IV. Pacific Should be Sanctioned for Failure to Comply with the ALJ's Discovery Rulings

During the course of this proceeding, Joint Applicants submitted a data request to Pacific requesting models, spreadsheets and other documentation supporting various UNE costs that were either proposed to or adopted by regulators in Illinois and Michigan for SBC-affiliated companies, namely SBC-Ameritech. On August 13, the assigned ALJ and the Law and Motion ALJ conducted a hearing to consider these requests and overruled Pacific's objections to production of this material on the grounds that the material was relevant to the proceeding. Pacific moved for reconsideration of this ruling, based on the claim that out-of-state cost data is not relevant to the issues in this proceeding. On October 3, the assigned ALJ denied this motion on the grounds that the material was relevant because it involved information and cost methodologies currently advocated in other states by Pacific's parent, SBC, and because Pacific has admitted it purchases major network components through SBC from common vendors and under SBC-wide purchasing arrangements.¹⁷

On October 12, Pacific filed an interlocutory appeal requesting that the Commission overturn the earlier ALJs' ruling and stay the ruling pending decision on the appeal. In its appeal, Pacific argues that the requested material does not belong to Pacific, was developed by Ameritech prior to Ameritech's merger with SBC, and is held by SBC-Ameritech. Essentially, Pacific asserts it does not have "control" over these SBC-Ameritech documents and thus does not have to produce them. Pacific does not appeal the relevancy of this material. Pacific did not produce any of the requested documents that it was ordered to produce pursuant to the August 13 and October 3 ALJ rulings and there has been no stay of the earlier ruling ordering Pacific to produce the documents.¹⁸

On February 21, 2002, the Assigned Commissioner issued a ruling imposing sanctions on Pacific for failure to comply with the ALJs' earlier discovery rulings. Specifically, the Assigned Commissioner ruled that the SBC-Ameritech cost information that Pacific refused to produce would be deemed to support the adoption of interim rates for unbundled loops and unbundled switching that are lower than current rates. The Assigned Commissioner also ordered Pacific to produce the disputed material within 10 days from the date of the ruling, or risk further sanctions, including monetary penalties, in subsequent orders in this proceeding.¹⁹

By this order, we affirm both the ALJ rulings requiring Pacific to produce out-of-state cost information and the Assigned Commissioner's ruling imposing an issue sanction against Pacific for its noncompliance with the ALJ rulings. As noted in the Assigned Commissioner's ruling, the Commission has the power to impose discovery sanctions where litigants violate discovery procedures and rulings of the presiding officer.²⁰

With regard to Pacific's appeal of the ALJs' rulings, we note that the Commission generally looks with disfavor on interlocutory appeals of ALJ rulings. (45 CPUC 2d 630. See also Pacific Enterprises, 79 CPUC 2d 343, 421.) Under Commission Rule 65, the Commission may review evidentiary matters under two circumstances, either when considering the matter on its merits or when the presiding officer refers the matter to the Commission. In this case, the presiding officer did not refer the matter. Furthermore, we decline to entertain this interlocutory appeal and request for stay for the reasons stated below.

First, as we stated in Pacific Enterprises, the presiding officer must have the authority to rule on discovery motions and impose sanctions for discovery abuse. Without this authority, material evidence would remain undisclosed or unconscionable delay would occur as parties seek relief from the Commission.

Second, even if the Commission chose to entertain Pacific's interlocutory appeal and stay request, it would be denied. The Commission generally refers to California's Code of Civil Procedure (CCP) for guidance with regard to discovery procedures.²¹ The CCP and the similarly worded Federal Rules of Civil Procedure require a party to produce documents within its "possession, custody, or control."²² In his February 21, 2002 ruling, the Assigned Commissioner disagreed with Pacific's claim that it does not have custody or control over out-of-state cost information based on a review of the relationship between Pacific, SBC, and SBC-Ameritech. The Assigned Commissioner noted that federal courts have found a subsidiary can have control over its corporate parent's or a fellow subsidiary's documents.²³ Evidence the courts have considered to determine whether such control exists includes the degree of ownership and control the parent exercised over the subsidiary, whether the two entities operated as one, whether an agency relationship existed, and whether there was demonstrated access to documents in the ordinary course of business. Using this analysis, the Assigned Commissioner found that Pacific does have a close relationship with SBC-Ameritech, SBC has exercised control over Pacific, and there is demonstrated access to SBC and SBC-Ameritech documents in the ordinary course of business.²⁴

In affirming the ruling of the Assigned Commissioner, we share his concern that Pacific appears to selectively exclude data from SBC-affiliated operations. As the Assigned Commissioner noted, Pacific has already produced documents developed outside of Pacific by other SBC-affiliated entities in the course of this case. Moreover, Pacific has waived any argument that it does not have access to and/or control of documents of its affiliates and parent company by producing documents and witnesses of SBC and SBC-Ameritech in the course of this proceeding. We will not tolerate Pacific's blatant disregard for the rulings of the presiding officer. Pacific's non-compliance has deprived Joint Applicants of the benefit of reviewing material that was deemed relevant to the proceeding, and has prejudiced Joint Applicants in this proceeding by withholding evidence relevant to the issue of cost modeling and costs throughout the various states in which SBC operates. This material may have a bearing on costs in California. If we permitted Pacific's actions, this would set the dangerous precedent of allowing an entity to hide information from the Commission by developing and maintaining it at one of its sister companies or at its corporate headquarters. We agree wholeheartedly with the Assigned Commissioner that Pacific should not be able to pick and choose which information it will provide to the Commission. Therefore, we will not entertain Pacific's interlocutory appeal and we uphold the sanctions imposed on Pacific by the Assigned Commissioner for Pacific's non-compliance with prior rulings.