III. Framework For Reviewing the Settlement

The rules governing the submission and review of proposed stipulations and settlements is set forth in Rule 51 of the Commission's Rules of Practice and Procedure. Rule 51.1(e) of the Commission's Rule's of Practice and Procedure provides that the Commission "will not approve stipulations or settlements, whether contested or uncontested, unless the stipulation or settlement is reasonable in light of the whole record, consistent with the law, and in the public interest."

As we have stated on previous occasions, there is a strong public policy favoring the settlement of disputes to avoid costly and protracted litigation. We have previously stated that as a matter of policy, that

"we [ ] not delve deeply into the details of settlements and attempt to second-guess and re-evaluate each aspect of the settlement, so long as the settlements as a whole are reasonable and in the public interest'."³

As we have observed in the case of previous settlements brought before the Commission, the settlement principles that apply in civil class actions are analogous to those of proposed settlements such as in this one that settle numerous similar claims of similarly situated protestants. As the appellate court noted in Janus Films, Inc. v. Miller (2d Cir. 1986) 801 F. 2d 582, the role of the court is greatly expanded when a consent or settlement judgment resolves class actions, shareholder derivative suits, bankruptcy claims, antitrust suits brought by the United States, and any suits affecting the public interest. In this case, the settlement affects the interests of Pacific's customers as well as those of its competitors. In such a case, the factors which the courts use in approving class action settlements provide useful criteria for evaluating the fairness of this settlement.

In class actions, both federal and in California, the judge must approve the class action settlement. (Ficalora v. Lockheed California Company (9^th Cir. 1875) 751 F. 2d 995, 996; Officers for Justice v. Civil Service Commission of the City and County of San Francisco (9^th Cir. 1982) 688 F. 2d 615, 623-624; Fed. Rules of Civil Procedure; Rule 23(e); La Sala v. American Savings and Loan Association (1971) 5 Cal. 3d 864, 872; Trotsky v. Los Angeles Federal Savings and Loan Association (1975) 48 Cal. App. 3d 134, 149.) When a class action settlement is submitted for approval, the role of the court is to hold a hearing on the fairness of the proposed settlement. However, the fairness hearing is not to be turned into a trial or rehearsal for trial on the merits. (Officers for Justice v. Civil Service Commission of the City and County of San Francisco, supra, 688 F. 2d at p. 625.)

In order to determine whether the settlement is fair, adequate, and reasonable, the court will balance various factors which may include some or all of the following: the strength of the applicant's case; the risk, expense, complexity, and likely duration of further litigation; the amount offered in settlement; the extent to which discovery has been completed so that the opposing parties can gauge the strength and weakness of all parties; the stage of the proceedings; the experience and views of counsel; the presence of a governmental participant; and the reaction of the class members to the proposed settlement. (Officers for Justice v. Civil Service Commission of the City and County of San Francisco, supra, 688 F. 2d at p. 625.)

In addition to this general framework, we have established further criteria for evaluating settlements in matters under our jurisdiction which have the sponsorship of all active parties to the proceeding. The sponsoring parties here argue that the Settlement resolving Pacific's implementation cost recovery satisfies the Commission criteria for "all-party sponsorship" and should be evaluated on that basis.

The Commission established criteria for approval of "all-party" settlement proposals, in D.92-12-019. In that decision, we stated that we are prepared to adopt a settlement that meets sponsorship and content criteria which pertain to both the identity and capacity of the sponsoring parties and the terms of their recommendation. As a precondition to our approval the Commission must be satisfied that a proposed all party settlement:

a. commands the unanimous sponsorship of all active parties to the instant proceeding;

b. that the sponsoring parties are fairly reflective of the affected interests;

c. that no term of the settlement contravenes statutory provisions or prior Commission's decisions; and

d. that the settlement conveys to the Commission sufficient information to permit us to discharge our future regulatory obligations with respect to the parties and their interests.

The parties to the Settlement at issue here argue that each of the four prongs identified in D.92-12-019 is satisfied. Six parties have joined in sponsoring the Settlement Agreement. While other parties participated in the PHC, they propounded no data requests and did not participate in the depositions of Pacific's witnesses. The six signing parties thus argue that they comprise the total number of parties active in testing Pacific's December 20, 1999 filing, which documents its request for recovery of local competition implementation costs. Because each of the active parties has signed the Settlement Agreement, we agree that the "all party sponsorship" prong of the test is satisfied.

The second prong of the all party test is "that the sponsoring parties are fairly reflective of the affected interests." We find that the signing parties represent and reflect the spectrum of interests affected by the substance of the Settlement Agreement: the utility and its investors (Pacific Bell), residential ratepayers (ORA, TURN) small and medium-sized business ratepayers (ORA, TURN), large ratepayers (ORA), purchasers of access (AT&T, MCI), and Pacific Bell's competitors (CCTA, AT&T, MCI). We thus find that the sponsoring parties, "command broad support among participants fairly reflective of . . . interests" affected by Pacific's recovery of local competition implementation costs.

The third element of the all party settlement test is "that no term of the settlement contravenes statutory provisions or prior Commission decisions." The parties argue that they expended considerable effort ensuring that the Settlement Agreement comports with statute and precedents, and do not believe that any of its terms or provisions contravene statute or prior Commission decisions. We conclude that the third prong of the test is satisfied.

Finally, the fourth prong of the all party settlement test requires, "that the settlement convey to the Commission sufficient information to permit [it] to discharge our future regulatory obligations with respect to the parties and their interests." The parties argue that the Settlement Agreement, coupled with the statements of factual and legal considerations contained in their Joint Motion, provide sufficient information to the Commission to permit it to discharge its regulatory obligations. As the Commission noted in D.93-02-056, its "primary obligation is to set just and reasonable rates."

Further, in D.93-02-056, the Commission concluded that inclusion of specific rates in the settlement there provided a basis for its findings:

The Settlement Agreement, containing as it does specific rates to be applicable . . .conveys sufficient information to permit the Commission to discharge its future regulatory obligations with respect to the parties to the instant proceeding.

Here, too, the Settlement Agreement includes a specific amount to be recovered, by year, as well as the means for implementing it. Thus, the parties argue that this Settlement Agreement also conveys sufficient information to permit the Commission to discharge its regulatory obligations. We agree.