XI. Appeal of Presiding Officer's Decision

We make several changes resulting from appeals filed by Qwest and Greenlining/LIF. The changes include those adopted by the Presiding Officer in her Modified Presiding Officer's Decision (MOD-POD), as well as a reduction in the amount of the penalty.

Our main difference with the MOD-POD is the significance we attach to the fact that Qwest has made restitution to most of its customers and the fact that Qwest has put into place operational changes as a result of consent decree. We take those facts to indicate a commitment by Qwest to adhere to both CPUC's regulations and sound business practices. We expect this indicates a marked departure from Qwest's prior practices, as described during this proceeding. These facts warrant a lowering of the total fine to $20,340,500. We have made changes in the foregoing portions of this decision to reflect the decreased fine.

On January 4, 2002, pursuant to Rule 8.2 of the Commission's Rules of Practice and Procedure, Qwest and Greenlining/LIF each filed an appeal of the Presiding Officer's Decision (POD) alleging numerous factual and legal errors. Additionally, the California Association of Competitive Telecommunications Companies (CalTel) seeks to appear solely to file a response to Qwest's appeal. We address these matters individually below.

A. CalTel's Motion

CalTel seeks to enter a special appearance pursuant to Rule 45(c)(2), in order to file a response to Qwest's appeal. CalTel argues that it did not realize the Commission would reach issues pertaining to industry-wide subjects such as third-party verification, local exchange company PIC dispute reports, and evidentiary standards for establishing slamming claims. CSD opposes CalTel's request, and alternatively argues that if the Commission grants CalTel's request, that CSD should have the opportunity to respond to CalTel's response.

We deny CalTel's request. Fundamentally, a "special appearance" contemplated by Rule 45(c)(2) is a method of appearing for the sole purpose of objecting to the lack of jurisdiction of the tribunal over the person appearing specially, without submitting to the tribunal's jurisdiction. (See Witkin, California Procedure 4^th Ed., Jurisdiction § 197.) Rule 45(c)(2) makes this clear by citing a motion to quash as an example of a special appearance.⁴⁶ However, CalTel's request is in effect to make a general appearance in order to contest the POD, not a Rule 45 "special appearance."

CalTel also argues its motion may not be necessary, because while Rule 8.2(c) limits appeals to the complainant, defendant, respondent, or intervenor, Rule 8(f) states that "any party may file and serve its response no later than 15 days after the date of the appeal." According to CalTel, since the Commission did not qualify the term "any party", any person may file a response to an appeal, notwithstanding the fact that the person has not received permission from the Commission to make an appearance in the proceeding.

CalTel misreads our rules. The term "party" in Rule 8(f) refers to a person or entity who has made a formal appearance in the case. Rule 8(c) clarifies that a "party" is proceeding-specific, by enumerating the specific parties who can file an appeal "within 30 days of the date the decision is mailed to the parties in the proceeding."⁴⁷ To permit a nonparty to file a response to an appeal without the Commission's permission would create unreasonable delay, unfairness to the parties involved from the commencement of the case, and procedural chaos.

CalTel's request is also untimely. The OII issued on November 21, 2000, and placed Qwest and the public on notice that the Commission was investigating allegations of slamming and cramming. The POD addresses those allegations. CalTel has not adequately justified its delay until the final stages of this proceeding before attempting to participate. Furthermore, its "response" is in fact an appeal, raising alleged legal error. As such, it is also untimely because it was not filed and served within 30 days after the POD was mailed, as is required by Rule 8.2(c). For all of these reasons, CalTel's motion is denied.

B. Qwest's Appeal

Based upon numerous alleged factual and legal errors, Qwest argues that a much lower fine is warranted. Qwest also requests the Commission make several technical changes to conditions the POD imposes.

Qwest concurs with the standard the POD applies in assessing fines. (See Section X.C.2 of the POD and page 11 of Qwest's appeal.) Qwest essentially argues that the POD's weighing and balancing of these factors in determining the appropriate amount of the fine constitutes an abuse of discretion. We do not address in detail Qwest's reargument of the sanction issue, because the Presiding Officer considered the appropriate criteria in determining the amount of the fine. However, we make several general observations.

Qwest argues that the POD's fines are inconsistent with Commission precedent which, according to Qwest, supports fines of a maximum of between $500 to $1000 for each violation. Qwest further argues that the POD's fine also constitutes cruel and unusual punishment in violation of the Eighth and Fourteenth Amendments to the United States Constitution in that the fine exceeds the level necessary to punish and deter.

The POD explains its consistency with Vista in Section X.C.2. Although the Commission found a fine of $1,000 per violation appropriate in Vista, the slamming violations there were based on Pacific's PIC dispute data. In contrast, here, each slam for which a fine has been imposed has been investigated and verified, some slams involved forgery, and they occurred during a limited part of this investigation. Vista reported a net loss in 1998 of $4.6 million with gross revenues of $40 million nationwide. Thus, an approximate $38 million fine is reasonable in this case when Qwest had total revenues for the year 2000 of $11 billion, and its California residential long distance revenue for 2000 was about $92 million.

Qwest argues that the Commission should consider net revenues, not gross California revenues, but then admits that there "is no evidence in the record regarding the amount of Qwest's net worth in California."⁴⁸ Qwest then extrapolates testimony that it states demonstrates that Qwest's net profit in California was at most $18.4 million. However, we fined Vista about 1/6 of its nationwide gross revenues when it reported a net loss. Again, the POD is consistent with our outcome in Vista.

Other Commission precedents addressing slamming and cramming violations support the result reached by the POD.⁴⁹ (See also Coral Communications, D.01-04-035 [the Commission fined Coral $10,000 for each day of the continuing offense of billing customers as a result of sweepstakes entry forms that did not meet the requirements of a valid contract, resulting in a fine of $5.1 million, even though Coral was insolvent.]; CTS, [the Commission fined CTS $500 per violation in 1997, again based on PIC dispute data, for a total penalty of $19.6 million.⁵⁰] No statute or Commission decision caps the fine the Commission may impose upon a slamming or cramming violation to $500, the statutory minimum. However, if the Commission were to use this statutory minimum and base its finding of violations on the PIC dispute data, as we did in Vista and CTS, the fine would be reasonably consistent with that reached in the POD.⁵¹ Moreover, the Commission issued CTS in 1997 and a $500 fine per violation (for a total fine of $19 million) against CTS was not of sufficient magnitude to deter Qwest's own misconduct, which occurred principally in 1999 and 2000.

Qwest argues that the amount of the POD's penalty sends an anticompetitive message to carriers seeking to enter the California market and will make them think twice about doing so. We disagree. The message sent by the POD is that this Commission does not put a $500 to $1,000 price tag on each proven slamming and cramming violation, so that companies who engage in this activity can factor this expense into the cost of doing business in California. Such a message would not deter slamming and cramming activities and properly protect California consumers.

Finally, we address several technical issues which Qwest raises. Qwest argues that two of the POD's conditions should be modified so that it can comply with them. Qwest recommends that the Commission modify Ordering Paragraph 7(b) to require that Qwest provide customers with the telephone number of their LEC if (a) in response to an inquiry from Qwest's customer service representatives, customers identify their LEC, and (b) CSD provides Qwest a list of customer service telephone numbers for the LEC's doing business in California, updated on a regular basis. CSD does not object to this modification. We agree with this modification and require CSD to update the list to Qwest every six months, and more frequently if circumstances warrant.

Qwest also recommends the Commission modify Ordering Paragraph 7(b) to require Qwest to send a follow-up postcard containing the LEC customer service phone number within two, as opposed to one, business day of the customer's call. We agree that this modification is reasonable and make it.

We also modify Section VII.B.2 to find that Qwest did not violate § 2889.5 with respect to customers Snow and Voladri, and we reduce the fine accordingly. Additionally, we make several nonsubstantive changes to conform the text of the decision to the ordering paragraphs modified above, improve the flow of the discussion and correct typographical errors.

C. Greenlining/LIF's Appeal

Greenlining/LIF appeal the POD because they believe the Commission should use a portion of the penalty to create a Consumer Protection and Education Trust Fund, to benefit unidentified customers, particularly low-income and minority customers, who may have been slammed or crammed. Greenlining/LIF recommend that their organizations actively participate in implementing the trust fund. Additionally, Greenlining/LIF believe the POD should be rewritten to more specifically recognize the substantial contribution made by these two intervenors.

We decline to adopt the changes which Greenlining/LIF propose. These parties propose establishing a Consumer Education and Trust Fund for the first time in their appeal.⁵² The proposal is not well defined and raises accountability issues. We also do not modify the POD to address in further detail Greenlining/LIF's contribution to the proceeding because this is not a decision on an intervenor compensation request.