Discussion
Rule 51.1(e) requires that before any settlement can be approved, the Commission must find that it is reasonable in light of the whole record, consistent with law, and in the public interest. With modifications to some terms, we think the proposed settlement agreement here can meet these tests.
The most attractive aspects of the proposed settlement are that (1) it requires respondents to pay $2.95 million, part of which is for restitution, and
(2) it requires respondents to abide by the terms of the Call Unit Marketing and Sales Compliance Program included in the FCC TCU Consent Decree. Taken together, these two features should serve to ensure that respondents will not be tempted to engage in the marketing abuses alleged in both the OII and in the Notice of Apparent Liability for Forfeiture that led to the FCC TCU Consent Decree.
In their joint motion for approval of the settlement, CPSD and respondents have argued that under our prior decisions, the $2.95 million settlement payment satisfies the requirement of Rule 51.1(e) that a settlement be consistent with law. The parties note that while the Pub. Util. Code §§ 2107 and 2108 provide for substantial fines (ranging from $500 to $20,000 per day in the case of continuing violations), the Commission has held that "no nexus is required between the settlement payments and any wrong alleged in the case," because "settlement payments are made in compromise and in lieu of the penalty amounts specified in Sections 2107-2108." (Joint Motion at 4-5, citing D.00-09-034, In re Southern California Gas Co., mimeo. at 28.) In light of the total amount of the settlement (which amounts to about $2,100 for each customer who submitted a complaint to the CAB), we find the settlement sum to be reasonable in light of the whole record and consistent with legal requirements.
As noted above, another attractive feature of the settlement is that the 1400 customers who complained to CAB will receive some restitution. Although the total amount of restitution is not large in relation to the total settlement ($35,000 out of $2.95 million), the $25 restitution check that each Eligible Consumer will be entitled to receive is consistent with the amounts of restitution we have approved in other telecommunications enforcement proceedings, and that we have found to be consistent with the public interest. See, Investigation of Long Distance Charges, Inc., D.02-06-075, mimeo. at 14-15; Investigation of Coleman Enterprises, Inc., D.00-12-050, mimeo. at 12-14; Investigation of Brittan Communications International Corp., D.98-04-024, mimeo. at 5; Investigation of L.D. Services, Inc., D.97-11-079, mimeo. at 2-3; Investigation of Heartline Communications, Inc., D.96-12-031, 69 CPUC2d 584, 591 (1996).
The third reason we believe this settlement is reasonable and should be approved (subject to the modifications described below) is that, in the words of the Joint Motion, the settlement will "save[ ] the Commission significant expenses and use of its resources, when compared to the risk, expense, complexity and likely duration of further proceedings." (Joint Motion at 3, citing In re Southern California Gas Co., mimeo. at 18-20.) In their joint motion for approval, CPSD and respondents argue that conservation of Commission resources will be achieved here because, "while a hearing in this case could have possibly resulted in a larger payment and/or restitution, such results are far from certain and could only be achieved at great expense to Staff resources and time." (Joint Motion at 3.) The parties note that evidentiary hearings would have required at least a week, with CPSD alone presenting 11 to 15 witnesses. Further, in the event of an adverse decision, the respondents could have been expected to file an application for rehearing pursuant to Pub. Util. Code § 1731 and then to seek review in the California Court of Appeal. Given this litigation risk and potential for delay, we agree with the moving parties that-with the addition of the changes specified below-the proposed settlement is reasonable.
Although the amount of the settlement payment, the provision for restitution, and the respondents' agreement to abide by the Call Unit Marketing and Sales Compliance Program in the FCC TCU Consent Decree all make for an attractive settlement package, we are concerned about ¶¶1.4 and 7.3 of the settlement agreement. Read together, these provisions would require all payments made by respondents to be returned to them in the event the settlement agreement is rescinded or the decision approving it is vacated.18 Although this provision is tolerable in connection with the $2.9 million in settlement payments the Commission will be remitting to the General Fund, it is not acceptable in connection with the $50,000 that respondents will be paying for the purpose of restitution.
Although unlikely, it is at least theoretically possible that rescission of the settlement agreement or vacation of the approving decision could occur after the payment of restitution has begun. In such a case, it would be unreasonable to expect CPSD or the Commission to contact Eligible Consumers and ask them to return their restitution checks, or to cover Rosenthal's fee out of Commission funds. As a condition of approving the settlement, we will therefore require the parties to modify ¶¶1.4 and 7.3 to make clear that neither CPSD nor the Commission will have any obligation to return the $50,000 once the restitution process (including Rosenthal's preparatory work) has begun.
We will also require two other changes in the settlement agreement relating to payments. First, Appendix A to the settlement-the fee agreement between respondents and Rosenthal-should be modified to make clear that Rosenthal's fee shall not exceed $7,825. Second, ¶5.1 of the settlement agreement
should be amended to make clear that any failure by the respondents to make settlement payments in the amounts and on the schedule provided for in ¶1.3 shall constitute a material breach of the settlement agreement.
Another provision in the settlement agreement that causes us concern is ¶5.10, which requires CPSD to withdraw its protest of A.01-12-013, the Blue Ridge application, within 30 days after a Commission decision approving the settlement. On the first page of the settlement agreement, the parties state their intent is that "the Commission agrees" that after this withdrawal, the Commission will "resolve A.01-12-013 as an unopposed application."
The Draft Decision (DD) that was mailed to the parties on April 6, 2004 expressed reluctance to accept this term if, as seemed to be the case, it meant that the parties sought to foreclose the Commission from conducting any further inquiry into the fitness of the individuals who control Blue Ridge, at least two of whom (Messrs. Arnau and Koppy) were also named as individual respondents in the OII. After quoting the language about resolving Blue Ridge as an unopposed application, the DD stated:
"[T]his language might be read as somehow obliging us in our consideration of A.01-12-013 to ignore the facts that (1) this OII and the proceeding that resulted in the FCC TCU Consent Decree have taken place, and (2) two of Blue Ridge's principals, Michael Arnau and Joseph Koppy, are also among the persons who control the respondents. It would be unreasonable to ignore these facts, especially in view of the allegations in the Winback Order to Show Cause and the terms in the Winback Consent Decree that the respondents have accepted in order to settle that proceeding with the FCC." (DD, p. 21, footnotes omitted.)
Rather than accept the parties' agreement on the Blue Ridge application, the DD required that as a condition for acceptance of the settlement agreement, Blue Ridge would be required to submit, within 45 days after the Commission decision approving the settlement, a supplement to A.01-12-013. The supplement was to include an update setting forth the status of the litigation mentioned in the OII in I.02-05-001, as well as a certification that "as of the date of the [update], no investigation, administrative proceeding, or litigation has been commenced against, or directed at, Blue Ridge, NOS, ANI, or any of their respective affiliates in connection with the provision of local exchange service." If respondents could not give such a certification, they were instructed to furnish "full details" regarding any litigation, investigation or administrative proceeding brought against or directed at them in connection with their local exchange service. The DD also provided that if the ALJ was "dissatisfied with the supplement in any respect, he or she may require that it be corrected, amended or supplemented further."
In the comments they filed on April 26, 2004, the respondents objected to these requirements, saying that they constituted a material change in what respondents had bargained for, and would lead to rescission of the settlement agreement pursuant to ¶7.3 thereof. Respondents' comments stated:
"The [DD] sharply deviates from the parties' expectations regarding this provision of the agreement . . . Although the [DD] does permit CPSD to withdraw its protest to the Blue Ridge application, it posits treating A.01-12-013 as `unopposed' in name only. It imposes on Respondents a series of additional requirements which include reporting any pending litigation against Respondents referred to in CPSD's soon-to-be-withdrawn protest, as well as any litigation against Respondents in connection with the provision of local exchange service.
"As written, the [DD] fails to provide for resolution of the Blue Ridge application as an `unopposed application,' as that term is well understood by the parties and others . . . By so doing, the [DD] calls into question the resolution and uncontested status for which Respondent[s] specifically bargained." (Respondents' Comments, pp. 2-3.)
Although we will permit CPSD to withdraw its protest of A.01-12-013, we place both CPSD and Blue Ridge (which is a party to this proceeding)19 on notice that we cannot accept the term in the settlement agreement that explicitly ties the settlement of I.02-05-001 to the Commission's agreement -- which CPSD is not free to give -- to grant A.01-12-013 on an unopposed basis.20 In keeping with this conclusion, we will require Blue Ridge to file a supplement to A.01-12-013 within 30 days after the effective date of this decision. In this supplement, Blue Ridge shall certify that as of the date of the filing, no investigation, administrative proceeding, or litigation has been commenced against, or directed at, Blue Ridge, NOS, ANI, or any of their respective affiliates in connection with the provision or marketing of local exchange service. If Blue Ridge cannot give such a certification, it shall provide full details (including docket numbers) regarding any investigation, administrative proceeding, or litigation that has been brought against or directed at Blue Ridge, NOS, ANI, or any of their respective affiliates in connection with the provision or marketing of local exchange service. If the ALJ assigned to A.01-12-013 is dissatisfied with the supplement in any respect, he or she shall have full discretion to require that the supplement be corrected or amended, or that a hearing be held to take evidence on the fitness of the applicants in A.01-12-013 to receive a CPCN to provide resold facilities-based local exchange service.21
As noted above, ¶5.10 of the settlement agreement also requires CPSD not to "protest an application filed by Respondents or any of their affiliates pursuant to [Pub. Util. Code] Sections 851-854, 1001, or 1013 based on the investigation or allegations in this matter." While this term is not unreasonable per se, its effect could be unreasonable if, in any application for transfer of control or other authority covered by the cited Code sections, the Commission were not made aware of the fact that the application involved a party to this proceeding. Accordingly, as a condition of approving the settlement agreement here, we will require that in any application filed by NOS, ANI, Blue Ridge, or any of their respective affiliates pursuant to Pub. Util. Code §§ 851-854, 1001, or 1013, the applicant(s) must disclose (1) the fact that I.02-05-001 was filed, (2) that I.02-05-001 has been settled pursuant to the settlement agreement approved herein, and (3) the relationship of the applicant to this proceeding.
18 Although the settlement agreement is not crystal clear on this point, it appears that the parties' intent is that either CPSD or the respondents may rescind the settlement within the timeframes specified in ¶7.3 if one of them cannot accept a change ordered by the Commission. However, once the agreement goes into effect, its terms must be performed unless the decision approving the settlement is vacated by the Commission. Compare, ¶¶1.4, 5.6, and 7.3. Assuming this is the parties' intent, the agreement should be clarified by including a reference to ¶7.3 wherever rescission is mentioned (e.g., "rescission within the time periods set forth in ¶7.3.") We do not consider acceptable any arrangement allowing the respondents to rescind the settlement agreement once it has been approved and gone into effect. 19 Blue Ridge was designated as a party to this proceeding in D.02-07-045, the order in which the Commission denied rehearing of the OII. 20 The relevant paragraph appears on page one of the settlement agreement under the heading "Summary/Joint Statement of the Case" and provides in full:"The Parties by themselves or their authorized representative(s) agree to and accept the Terms and Conditions stated below. In express reliance on such acceptance, as well as the covenants and representations stated therein, the Commission agrees to end its investigation and close the docket in I.02-05-001 and to resolve A.01-12-013 as an unopposed application. Upon approval by the Commission, this Settlement will release the Respondents from and constitute a final settlement of any and all costs, claims or causes of action, direct or indirect, presently known or unknown, accruing to or incurred by the Commission during the course of investigation and review in this proceeding."21 Thus, we reject respondents' suggestion in their April 26, 2004 comments that as an alternative to the supplement of the Blue Ridge application required by the DD, we should accept a form of certification that their counsel attached to the April 26 comments. Respondents contended that this alternative approach provided the same information contemplated by the DD, and that after reviewing it, the Commission should grant the CPCN requested in A.01-12-013 in the same order approving the settlement agreement in I.02-05-001. In the revised DD posted on the Commission's website on May 5, 2004, the assigned ALJ concluded that the form of certification accompanying the April 26 comments was unacceptable, principally because the declaration of counsel that served to verify the status report attached to the comments covered only litigation against the respondents and their affiliates in connection with the provision of local exchange service, and did not address investigations or administrative proceedings covering local exchange service, as the DD had contemplated. After reaching the ALJ by telephone late in the day on May 5, respondents' counsel sought to submit an amended declaration addressing these concerns. In the amended declaration, counsel stated that "after making . . . inquiry, I state that to the best of my knowledge no litigation, investigation or administrative proceeding has been brought, or is pending, against or related to Blue Ridge, NOS Communications, Inc., Affinity Network, Inc. or any affiliate or dba of any of them in connection with the provision of local exchange services." Although the amended declaration, unlike its predecessor, tracks the language on page 22 of the DD, we still believe that it is insufficient to justify granting A.01-12-013 without further inquiry. First, to the extent it is intended as a verification, the amended declaration does not meet the requirements for verifications set forth in Rule 2.4(b) of our Rules of Practice and Procedure. Second, the declaration was signed by counsel rather than an officer or general partner of the respondents, even though (1) one of respondents' officers or general partners was presumably available by telephone, and (2) the use of facsimile signatures is permitted if the requirements of Rules 2.2(e) and 2.5(b) are met. Third, the amended declaration may contain an ambiguity, inasmuch as it is not clear whether its language is intended to cover litigation, administrative proceedings or investigations concerning respondents' marketing of local exchange services, although such marketing was clearly one of the focuses of the discussion on page 22 of the DD. Finally, the amended declaration has not been submitted for filing to our Docket Office. For all of these reasons, we conclude that the CPCN requested in A.01-12-013 should not be granted in this order, but should instead be granted only after the ALJ assigned to that proceeding has had an adequate opportunity to develop the record on the fitness of the Blue Ridge applicants.
