2. Background

On July 3, 2000, the joint application of Ursus and LAE was filed with this Commission. The application seeks Commission approval, on a nunc pro tunc basis, of a transaction in which Ursus acquired control of LAE and its telecommunications activities. According to the application, Ursus and LAE executed a merger agreement on June 6, 2000. In accordance with the agreement, LAE Acquisition Corp. (LAEAC), which is a Florida corporation and a wholly owned subsidiary of Ursus, merged with and into LAE. LAEAC is the surviving corporation. According to the application, this merger was consummated on June 13, 2000. No protests or responses to the application were filed.

LAE is a Florida corporation that was authorized by the California Secretary of State to transact business in California as of July 15, 1997. In August 1997, LAE applied for a certificate of public convenience and necessity (CPCN) to provide inter- and intra- local access and transport area services in California as a non-dominant interexchange carrier (NDIEC). On September 29, 1997, the Commission granted LAE a CPCN in Decision (D.) 97-09-133. In a letter dated October 19, 1998 from LAE's consultant, who had prepared LAE's CPCN application, to the Commission's Docket Office, LAE stated in pertinent part:

"Pursuant to the Commission's Order in Application No. 97-08-056, Decision 97-09-133, Latin American Enterprises, Inc. hereby notifies the Commission that it has begun offering service in the state effective immediately."

This letter was filed by the Docket Office on October 20, 1998 as a compliance filing accepting the CPCN as provided for in numbered paragraph 6 of Appendix A to D.97-09-133.

After reviewing the joint application to merge, the Administrative Law Judge (ALJ) assigned to this proceeding issued a ruling on October 4, 2000. The ruling directed the applicants to: (1) file a response explaining why the applicants failed to seek approval from this Commission before the merger was consummated; (2) provide a copy of the Merger Agreement; and (3) explain what specific actions would need to be taken to unwind the Merger Agreement. In addition, the ruling noted that the California Secretary of State records showed that LAE's status as a foreign corporation authorized to transact business in California had been "forfeited," and that LAE had apparently never paid any of the fees to the Commission to which it is subject.

As a result of these two issues, the applicants were directed to explain: (1) when the forfeiture date occurred; (2) the reason(s) why LAE's foreign corporation status was forfeited; (3) whether LAE sought to reinstate its status; (4) what steps, if any, were taken to meet the statutory filing requirements; (5) whether LAE continue to operate in California during the time its corporate status in California was forfeited; (6) the amount of revenues derived in California from LAE's operations during the forfeiture period; (7) that if LAE is continuing to operate in California, provide proof that its revenues from its California operations were reported to the California Franchise Tax Board; (8) why the fees that LAE was subject to were never paid; (9) the amount of annual revenues generated from its operations in California from the time LAE was granted its CPCN; (10) why a resolution or decision should not issue revoking LAE's CPCN in accordance with numbered paragraph 18 of Appendix A of D.97-09-133; and (11) why an Order Instituting Investigation into the problems noted above should not issue.

Ursus and LAE, through its counsel, filed a response to the ALJ ruling on November 3, 2000. According to the response, which is explained in detail below, LAE never provided services under the CPCN or otherwise transacted business in California. As a result, the parties assert that the merger "will have no effect on California or California consumers." The applicants also contend that Ursus did not learn of LAE's California CPCN until the merger transaction was about to close, and that they promptly sought approval on a nunc pro tunc basis after the merger had been completed. The parties state that unwinding the transaction is not warranted. If the Commission is unwilling to grant the application, the parties propose to: "(a) file a Notice of Withdrawal of their Joint Application and (b) cancel LAE's unused California certificate." The parties have also offered "to take such other reasonable actions as are necessary to remedy LAE's inadvertent failure to comply with applicable Commission filing requirements in California."