The Next Phase of This Proceeding Should Deal With Penalties

Although we agree with Pacific and Cox that additional retrieval measures should not be required in view of the survey results described above, that does not mean the end of this matter. As noted in the Introduction, both Pacific and Cox appear to have failed in various respects to meet their obligations under the Public Utilities Code and orders of this Commission.

Before discussing these shortcomings, we must note our general distress with how Pacific and Cox handled this matter between May 4, 2000, when the directory error was first discovered, and May 31, 2000, when Cox's TRO motion was filed. Based on the declarations submitted in support of and in opposition to the TRO, it is fair to say that during this three and one-half week period, Cox and Pacific were more concerned with who would pay for reprinting and redistributing new directories-and with the potential damage to their commercial reputations-than they were with the harm being done to customer privacy. In Pacific's case, it took one week and the intervention of a vice president before distribution of the tainted directories was suspended on May 12. Moreover, Pacific's decision to resume distribution on May 31 appears to have been motivated entirely by financial concerns. For its part, Cox claimed never to be satisfied with the cost estimates it received from Pacific for reprinting and redistribution, even though these estimates stayed within a fairly narrow range throughout the discussions that the companies conducted. If a database problem of this kind arises in the future, we will expect the parties to focus first on solving the problem and eliminating the threat to the public; only then should they turn to the question of who will pay for the remedial measures.

Although neither Cox nor Pacific placed customer welfare first during the May negotiations, Pacific's conduct appears to have given rise to the most clear-cut violations of law. In particular, Pacific's decision to resume distribution of the tainted directories on May 31, 2000-before its officers acceded to the Chief ALJ's request later that day to suspend such distribution-raises the issue whether Pacific committed a knowing violation of Section 2891.1(a) of the Public Utilities Code. That subsection provides in full:

"Notwithstanding Section 2891 [which requires customer consent for the release of certain kinds of customer information], a telephone corporation selling or licensing lists of residential subscribers shall not include the telephone number of any subscriber assigned an unlisted or unpublished access number." (Emphasis added.)¹¹

In addition to being an apparent violation of Pub. Util. Code § 2891.1, Pacific's conduct in resuming distribution of the tainted directories appears to violate several applicable rules and orders of the Commission.¹² Under D.92860, 5 CPUC2d 745 (1981), for example, all residential telephone service customers are entitled, upon payment of an appropriate fee, to obtain "nonpublished" service. ¹³ This service-for which D.92860 adopted a uniform definition applicable to all carriers-is one in which "customer name, address, and telephone number are not listed in any telephone directory, street address directory, or in the directory assistance records available to the general public."¹⁴

Under our Universal Service rules, each incumbent local exchange carrier (ILEC) and CLEC is obliged to offer its residential customers a "free white pages telephone directory."¹⁵ However, in view of the requirements of D.92860, it is apparent that ILECs such as Pacific are required to exclude from the white pages directory that they provide to their customers (and to the customers of CLECs who contract with them) the name, address and telephone number of any customer who has ordered nonpublished service.

It is also clear that under Section 2107 of the Public Utilities Code, fines may be imposed for violations of these requirements. Section 2107 provides in pertinent part:

"Any public utility which violates or fails to comply with any provision . . . of this part, or which fails or neglects to comply with any part or provision of any order, decision, decree, rule, direction, demand or requirement of the commission, in a case in which a penalty has not otherwise been provided, is subject to a penalty of not less than five hundred dollars ($500), nor more than twenty thousand dollars ($20,000) for each offense."

Whether one computes the potential fine based on the number of tainted directories distributed on May 31, 2000,¹⁶ or on the number of customers whose listings were inadvertently published (11,478, according to Cox), Pacific's potential liability for resuming distribution of the tainted directories on May 31, 2000 appears to be several million dollars.

Unlike Pacific, the basis for Cox's liability appears to be negligence rather than willful misconduct. ¹⁷ As one of Cox's witnesses pointed out in his declaration in support of the TRO, the failure of Cox's software to place a customer privacy designator next to the names of all customers who wanted unlisted or nonpublished numbers appears to have begun "in or around August 1999." (Smith Declaration, ¶6.) Since Cox claims it did not become aware of the software problem until May 4, 2000, this means that nearly nine months elapsed between the onset of the error and its discovery. Although we think Cox should be afforded an opportunity to show why it could not have detected the error sooner, the long period of time between onset and detection-which came about only after Cox began receiving calls from angry customers-suggests to us that Cox did not use ordinary care in converting its database into the format required by Pacific.¹⁸ In an era when the proper management of databases is integral to conducting most businesses, Cox's negligence in handling its customers' listing information appears to violate § 451 of the Pub. Util. Code, which requires each utility to "furnish and maintain such adequate, efficient, just, and reasonable service" as is necessary to "promote the safety, health, comfort, and convenience of its patrons."

The appearance of negligence is reinforced by the fact that-according to the declaration of a Pacific witness opposing the TRO-CLECs including Cox periodically received "completion reports" which showed listings that had been posted to Pacific's listing database. According to this witness, the completion report clearly designated nonpublished listings, and if the CLEC discovered errors in these or other listings, the CLEC was supposed to submit a correction to Pacific in the manner described in the CLEC Handbook. (Noponen Declaration, ¶5.)¹⁹

By this decision, we are directing the Commission's Consumer Services Division (CSD) to conduct appropriate discovery and to prepare for a hearing-if it becomes necessary to hold one-on the proposed size of the penalties that should be imposed on Cox and Pacific for these apparent violations. This penalty proceeding, like the proceedings that have led up to this decision, will be conducted as a phase of the Local Competition docket (R.95-04-043/I.95-04-044).

After CSD has had an adequate opportunity to conduct discovery, the Assigned Commissioner and assigned ALJ should hold a prehearing conference (PHC). At this PHC, it will be appropriate to establish a cut-off date for discovery, set a hearing schedule for the penalty issues described above, and receive status reports on whether this matter can be resolved without the need for a hearing. Resolutions not involving hearings could include the use of alternative dispute resolution mechanisms, or mutually agreed-upon sanctions that would appropriately deter future violations of the kind that occurred here.