PACIFIC BELL WIRELESS, LLC v. PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Filed 6/20/06

certified for publication

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Original proceeding; petition for writ of review of decisions of the Public Utilities Commission of the State of California. Petition denied.

O'Melveny & Myers, Charles C. Read, Michael A. Gatto and Walter Dellinger for Petitioner.

Munger, Tolles & Olson and Henry Weissmann for Cellco Partnership as Amicus Curiae on behalf of Petitioner.

Law Offices of Earl Nicholas Selby and Earl Nicholas Selby for Nextel of California, Inc., as Amicus Curiae on behalf of Petitioner.

Sprint Law Department and Stephen H. Kukta for Sprint Telephony PCS, L.P., Sprint Spectrum L.P. and Wireless Co., L.P., as Amici Curiae on behalf of Petitioner.

Wilson & Bloomfield and Leon Bloomfield for Omnipoint Communications, Inc., as Amicus Curiae on behalf of Petitioner.

Cooper, White & Cooper and Sean P. Beatty for California Telephone Association as Amicus Curiae on behalf of Petitioner.

James B. Young for Pacific Bell Telephone Company (SBC California) as Amicus Curiae on behalf of Petitioner.

Russell C. Swartz for Southern California Edison Company as Amicus Curiae on behalf of Petitioner.

W. Davis Smith for Southern California Gas Company and San Diego Gas & Electric Company as Amici Curiae on behalf of Petitioner.

Elaine M. Duncan for Verizon California Inc. as Amicus Curiae on behalf of Petitioner.

Randolph L. Wu, Dale Holzschuh, Kimberly J. Lippi, Helen W. Yee and Carrie G. Pratt for Respondent.

Rosner, Law & Mansfield and Alan M. Mansfield for Real Party in Interest.

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Introduction

After an investigation, a nine-day evidentiary hearing before an administrative law judge, and a review by the full California Public Utilities Commission of the State of California (the Commission), the Commission imposed a multimillion dollar fine against Pacific Bell Wireless, LLC, doing business as Cingular Wireless (Cingular) for two interrelated violations of law. First, the Commission found Cingular's policy of charging its customers an early termination fee to cancel a wireless telephone service contract without permitting any type of grace period was an unjust and unreasonable practice, particularly when Cingular admitted the best way for customers to decide whether Cingular's service would work for them was to try the service for some period of time. Second, the Commission found that Cingular failed to disclose to its customers known network problems and misled its customers regarding the wireless network's coverage and service, which were also unjust and unreasonable practices. Cingular challenges the Commission's decision and its later order modifying the decision and denying rehearing.

The issues raised by Cingular are whether the Commission acted without or in excess of its jurisdiction, and whether the Commission's decisions violate Cingular's constitutional right to due process. As detailed post, we conclude the Commission did not exceed its jurisdiction, and did not violate Cingular's due process rights. Therefore, we deny the petition for a writ of review for the following reasons:

1. Cingular first argues the Commission's decisions are preempted by federal law. We disagree. While the Commission is preempted from regulating either rates or the entry of a wireless provider into the market, it is not preempted from regulating other terms and conditions of wireless telephone service. We conclude the imposition of fines and the requirement that Cingular refund early termination fees paid

by its customers were neither regulation of rates nor regulation of market entry. The principal purposes of the penalties imposed by the Commission were to compensate Cingular's customers and to prevent further misrepresentations by Cingular. The effect of the penalties on Cingular's rates is indirect and incidental.

2. Cingular next argues the Commission lacks jurisdiction to directly impose penalties, and was required to institute a lawsuit against Cingular in superior court if the Commission intended to seek penalties against Cingular. Again, we disagree. California law permits the Commission to levy fines, but denies it the right to independently collect the fines it levies.

3. Cingular also argues the Commission could not impose a penalty for failure to disclose under Public Utilities Code section 2896, subdivision (a). (All further statutory references are to the Public Utilities Code, unless otherwise noted.) Specifically, Cingular argues it is being punished for failing to disclose information already known to its customers, it is being selectively punished, and noncompliance with section 2896 cannot by itself justify imposition of a penalty. We reject each of these contentions, as detailed post.

4. Cingular argues the imposition of a multimillion dollar fine violates due process, because it could not have known the Commission would find Cingular's actions violated certain statutes and an earlier order of the Commission. While the statutes and order are broadly worded, we find no constitutional violation.

5. Finally, Cingular argues the Commission's order that Cingular refund early termination fees to its customers is overbroad. In light of the record as a whole, we must reject this argument.

Statement of Facts[1]

Cingular sells wireless communication services, handsets, and accessories. (Cal.P.U.C. Opinion Ordering Penalties and Reparations (Sept. 23, 2004) Dec. No. 04‑09‑062 [2004 Cal.P.U.C. Lexis 453, *7] (Cingular I).) Cingular sells its communication services to individual and business customers under a variety of service plans. (Ibid.)

Between 2000 and 2002, Cingular experienced significant growth, both in the number of customers and in the customers' use of Cingular's network as calculated by minutes of use per month. (Cingular I, supra, 2004 Cal.P.U.C. Lexis 453 at pp. *20‑21.) During most of 2001, Cingular's service suffered in three ways: service denied or blocked calls; lost or dropped calls; and switch congestion. (Ibid.) Cingular admitted its growth during this period led to network problems. Cingular therefore expended significant sums on network upgrades to increase performance and coverage areas. (Id., 2004 Cal.P.U.C. Lexis 453 at p. *21.) At the same time, however, Cingular's engineering department was expressing its concerns that the network would be unable to perform adequately, particularly when Cingular was in the midst of a marketing campaign to increase the number of subscribers and the usage by those subscribers. (Id., 2004 Cal.P.U.C. Lexis 453 at pp. *22-24.)

Cingular also admitted it had coverage holes, as do all wireless providers. There was evidence of four types of coverage holes suffered by Cingular: no signal (e.g., coverage is unavailable or service is denied); inadequate signal, where the signal is too weak to permit service; voice channel, where the number of channels is less than required to handle peak traffic; and interference, where one or more signals from other cell cites or users interrupt or degrade a user's conversation. (Cingular I, supra, 2004 Cal.P.U.C. Lexis 453 at p. *26, fn. 12.)

Cingular sales agents at both company‑owned and agent‑owned stores provided customers and potential customers with inaccurate, incomplete and misleading information regarding Cingular's service. Customers were told Cingular provided service in locations where service was not, in fact, available. (Cingular I, supra, 2004 Cal.P.U.C. Lexis 453 at p. *33, fn. 17.) Customers requesting information regarding coverage areas were provided with rate area maps. (Id., 2004 Cal. P.U.C. Lexis 453 at pp. *33-36.) Advertisements for Cingular service gave the impression that coverage was available in all areas at all times, when it was not. (Id., 2004 Cal.P.U.C. Lexis 453 at pp. *44-52.) Cingular's advertisements also provided misleading information regarding Cingular's early termination fees (discussed more fully post). (Ibid.)

Over time, Cingular changed its policies regarding the imposition of termination fees and the grace periods included in its service contracts. From January 1, 2000 until May 1, 2002, Cingular's one- and two-year service contracts included an early termination fee (ETF). (Cingular I, supra, 2004 Cal.P.U.C. Lexis 453 at p. *114.) To cancel service contracts before the expiration date, customers were required to pay Cingular a $150 ETF, and in some cases to pay Cingular's agents an additional ETF of up to $400. (Id., 2004 Cal.P.U.C. Lexis 453 at p. *1.) During this time, Cingular did not provide a grace period during which a customer could cancel a service contract without incurring the ETF. (Ibid.) In May 2002, Cingular modified its ETF to add a formal 15-day grace period. (Ibid.) In December 2004, as required by a general order of the Commission, Cingular extended the grace period to 30 days. (Id., 2004 Cal.P.U.C. Lexis 453 at p. *108.)[2] Cingular claims its customers could avoid the ETF altogether during any time period either by opting for a no-contract option or by purchasing prepaid services. However, Cingular first made this argument after the close of the evidentiary record, during oral argument before the Commission; the appellate record provides no evidentiary support for this argument. (Id., 2004 Cal.P.U.C. Lexis 453 at p. *115.)

Both Cingular's vice-president of marketing for the western region and its vice-president of external affairs testified the best way for customers to determine whether Cingular's service would work for them is to try out the phone for a period of time. But a tryout period for a customer was effectively impossible without the customer incurring a penalty until May 1, 2002, because Cingular and/or its agents charged an ETF from the initial activation date. (Cingular I, supra, 2004 Cal.P.U.C. Lexis 453 at p. *121.) Although Cingular provided evidence that it waived the ETF for customers who complained they did not receive the service they expected and had little phone usage, Cingular admitted (1) its independent agents might not have waived their separate ETF's; (2) not all customers were made aware that Cingular would waive the ETF under certain circumstances; and (3) there was no way to know how many customers did not try to terminate their service because they were aware of the ETF. (Id., 2004 Cal.P.U.C. Lexis 453 at p. *123.)

Procedural History

On September 28, 2001, the Commission's Consumer Protection and Safety Division (CPSD) sent Cingular a cease and desist letter. The letter directed Cingular to immediately stop the practices of misleading consumers as to the availability of service and failing to disclose the existence of the ETF.

On June 6, 2002, the Commission filed an order instituting investigation (OII) into whether Cingular violated sections 451, 702, and 2896 by failing to provide just and reasonable service, by marketing its products in an unjust and unreasonable manner, or by failing to provide customers with sufficient information on which to make informed choices regarding wireless phone services. The OII's summary reads, in relevant part: â€