6. Discussion
The central question in this proceeding is whether Telmatch has imposed unauthorized charges on consumers' telephone bills. A corollary issue raised by Telmatch is a challenge to the Commission's authority to investigate a telecommunications provider that abuses consumers by imposing unauthorized charges on consumers' telephone bills. In determining whether the charges imposed by Telmatch are unauthorized we first examine Telmatch's solicitation (sweepstakes method) of consumers. Telmatch construes the forms filled out by consumers in response to Telmatch's contest to win cash or a car as authorizations to impose charges on consumers telephone bills. Second, we address and dismiss Telmatch's challenge to the Commission's authority to protect consumers from cramming.
The record shows that Telmatch used marketing techniques to induce consumers to enter a contest. By inducing consumers to enter a contest to win cash or a car, Telmatch did not obtain any authorization to place charges on the local telephone bills of consumers. As a result, the sweepstakes form on which Telmatch relies to justify its billing of consumers is legally insufficient to find a sweepstake entrant authorized Telmatch's telephone calling card service. Telmatch's billing for this unauthorized service violates the Public Utilities Code as alleged in the OII.
In the following sections of this decision, we first analyze the contents of Telmatch's sweepstakes form and the circumstances in which it was presented to consumers. We demonstrate that by completing this form, a consumer neither requests nor consents to receive a telephone service from Telmatch. We then analyze the legal consequences that follow from Telmatch's billing for an unauthorized service. Specifically, we conclude that Telmatch's practices violate § 451 and § 2890. Finally, we set forth a series of remedies. We seek to make consumers whole by recovering funds improperly collected by Telmatch and its billing intermediaries. We also seek to protect consumers by imposing fines on Telmatch and revoking its operating authority.
6.1 Telmatch's Solicitation and Subsequent Billing
of Consumers Constituted Cramming
We now turn to the question of whether Telmatch has obtained authorization to place charges on the local telephone bills of California consumers. When soliciting consumers, the basic prerequisite to finding that consumers accepted a solicitation or authorized a charge on their telephone bills is that the solicitation is clear regarding the terms and conditions of the service being offered. In analyzing this issue, we first examine Telmatch's solicitation by describing a contest box, Exhibit 18, that Telmatch used to solicit consumers. (Attachment A to today's decision is a photocopy of Exhibit 18.)
Exhibit 18 contains text, inviting consumers to "ENTER TO WIN" a contest. This text is prominently displayed in capital letters on all five of the different visible surfaces of the contest box.9 Thus, from whatever angle a consumer sees the contest box, he or she sees an invitation to "ENTER TO WIN" either "$25,000 CASH" or a "CHOICE OF CAR." On two surfaces10 of Exhibit 18 the only text appearing is the invitation to "ENTER TO WIN" either "$25,000 CASH" or a "CHOICE OF CAR." Exhibit 18 also contains a prominent graphic on the top surface of the box that conspicuously shows a Mercedes Benz automobile. Under the car is text that states in prominent capital letters "THE FABULOUS NEW MERCEDES BENZ SLK." In the background of three surfaces (top, front, and back) of Exhibit 18 are graphics of hundred dollar bills. On the left side of Exhibit 18 appears relatively small text11 that is not visible when the box is viewed from the front and may be easily concealed if the left side of the box is placed against a wall. The text, which begins "NO PURCHASE NECESSARY TO ENTER OR WIN" provides some information about the contest but does not inform consumers that submission of an entry form will result in a recurring monthly charge on their phone bills.
Attached to the top surface of Exhibit 18 are forms for consumers to fill out, tear off, and deposit into a slit on the top surface of the box. (Attachment B to today's decision is a photocopy of the form.) The first line of the form states "WIN $25,000 CASH OR A NEW CAR." The second sentence (in smaller text) reads: "ENTRY & BENEFITS PLUSTM APPLICATION." Following are blank spaces for the consumer to provide personal information such as name, address, age and telephone number. Next to the "Home Phone" request appears a highlighted statement that reads "REQUIRED." Next appears a request for a signature. The smallest print on the front of the entry form, which appears below the signature line and reads:
"By signing, I certify that I am 18 years of age and responsible for the home phone # above. I further attest that I have read, understand and agree to all terms, conditions & charges listed on the reverse."
Below this statement in larger and highlighted letters appears a notice that reads:
"NOTICE: YOUR TELEPHONE SERVICE WILL NOT CHANGE!!!
BENEFITS PLUSTM IS A CALLING CARD ONLY."
The reverse side of the entry form, which is difficult to read,12 contains the following language:
"BENEFITS PLUSTMDISCOUNT CALLING CARD TERMS"
"I want to receive a personalized BENEFITS PLUSTM discount calling card sent to me at the address provided on reverse. I authorize BENEFITS PLUSTM to bill all calling card usage at 25¢/minute or up to 20¢/day, whichever is greater. This minimum maintenance and/or all calling card charges will appear on the regular monthly phone bill from the phone company to my home phone listed on the reverse, along with a one time activation of only $4.96. Intl., intrastate/IntraLATA rates may vary. I understand that I may cancel at any time by calling 1-800-499-9899. ..."
The factual question we must answer is whether the text and graphics presented to consumers on the contest box and entry form communicated an offer of a telecommunications service to consumers. In contrast to the barrage of text and graphic visual images inviting the consumer to "ENTER TO WIN," no language appears on any of the surfaces of the contest box or the front of the form that clearly describes the service offered or the associated charges. The contest box does not reasonably inform consumers that they are signing up for a telephone service or will be charged a recurring monthly fee on their telephone bill. Instead, the contest box buries in small print information about charges for a calling card. The plain language and impression of text and graphics communicates to the consumer clear and conspicuous notice of a contest and an invitation to enter such contest. Thus, we conclude that the entry form did not communicate to the consumer an offer of a telecommunications service but rather constituted an invitation to enter a contest. Thus, when consumers filled out the entry form they were entering a contest, not authorizing Telmatch to impose charges on their telephone bill.
We find that Telmatch's representations on the contest box viewed as a whole were misleading and ambiguous13 and led consumers to believe they were entering a contest, not signing up for a telecommunications service that would cause charges to appear on their telephone bill.14 Marketing materials that lack meaningful notice of a telecommunications service being offered, but instead make representations to induce consumers to enter a contest for a chance to win thousands of dollars or a car, do not obtain consumers' authorization for the imposition of charges on their telephone bills.15
In resolving this case, we rely on our statutory authority over regulated utilities; we do not need to rely on contract law. However, in response to references made to contract law, we discuss basic principles. Generally, contract formation problems lend themselves to the offer-acceptance model; to determine whether there was a valid contract, we look for an offer followed by a matching acceptance. (1 Witkin, Summary of Cal. Law (9th ed. 2000) Contracts §128, p.153.) To establish mutual assent under this paradigm, the first party must show that it prepared a valid offer for the other party; the first party then communicated the offer to the second party; and the second party accepted the offer. (Id.) Thus, in this case we begin by looking for Telmatch's offer to the consumer.
Telmatch's marketing materials fail to communicate a valid offer, and absent a valid offer there is nothing for the consumer to accept. Under contract law, an offer is a definite, conditional promise, manifesting the intent to enter a legally binding, final agreement. (14 Cal. Jur. 3d (Rev 1999) Part I, Contracts § 51, p. 277.) In reviewing the communications contained on the contest box under this standard, we find that Telmatch "invited" consumers to enter a contest, Telmatch's communication did not "manifest an intent" to make an offer for a calling card. We base our finding on the repeated use of terms like "Enter to Win," "No Purchase Necessary." No language appears on the contest box or the front of the entry form that constitutes a conditional promise by Telmatch that manifests an intent to enter a legally binding, final agreement regarding a calling card. Moreover, to constitute a definite offer, we would expect to see explicit language specifying the terms and conditions of the service. (Id. at 278.) Some such language appears on the backside of the forms, however, the location of the language and the surrounding circumstances (communications inviting the consumer to win, etc.) precludes a finding that Telmatch made "manifest" an intent to enter into a binding agreement. Rather, the intent Telmatch manifested was an invitation to the consumer to enter a contest by filling out an entry form.16 Thus, even under contract law, we would find that Telmatch has imposed unauthorized charges on consumers' telephone bills.17
6.2 The Commission Has Authority to Redress Cramming
6.2.1 Pub. Util. Code § 451
Telmatch challenges the Commission's authority under §451. Although many cases decided pursuant to § 451 address the level of rates, the Commission has authority under § 451 to hear allegations that a regulated entity has imposed unauthorized charges on consumers' telephone bills.
Section 451 states that:
"All charges demanded or received by any public utility, or by any two or more public utilities, for any product or commodity furnished or to be furnished or any service rendered or to be rendered shall be just and reasonable. Every unjust or unreasonable charge demanded or received for such product or commodity or service is unlawful.
"Every public utility shall furnish and maintain such adequate, efficient, just, and reasonable service, instrumentalities, equipment, and facilities, including telephone facilities, as defined in Section 54.1 of the Civil Code, as are necessary to promote the safety, health, comfort, and convenience of its patrons, employees, and the public.
"All rules made by public utility affecting or pertaining to its charges or service to the public shall be just and reasonable."
In establishing reasonableness as the basis of utility charges, § 451 confers broad authority on the Commission to oversee the propriety of a utility's practices in establishing and performing service. Section 451 also contains the supposition that the consumer has authorized the utility to furnish a product or render a service. Thus, a utility that furnishes a product or renders a service not authorized by a consumer and then demands a charge has violated § 451, just as does a utility that delivers a false bill or furnishes a defective product.
Telmatch argues that courts have consistently interpreted § 451 to pertain to the "amount" of rates charged by utilities. In support of its theory, Telmatch cites Troy Barnett v. Delta Lines, Inc., 137 Cal.App.3d 674, 683 (1982). In Barnett, an employee of a common carrier brought an action against the carrier alleging that it had shut down one of its divisions in violation of §§ 451, 491, and 851, thereby causing plaintiff's unemployment and loss of seniority. The Court held that no violation of § 451 occurred.
Telmatch reads too much into Barnett. There is no discussion in Barnett that states that § 451 is limited to addressing the "amount" of rates charged. When the court stated in Barnett that "[t]here are no allegations of unreasonable rates being charged," the court did not purport to limit the scope of § 451. The facts of Barnett have absolutely not relationship to the case at bar.
Telmatch also claims the Commission has "limited its powers" under § 451 to examining rates, citing three cases for this proposition: Re Minimum Rate Tariff 7-A, 32 CPUC2d 535, D.89-09-104 (1989), Laguna Hills Sanitation, Inc., 3 CPUC2d 63, D.91182 (1980), and Re PT&T Co., 2 CPUC2d 434, D.90919 (1979). Once again, these cases do not support the proposition Telmatch claims they establish.
In Re Minimum Rate Tariff 7-A, the decision denies an application for rehearing and contains no discussion regarding § 451. Instead, the case briefly discusses § 425.1, not § 451. Similarly, Laguna Hills Sanitation, Inc. contains no discussion of § 451. Re PT&T Co. concerns an application for rehearing of a general rate case of Pacific Telephone and Telegraph Company. The decision contains only a parenthetical reference to § 451.
Contrary to Telmatch's assertions, a charge may be unjust for many reasons. For example, we have seen disputes where the consumer indeed ordered a service but received service different from that ordered. We have also seen disputes where the service provided was allegedly of poor quality. Both of these disputes properly arise under § 451, yet in neither of these situations concerns a dispute over whether the charge established by the Commission was too high but rather whether the charge was just and reasonable in light of the service requested and provided.
Recently, we have seen many disputes in which a consumer alleges that a telecommunications service provider has charged the consumer for services the consumer has never ordered. From the standpoint of § 451, it is immaterial whether the service provided was wrong, inadequate, or unauthorized. In each instance, the charge for such services would be unjust and unreasonable, and we see no basis in policy or the plain language of the statute for holding otherwise. Consumers who filled out the entry form did so with the expectation of possibly winning money or a car. The completion and submission of the contest form by the consumers did not authorize Telmatch to provide consumers with a calling card service. Thus, Telmatch violated § 451 by furnishing a product or service that consumers did not order.
Telmatch also asserts that CSD has characterized affected consumers as a class and that the Commission can not take action because it would be "transforming [itself] into a court of general jurisdiction...." Further, Telmatch believes that the cramming allegations advanced by CSD require a factual inquiry on a consumer-by-consumer basis. What we are investigating are Telmatch's practices, not the complaint of one or more consumers. Section 761 makes clear that the Commission may regulate utility practices.
Section 761 states that:
"Whenever the Commission, after a hearing finds that the rules, practices, ... of any public utility, ... are unjust, unreasonable, unsafe, improper, inadequate, or insufficient, the commission shall determine and, by order or rule, fix the rules, practices, ... or methods to be observed, ... or employed. ... "
Under §761, the California Supreme Court has rejected prior claims that the Commission has limited jurisdiction to investigate the practices of utilities.18
Telmatch also offers no valid support for its theory that a consumer-by-consumer analysis is necessary.19 We observe that cramming may involve tens of thousands of consumers. Further, the amount of disputed charges per consumer in a cramming dispute is relatively small in comparison to the costs to investigate the facts and circumstances surrounding each affected consumer. It is both impractical and uneconomical for the Commission to set a standard that requires evidence of each affected consumer in a cramming investigation. In order to protect the public from unscrupulous carriers that engage in cramming, we conclude the Commission is not required to make a factual inquiry of each affected consumer. Instead, an investigation into the practices of the respondent utility which may include interviews with affected consumers is sufficient to determine if Telmatch's actions constitute an unjust or unreasonable practice, here cramming.20
6.2.2 Pub. Util. Code § 2890 (a),(b),(c)
Section 2890 became effective January 1, 1999, and thus only applies to acts that occurred on or subsequent to January 1, 1999. The plain language of § 2890(a)21 states that a telephone bill may only contain charges for communications-related goods and services, unless the Commission has permitted other charges. Without such permission, the imposition of charges for noncommunications-related goods and services is a violation of § 2890(a).
Although Telmatch began billing consumers prior to January 1, 1999, this fact does not excuse compliance with § 2890(a) on or after January 1, 1999. Telmatch is not "grandfathered" with respect to the provision of § 2890 by virtue of having started operations before the effective date of the statute. Telmatch admits that the charge it imposed on consumers' telephone bills (which we have found to be unjust and unreasonable) included a fee for noncommunications-related benefits such as lawyer referrals and discounts on golf memberships. Regardless of whether the noncommunications-related benefit was actually ordered by the consumer, the Commission has not authorized Telmatch to include a charge for noncommunications-related goods or services on consumers' telephone bills. Thus, commencing January 1, 1999, Telmatch has violated § 2890(a).
The plain language of § 2890(b)22 states that a telephone bill may only contain charges authorized by the subscriber. CSD has also alleged that in the alternative to § 451, the charges imposed by Telmatch for a calling card violate § 2890(b). Under § 451, we have found that the charges imposed by Telmatch for its calling card are unjust and unreasonable. Consequently, we do not need to reach the issue of whether § 2890(b) was also violated.
Section 2890(c) prohibits the use of entry forms for sweepstakes as a method for offering telephone services. The record does not contain evidence that Telmatch solicited consumers using the sweepstakes method subsequent to the effective date of § 2890(c); absent such evidence, no violation of this section appears.
6.3 Filed Rate Doctrine
We reject Telmatch's filed rate doctrine defense and also its reliance upon the charges of other carriers (see note 6 above and accompanying text.) This case concerns Telmatch's conduct in soliciting consumers, not the amount of Telmatch's rates. Nothing in the filed rate doctrine allows a carrier to impose charges that are not authorized by consumers, regardless of whether or not the charges are tariffed or no higher than the charges of competing carriers.
6.4 Sanctions
In D.98-12-075, the Commission developed principles that it would consider in setting an appropriate fine to impose in the enforcement of affiliate transaction rules. The principles developed in D.98-12-075 distill numerous Commission decisions concerning fines in a wide range of cases. Thus, we look to these principles in determining the level of fine.
Reparations should be distinguished from fines. Reparations are not fines and conceptually should not be included in setting the amount of a fine. Reparations are refunds of excessive or discriminatory amounts collected by a public utility. (Section 734.) The purpose of reparations is to return unlawfully collected funds to the victim. Accordingly, the statute requires that all reparation amounts be paid to the victims.
6.4.1 Reparations
We agree with CSD that consumers should receive reparation for all monies collected by Telmatch. Based on the record, we find that CSD's estimate of $5.5 million reasonably approximates the amount owed California consumers. We order Telmatch to submit within thirty days this amount (less any amounts submitted to the Commission by agents and LECs on Telmatch's behalf as ordered by D.99-10-069 and modified in Section 6.5 of today's decision) to the Manager of the Commission's Fiscal Office by certified check payable to California Public Utilities Commission. Telmatch is also afforded the opportunity to contest the calculation of the amount owed by filing within 10 days of the mailing date of this order a petition to modify the amount Telmatch must submit to the Commission. Telmatch's petition must contain detailed records and documentation showing (1) how much California consumers have been billed on its behalf and (2) how much has been refunded to consumers.23 Telmatch must also respond within five days to all data requests issued by Commission's Telecommunications Division concerning Telmatch's petition if one is filed. Failure to promptly reply will constitute grounds for its denial.
We will postpone acting on a refund mechanism until monies owed consumers are recovered. Following collection, we will propose for comment an approach for making refunds to affected consumers.
6.4.2 Fines
The purpose of a fine is to go beyond reparation to the victim and to effectively deter further violations by this perpetrator or others. For this reason, fines are paid to the State of California, rather than to victims.
Effective deterrence creates an incentive for public utilities to avoid violations. Deterrence is particularly important against violations which could result in public harm, and particularly against those where severe consequences could result. The two general factors used by the Commission in setting fines are (1) severity of the offense and (2) conduct of the utility. Fines should be set in proportion to the violation.
The severity of the offense includes several considerations. Economic harm reflects the expense that was imposed upon the victims as well as any unlawful benefits gained by the public utility. Generally, the greater of these two amounts will be used in establishing the fine. Compliance with Commission directives is required of all California public utilities:
"Every public utility shall obey and comply with every order, decision, direction, or rule made or prescribed by the commission in the matters specified in this part, or any other matter in any way relating to or affecting its business as a public utility, and shall do everything necessary or proper to secure compliance therewith by all of its officers, agents, and employees." (Section 702.)
Such compliance is absolutely necessary to the proper functioning of the regulatory process. For this reason, disregarding a statutory or Commission directive, regardless of the effects on the public, is considered a severe offense.
D.98-12-075 also stated that the number of the violations is a factor in determining the severity. A series of temporally distinct violations can suggest an on-going compliance deficiency that the public utility should have addressed after the first instance. Similarly, a widespread violation that affects a large number of consumers is a more severe offense than one that is limited in scope. For a "continuing offense," § 2108 counts each day as a separate offense.
D.98-12-075 also recognized the important role of the public utility's conduct in (1) preventing the violation, (2) detecting the violation, and (3) disclosing and rectifying the violation. The public utility is responsible for the acts of all its officers, agents, and employees:
"In construing and enforcing the provisions of this part relating to penalties, the act, omission, or failure of any officer, agent, or employee of any public utility, acting within the scope of his [or her] official duties or employment, shall in every case be the act, omission, or failure of such public utility." (Section 2109.)
D.98-12-075 also weighs the utility's actions to prevent a violation. Prudent practice requires that all public utilities take reasonable steps to ensure compliance with Commission directives. This includes becoming familiar with applicable laws and regulations, and most critically, reviewing its own operations regularly to ensure full compliance. In evaluating the utility's advance efforts to ensure compliance, the Commission will consider the utility's past record of compliance with Commission directives.
The utility's actions to detect a violation are also a factor. The Commission expects public utilities to monitor diligently their activities. Where utilities have for whatever reason failed to meet this standard, the Commission will continue to hold the utility responsible for its actions. Deliberate, as opposed to inadvertent, wrongdoing will be considered an aggravating factor. The Commission will also look at management's conduct during the period in which the violation occurred to ascertain the level and extent of involvement in or tolerance of the offense by management personnel. The Commission will closely scrutinize any attempts by management to attribute wrongdoing to rogue employees. Managers will be considered, absent clear evidence to the contrary, to have condoned day-to-day actions by employees and agents under their supervision.
Prompt reporting of violations furthers the public interest by allowing for expeditious correction. For this reason, steps taken by a public utility to promptly and cooperatively report and correct violations may be considered in assessing any fine.
The financial resources of the utility are another factor. Effective deterrence also requires that the Commission recognize the financial resources of the public utility in setting a fine that balances the need for deterrence with the constitutional limitations on excessive fines. Some California utilities are among the largest corporations in the United States and others are extremely modest, one-person operations. The Commission intends to adjust fine levels to achieve the objective of deterrence, without becoming excessive, based on each utility's financial resources.
The Commission will also apply a totality of the circumstances test in furtherance of the public interest. Setting a fine at a level that effectively deters further unlawful conduct by the subject utility and others requires that the Commission specifically tailor the package of sanctions, including any fine, to the unique facts of the case. The Commission will review facts that tend to mitigate the degree of wrongdoing as well as any facts which exacerbate the wrongdoing. In all cases, the harm will be evaluated from the perspective of the public interest.
We now apply these principles to the case at bar. Telmatch has violated § 451 by imposing on consumers' phone bills a monthly charge for a calling card not authorized by consumers. The severity of the offense is great. Although the actual dollar amount is relatively small per consumer, the number of consumers affected is large. In economic terms, the unlawful benefit gained by Telmatch is approximately $5.5 million. Telmatch's acknowledgement of wrongdoing is non-existent, Telmatch believes that the inconspicuous fine print buried on the back of the entry form justifies its conduct. Telmatch takes the untenable position that its marketing efforts are clear and unambiguous despite repeated complaints from consumers that the services billed for were not ordered. The record shows that Telmatch took no steps, absent new legislation, to change its conduct. Rather than prevent future incidents of consumer complaints, Telmatch adopted a caveat emptor approach to dealing with California consumers and continued to solicit consumers with representations of chances to win cash or a car.
Section 2108 provides that the Commission may, in the case of a continuing violation, treat each day's continuance as a separate and distinct violation. Prior to the issuance of this OII, Telmatch billed consumers in violation of § 451 for approximately 20 months or 600 days. Telmatch has violated § 2890(a) by including charges for noncommunications-related goods on consumers' telephone bills for approximately nine months (number of months elapsed from January 1, 1999 to when OII was issued) or 270 days. In all, we calculate that Telmatch has committed 870 distinct offenses.
Pursuant to § 2107, we could assess a fine between $500 and $20,000 per violation for a total fine between $435,000 (870 violations times $500 per violation) and $17.4 million (870 violations times $20,000 per violation). Given Telmatch's size it is unrealistic to impose the maximum fine. In light of all the circumstances, we impose a fine of $2,000 per violation for a total of $1.74 million. We will direct the Commission's General Counsel to take all reasonable steps to collect this fine. All fines collected will be deposited in the State's General Fund. Commission records show that George A. Mueller, III as having a 99.00% interest in Telmatch and Kathleen K. Mueller-Engel has having a 1.00% interest in Telmatch. At hearing, it was stated that Edward Miller24 was the owner of Telmatch. Commission records do not show any valid transfer of control. Further, Telmatch's application for a CPCN was granted in December 1996, but the record in this proceeding shows that almost all of Telmatch's operations were contracted out as opposed to the company being run by the individuals cited in the CPCN application. We are concerned that the CPCN application may have contained material misrepresentations. We issued a CPCN based on representations concerning the expertise of individuals that would provide service. Alternatively, the different set of characters operating Telmatch raises the specter that Geo Communications was used as a shell corporation to cover the unauthorized operations of Telmatch. Consequently, we will also direct the General Counsel to examine whether there was an unauthorized transfer of control and explore holding Mueller, Engel, and Miller personally liable (piercing of Telmatch's corporate veil) in civil court for the acts of Telmatch.
6.4.3 Operating Authority
Based on Telmatch's conduct as discussed herein, we conclude that Telmatch is unfit to operate in California. Telmatch's position that its marketing materials are clear and unambiguous demonstrates a disregard for compliance with applicable law. By this decision, we revoke Telmatch's operating authority. Telmatch is ordered to cease operating in California immediately. We also order all LECs and billing agents to immediately cease doing business with Telmatch.
6.5 Other Matters
We deal here with two pending requests by Telmatch. First, Telmatch's petition for clarification asks whether the amount ordered by Ordering Paragraph 225 in D.99-10-069:
"...paid to the Commission by LECs should be the amount billed less any amounts held back for the LECs' and USBI's fees, reserves, customer refunds and the like, in accord with the calculation contemplated in Ordering Paragraph 1." (Emphasis in petition.)
We have found that consumers have not authorized Telmatch to impose a recurring monthly fee on consumers' telephone bills. Thus, all funds held by LECs, including but not limited to fees and reserves, should immediately be deposited with the Commission.26 We will deny Telmatch's petition and for consistency instead modify Ordering Paragraph 1 of D.99-10-069 as follows:
"1. No later than 22 days after the effective date of this order, Hold Billing Services, Inc. (HBS), Billing Concepts, USBI, and ZPDI shall remit to the Manager of the Commission's Fiscal Office a certified check payable to California Public Utilities Commission in the amount of the difference between the amount collected on behalf of Telmatch Telecommunications, Inc. (Telmatch) and the amount disbursed to Telmatch or refunded to customers.
The amount submitted should exclude the amount charged Telmatch for billing services in California. If HBS, Billing Concepts, USBI or ZPDI can show that funds held on behalf of Telmatch are from sources other than California consumers, then those funds so identified should not be remitted to the Commission."
We will also direct the Executive Director to serve a copy of this decision upon Pacific Bell, GTE California Incorporated, HBS, Billing Concepts, USBI, and ZPDI.
Second, on November 12, 1999, Telmatch filed a Request for En Banc Hearing. Telmatch contends that the seriousness of the allegations by CSD and the gravity of the remedies and fines sought by CSD warrant an en banc hearing before the full Commission. We deny the request. Today's decision is primarily based upon the factual findings we make concerning the marketing materials and methods used by Telmatch to solicit consumers. Telmatch does not dispute that it used the sweepstakes method, nor does it object to the receipt into evidence of the entry forms it used for soliciting consumers. Based on the evidence and law, we see no merit to the positions advocated by Telmatch, and no enlightenment to be gained from hearing Telmatch argue them.
1. Telmatch marketed a long distance calling card in California from 1997 to January 1998 using the name Benefits Plus.
2. Telmatch solicited consumers through a "sweepstakes method" that used contest boxes that were set up at locations such as fairgrounds.
3. The plain language and graphics contained on the contest box and entry form invite the consumer to "ENTER TO WIN" a contest.
4. Telmatch's contest box contains text inviting consumers to "ENTER TO WIN" that is prominently displayed in capital letters on all five of the different visible surfaces of the contest box.
5. From whatever angle a consumer sees Telmatch's contest box, he or she sees an invitation to "ENTER TO WIN" either "$25,000 CASH" or a "CHOICE OF CAR."
6. The entry form's visual emphasis is on a prize.
7. No language appears on the contest box or on the front of the entry form that describes in plain language a calling card or associated charges.
8. Telmatch's entry form informs consumers that their telephone service will not change.
9. In order to read the information on the reverse side of the entry form the consumer must tear off the form. If the consumer lifts up an entry form attached to a contest box, the information on the reverse side of the entry form appears upside down.
10. The reverse side of the entry form while attached to the contest box is difficult to read.
11. Telmatch used the information on the sweepstakes entry forms to charge consumers, through billing agents, a recurring charge of $4.33 per month for a calling card.
12. The recurring charges that Telmatch imposed on consumers' telephone bills did not contain a reference to a calling card.
13. The recurring charges that Telmatch imposed on consumers' telephone bills included a charge for noncommunications-related goods and services such as golf discounts and lawyer referral services.
14. Telmatch has never received permission from the Commission to impose charges on consumers' phone bills for noncommunications-related goods and services.
15. Telmatch has no consumer service representatives.
16. Consumer Access employees act as Telmatch's customer service representatives.
17. Telmatch's application for a certificate of public convenience and necessity listed the names of experienced individuals for marketing and sales.
18. The unlawful benefit gained by Telmatch and the amount owed to California Consumers as reparations is approximately $5.5 million.
19. The unlawful benefit gained in dollar amounts per consumer is relatively small, but the number of consumers affected, approximately 60,000, is large.
20. Telmatch does not acknowledge any wrongdoing.
21. Prior to the issuance of this OII, Telmatch billed consumers for approximately 20 months or 600 days.
22. Telmatch included charges for noncommunications-related goods on consumers' telephone bills for approximately nine months (number of months elapsed from January 1, 1999 to when OII was issued) or 270 days.
23. Commission records show that George A. Mueller, III as having a 99.00% interest in Telmatch and Kathleen K. Engel has having a 1.00% interest in Telmatch.
24. At hearing, Edward Miller was identified as the owner of Telmatch. Commission records do not show any valid transfer of control from Mueller to Miller.
25. Telmatch's conduct demonstrates a disregard for compliance with applicable law.
26. No enlightenment will be gained from holding an en banc hearing.
1. Telmatch induced consumers to enter a contest.
2. Telmatch's contest box does not reasonably inform consumers that they are signing up for a telephone service or will be charged a recurring monthly fee on their telephone bill.
3. No language appears on the contest box or the front of the entry form that manifests an intent or constitutes a conditional promise by Telmatch to enter into a legally binding, final agreement regarding a calling card.
4. The text and graphics on the contest box and entry form do not constitute a valid offer for a telecommunications service.
5. The text and graphics on the contest box and entry form do not communicate to the consumer an offer of a telecommunications service.
6. By filling out an entry form, consumers were entering a contest and not authorizing Telmatch to impose charges on their telephone bills.
7. Marketing materials that lack meaningful notice of a telecommunications service being offered, but instead make representations to induce consumers to enter a contest for a chance to win thousands of dollars or a car, do not obtain consumers' authorization for the imposition of charges on their telephone bills.
8. Telmatch imposed unauthorized charges on consumers' telephone bills.
9. Section 451 contains the supposition that the consumer has authorized the utility to furnish a product or render a service.
10. Section 451 authorizes the Commission to investigate a regulated entity that has imposed unauthorized charges on consumers' telephone bills.
11. A charge may be unjust for many reasons.
12. A utility that furnishes a product or renders a service not authorized by a consumer and then demands a charge has violated § 451.
13. Under § 451, the charges imposed by Telmatch for its calling card are unjust and unreasonable.
14. Telmatch has violated § 451 by imposing on consumers' phone bills a monthly charge for a calling card not authorized by consumers.
15. Telmatch is not "grandfathered" with respect to the provision of Pub. Util. Code § 2890 by virtue of having started operations before the effective date of the statute.
16. Subsequent to January 1, 1999, Telmatch violated § 2890(a) by imposing charges on consumers' telephone bills for a "benefit" that is not communications-related.
17. Telmatch has violated § 2890(a) by including charges for noncommunications-related goods on consumers' telephone bills for approximately nine months (number of months elapsed from January 1, 1999 to when OII was issued) or 270 days.
18. Consumers should be made whole by recovering funds improperly collected by Telmatch and its billing intermediaries.
19. Fines should be imposed on Telmatch.
20. Telmatch's operating authority should be revoked.
21. The Commission has a duty to investigate the practices of utilities it regulates.
22. Under § 761 the Commission may regulate utility practices.
23. A sampling of consumers and an investigation into the practices of a respondent utility is sufficient to determine if its actions constitute an unjust or unreasonable practice.
24. The filed rate doctrine does not permit a carrier to impose charges on telephone bills that are not authorized by consumers.
25. Telmatch has committed 870 distinct offenses.
26. Pursuant to § 2107, the Commission could assess a fine between $500 and $20,000 per violation for a total fine between $435,000 (870 violations times $500 per violation) and $17.4 million (870 violations times $20,000 per violation).
27. A fine of $2,000 per day for a total of $1.74 million should be imposed.
28. Consumers should be refunded all monies collected by Telmatch.
29. Telmatch is unfit to operate in California.
30. All funds held by LECs, including but not limited to fees and reserves, should immediately be deposited with the Commission.
31. Ordering Paragraph 1 of D.99-10-069 should be modified as follows:
"1. No later than 22 days after the effective date of this order, Hold Billing Services, Inc. (HBS), Billing Concepts, USBI, and ZPDI shall remit to the Manager of the Commission's Fiscal Office a certified check payable to California Public Utilities Commission in the amount of the difference between the amount collected on behalf of Telmatch Telecommunications, Inc. (Telmatch) and the amount disbursed to Telmatch or refunded to customers.
The amount submitted should exclude the amount charged Telmatch for billing services in California. If HBS, Billing Concepts, USBI or ZPDI can show that funds held on behalf of Telmatch are from sources other than California consumers, then those funds so identified should not be remitted to the Commission."
32. Telmatch's Request for En Banc Hearing should be denied.
IT IS ORDERED that:
1. The operating authority of Telmatch is revoked. Telmatch shall immediately cease doing business in the State of California. The Commission's General counsel shall take steps to serve this order on all relevant billing agents and LECs to ensure that Telmatch is no longer operating in California.
2. Within thirty days of the effective date of this order, Telmatch shall submit as reparation to the Manager of the Commission's Fiscal Office a certified check payable to California Public Utilities Commission in the amount of $5.5 million less any amounts already submitted to the Commission on Telmatch's behalf by its billing agents and LECs as ordered by D.99-10-069 and modified by this decision.
3. Telmatch may contest the calculation of the amount owed consumers by filing within 10 days of the date of issuance of this order a petition to modify the amount owed. Telmatch's petition must contain detailed records showing (1) how much California consumers have been billed on its behalf and (2) how much has been refunded to consumers. In the event Telmatch files a petition to modify the amount owed consumers, Telmatch must also:
· respond within five days to all data requests issued by Commission's Telecommunications Division concerning such petition; and
· concurrently submit to the Manager of the Commission's Fiscal Office a certified check payable to California Public Utilities Commission in an amount Telmatch calculates is the difference between (1) how much California consumers have been billed on its behalf and (2) how much has been refunded to consumers.
The petition authorized by this ordering paragraph is limited to calculation errors and is not a vehicle for challenging the Commission's determination that consumers have not authorized Telmatch to impose a monthly recurring charge on their phone bills.
4. Telmatch shall pay a fine of $1.74 million.
5. The Commission's General Counsel shall take all reasonable steps to collect the fine imposed by this order. All fines collected will be deposited in the State's General Fund.
6. The Commission's General Counsel shall examine whether an unauthorized transfer of control of Telmatch from Mueller and Engel to Miller occurred and whether such an act would permit the piercing of Telmatch's corporate veil. The General Counsel is also directed, to the extent permitted by law, to institute action in civil court against Mueller, Engel, and Miller to collect the fines and reparation imposed by this order.
7. Telmatch's petition for clarification of D.99-10-069 is denied.
8. Ordering Paragraph 1 of D.99-10-069 is modified to read:
"No later than 22 days after the effective date of this order, Hold Billing Services, Inc. (HBS), Billing Concepts, USBI, and ZPDI shall remit to the Manager of the Commission's Fiscal Office a certified check payable to California Public Utilities Commission in the amount of the difference between the amount collected on behalf of Telmatch Telecommunications, Inc. (Telmatch) and the amount disbursed to Telmatch or refunded to customers. If HBS, Billing Concepts, USBI or ZPDI can show that funds held on behalf of Telmatch are from sources other than California consumers, then those funds so identified should not be remitted to the Commission."
9. The Executive Director shall serve a copy of this decision upon Pacific Bell Telephone Company, GTE California Incorporated, HBS, Billing Concepts, USBI and ZPDI.
10. Telmatch's request for an en banc hearing is denied.
11. This proceeding shall remain open for the development of a refund mechanism of monies collected for reparation.
This order is effective today.
Dated , at San Francisco, California.
(ATTACHMENTS A & B ARE NOT AVAILABLE IN ELECTRONIC FORM. SEE CPUC FORMAL FILES FOR A COPY OF THESE ATTACHMENTS.)
9 Four sides of box plus the top surface. 10 Right side and back of contest box. 11 In addition to the smaller font size, the text is printed in white against a black background. This text is harder to read than the text printed on the same surface that invites the consumer to win cash or a car, which is larger and printed in black against an orange background. 12 In order to read the information on the reverse side of the form, the consumer must tear off the entry form. If the consumer simply lifts up the entry form while attached to the contest box, the information appears upside down. 13 One example of an ambiguous statement appears below the signature line on the entry form states:- "NOTICE: YOUR TELEPHONE SERVICE WILL NOT CHANGE!!! BENEFITS PLUS IS A CALLING CARD ONLY."
