Fund. Proof of payment shall be filed and served on the service list and shall be provided to the Executive Director of the California Public Utilities Commission within five days of payment.
10. All Respondents shall fully cooperate with the Commission in obtaining the release of the Dial Around Compensation funds from G-Five LLC.
11. The Consumer Protection and Safety Division shall take all necessary steps to assure that the $103,193.64 in Dial Around Compensation generated by the illegal activities of Respondents and held in escrow by G-Five LLC, is released to the Commission where $51,596.82 (50%) shall be transferred to the State of California General Fund and $51,596.82 (50%) shall be transferred to the Telecommunications Consumer Education Fund operated by the California Consumer Protection Foundation.
12. No hearings need to be held.
13. Respondent Cavallaro's "Motion to Remove Personal Information From Public View and to Seal Records" is denied.
14. Investigation 10-02-004 is closed.
This order is effective today.
Dated January 13, 2011, at San Francisco, California.
MICHAEL R. PEEVEY
President
TIMOTHY ALAN SIMON
NANCY E. RYAN
Commissioners
ATTACHMENT A
Exhibit List
Consumer Protection and Safety Division's Exhibits:
Exhibit Description Submission date
CPSD-1 Testimony of Kenneth Bruno 11/10/10
CPSD-1A CPSD Staff Report 11/10/10
CPSD-2 Reply Testimony of Kenneth Bruno 11/10/10
Respondents' Exhibits:
Resp-1 Email from A. Freeman 8/18/10 11/10/10
Resp-2 Email from M. Cavallaro 8/19/10 11/10/10
Resp-3 Joint Rebuttal Testimony of A. 11/10/10
Freeman and M. Cavallaro
(END OF ATTACHMENT A)
