VIII. Motion to Enforce Signing of Non-
Disclosure and Protective Agreement,
Motion to Supplement the Record With
New Evidence, and Motion for Sanction

A. Position of the Parties

On February 1, 1995, the complainants filed a pleading entitled "Motion To Enforce Signing Of Non-Disclosure And Protective Agreement; Motion To Supplement The Record With New Evidence; Motion For Sanction." These motions arose out of the non-disclosure agreement that Westcom and Pacific were ordered to enter into by D.94-04-082.

The complainants argue that Pacific and the complainants negotiated a proposed non-disclosure agreement that the complainants signed on January 20, 1995 and returned to Pacific. At about the same time, the complainants contend that Pacific provided copies of the proposed agreement to the IEC defendants. According to the complainants, the IEC defendants added additional terms to the proposed agreement. This revised agreement was then submitted to the complainants for their concurrence. The complainants have refused to execute the revised agreement arguing that the defendants' revisions are without merit.

The complainants contend that the defendants' actions are part of a conspiracy to obstruct the complainants' discovery efforts. According to the complainants, this obstruction is in violation of the Business and Professions Code and the State Bar's Rules of Professional Conduct.

Pacific asserts that it has negotiated in good faith with the complainants to create a mutually agreeable non-disclosure agreement as provided for in D.94-04-082. Contrary to what the complainants have asserted in their February 1, 1995 pleading, Pacific argues that Sunde misrepresented and omitted some key facts regarding negotiations concerning the agreement.

According to Pacific, on December 6, 1994, Sunde sent to Pacific a proposed non-disclosure agreement with some requested changes. In late December 1994, the third amended complaint was received by Pacific. Due to the complainants' activities disclosed in the third amended complaint, Pacific sent a copy of the proposed agreement to counsel for the other defendants on January 5, 1995 and sent a copy of the cover letter to the complainants. The letter stated in part:

"After signature of this Agreement, we plan to release confidential information regarding your clients. ... If you have any objections, please notify us and Mr. Sunde at your earliest convenience."

On January 18, 1995, Pacific sent a letter to the complainants to confirm that a conference call would be held on January 27, 1995 to discuss, among other things, the non-disclosure agreement. On or about January 20, 1995, the complainants signed the agreement that had been attached to the January 5, 1995 letter.

On January 27, 1995, a telephone conference was held between Pacific and the complainants. Among the items discussed were revisions to paragraphs 2 and 3 of the agreement. On January 31, 1995, a revised agreement was distributed to the other defendants with a copy to the complainants. The revisions made changes to paragraphs 2 and 3 of the agreement. The January 31, 1995 letter asked the defendants to inform Pacific if the revised agreement was acceptable to them.

On February 3, 1995, Pacific sent the complainants a letter confirming the discussion that was held on January 27, 1995. Regarding the non-disclosure agreement, the letter stated:

"We discussed proposed changes to Paragraphs 2 & 3 of this Agreement. I have input the changes we discussed and have attached a copy of the revised Agreement as Exhibit A."

On February 16, 1995, Pacific signed the revised agreement and forwarded it to the complainants for their signature. The February 16, 1995 letter stated that during the January 27, 1995 conference call, it was Sunde who suggested the proposed changes to paragraph 2 of the agreement. The letter also stated that due to the complainants' February 1, 1995 motion to enforce signing of the non-disclosure agreement, it appeared that the complainants were reneging from the January 27, 1995 agreement to revise paragraph 2 of the agreement.

Execuline et al. argues that the revisions to the non-disclosure agreement to which it consented are justified because it provides the IEC defendants with notice and an opportunity to object before any information pertaining to the defendants is disclosed to the complainants. The revisions also prohibit the complainants from using the disclosed information for any unlawful activity. With respect to the motions for sanctions and that defendants' counsel be reported to the State Bar, Execuline et al. contends that the motions are without merit and that, as a sanction for this type of frivolous assertion, the proceeding should be dismissed.

Call America argues that the concerns which it expressed to Pacific concerning the non-disclosure agreement arose out of its concerns over potential misuse by the complainants of any information which Pacific might disclose to the complainants. According to Call America, it was concerned about the complainants' interference with customer calls and the complainants' intrusions into the privacy of both the calling and called parties. Call America further asserts that nothing which Pacific and Call America did violated any Rules of Professional Conduct or the Business and Professions Code.

B. Discussion

Although the title of the complainants' February 1, 1995 motion suggests the kinds of relief the complainants are seeking, the relief sought is somewhat broader. At page 2 of the February 1, 1995 motion, the complainants state that they seek: (1) an order requiring Pacific to endorse the original non-disclosure agreement that was submitted to the complainants; (2) an order allowing "the incorporation of this newly discovered evidence of obstruction into" the complainants' January 20th and 24th responses to the motions to dismiss; and (3) an order levying additional sanctions against all defendants in this case. At page 7 in the concluding paragraph of the motion, the complainants also request that: (1) "defendants' attorneys" be removed; and (2) that "Counsels' outrageous conduct" be reported to the State Bar.

We turn first to the motion regarding the non-disclosure agreement. We are not convinced by the complainants' argument that Pacific should be ordered to sign the non-disclosure agreement that was distributed to the complainants and to the defendants on or about January 5, 1995. Based on the documents attached to the complainants' motion and to Pacific's response, we cannot conclude that Pacific and the complainants had mutually agreed to an acceptable non-disclosure agreement as of January 5, 1995. It is clear that on January 5, 1995, Pacific informed the defendants, with a copy of the cover letter to the complainants, that they could object to the proposed form of the non-disclosure agreement. The complainants should have known by January 18, 1995, when the conference call for January 27th was confirmed, that the non-disclosure agreement was still subject to change. Indeed, based on other documents, it appears that on January 27, 1995, the complainants understood that they were still negotiating the agreement, since they themselves requested the revision of paragraph 2. Accordingly, the complainants' motion for an order that would require Pacific to execute the January 5, 1995 proposed agreement is denied.

We also note, as Pacific has pointed out, that the complainants have not been entirely forthcoming as to some of the events surrounding the negotiation of the non-disclosure agreement. Although the complainants supposedly signed the agreement on January 20, 1995, two days prior to that date Pacific and Westcom had agreed to hold a telephone conference on January 27th. One of the purposes of the January 27th meeting was to discuss the agreement. Omission of certain pertinent facts from pleadings may be viewed as a Rule 1 violation, and such omission further justifies our conclusion that in each Commission proceeding in which Westcom or Sunde appears, the presiding officer must determine whether they should be required to retain an attorney to represent them.

Regarding the complainants' motion to supplement with new evidence its responses to the motions to dismiss, we must first decide whether the conduct of the defendants amounts to obstruction. The complainants argue that when Pacific allowed the other defendants to comment on the proposed non-disclosure agreement, this involvement obstructed the complainants' discovery efforts.

The key to resolving this issue is whether the IEC defendants have a privacy interest in the materials sought by the complainants. Code of Civil Procedure § 1985.3 protects a consumer's right to privacy in one's personal records maintained by others, including a telephone corporation which is a public utility. The party seeking to subpoena the records must take certain steps to notify the consumer that the consumer's personal records are being sought.

Under the statute, a "consumer" is defined as an individual, a partnership of five or fewer persons, an association, or a trust. (Code of Civil Procedure § 1985.3(a)(2).) Based on that definition, the term consumer does not include a corporation. However, the statute does allow for the protection of personal records that are maintained by a telephone corporation.

In Sehlmeyer v. Department of General Services (1993) 17 Cal.App.4th 1072, the Court of Appeals had the opportunity to examine the applicability of Code of Civil Procedure § 1985.3 to a state administrative proceeding. The court held that:

"... before confidential third party personal records may be disclosed in the course of an administrative proceeding, the subpoenaing party must take reasonable steps to notify the third party of the pendency and nature of the proceedings and to afford the third party a fair opportunity to assert her interest by objecting to disclosure, by seeking an appropriate protective order from the administrative tribunal, or by instituting other legal proceedings to limit the scope or nature of the matters sought to be discovered." (Sehlmeyer, 17 Cal.App.4th at pp. 1080-1081.)

Part of the rationale for the court's decision in Sehlmeyer was derived from the California Supreme Court's analysis in Valley Bank of Nevada v. Superior Court (1975) 15 Cal.3d 652. In the Valley Bank case, the Supreme Court held that there were overriding constitutional considerations which compelled recognition of some limited form of protection for confidential information given to a bank by its customers. Those constitutional considerations were rooted in the amendment to the California Constitution, which added the right of privacy as an inalienable right of the people. The Supreme Court stated that it was safe to assume that the right of privacy extends to one's confidential financial affairs as well as to the details of one's private life. In vacating the trial court's order granting discovery of the bank records of both individuals and corporations, the Supreme Court's action afforded protection to the records of corporate entities, as well as to the records of individuals. (Id., at pp. 655-656, 658-659.)

In light of the case law regarding both discovery of confidential personal records maintained by an entity and notice to the affected consumer, we cannot conclude that the actions by Pacific and the other defendants regarding the proposed non-disclosure agreement constituted a conspiracy to obstruct the complainants' discovery efforts. Instead, the actions by the defendants were consistent with how administrative agencies should deal with discovery of confidential personal records. As the Commission recognized in the Caller ID decision, the language and spirit of the amendment to the California Constitution allows for the protection of a privacy interest even though the interest has not been expressly targeted for protection. (44 CPUC2d at p. 709.) Accordingly, the complainants' motion to incorporate this alleged evidence of obstruction into the complainants' January 20th and 24th responses to the motions to dismiss is denied.

Since we have determined that the defendants' actions regarding the revisions to the non-disclosure agreement did not obstruct the complainants' discovery efforts, the complainants' motion for sanctions against all defendants in this case, the request that the attorneys for the defendants be removed, and the request that the attorney for the defendants be reported to the State Bar, are denied.³⁴

³⁴ We note that the complainants' arguments regarding the conduct of counsel for the various defendants is a virtually identical form pleading to the one which the complainants used in their motions as to why counsel for Call America and Execuline et al. should be removed, and reported to the State Bar. (See February 1, 1995 Motion To Enforce Signing etc., pp. 5-7 and January 20, 1995 Response To Motion To Dismiss etc., pp. 20-22.) This repetitive use of form pleadings, especially when it alleges a violation of the State Bar's rules regarding conduct, is yet another example of a reason why the presiding officer should determine in each proceeding in which an appearance is made by Westcom or Sunde, whether they should be required to retain a licensed attorney.