Appeal of Presiding Officer's Decision

On June 4, 2001, pursuant to Rule 8.2 of the Commission's Rules of Practice and Procedure, CSD filed an appeal of the Presiding Officer's Decision (POD) alleging numerous factual and legal errors. Based upon the alleged errors, CSD reargues that a higher fine and suspension is warranted. Vista filed a response to CSD's appeal opposing every correction CSD requested as unwarranted. We have corrected the minor factual errors as discussed below.

In addition, in response to CSD's appeal, we have increased the size of the fine from $3.5 million to $7.0 million. Upon review of the record and the POD, we determine that the facts, as found by the administrative law judge (ALJ), warrant a fine larger than the lowest amount in the range of permissible fines. We have made changes in the foregoing portions of this decision to reflect the increased fine. Our main difference with the POD is the significance we place in the fact that Vista failed to adequately monitor its telemarketers even after receiving complaints. As the ALJ found, Vista did not perform its own monitoring of telemarketers or even require the telemarketing firms to monitor their representatives. This was a significant omission on the part of Vista in its efforts to prevent similar slamming violations in the future. We also agree with CSD that the actions of Pacific Bell in switching customers back to their chosen carrier are not appropriate for consideration in determining the size of the fine to be paid by Vista. In this inquiry, it is the conduct of Vista, not third parties, which is relevant. Accordingly, we have deleted the POD's treatment of this fact as a mitigating factor.

Otherwise, we have not substantively modified the POD. However, we have made a variety of non-substantive corrections in response to CSD's appeal.

First, CSD corrects a misstatement in Footnote 1, namely that it discovered a complaint after Vista alleged it discontinued all service in November 1998. CSD contends it discovered this information by a misrepresentation by Vista concerning satisfied customers. CSD recommends that this sentence be deleted, and this revision has been made.

Second, CSD points out that Vista did not provide Exh. 38 as promised, therefore, it should not be received into evidence. CSD is correct that this exhibit was erroneously referred to as Exh. 40. However, CSD's characterization of Exh. 38 is in error. Exh. 38 was a documentation regarding litigation against offending telemarketers, which Vista promised but failed to provide. We have revised the POD to refer to Exh. 38, which was the sole exhibit not provided as promised.

Third, CSD requests clarification of its position. The POD indicates CSD argues that it is Vista's responsibility to detect improper marketing and not that of the third party verifier or the customer. CSD does not disagree with this statement, but adds that its primary argument is that § 2889.5 prohibits any change in service provider unless the customer has been fully informed of the switch and any resulting charges, and clearly indicates an intent to switch, which may be confirmed. CSD requests that this language be inserted in lieu of the language in the POD. We have revised the POD to include CSD's supplemental language.

Fourth, regarding the crams resulting from the slams for which CSD does not recommend a penalty, CSD recommends revisions to correctly refer to multiple violations of §§ 702 and 2889.5, and violations of other statutes that are not extensive or warrant sanctions. We have made this clarification.

We reject CSD's appeal with respect to suspension. CSD argues that the POD erroneously considers mitigation, which is not in the record and that this fact plus the testimony of Vista's Director of Regulatory Affairs, Courtney Maroon, shows a failure to meet required standards of proper supervision. CSD contends Maroon testified that she worked part-time, was not familiar with applicable law and never considered verifying the effectiveness of third-party verifies. Without evidence of mitigation, CSD argues that a five-year suspension, with a two-year stay, is appropriate. We disagree with CSD that the record is devoid of evidence of mitigation. We have inserted a citation to Vista's proof of mitigation, namely the showing in Exhibit 36 of Vista's requests to telemarketers that offending employees be terminated. Moreover, we note that CSD itself, having acknowledged in its opening brief that Vista is "marginally fit" to provide utility service, appears uncertain that suspension is an appropriate remedy.

Finally, CSD challenges the POD's statement that Vista had no opportunity to address CSD's assertion of a complaint after November 1998 when Vista contends it ceased all telemarketing in California. CSD argues that Vista had ample opportunity to question on this point the three customers it named as satisfied customers in a late-filed exhibit. CSD requests revisions to reflect this customer did not complain until asked to confirm her satisfaction with Vista's service and that CSD has not mentioned any other complaints. Without citation to the record we cannot determine whether this information regarding the derivation of this one complaint is accurate. Moreover, the POD's characterization of the one complaint being an "anomaly" and the significant decline of switches after November 1998 remain accurately portrayed facts. Therefore, we decline to make this revision.

Findings of Fact

1. In 1996, Vista entered into a contract with various telemarketers to solicit California business customers to switch to Vista's long distance service in order to obtain combined billing whereby the customer paid only one telephone bill for all business lines. Vista's contract expressly prohibited telemarketers from representing themselves to be any company other than Vista.

2. Vista provided a script of the sales solicitation for the telemarketers to follow. The script did not include a discussion of Vista's rates and charges for switching long distance service.

3. Between January 1997 and November 1998, Vista's telemarketers solicited California business customers by misrepresenting themselves to be local exchange companies (LECs), obtaining an agreement to receive the service. Customers who asked were assured by telemarketers that their long distance service would not be switched. Telemarketers did not inform potential customers of any charges associated with switching long distance carriers.

4. Between January 1997 and March 1999, and possibly on one occasion in August 1999, as a result of Vista's telemarketing, thousands of California businesses were switched to Vista's long distance service without proper authorization. Many of these customers were charged a one-time switching fee and monthly long distance line charges for each business line. One customer reported an unlawful switch in August 1999.

5. Between January 1997 and March 1999, numerous California business customers complained orally and in writing to the Ohio Better Business Bureau, Vista, the Commission and various Vista affiliates alleging unlawful switches of their primary interexchange carrier (PIC disputes) to the service of a carrier later determined to be Vista.

6. Between January 1997 and March 1999, 629 customers complained to Pacific that Vista telemarketers represented themselves as employees of an LEC offering combined billing, and that subsequently their long distance service was switched without authorization.

7. Between January 1997 and March 1999, and in August 1999, PIC disputes alleging Vista unlawfully switched long distance service on a total of 10,773 lines were filed with Pacific, MCI, Sprint, Cable and Wireless, and GTE.

8. The testimony of customers shows a pattern of unlawful switching by telemarketers' misrepresentations and failure to specifically inform customers that they were being solicited to switch their long distance service.

9. Pacific immediately refunded the switching charges for customers complaining to it of unlawful switching. Customers identifiable to Vista obtained total or partial refunds.

10. Vista alleges it voluntarily terminated all telemarketing solicitation of California customers in November 1998, although there is slight evidence of telemarketing after that date.

11. Vista has a tape, recorded by its third-party verifier, for many business customers complaining of an unlawful switch to Vista's long distance service. After listening to their own verification tape at the hearing, nine of the ten customers testifying still indicated they did not understand or intend to switch their long distance service to Vista. Several customers had their verification terminated when they asked questions. For other customers who asked questions, telemarketers were placed back on the line and assured them that their service would not be switched and they should answer "yes" to all questions.

12. After Pacific demanded in July 1997 that Vista cease all misrepresentation, Vista so informed its telemarketers. Between August 1997 and May 1998, Vista terminated the contracts of eight telemarketing companies for misrepresenting their affiliation.

13. In 1998, Vista's gross revenues nationwide reportedly were $40 million, and it recorded a net loss of $4.6 million.

14. Vista's telemarketers harmed the customers who were slammed, causing harm to those businesses and to the competitive market for telecommunications services.

15. Vista's conduct before and after the complaints did not fulfill its public utility obligations. In particular, Vista did not report these incidents to the Commission, and Vista did not monitor telemarketing sales presentations after reports of misrepresentation and misinformation. Thus, Vista did not take all reasonable steps to secure compliance with Commission regulation.

16. Vista's acts to prevent and resolve incidences of slamming, although not adequate under the circumstances, warrant some mitigation of any fine.

17. Vista's acts to investigate and resolve identifiable PIC disputes warrant some mitigation of any fine. However, Vista has not addressed many additional PIC disputes identified in this proceeding.

Conclusions of Law

1. The solicitation by Vista's telemarketers violated Section 2889.5.

2. The acts of Vista's telemarketers in violation of Section 2889.5 should be imputed to Vista.

3. Vista failed to fulfill its duty under Section 702 to ensure that marketing by its agents was carried out consistent with Section 2889.5.

4. Vista's telemarketing constituted a substantial offense, albeit mitigated somewhat by Vista's acts to prevent and resolve incidences of slamming.

5. The purpose of fines and penalties is to punish violations and deter future unlawful behavior.

6. The public interest requires that customers' right to choose a long distance carrier be protected, the competitive provision of long distance service be preserved, and further violations be deterred.

7. Weighing the severity of the offense, Vista's financial resources, mitigation measures, and the public interest in this proceeding, a fine of $7.0 million is warranted, which is at the low end of the fine range (between $3.5 million and $140 million) under Pub. Util. Code § 2107.

8. Vista should complete its restitution process by providing $20 per business line to customers identified in this proceeding whose PIC dispute(s) Vista has not addressed.

9. Suspension of Vista's operating authority for any period is an unduly harsh sanction given the mitigating circumstances in this proceeding.

10. This order should be effective immediately in order to provide customer restitution as soon as possible.

ORDER

IT IS ORDERED that:

1. Vista Group International, Inc. (Vista), must immediately cease and desist from engaging in "slamming" (unlawful switches in service) by fraudulent telemarketing solicitation and from all further violations of the Public Utility Code and other applicable California or federal law.

2. Within 12 months after the effective date of this order, Vista will pay a fine of $7.0 million to the General Fund of the State of California.

3. Within 90 days after the effective date of this order, Vista must provide restitution to complaining business customers identified in this proceeding at $20 per business line (approximately 10,773 business lines).

4. Within 120 days after the effective date of this order, Vista must submit to the Director of the Commission's Consumer Services Division (CSD) a report of all restitution provided in compliance with this order. This report must include the name, address, telephone number, number of lines disputed, and total restitution for each customer. If Vista is unable to locate a complaining business customer, it must show that it has made reasonable efforts to locate the customer. Vista will retain all documents supporting this report for a period of three years from the effective date of this order, and shall promptly submit them to any Commission audit of these and any other related records. Any restitution which cannot be made will escheat to the State of California.

5. Should Vista, any corporate affiliates, any of its officers, directors, management employees or contractors, or 5% or greater shareholders, seek to transfer or acquire any customer base, such a request must be through the formal application process. In addition, this proceeding and its outcome must be disclosed in any future application, and any such application must be served on the Director of CSD.

6. Communications Billing, Inc.'s motion to withdraw Application 99-09-038 is granted, subject to the conditions set forth herein.

7. CSD's appeal of the Presiding Officer's Decision issued in this proceeding is denied.

8. Investigation 99-04-020 and Application 99-09-038 are closed.

This order is effective today.

Dated September 6, 2001, at San Francisco, California.

Previous PageTop Of PageGo To First Page