Discussion
Rule 51.1(e) requires that before any settlement can be approved, the Commission must find that it is reasonable in light of the whole record, consistent with law, and in the public interest. With modifications to some terms, we think the proposed settlement agreement here meets these tests.
The most attractive aspects of the proposed settlement are that (1) it requires respondents to pay $2.95 million, part of which is for restitution, and (2) it requires respondents to abide by the terms of the Call Unit Marketing and Sales Compliance Program included in the FCC TCU Consent Decree. Taken together, these two features should serve to ensure that respondents will not be tempted to engage in the marketing abuses alleged in both the OII and in the Notice of Apparent Liability for Forfeiture that led to the FCC TCU Consent Decree.
In their joint motion for approval of the settlement, CPSD and respondents have argued that under our prior decisions, the $2.95 million settlement payment satisfies the requirement of Rule 51.1(e) that a settlement be consistent with law. The parties note that while the Pub. Util. Code §§ 2107 and 2108 provide for substantial fines (ranging from $500 to $20,000 per day in the case of continuing violations), the Commission has held that "no nexus is required between the settlement payments and any wrong alleged in the case," because "settlement payments are made in compromise and in lieu of the penalty amounts specified in Sections 2107-2108." (Joint Motion at 4-5, citing D.00-09-034, In re Southern California Gas Co., mimeo. at 28.) In light of the total amount of the settlement (which amounts to about $2,100 for each customer who submitted a complaint to the CAB), we find the settlement sum to be reasonable in light of the whole record and consistent with legal requirements.
As noted above, another attractive feature of the settlement is that the 1400 customers who complained to CAB will receive some restitution. Although the total amount of restitution is not large in relation to the total settlement ($35,000 out of $2.95 million), the $25 restitution check that each Eligible Consumer will be entitled to receive is consistent with the amounts of restitution we have approved in other telecommunications enforcement proceedings, and that we have found to be consistent with the public interest. See, Investigation of Long Distance Charges, Inc., D.02-06-075, mimeo. at 14-15; Investigation of Coleman Enterprises, Inc., D.00-12-050, mimeo. at 12-14; Investigation of Brittan Communications International Corp., D.98-04-024, mimeo. at 5; Investigation of L.D. Services, Inc., D.97-11-079, mimeo. at 2-3; Investigation of Heartline Communications, Inc., D.96-12-031, 69 CPUC2d 584, 591 (1996).
The third reason we believe this settlement is reasonable and should be approved (subject to the modifications described below) is that, in the words of the Joint Motion, the settlement will "save[ ] the Commission significant expenses and use of its resources, when compared to the risk, expense, complexity and likely duration of further proceedings." (Joint Motion at 3, citing In re Southern California Gas Co., mimeo. at 18-20.) In their joint motion for approval, CPSD and respondents argue that conservation of Commission resources will be achieved here because, "while a hearing in this case could have possibly resulted in a larger payment and/or restitution, such results are far from certain and could only be achieved at great expense to Staff resources and time." (Joint Motion at 3.) The parties note that evidentiary hearings would have required at least a week, with CPSD alone presenting 11 to 15 witnesses. Further, in the event of an adverse decision, the respondents could have been expected to file an application for rehearing pursuant to Pub. Util. Code § 1731 and then to seek review in the California Court of Appeal. Given this litigation risk and potential for delay, we agree with the moving parties that-with the addition of the changes specified below-the proposed settlement is reasonable.
Although the amount of the settlement payment, the provision for restitution, and the respondents' agreement to abide by the Call Unit Marketing and Sales Compliance Program in the FCC TCU Consent Decree all make for an attractive settlement package, we are concerned about ¶¶1.4 and 7.3 of the settlement agreement. Read together, these provisions would require all payments made by respondents to be returned to them in the event the settlement agreement is rescinded or the decision approving it is vacated.18 Although this provision is tolerable in connection with the $2.9 million in settlement payments the Commission will be remitting to the General Fund, it is not acceptable in connection with the $50,000 that respondents will be paying for the purpose of restitution.
Although unlikely, it is at least theoretically possible that rescission of the settlement agreement or vacation of the approving decision could occur after the payment of restitution has begun. In such a case, it would be unreasonable to expect CPSD or the Commission to contact Eligible Consumers and ask them to return their restitution checks, or to cover Rosenthal's fee out of Commission funds. As a condition of approving the settlement, we will therefore require the parties to modify ¶¶1.4 and 7.3 to make clear that neither CPSD nor the Commission will have any obligation to return the $50,000 once the restitution process (including Rosenthal's preparatory work) has begun.
We will also require two other changes in the settlement agreement relating to payments. First, Appendix A to the settlement-the fee agreement between respondents and Rosenthal-should be modified to make clear that Rosenthal's fee shall not exceed $7,825. Second, ¶5.1 of the settlement agreement should be amended to make clear that any failure by the respondents to make settlement payments in the amounts and on the schedule provided for in ¶1.3 shall constitute a material breach of the settlement agreement.
Another provision in the settlement agreement that causes us concern is ¶5.10, which requires CPSD to withdraw its protest of the Blue Ridge application, A.01-12-013, within 30 days after a Commission decision approving the settlement. When read in conjunction with the statement on the first page of the settlement agreement that the parties' intent is that the Commission "will resolve A.01-12-013 as an unopposed application," this language might be read as somehow obliging us to ignore the facts that (1) this OII and the proceeding that resulted in the FCC TCU Consent Decree have taken place, and (2) two of Blue Ridge's principals, Michael Arnau and Joseph Koppy, are also among the persons who control the respondents.19 It would be unreasonable to ignore these facts, especially in view of the allegations in the Winback Order to Show Cause and the terms in the Winback Consent Decree that the respondents have accepted in order to settle that proceeding with the FCC.20
Although we will permit CPSD to withdraw its protest of A.01-12-013, we place Blue Ridge (which is a party to this proceeding)21 on notice that it will be required to file a supplement to A.01-12-013 within 45 days after the effective date of this decision. In this supplement, Blue Ridge shall provide an update on the status of all the litigation against NOS and/or ANI referenced in the protest filed by CSD on February 20, 2002 (including complete docket numbers). Blue Ridge shall also certify that as of the date of the supplement, no investigation, administrative proceeding, or litigation has been commenced against, or directed at, Blue Ridge, NOS, ANI, or any of their respective affiliates in connection with the provision of local exchange service.22 If Blue Ridge cannot give such a certification, it shall provide full details (including docket numbers) regarding any investigation, administrative proceeding, or litigation that has been brought against or directed at Blue Ridge, NOS, ANI, or any of their respective affiliates in connection with the provision of local exchange service.
If the ALJ assigned to A.01-12-013 is dissatisfied with the supplement in any respect, he or she may require that it be corrected, amended or supplemented further. Blue Ridge should also not be surprised if-despite its claim that it does not intend to use the TCU methodology in its pricing plans23-it is required, as a condition of receiving the CPCN it seeks in A.01-12-013, to abide by the terms of the Call Unit Marketing and Sales Compliance Program included in the FCC TCU Consent Decree.
As noted above, ¶5.10 of the settlement agreement also requires CPSD not to "protest an application filed by Respondents or any of their affiliates pursuant to [Pub. Util. Code] Sections 851-854, 1001, or 1013 based on the investigation or allegations in this matter." While this term is not unreasonable per se, its effect could be unreasonable if, in any application for transfer of control or other authority covered by the cited Code sections, the Commission were not made aware of the fact that the application involved a party to this proceeding. Accordingly, as a condition of approving the settlement agreement here, we will require that in any application filed by NOS, ANI, Blue Ridge, or any of their respective affiliates pursuant to Pub. Util. Code §§ 851-854, 1001, or 1013, the applicant(s) must disclose (1) the fact that I.02-05-001 was filed, (2) that I.02-05-001 has been settled pursuant to the settlement agreement approved herein, and (3) the relationship of the applicant to this proceeding.
18 Although the settlement agreement is not crystal clear on this point, it appears that the parties' intent is that either CPSD or the respondents may rescind the settlement within the timeframes specified in ¶7.3 if one of them cannot accept a change ordered by the Commission. However, once the agreement goes into effect, its terms must be performed unless the decision approving the settlement is vacated by the Commission. Compare, ¶¶1.4, 5.6, and 7.3. Assuming this is the parties' intent, the agreement should be made clearer by including a reference to ¶7.3 wherever rescission is mentioned (e.g., "rescission within the time periods set forth in ¶7.3.") We do not consider acceptable any arrangement allowing the respondents to rescind the settlement agreement once it has been approved and gone into effect. 19 As noted in footnote 7, the OII in this proceeding named Michael Arnau, Joseph Koppy, Kenneth Kirkpatrick, and Robert Lichtenstein as individual respondents. According to section XV of the application in A.01-12-013 (at page 5), Messrs. Arnau and Koppy are also among the managers of Blue Ridge. 20 In addition to the other settlement terms summarized in footnote 15 and the accompanying text, we note that paragraph 2(g) of the Winback Consent Decree defines an "affiliate" of the respondents named therein as "any entity owned, directed or controlled by either Samuel P. Delug, . . . Robert A. Lichtenstein, . . . Michael W. Arnau, . . . [or] Joseph Koppy . . ." 21 As indicated by the caption of this decision, Blue Ridge is considered a party to this proceeding. In response to an application for rehearing of the OII filed on May 28, 2002, the Commission issued D.02-07-045, in which we denied rehearing but modified the OII to make clear that Blue Ridge was named as a party. We also reiterated that A.01-12-013 was consolidated with the OII, "because the outcome of this Order will determine the fitness of the applicant in A.01-12-013." (Mimeo. at 7.) 22 In the reply to the CSD protest that Blue Ridge filed on March 11, 2002, Blue Ridge stated that there was no allegation in the protest "of improper conduct relating to the on-going local exchange operations of NOS and Affinity or to the proposed local exchange operations proposed for Blue Ridge." (Reply to Protest, p. 4.) 23 See, Application, p. 6; Reply to CSD Protest, p. 2.
