Remedies and Fines

In Decision (D.) 01-04-036, the Commission adopted the following priorities for enforcement proceedings:

As a general matter, the Commission's priorities in enforcement proceedings, where violations of law or regulations have been established, as here, are to: (1) bring to an end any ongoing violations, (2) provide restitution to victims of the wrongdoing, and (3) deter future violations through the use of fines. (Investigation of USP&C.)

D.01-04-036, mimeo., at pages 27-28 (April 19, 2001). In Phase I of this proceeding, CPSD recommends that Starving Students pay the correct fees for underreporting gross operating revenues plus the 25% penalty. In addition, CPSD recommends that Starving Students be suspended for 30 days and pay a $6,000 fine to deter Starving Students and other household goods carriers from filing false reports. In Phase II, CPSD recommends that Starving Students' operating authority be revoked, that Starving Students review the 58 consumer declarations and satisfy all those consumers' claims, and that the Commission fine Starving Students $5,000 per day for each day Starving Students operated in violation of the Commission's directive to cease all operations for failure to have proof of insurance on file, for a fine of $225,000. CPSD also recommends that we fine Starving Students $500 per day for each of the 758 consumer violations CPSD found, for a total of $379,000.

CPSD further recommends that Starving Students review its claims files for the past four years, determine which claims were improperly denied on the grounds that a consumer failed to note any lost or damaged items at the time of delivery, reopen those claims files, and reconsider the consumers' claims. CPSD recommends in the alternative that if the Commission declines to revoke Starving Students' operating authority that Starving Students be suspended for six months and be placed on probation for two years. If the Commission suspends Starving Students, CPSD recommends that additional restrictions and conditions on Starving Students' business operations be imposed, including adequate supervision of employees with criminal convictions, limiting employees who can be drivers to those without drug or alcohol convictions, not rehiring terminated employees, providing a separate sheet with valuation options and a claim form, immediate revocation if insurance policies are not in effect and on file and/or Starving Students underpays regulatory fees, limiting the number of moves to 27,000 per year for two years, payment of a performance guarantee if meritorious complaints filed at the Commission exceed five in any three-month period, permitting CPSD to select a member of Starving Students' advisory board, and removing Ethan Margalith from his management position for two years.

Starving Students contends that CPSD has not met its burden of proof. Starving Students states that the sanctions, including the probationary conditions recommended by CPSD, would drive Starving Students out of business, resulting in the loss of 500 jobs in California, and are disproportionate to the few violations it asserts the evidence supports. Starving Students states that complaints filed with the Commission declined from 118 in 2000 to only 19 for the first 8 ½ months of 2002, and loss and damage claims similarly declined from 1,112 in 2000 to approximately 668 on a normalized basis for 2002. Starving Students alleges CPSD failed to consider mitigating circumstances in recommending sanctions, especially the fact that the company on its own initiative has implemented many changes at a cost of millions of dollars. Starving Students recommends that the Commission impose a two-year probationary period with reasonable terms, conditions, and performance standards.

Starving Students Shall Pay the Proper License Fees and Penalties

If a carrier is in default in the payment of its regulatory fees, Pub. Util. § 5331 requires the Commission to estimate the correct gross operating revenue, calculate the proper fee, and impose a 25% penalty. The Commission also may suspend or revoke that carrier' license.¹¹ We have determined that Starving Students underreported gross operating revenues but that its actions were not intentional.

We calculate the required fine in Tables 5A and 5B.

TABLE 5A

LINE	DESCRIPTION	2000	1999	1998	TOTAL
	Rate Funds Fee Used Household Goods
1	Difference	($570,665)	$1,109,909	$1,567,137	$2,106,381
2	Fee on rate regulated revenue (multiply Line 1 by .005)	(2,853)	5,550	7,836	10,532
3	Penalty (multiply Line 2 by 25%)	-	1,387	1,959	3,346
4	Rate Funds Fee (add lines 2 and 3)	(2,853)	6,937	9,795	13,878
	Uniform Business License Tax
5	Tax (multiply Line 1 by .001)	(571)	1,110	1,567	2,106
6	Penalty (multiply Line 5 by 25%)	-	277	392	669
7	Uniform Business License Tax (add Lines 5 and 6)	(571)	1,387	1,959	2,776
8	Total Adjustment (add Lines 4 and 7)	($3,424)	$8,324	$11,754	$16,654

TABLE 5B

LINE	DESCRIPTION	2000	1999	1998	TOTAL
	Rate Funds Fee Exempt Shipments
1	Difference	$772,324	$472,015	$455,186	$1,699,525
2	Fee on rate regulated revenue (multiply Line 1 by .001)	772	472	455	1,700
3	Penalty (multiply Line 2 by 25%)	193	118	114	425
4	Rate Funds Fee (add lines 2 and 3)	965	590	569	2,124
	Uniform Business License Tax
5	Tax (multiply Line 1 by .001)	772	472	455	1,700
6	Penalty (multiply Line 5 by 25%)	193	118	114	425
7	Uniform Business License Tax (add Lines 5 and 6)	965	590	569	2,124
8	Total Adjustment (add Lines 4 and 7)	$1,931	$1,180	$1,138	$4,249

The total adjustment for 1998, 1999, and 2000, including fees, taxes, and penalties, is $20,903. We will order Starving Students to pay the Commission this amount. We decline to consider an additional fine for underpayment of gross operating revenues, because CPSD did not prove that Starving Students intentionally underreported revenues.

Starving Students Shall be Suspended for One Hundred and Eighty Days and That Suspension Shall be Stayed Subject to Compliance with this Decision

The severity of the violations of our rules and regulations is a criterion we use in determining whether we should revoke the operating authority of a utility. We place great trust in household goods carriers when granting them operating authority, and customers place an equal trust in these carriers by tendering their belongings to them. Starving Students violated that trust.

Starving Students' violations were serious. Customers' possessions were lost or stolen, customers had insufficient information to make an informed choice on valuation, claims settlements were delayed, and Starving Students' employees behaved unprofessionally on many occasions. Starving Students has shown a pattern of years of noncompliance with the law, resulting in two investigations of its operations by our staff. Failure to settle loss and damage claims and unprofessional employee conduct were part of each investigation. Nonetheless, Starving Students maintained in this proceeding that proven violations were few.

Starving Students does not dispute that it violated Pub. Util. Code § 5286 by conducting operations as a household goods carrier after the suspension of its permit, although it offers as mitigation the fact that it proved it had insurance in place, if not on file, during the relevant time periods. We view our insurance requirements as the linchpin of our program to ensure that members of the public do not suffer harm at the hands of household goods movers. Starving Students similarly admitted discrepancies between its quarterly and annual reports.

Although Starving Students' violations are serious, we do not permanently revoke Starving Students' permit at this time. Starving Students expended considerable resources and capital in an attempt to resolve its customer service issues, as Margalith and Starving Students' Chief Executive Officer, Mark Peers, testified. Although Starving Students has not succeeded in curbing all customer service problems and regulatory compliance issues, it has made progress. Instead of revocation, we will impose a 180-day suspension, as recommended by CPSD, and will stay that suspension subject to Starving Students' full compliance with this decision. In addition, we will place Starving Students on probation for three years following the effective date of this decision. Adherence to this decision's directives should ensure compliance with our rules and regulations and should deter future noncompliance. If Starving Students fails to comply with this decision's directives during the probationary period, that failure will lift the stay and Starving Students will serve the 180-day suspension. We require Starving Students to submit quarterly reports to CPSD so that we can monitor compliance with the requirements set forth in this decision.

Starving Students Shall be Fined for Violations of Commission Rules and Regulations

In D.98-12-075, we established standards for the imposition of fines. We consider two general factors: (1) severity of the offense, and (2) the conduct of the utility. In addition, we consider the financial resources of the utility, the totality of the circumstances in furtherance of the public interest, and the role of precedent. (See Order Instituting Rulemaking on the Commission's Own Motion into Competition for Local Exchange Service, D.01-08-019, 2001 Cal. PUC LEXIS 653 *18.)

Severity of the Offense

The size of the fine should be proportionate to the severity of the offense. To determine severity, we consider three factors: (1) physical harm; (2) economic harm; and (3) harm to the regulatory process. Respondents' violations resulted in physical harm to goods. Regarding economic harm, we consider costs imposed upon the victims of the violation and unlawful benefits gained by the public utility; we use the greater of these two amounts in setting a fine. Starving Students' customers suffered economic loss that was not promptly settled or was settled at less than the value of the damaged goods. Although customers sustained economic losses, Starving Students' operations were in such chaos during that period that Starving Students lost money, rather than securing excess profits resulting from its conduct. We accord a high level of severity to any violation that harms or undermines the regulatory process (2001 Cal. PUC LEXIS, supra, at **23-24). Staff has investigated Starving Students two times for similar or identical violations; recidivism inherently undermines our authority and diverts our limited investigatory resources. Starving Students also unlawfully completed at least 51 moves during the period it was suspended for failure to maintain proof of insurance.

Conduct of the Utility

In D.98-12-075, we held that the size of a fine should reflect the conduct of the utility. When assessing the conduct of the utility, we consider the following factors: (1) the utility's actions to prevent a violation; (2) the utility's actions to detect a violation; and (3) the utility's actions to disclose and rectify a violation. We expect utilities to take reasonable steps to ensure compliance with applicable laws and regulations. Starving Students admits its management was not effectively running operations during 1999 and 2000. Thus Starving Students did not act to deter or detect violations in that timeframe. When Starving Students management uncovered the extent of the problem, Starving Students met with Commission staff, changed management, and actively worked to correct violations. Nonetheless, Starving Students is before us because it could not prevent violations of our rules and regulations despite our earlier investigation and did not comply with our directive to suspend operations when proof of insurance was not on file.

Totality of the Circumstances and Financial Resources of the Utility

In D.98-12-075, we held that the size of the fine should reflect the financial resources of the utility and should consider two factors, the need for deterrence and any adjustment to achieve deterrence without becoming excessive. We also held that a fine should be tailored to the unique facts of each case.

Starving Students is losing money, and at this time its liabilities exceed its assets. Although Starving Students has attempted to turn around its fortunes, that goal has been elusive. Any fine imposed on Starving Students should have as its primary goal the prevention of future recidivism. Starving Students already has faced our customary range of penalties voluntarily agreed to in the earlier investigation's settlement with staff. Not only did those penalties fail to deter future violations, the violations alleged in this investigation were more severe. Although we fine Starving Students for violations of our rules and regulations, we must also fashion remedies that eliminate the need for further investigations.

We fine Starving Students $104,000, the maximum of $500 per offense for a total of 208 consumer violations, as permitted under Pub. Util. Code § 5313. Starving Students' repeated violations of our rules and regulations concerning customer care necessitate imposing the maximum amount per offense. If Starving Students makes restitution to the declarants and the complainants identified in this proceeding (the Starving Students, CPSD and BBB complainants) and furnishes a compliance report to CPSD within 60 days of the effective date of this order, we will stay all but 25% of the fine, thereby reducing the fine to $26,000. Starving Students maintained during the proceeding that it had made restitution to many of the declarants on its own initiative, so Starving Students should be positioned to finalize restitution after this order issues.

As permitted by § 5313.5, we fine Starving Students $180,000 ($4,000 per day for a total of 45 days) for operating without a valid permit. Section 5313.5 permits a maximum penalty of $5000, which was recommended by CPSD. We impose a lesser fine. Although Starving Students operated without a valid permit, in contravention of Commission suspension of its permit, it did have the required insurance in effect during the suspension period and had no prior investigation for this offense. Nonetheless, failure to comply with Commission directives is a serious offense and will be fined accordingly. We will permit Starving Students to pay the fines for consumer violations and operating during periods of suspension in five equal installments payable to the State of California General Fund and due every 90 days after the effective date of this order.

Precedent

Finally, D.98-12-075 requires that we address previous decisions that involve reasonably comparable factual circumstances and explain any substantial differences in outcome. Both CPSD and Starving Students provide decisions they view as precedent. CPSD cites decisions where the carrier's permit was revoked (Re Ace of Bace Moving Co., D.01-08-035 (also imposes a $40,000 fine); Re Elite Moving and Storage, Inc., D.98-11-005; Re Edwards Moving and Storage Co., D.00-06-090; and Re Jone Rodley dba Moving for Less, D.00-08-019) and decisions where fines, restitution, and probation were imposed, mostly under the terms of settlement agreements with staff (Re Arnold Ray Baeza, dba Best Movers, D.02-05-028; Re Mike Amos Galam, dba Load, Lock N Roll, D.99-02-027; Re Nir Ben-David and Amit Mines, dba Right On Time Moving, D.00-06-013; and Re Mon Van Moving Services, Inc. and Gary R. Grubb, D.03-04-004).

None of these decisions consider a recidivist carrier. Although the fines we impose on Starving Students are higher than the fines imposed in those proceedings and higher than the amounts found in the settlement agreements, the amounts here are justified in light of continuing violations. Starving Students also continues to operate, whereas in one of those proceedings we revoked the carrier's operating authority and in the other the carrier's operations were suspended. As we have done in prior proceedings, we reduce the consumer violation fine by 75 percent, provided that Starving Students makes restitution to its customers. (D.01-08-035.)

Starving Students Shall be Subject to Performance Guarantees

We reach the conclusion from our prior experience with Starving Students' violations of our rules that monetary penalties and suspension alone are insufficient to deter future violations. Although Starving Students expended considerable effort to control customer care issues when they became extreme, Starving Students clearly did not have controls in place to prevent regulatory violations in the first place. Informal discussions with Commission staff to resolve regulatory compliance issues only resulted in misunderstandings and a breakdown in communications. Thus, we consider performance guarantees as a means of ensuring that Starving Students complies with our rules and regulations.

Energy and telecommunications utilities have service performance guarantees for missed appointments and billing errors. (D.02-10-073, Resolution T-16503, D.99-05-030, D.98-12-038.) Household goods carriers that fail to furnish customers the Important Information for Persons Moving Household Goods booklet must pay the customer $100 upon completion of the move. (Max Tariff 4, Item 88.) Automatic credits for failure to perform a promised or required activity provide customers immediate redress for perceived problems. Investigations are time-consuming and, if they result in hearings, address violations long after they have occurred. Although investigations can stop current violations, customers have no guarantee that a carrier that is suspended or put on probation for a period of time will not revert to prohibited practices once the suspension or probationary period has concluded.

Service guarantees could deter future violations where a household goods carrier, such as Starving Students, has been investigated more than once for the same violations. Those violations, alleged and settled in 1993 and fined in this investigation, are failure to provide scheduled moving services, failure to provide competent and trained movers, failure to respond to loss and damage claims, and unlawfully denying loss and damage claims because the customer did not note the damages at the time of delivery. For failure to perform required activities Starving Students will apply a $100 credit to total shipment charges for each instance of:

1) Misrepresenting to customers that a move can be scheduled on a day when there are insufficient trucks to complete those moves;

2) Sending personnel untrained and/or inexperienced in the movement of used household goods on a move;

3) Failing to acknowledge receipt of a claim for loss or damage in writing within 30 days;

4) Failing to either pay a loss and damage claim, decline to pay, or make a firm compromise offer to the claimant within 60 days; and

5) Denying loss and damage claims solely because the customer did not note the damages at the time of delivery.

These credits will continue during Starving Students' three-year probationary period. No credits will apply in emergency situations, where Starving Students' failure to comply is beyond its ability to control. Starving Students will submit quarterly compliance reports to CPSD and will list both the credits paid and the complaints submitted to Starving Students, broken down by category of complaint, which will include, but will not be limited to, the five activities for which we order credits. Starving Students will track providing verbal estimates as a category of complaint reported quarterly to CPSD. Should verifiable complaints of providing verbal estimates exceed one per quarter, the stay of Starving Students' suspension automatically will be lifted.

Starving Students will provide the names and contact information for complainants in those compliance reports. After the probationary period ends, we will no longer automatically require those credits but will permit CPSD or its successor to seek an extension of one or all of the credits by filing a petition for modification of this decision. Under § 5196 we have the authority to order Starving Students to refund household goods charges. We exercise that authority in this instance in order to ensure that Starving Students conforms its operations to practices that are in compliance with our rules and regulations.

In order to ensure performance that meets the expectations of Starving Students' customers we consider CPSD's recommendations for controls on the management of Starving Students' employees. We do so in light of the numerous allegations of theft of customers' goods in transit, allegations that continue beyond the period when Starving Students admits it lacked control of its operations. CPSD recommends adequate supervision of employees with criminal convictions, limiting employees who can be drivers to those without drug or alcohol convictions, and not rehiring terminated employees. Starving Students states it conducts background checks and effectively trains and supervises employees.

We will require Starving Students to continue to conduct background checks in order to meet GO 142's requirement that Starving Students have capable help. We will prohibit Starving Students from rehiring employees terminated for lack of experience or training in the transportation of used household goods or for being under the influence of alcoholic beverages, narcotics, or habit-forming drugs not prescribed by a physician. Because Starving Students is required to supervise all employees and to ensure its employees are not under the influence of alcohol and/or drugs on the job, we will not establish additional requirements in those areas. However, we direct Starving Students to comply with GO 142.

Starving Students Shall Comply With Applicable Regulations or the Stay of Its Suspension Automatically Will Be Lifted

We must ensure that Starving Students complies with our rules and regulations. CPSD recommends immediate revocation if insurance policies are not in effect and on file and/or Starving Students underpays regulatory fees. We will require Starving Students to keep evidence of proof of insurance current with the Commission throughout the three-year probationary period. If Starving Students fails to maintain proof of insurance during that period, we will order that the stay of Starving Students' suspension automatically will be lifted.

We require that Starving Students resolve the underlying problems that resulted in underpaying regulatory fees in 1998, 1999, and 2000, by establishing accounting controls to ensure regulatory accounts accurately reflect revenues and establishing reporting controls to ensure that all applicable accounts are included in quarterly reports submitted to the Commission. Starving Students did not properly maintain its regulatory accounts and did not report all intrastate operating revenues in those admittedly inaccurate accounts in its quarterly reports. If Starving Students fails to properly report gross operating revenues during the suspension period, we will order that the stay of Starving Students' suspension automatically will be lifted.

Furthermore, Starving Students is directed to comply with all pertinent state statutes, Commission General Orders, tariffs, rules and regulations governing household goods carriers, including but not limited to the Household Goods Carrier's Act, Pub. Util. Code §§ 5101 et seq., General Orders 100-M, 136-C, and 142, and Max Tariff 4. If Starving Students violates those laws, rules, and regulations, we will order that the stay of Starving Students' suspension automatically will be lifted.