VIII. LEGAL ANALYSIS

A. The Short Form Registration Process.

Public Utilities Code Sections 1001 et seq. require all utilities to acquire a CPCN. Section 1013 allows for an expedited "registration" process for non-dominant utilities in competitive markets, such as non-dominant interexchange carriers (NDIECs). In establishing such an expedited process, we noted:

Our objective with the registration process is to allow applicants which have no history of questionable behavior and which present noncontroversial applications (the majority of applicants meet these two standards) to rely on a expedited and inexpensive means of securing operating authority. Applicants which do not meet these standards ... will not be excluded from applying but will have to use the more extensive application process.

D.97-06-107, supra, Finding of Fact 8. Accordingly, Section 1013(d) requires the Commission to verify that no one exercising "significant control" over the applicant utility has a "prior history of committing fraud on the public." Id. at 4, Question 7. If Staff is correct, it appears that the three Clear World and Worldwide Applications subverted the intent of our registration process by suppressing information that would have been material and controversial in an Application proceeding. In that regard, we note that by August, 1998, Christopher Mancuso had already been effectively banned from one utility, NTC, and his application to participate in the management of another utility would have been, by definition, controversial. See D.98-02-029; D.03-02-066, Finding of Fact 19.

B. Misrepresentations by Management Are Relevant to Whether Management Is Fit to Operate a Utility.

D.03-02-066 found that Clear World and its management were not "fit" to operate as a competitive local exchange carrier in California. California law and Commission decisions require a showing of fitness before a company is granted access to the California telephone network, and provide for the revocation of such authority when a lack of fitness is shown. D.03-01-079, in Investigation ... and Order to Show Cause [re] Titan Telecommunications, Inc. (U-6224), 2003 Cal. PUC LEXIS 79. Section 1013(g) authorizes cancellation or revocation of a prior registration or CPCN where the telephone utility fails to provide required information, conducts any illegal telephone operation, violates any of the applicable provisions of [the Public Utilities] Code or of any regulation, order, decision, rule, regulation, direction, demand or requirement issued thereunder, where the "corporation files a false statement to the commission," or where the corporation knowingly defrauds a customer. Thus, fitness includes a component of "moral trustworthiness":

[R]easonable fitness connotes more than mere adequacy or sufficiency in training, competency, or adaptability to the appropriate technical and vocational aspects of the service to be rendered. It also includes an element of moral trustworthiness, reliance, and dependability.

Walter Hoffman dba ACE A-1 Limousine Service application for charter-party permit renewal (1976) D.85973, 80 CPUC 117, 119 (violations of police, Commission, and airport regulations ground for revocation). Misrepresentations to this Commission are directly relevant to a fitness analysis, and grounds for revocation of a CPCN:

If these allegations of misrepresentations to the Commission are true, this alone is sufficient cause to revoke ATN's CPCN to operate in California.

Investigation into the conduct of America's Telenetwork Corp (ATN), I.98-03-039, 1998 Cal. PUC LEXIS 30, at 2-3 (emphasis added); see also Titan, supra, 2003 Cal. PUC LEXIS at *31 ("We revoke Titan's operating authority, because Respondents violated Rule 1 in obtaining that authority").

C. Past Regulatory Performance Is Relevant to Whether Management is Fit to Operate a Utility.

Past regulatory compliance history is "relevant and highly probative of the applicant's prospective compliance with California authorities." D.97-06-107, supra, Finding of Fact 6. In the Application of Landmark Communications, Inc. for a CPCN, D.98-11-054, we again noted these concerns:

Among other things, we have routinely examined an applicant's past business record in order to make sure that consumer rights are protected. Over eight years ago, in ... D.90-12-019)... we noted the concern of the California Department of Consumer Affairs over "the lack of stringent review allowing at best poorly prepared carriers to serve the public and at worst some dishonest individuals to take advantage of the public." (Id. at 28.)

83 CPUC 2d 107, 113.

The accompanying Staff Reports call the Mancusos' past regulatory performance into question in a number of areas, including: (1) Failure to File CPCN Application (DLD, Worldwide)⁴⁸; (2) failure to file a Section 854 Application on its purchase of DLD customers;⁴⁹ (3) failure to remit public utility fees and public interest surcharges to the Commission;⁵⁰ and (4) failure to keep and produce corporate

documents.⁵¹ These matters are all proper areas for inquiry into the Mancusos' fitness.⁵²

D. Slamming Violations are also Relevant to Fitness Analysis.

Slamming violations and unlawful sales practices may also be grounds for revocation of a CPCN. D.03-06-034, Investigation ... of Telmatch, Mimeo at 19 ("the Commission has ample authority to revoke Telmatch's CPCN due to its flagrant and unlawful consumer solicitation practices"). We have found that the LECs' PIC dispute reports are good evidence that an unauthorized switch occurred:

A PIC dispute is a customer allegation that his or her telephone service was switched without permission. Section 2889.5 prevents a telephone corporation from changing the provider of any telephone service until the telephone corporation: (1) thoroughly informs the subscriber of the nature and extent of the service being offered; (2) specifically establishes whether the subscriber intends to change his or her telephone service provider and explains charges associated with that change; and (3) confirms the subscriber's decision to change by an independent third-party verification company. A customer's credible allegation of a PIC dispute, standing alone, constitutes compelling evidence that Qwest has violated § 2889.5 by failing to ensure that each of the steps outlined above was followed prior to the switch. ⁵³

In addition to the LECs' PIC dispute records, other evidence may be considered to establish that a reseller fails to thoroughly inform the customer of the services offered, or obtain the consumer's informed consent to a change of service.

E. Misrepresentations, Contempt, Rule 1 Violations Generally.

In its consumer protection role, it is important that the Commission be able to obtain reliable and accurate information from utility officers and directors. As we have stated in the past, the Commission cannot tolerate artifice or falsity in its proceedings:

In protecting that public interest the Commission cannot permit itself to be willfully misled by either artifices or false statements of fact or law. [Citations omitted.] Accordingly, when circumstances develop to point up the appearance that false material or representations may have been submitted under oath and penalty of perjury to induce a Commission authorization, and that there exists the possibility that the material or representations submitted were known to be false when submitted, this Commission will move to ascertain the underlying facts ... Agents or officers of any public utility who submit as true any material matter which they know to be false, are guilty of a felony and shall be punished by a fine (P.U. Code § 2114). Similarly, any individual who aids or abets any public utility in a violation of our Rules is subject to a fine for each offense (P.U. Code § 2111).

D.86-10-013, in A.60857, I.86-05-006, Application of Henry LaZare et al. dba The Jacumba Water Co., 1986 Cal. PUC LEXIS 613, *12.⁵⁴

Materially false testimony is specifically punishable under the Public Utilities Code Section 2114 (which incorporates key language of Penal Code § 118(a)):

Any public utility on whose behalf any agent or officer thereof who, having taken an oath that he will testify, declare, depose or certify truly before the commission, willfully and contrary to such oath states or submits as true any material matter which he knows to be false, or who testifies, declares, deposes, or certifies under penalty of perjury and willfully states as true any material matter which he knows to be false, is guilty of a felony and shall be punished by a fine not to exceed five hundred thousand dollars ($500,000).

If Staff is correct, it would appear that several aspects of the Mancusos' testimony before this Commission in Application 01-09-040 were false, and were intentionally so in order to hide the activities of Christopher Mancuso. The specific testimony alleged to be false is discussed in more detail in Staff Report I, § XIV(A) and (B).

F. Agency.

Even were this Commission to find that the Mancusos were merely "managing" phone lines as agents for other utilities such as WorldTel or Amerivision, that "management" activity might still be considered as a utility service under our Code. See P.U. Code § 234(a) (defining telephone corporation to include a person "managing any telephone line for compensation"). The Mancusos have, however,

asserted a theory of agency as a defense to the allegation of unlicensed sale of telecommunications service, and we will therefore briefly address the law of agency.⁵⁵

Decision 03-02-066 states "The Commission has not previously addressed comprehensively what constitutes a valid agency agreement with an authorized carrier." Mimeo at 12. While that may be true, the Commission has in the past looked to the common law of agency and applied the principal that agency connotes the principal's power over the agent.⁵⁶

The declarations of the principal are generally admissible to prove or disprove the agency relationship. Schlake v. McConnell, 83 Cal. App. 725, 730 (1927) see generally Witkin, Summary of California Law, "Agency" at §38. The converse is not true: the declarations of one assuming to act as an agent are of less evidentiary value, and cannot be introduced in evidence to prove the agency unless made in the presence of, or communicated to and acquiesced in by, the principal. Scott v. Los Angeles Mountain Park Co. (1928) 92 C.A. 258, 263, 267 P. 914; Howell v. Courtesy Chevrolet (1971) 16 C.A. 3d 391, 401, 94 C.R. 33 ("declarations of an agent are not admissible to prove the fact of his agency or the extent of his power as such agent ... `An assumption of authority to act as agent for another of itself challenges inquiry. Like a railroad crossing, it should be in itself a sign of danger...'").

The existence of an agency relationship is mainly a question of fact. Witkin, supra, "Agency" at § 37.

⁵¹ A utility's obligation to keep and produce significant business documentation to the Commission is anchored in the California Constitution, Title XII, § 6. The Commission's Constitutional power finds expression in California Public Utility Code §§ 311, 314, 581-82, 584, and 701, inter alia. Part of analyzing a utility's regulatory compliance history is looking at the utility's readiness to respond to Commission and staff inquiries, including those about prior business practices. Landmark, supra, 83 CPUC 2d at 115 (Application denied because "Landmark's attempt to avoid responding to Commissioner and staff inquiries, to avoid having a hearing on its application, and to avoid any consideration of its prior business practices demonstrates a lack of respect for Commission procedures, rules and orders, and the public policies that underlie them").

⁵³ Investigation into operations, practices and conduct of Qwest Communications, D.02-10-059, Mimeo at 10 (emphasis added). In Communications TeleSystems International (CTS) (1997), 72 CPUC2d 621, 633 in relying on PIC dispute data the Commission reasoned:

The PIC dispute data maintained by the LECs is the most comprehensive data set available which relates to unauthorized customer transfer. While not purporting to conclusively prove any specific underlying fact, there is sufficient evidence to support an inference of wide-spread unauthorized customer transfers. Absent evidence directly undermining the credibility of the LEC's process and record keeping, or suggesting an alternative data source, the Commission will continue to rely on this data. Ibid.

⁵⁵ "An agent is one who represents another, called the principal, in dealings with third persons. Such representation is called agency." Cal. Civ. Code § 2295. Agency may be created by an express contract or authorization, or be "implied from words and conduct of the parties and the circumstances of the particular case." Cal. Civ. Code §§ 2299, 2307; Smith v. Schuttpelz, 1 Cal. 2d 158, 161 (1934).

⁵⁶ See, e.g., Investigation of Coleman Enterprises, Inc. dba Local Long Business, D.00-06-037, 2000 Cal. PUC LEXIS 256, at *29 (Conclusion of Law 4, stating "In determining whether an agency relationship exists, an important factor is the extent of the alleged principal's power to control the alleged agent's manner and means of accomplishing the desired result."); see also D.03-02-066, Finding of Fact 35 (same); see also Mimeo at 12 ("we would expect that such an agreement would be structured to at least ensure that the carrier had sufficient control over the agent to ensure the agent's compliance with statutory and Commission requirements. In addition, we would expect the customers to be customers of the utility, not the agent"). See also Nichols v. Arthur Murray, Inc., 248 Cal. App. 2d 610, 613 (1967) (citing Malloy v. Fong, 37 Cal. 2d 356, 370 (1951)). "In the absence of the essential characteristic of the right of control, there is no true agency." Edwards v. Freeman, 34 Cal. 2d 589, 592 (1949).