Court Opinion

ID: 4249651
Source: CourtListenerOpinion
Date Created: 2018-02-28 21:20:08.916127+00
Date Added: 2024-06-11T13:27:17.133022
License: Public Domain

IN THE SUPREME COURT OF IOWA

                              No. 09–0427

                        Filed October 14, 2011

EVERCOM SYSTEMS, INC.,

      Appellee,

vs.

IOWA UTILITIES BOARD,

      Appellant,

and

OFFICE OF CONSUMER ADVOCATE,

      Intervenor-Appellant.

      On review from the Iowa Court of Appeals.

      Appeal from the Iowa District Court for Polk County, Scott D.

Rosenberg, Judge.

      Evercom Systems, Inc., seeks further review from the court of

appeals decision that reversed the district court decision that reversed

the Iowa Utilities Board decision and imposition of a civil penalty.

COURT    OF   APPEALS     DECISION     VACATED;     DISTRICT    COURT

JUDGMENT AFFIRMED, AND CASE REMANDED.

      David J. Lynch and Mary Whitman, Des Moines, for appellant

board.
                                  2

      Mark R. Schuling and Craig F. Graziano, Des Moines, for appellant

consumer advocate.

      Bret A. Dublinske of Gonzalez, Saggio, & Harlan LLP, West Des

Moines, for appellee.
                                      3

ZAGER, Justice.

         Evercom Systems, Inc., seeks further review of the court of appeals

decision reinstating a civil penalty the Iowa Utilities Board (Board)

imposed for a “cramming” violation based on improper billing for collect

telephone calls. The issue in this case concerns the proper construction

of Iowa Code section 476.103 (2005) and Iowa Administrative Code rule

199—22.23 and what actions constitute telecommunications cramming

under these provisions. The Board determined that Evercom committed

a “cram” when it billed a customer for collect calls he did not accept. It
is our role to determine whether the Board complied with the Iowa

Administrative Procedure Act in its adjudication of the claim against

Evercom.       Because we determine that Evercom’s actions could not

constitute a cram under the rules promulgated by the Board, we vacate

the court of appeals decision, which found a violation of section 476.103,

and affirm the district court’s order reversing the agency’s decision and

imposition of a civil penalty.

         I. Background Facts and Proceedings.

         Evercom provides telephone services to inmates in over 2900

correctional facilities throughout the country, including the Bridewell

Detention Center (Bridewell) in Bethany, Missouri.         These telephone

systems are designed with optional features to prevent various types of

fraud.     Each correctional facility is responsible for selecting its own

optional features. The Bridewell system included a feature called “Dial

Tone Detection” (DTD), which was designed to prevent a rare type of

fraud called “glare.”    Glare fraud occurs when one caller dials into a

telephone number associated with a particular telephone line (called a
trunk) at the same time a caller is dialing out over the same trunk. If the

timing and circumstances are right, the two callers will simultaneously
                                      4

seize the ends of a single trunk, and the charges will be billed to the

number being dialed out over the trunk rather than to either of the

persons on the call, even though the owner of the outgoing number will

never actually be involved in the call.

        On January 24, 2006, an inmate at Bridewell placed five collect

calls to Quality Services Corporation, a Des Moines business owned by

Ken Silver.    The next day, Silver received a telephone message from

Evercom informing him that over fifty dollars of collect calls had been

accepted by his business line and that Evercom was placing a temporary
block on his line.       Silver immediately attempted to contact Evercom

about the charges by both phone and fax. On January 30, Silver was

finally able to speak with an Evercom representative.            He denied

accepting any collect calls or having any knowledge about the collect

calls. Silver told Evercom that all calls to his business are directed to a

central operator who did not receive or accept any collect calls from a

correctional facility.    Evercom assured Silver it would investigate the

nature of the collect calls and report back to him within seven to ten

days.    However, one day after receiving the complaint, Evercom sent

Silver a form letter stating that “[a]fter a thorough investigation” Evercom

found no system deficiencies that would create inaccurate billing and

that Evercom would not remove the charges. Silver never received this

letter as it had apparently been sent to an incorrect address.

        Silver’s local telephone company billed him $78.21 for the collect

calls on behalf of Evercom.         Over the next several weeks, Silver

unsuccessfully attempted to have Evercom remove the charges from his

bill. Finally, on February 27, 2006, Silver reported his complaint to the
Iowa Attorney General.
                                     5

      After Silver’s complaint in late February, Evercom undertook a

more thorough investigation of its equipment at Bridewell.           At the

conclusion of its investigation, Evercom concluded the calls were not

made to Silver’s business, but were the result of glare fraud. Evercom

ordinarily relies on dial tone detection to prevent glare fraud at Bridewell,

and Bridewell did have DTD as part of its telephone system. However,

the DTD system was apparently turned off during regular maintenance

in late January, and a technician forgot to turn it back on.            After

determining that the charges were incurred as a result of glare fraud
perpetrated by an inmate and an outside third party, Evercom credited

Silver’s account on March 22, 2006, eight weeks after Silver’s first

complaint.

      Silver’s informal complaint was forwarded to the Board on March

30, 2006. Board staff investigated the complaint and made no finding as

to the presence or absence of a statutory violation, accepted the

explanation of third-party fraud, and stated that the credit issued to

Silver was an adequate remedy. The Office of Consumer Advocate (OCA)

petitioned the Board for a determination that Evercom had committed a

violation of a statute or rule regarding cramming and requested that the

Board impose a civil penalty.        The Board determined there were

reasonable grounds for further investigation and assigned the matter to

an administrative law judge (ALJ) for a formal proceeding.

      The ALJ found it was undisputed that Silver did not receive or

accept the collect calls from Bridewell.      Further, the ALJ concluded

“there is no question that a cramming violation occurred and that

Evercom violated Iowa Code section 476.103 and [rule 199—22.23]”
when it billed Silver for five unauthorized calls.     The ALJ’s proposed

decision included a $2500 civil penalty. Evercom appealed the proposed
                                          6

decision to the Board.        The Board affirmed the ALJ’s decision that

Evercom committed a cramming violation under Iowa Code section

476.103 and rule 199—22.23 and assessed a $2500 civil penalty.

       Evercom petitioned for judicial review, claiming among other

things, that collect calls are not “covered calls” under rule 199—22.23,

that there was no unauthorized change in “telecommunication service”

as defined by the rules, and that the mistake in billing found in this case

does not constitute cramming as defined in the statute or the rules.

Therefore, Evercom claimed the Board violated numerous provisions of
the Iowa Administrative Procedures Act when it found Evercom liable for

cramming. After a hearing, the district court found that section 476.103

and rule 199—22.23 require a two-step analysis in which the Board

must    separately      determine   a     service        provider’s   liability   before

determining a civil penalty and that the Board had “mixed the two-step

analysis   into   one    step.”     The       district    court   found    the    Board

misinterpreted the law when it considered factors in the liability phase

that were only to be considered in the penalty phase. The district court

then made its own legal interpretations and concluded that because the

definition of cramming under rule 199—22.23 excludes the acceptance of

collect calls, the only issue was whether Silver accepted the calls. Since

the district court determined Evercom reasonably believed Silver

authorized acceptance of the calls at the time of billing, no cram

occurred, no statute or rule was violated, and therefore the civil penalty

should be rescinded.

       The Board and the OCA appealed. We transferred the case to the

court of appeals. In a split decision, the court of appeals reversed the
district court and reinstated the civil penalty levied by the Board. The

court of appeals concluded the Board engaged in the proper two-step
                                      7

analysis. The court of appeals also concluded that Evercom’s argument

as to its reasonable belief that the calls were authorized was without

merit as neither the statute nor the implementing rules include an intent

requirement for a cramming violation to occur.             Evercom filed an

application for further review, which we granted.

        II. Standard of Review.

        Iowa Code section 17A.19(10) governs judicial review of agency

decision making. Renda v. Iowa Civil Rights Comm’n, 784 N.W.2d 8, 10

(Iowa 2010).    We will apply the standards of section 17A.19(10) to
determine whether we reach the same results as the district court. Id.

“The district court may grant relief if the agency action has prejudiced

the substantial rights of the petitioner, and the agency action meets one

of the enumerated criteria contained in section 17A.19(10)(a) through

(n).”   Id.; see also Iowa Code § 17A.19(10).         The rules an agency

promulgates represent the agency’s interpretation of the statutes the

agency is assigned to administer. Office of Consumer Advocate v. Iowa

Utils. Bd., 744 N.W.2d 640, 643 (Iowa 2008).        If authority to interpret

specific terms in a statute has been clearly vested with an agency, then

“we must defer to the agency’s interpretation and may only reverse if the

interpretation is ‘irrational, illogical, or wholly unjustifiable.’ ”   Renda,

784 N.W.2d at 10 (quoting Iowa Code § 17A.19(10)(l)). However, if the

legislature has not clearly vested authority to interpret the provision of

law with the agency, then the court must disregard any interpretation by

the agency that it finds erroneous.        Iowa Code § 17.19(10)(c).      The

legislature may explicitly vest the authority to interpret an entire

statutory scheme with an agency. Renda, 784 N.W.2d at 13. However,
the fact that an agency has been granted rule making authority does not

“give[] an agency the authority to interpret all statutory language.” Id.
                                            8

We have therefore noted that “broad articulations of an agency’s

authority, or lack of authority, should be avoided in the absence of an

express grant of broad interpretive authority.” Id. at 14. An agency can

be vested with the authority to interpret a statutory provision “when the

statutory provision being interpreted is a substantive term within the

special expertise of the agency.” Id.

      With these principles in mind, we must now determine the

standard     of     review   for   the    Board’s    interpretation     of     the   term

“unauthorized change in service” under Iowa Code section 476.103, and
the Board’s interpretation of the definition of “cramming” as that term is

defined in Iowa Administrative Code rule 199—22.23(1).                           Section

476.103(3)        requires   the   Board     to     “adopt   rules    prohibiting     an

unauthorized change in telecommunication service.”                           While this

command from the legislature is not an explicit grant of the authority to

interpret the term “unauthorized change in telecommunications service,”

see Renda, 784 N.W.2d at 13, we have held that the rule making

requirement contained in section 476.103 “evidences a clear legislative

intent to vest in the Board the interpretation of the unauthorized-

change-in-service provisions in section 476.103.”                 Office of Consumer

Advocate, 744 N.W.2d at 643.               The term “unauthorized change in

service” is a “substantive term within the special expertise of the agency”

and, therefore, we will only reverse the agency’s interpretation of that

term if it is irrational, illogical, or wholly unjustifiable.                Renda, 784

N.W.2d at 14.

      We are also required to review the Board’s interpretation of rule

199—22.23, a rule that it promulgated pursuant to section 476.103.
Section    17A.19(10)(l)’s     judicial    review     provision      applies    to   any

“interpretation of a provision of law” an agency performs. Under chapter
                                      9

17A, the definition of the term “provision of law” includes an agency rule.

Iowa Code § 17A.2(10).      We have already noted the “clear legislative

intent to vest in the Board the interpretation of the unauthorized-

change-in-service provisions in section 476.103.”        Office of Consumer

Advocate, 744 N.W.2d at 643.        We will therefore review the Board’s

interpretation of the rules it has promulgated pursuant to section

476.103 under the same deferential standard we used to review the

Board’s interpretation of the statute itself, and we will only reverse the

Board’s interpretation of rule 199—22.23 if it is an irrational, illogical, or
wholly unjustifiable interpretation of that rule.    Renda, 784 N.W.2d at

10.

      III. Applicable Statutory Framework.

      Before addressing the particular arguments in this matter, a brief

summary of the applicable statutory authorities will ground the parties’

arguments.    Following deregulation of interexchange services in 1996,

the Iowa Attorney General’s Consumer Protection Division began to

notice a significant increase in complaints of “slamming” (unauthorized

changes in a customer’s preferred carrier) and “cramming” (unauthorized

addition of services to the customer’s bill). 22 Iowa Admin. Bull. 1697

(May 17, 2000).    In response, the legislature passed section 476.103,

which allows the Iowa Utilities Board to “adopt rules to protect

consumers from unauthorized changes in telecommunications service.”

Section 476.103(2)(a) defines “change in service” as “the addition or

deletion of a telecommunications service for which a separate charge is

made to a consumer account.” Section 476.103(3) requires the Board to

create procedures a carrier must use to verify a customer’s change-in-
service request.
                                     10

      In August 1999, the Board published a “Notice of Intended Action,”

which proposed a variety of definitions and verification procedures

intended to implement 476.103, and requested comments from any

interested parties. 22 Iowa Admin. Bull. 189–90 (Aug. 11, 1999). This

notice included the following definition:

      “Cramming” means the addition or deletion of a product or
      service for which a separate charge is made to a
      telecommunications consumer account without the verified
      consent of the affected consumer. Cramming does not
      include the addition of extended area service to a customer
      account pursuant to board rules, even if an additional
      charge is made.

Id. at 192.    During the comment period, AT&T/Sprint submitted a

comment expressing concern “that the definitions [did] not appear to

address authorization by use.”     22 Iowa Admin. Bull. 1698 (May 17,

2000). These are services that are requested by the customer and for

which “use [of] the service indicates authorization.” Id. Examples given

of these services were “ ‘dial-around’ services such as ‘10–10–XXX,’

directory assistance, operator-assisted calls, [and] acceptance of collect

calls.” Id. The Board agreed “that additional language is necessary to

ensure that such services that are initiated or requested by the customer
are not inaccurately characterized as cramming.” Id. The final, enacted

version of the rule defined cramming as:

      “Cramming” means the addition or deletion of a product or
      service for which a separate charge is made to a
      telecommunication customer’s account without the verified
      consent of the affected customer.      Cramming does not
      include the addition of extended area service to a customer
      account pursuant to board rules, even if an additional
      charge is made.            Cramming does not include
      telecommunications services that are initiated or requested
      by the customer, including dial-around services such as “10–
      10–XXX,” directory assistance, operator-assisted calls,
      acceptance of collect calls, and other casual calling by the
      customer.
                                          11

Iowa Admin. Code r. 199—22.23(1) (2000). The regulations promulgated

in 2000 only prohibited “unauthorized changes in telecommunications

service,” but did not specifically prohibit “slamming” and “cramming,”

even though those terms were defined in the new rule.                     Id. r. 199—

22.23(1)–(2).      However, since section 476.103 bans unauthorized

changes in service, specifically banning cramming would have been

unnecessary, as the definition of cramming found in rule 199—22.23(1)

is “consistent with the legislature’s definition of ‘change in service.’ ”

Office of Consumer Advocate, 744 N.W.2d at 644. If Evercom’s actions
meet the definition of cramming, then a violation of section 476.103’s

ban on unauthorized changes in service has occurred, and Evercom is

liable.1

       IV. Discussion.

       The Board affirmed that Evercom incorrectly billed Silver’s

business for collect calls it did not receive. This is not in doubt and has

never been disputed during these proceedings.                  What is at issue is

whether an error in billing for collect calls can be considered a cram

under the definition found in rule 199—22.23(1).                    Before the ALJ,

Evercom argued that collect calls were “outside the scope” of the rule.

The ALJ dismissed this contention and determined “[t]he definitions in

        1A different version of rule 199—22.23(2), which explicitly banned cramming

and slamming, rather than the more general ban on “unauthorized changes in service,”
did not go into effect until January 25, 2006. 28 Iowa Admin. Bull. 1042, 1049 (Dec.
21, 2005) (codified as amended at Iowa Admin. Code r. 199—22.23(2) (2006)). In its
appearance before the Board and its petition for judicial review, Evercom argued that
because the collect calls took place on January 24, 2006, it could not be held liable for
cramming because cramming was not expressly prohibited by the version of rule 199—
22.23 in effect on January 24, 2006. Since we resolve this case based on the definition
of cramming that was promulgated in 2000 and for which we have previously
determined constituted a prohibited unauthorized change in service in 2000 and
beyond, including January 24, 2006, this argument is without merit and we give it no
further consideration.
                                     12

the rule cover Evercom and its actions in this case” because “causing

unauthorized charges to be placed on a customer’s telephone bill” is

cramming under the rule. To support this contention, the ALJ offered

only the Board’s statement that it felt unauthorized billing of collect calls

was prohibited by the statute and an order by the Board assigning an

ALJ in another case in which the Board reached the same conclusion.

See Office of Consumer Advocate v. ILD Telecommunications, Inc., FCU–

06–39, 2006 WL 2049772 (Iowa Utils. Bd. July 17, 2006).

      Evercom has maintained from the commencement of these
proceedings that the acceptance of collect calls was beyond the scope of

the definition of cramming found in rule 199—22.23(1). Following the

Board’s order affirming the cramming violation, Evercom sought judicial

review, noting that the definition of cramming specifically excluded the

acceptance of collect calls, and therefore, Evercom was entitled to relief

under section 17A.19(10)(l) and various other subsections. The district

court determined that only “accepted” collect calls were excluded from

the definition of cramming and, therefore, analyzed whether Evercom

could have “reasonably and logically” believed that the collect calls to

Silver were in fact accepted by him. The court of appeals agreed and

placed similar importance on whether Silver accepted the calls, stating

“[a]ll that mattered was whether Silver authorized the collect calls that

were billed to his account.”     While our past cases may have closely

examined the distinction between “verified consent” of the customer’s

identity and actual authorization of the charges, this case presents no

such issue.   See Office of Consumer Advocate, 744 N.W.2d at 645–46.

The issue before us is not whether the calls were verified, authorized, or
apparently accepted; it is whether billing a customer for accepting a

collect call fits within the definition of cramming. To that end, we find an
                                     13

interpretation of rule 199—22.23(1) that hinges on whether the call was

in fact accepted to be unacceptably narrow.

      The rules that guide our interpretation and construction of

statutes are “nearly identical” to the rules that guide our interpretation

and construction of agency rules. Id. at 643. When the meaning of a

statute or rule is clear, we will not search for meaning beyond the

express terms of the statute or rule. Id. Here, the Board has already

defined the term cramming by adopting a rule through the notice and

comment rule making process. See Iowa Admin. Code r. 199—22.23(1).
Since section 476.103 clearly vests the power to make rules interpreting

that section with the Board, we would only invalidate the Board’s rule

defining cramming if it were an “ ‘irrational, illogical, or wholly

unjustifiable interpretation of a provision of law.’ ”          See Office of

Consumer     Advocate,   744     N.W.2d   at   643   (quoting    Iowa   Code

§ 17A.19(10)(l)).   Neither party has challenged the validity of the

definition promulgated in rule 199—22.23(1), and we feel the rule itself is

valid as a logical interpretation of section 476.103. The issue is whether

the Board’s interpretation of the rule can withstand the review required

by section 17A.19(10)(l).     We will now examine whether cramming, as

defined in rule 199—22.23(1), can include the mistaken billing of a

customer for collect calls.

      Cramming is the addition of a product or service to a customer’s

account, for which a separate charge is made, without that customer’s

verified consent. Iowa Admin. Code r. 199—22.23(1). If the rule did not

include any exceptions, then billing a customer for a collect call he did

not accept may fit the definition, as it would be a separate charge made
without the customer’s verified consent. However, rule 199—22.23(1), as

promulgated by the Board, specifically excludes certain charges from the
                                            14

definition of cramming.          Cramming involves adding services without

obtaining verified consent.        The rule recognizes, however, that certain

services—in this case, collect calls—are initiated by the customer, and

therefore should be exempt from the verification requirements.                    Id. r.

199—22.23(1). The Board itself noted that the exclusion was necessary

in order to ensure that billing for charges and services a customer

requests through “casual calling” were “not inaccurately characterized as

cramming.” 22 Iowa Admin. Bull. 1698 (May 17, 2000).
       This exception is wholly logical when the nature of these services is
considered.       Rule 199—22.23(2) requires carriers to obtain verified
customer consent before adding services or charges to telephone bills.
Consent      can    be     verified    by    electronic     authorization,      written
authorization, or through a third-party verifier.             Iowa Admin. Code r.
199—22.23(2)(a)(1)–(3).        For certain changes, internal records can be
used to verify a change to an existing account.2                        Id. r. 199—
22.23(2)(a)(4).     The Board found it would be undesirable to require
carriers to obtain verification before they permit a customer to accept a
collect call, dial information, or use directory assistance, and therefore
decided not to include adding these types of customer-requested services

        2Another method of verification for “changes in service resulting in additional

charges to existing accounts only” went into effect on January 25, 2006. 28 Iowa
Admin. Bull. 1042, 1049 (Dec. 21, 2005). Under this method of verification, which is
codified as Iowa Administrative Code rule 199—22.23(2)(a)(5) (2009), a service provider
can establish a valid customer request “through maintenance of sufficient internal
records.” Id. Both the Board and the Office of Consumer Advocate point to the rule
199—22.23(2)(a)(5) and claim that adequate verification of a collect call is required in
order to avoid cramming. Even if the January 2006 rule change was in place, it still
only refers to the verification required for a “change in service.” As this opinion
discusses, billing a customer for a collect call is not a “change in service” or a cram
under rule 199—22.23(1), and therefore no verification is required. The Board and the
OCA also point to rule 199—22.23(2)(a)(5)’s verification requirements for additional
charges for “one or more specific calls” and argue that this language means collect calls
can be included in the definition of cramming. However, this language was not added
to the rule until 2007 and, therefore, has no bearing on the facts of this case. 29 Iowa
Admin. Bull. 1662, 1663 (June 6, 2007).
                                    15

to a customer’s bill in the definition of cramming. See 22 Iowa Admin.
Bull. 1698 (May 17, 2000). This policy is clearly reflected in the plain
language of rule 199—22.23(1), which excludes these services from the
definition of cramming.     If the Board now wishes to include these
services within the definition of cramming, it should use the rule making
process to redefine cramming by eliminating the exceptions that are
currently listed and not resort to “[m]aking policy by ad hoc decisions on
a case-by-case basis.” Office of Consumer Advocate, 744 N.W.2d at 646.
      While the district court focused on whether Evercom reasonably
believed Silver had accepted collect calls, and the OCA and court of
appeals focused on whether the calls were actually accepted, we feel a
proper reading of the rule excludes all disputes regarding billing for
collect calls from the definition of cramming. If the rule were read to only
exclude those calls which were actually accepted, it would be stripped of
its meaning.    Collect calls that are rejected are never billed to a
customer’s account at all, and therefore, cramming allegations could
never arise to begin with. The plain language of the rule excludes billing
a customer for the acceptance of a collect call from the definition of
cramming.
      As Evercom states in its brief, “even casual telephone users know[]
the purchase of basic local exchange service makes it possible to receive
collect calls.” Silver never complained that his business line did not have
the ability to accept collect calls; he simply asserted that he had not
accepted any collect calls. Evercom also recommended Silver contact his
local telephone company and request a collect call block in order to
ensure he would not be a victim of glare fraud in the future. These facts
indicate Silver’s business already had the ability to receive collect calls
and that Evercom was not responsible for adding any such service.
From Evercom’s point of view, it appeared as though Silver had
                                      16

requested the service by agreeing to accept a collect call.     This is the
nature of a collect call. The fact that the appearance of acceptance was
brought about by third-party fraud does not change the text of rule
199—22.23, nor the reasoning behind its exceptions. The decision to bill
a customer for collect calls is not cramming under the definition found in
rule 199—22.23(1). When the Board determined Evercom committed a
cram under the facts of this case, and as that term is defined in rule
199—22.23(1), its decision was “irrational, illogical, or unjustifiable
under Iowa code section 17A.19(10)(l).” Office of Consumer Advocate, 744
N.W.2d at 641. The Board’s determination violated chapter 17A and is
therefore invalid.
      V. Disposition.
      The ALJ proposed, and the Board affirmed, that Evercom
committed a cram in violation of rule 199—22.23(2) and Iowa Code
section 476.103 when it erroneously billed Silver for collect calls he never
received or accepted. We disagree. The acceptance of collect calls is one
of the enumerated services that are explicitly excluded from the
definition of cramming as the Board has defined it in its own rules.
Cramming, as defined in rule 199—22.23(1), cannot include the
mistaken or improper billing of collect calls, particularly when it is the
result of third-party fraud. When the Board concluded it did, it rendered
a decision that was irrational, illogical, or wholly unjustifiable       in
violation of section 17A.19(10)(l).   As such, the district court properly
invalidated the Board’s decision and rescinded the civil penalty.       We
remand to the district court for remand to the Board for dismissal of this
action.
      COURT OF APPEALS DECISION VACATED; DISTRICT COURT
JUDGMENT AFFIRMED, AND CASE REMANDED.
      All justices concur except Mansfield, J., who takes no part.