Court Opinion

ID: 4249890
Source: CourtListenerOpinion
Date Created: 2018-02-28 21:21:49.846968+00
Date Added: 2024-06-11T09:24:00.218903
License: Public Domain

IN THE SUPREME COURT OF IOWA
                               No. 08–0349

                          Filed July 31, 2009

OFFICE OF CONSUMER ADVOCATE,

      Appellant,

vs.

IOWA UTILITIES BOARD,

      Appellee,

and

FRONTIER COMMUNICATIONS
OF IOWA, INC., and MCI
COMMUNICATIONS, INC., d/b/a
VERIZON BUSINESS SERVICES,

      Intervenors-Appellees.

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

Huppert, Judge.

      The Office of Consumer Advocate appeals from a district court
judgment which affirmed on judicial review the Iowa Utilities Board’s

denial of three petitions filed by the Consumer Advocate seeking civil

penalties for alleged violations of Iowa Code section 476.103 (2007).

AFFIRMED.

      John R. Perkins, Consumer Advocate, and Craig F. Graziano of the

Office of Consumer Advocate, for appellant.

      David Lynch and E.A. “Charlie” Nichols, Des Moines, for appellee.
                                    2

      Bret A. Dublinske of Dickinson, Mackaman, Tyler & Hagen, P.C.,

Des Moines, for intervenors-appellees.
                                    3

BAKER, Justice.

      The Office of Consumer Advocate (OCA) appeals from a district

court judgment which affirmed on judicial review the Iowa Utilities

Board’s (Board) denial of three petitions filed by OCA seeking civil

penalties based on consumer complaints of unauthorized charges and/or

changes in service by telecommunications companies. OCA has raised

three issues on appeal: (1) whether the procedures utilized by the Board,

following a change in its review process, resolve disputed questions of

fact without hearing the evidence or allowing for discovery or cross-

examination, resulting in outcomes that are not reliable, in contravention

of constitutional standards; (2) whether the Board’s orders denying

OCA’s petitions for proceedings to consider civil monetary penalties in

these cases are arbitrary and capricious under the standards contained

in Iowa Code section 17A.19(10)(h); and (3) whether the district court

abused its discretion in refusing to admit new exhibits on appeal. We

hold that the Board’s orders denying OCA’s petitions for proceedings to

consider civil penalties were not in contravention of constitutional

standards nor arbitrary and capricious under the standards contained in

Iowa Code section 17A.19(10)(h). We also find that the district court did

not abuse its discretion in denying OCA’s petition to admit additional

exhibits.

      I. Background Facts and Proceedings.

      OCA seeks review of the Board’s decisions denying petitions to

commence proceedings to consider civil monetary penalties for alleged

violations of Iowa Code section 476.103 (2007). This statute, along with

the regulations contained in Iowa Administrative Code rule 199—22.23,

prohibits “unauthorized changes in telecommunications service.”      Iowa

Admin. Code r. 199—22.23(2). These unauthorized changes are referred
                                     4

to as “slamming” and “cramming.”         Id.   Slamming is the practice of

changing a consumer’s service without permission. Cramming refers to

charging a consumer for services that were not ordered, authorized, or

received. Id. r. 199—22.23(1).

      Four cases were consolidated in the district court. OCA has since

dismissed its appeal in one case as moot.        The pertinent facts of the

remaining cases are as follows.

      A. Katina Costerisan Case. The Board received a complaint from

Katina Costerisan, disputing $988.55 in charges on a bill from her local

telephone provider, Frontier, for long-distance calls handled by MCI.

Costerisan’s telephone bill showed that the calls were charged at a rate

substantially higher than the rate for her long-distance plan with

Frontier. Some of the calls were charged at rates as high as $2.23 per

minute.    After reviewing the complaint, the Board forwarded the

complaint to Frontier and MCI to give them an opportunity to respond.

      MCI responded in a letter stating that Frontier is a reseller of

services for MCI’s Network Services (MNS). MNS is a division of MCI that

provides wholesale services for other local long distance companies to sell

directly to consumers.   MCI stated that reseller companies use MCI’s

network but technically they are selling their own products and services,

and, therefore, they set their own rates and handle their own advertising.

MCI declared that MNS had not solicited or requested the service for

Costerisan’s telephone number. Frontier responded to the Board stating

it had incorrectly set-up Costerisan’s account, and it had removed the

disputed charges from her account.

      The Board issued a proposed resolution concluding that slamming

had not occurred in Costerisan’s case and determining that the disputed
                                    5

charges were the result of an error in Frontier’s processing of

Costerisan’s order.

      B. Eddie Atkinson Case. Eddie Atkinson filed a billing complaint

with the Board regarding a $95 “trouble charge” billed to him by his

long-distance provider McLeodUSA Telecommunications Services, Inc.

Atkinson stated that he called McLeod to report that calls were not

getting through to his home. He stated the McLeod representative told

him that his lines would be checked up to the house and if a problem

was found it would be corrected free of charge. If the technician had to

enter his home, however, he would be charged up to $95. Atkinson was

contacted the next day and told the outside of his house was fine and the

trouble must be internal. Atkinson checked his home and discovered he

had a bad surge protector.     He corrected the problem himself.    Even

though a technician never entered his home, Atkinson received a phone

bill containing a $95 trouble charge.

      The Board forwarded Atkinson’s complaint to McLeod.        McLeod

responded that there had been a miscommunication with the customer,

and Atkinson should have been told there would be a charge up to $95 to

have a technician go out to his house unless the technician found a

problem on McLeod’s equipment outside the home. McLeod refunded the

disputed charge. The Board issued a proposed resolution finding there

had been a miscommunication between McLeod and Atkinson regarding

the trouble charge.

      C. Mike Mellody Case. Mike Mellody called Qwest Corporation

(Qwest) to have his daughter’s phone repaired. He was later charged $85

for trouble isolation. He claimed that when he called to inquire about

repairing the phone, the trouble charge was not mentioned or explained

to him.
                                    6

      The Board forwarded Mellody’s complaint to Qwest. According to

Qwest, Mellody placed a repair request, and the next day a technician

went to his daughter’s residence, tested the outside line, and found no

problems. Qwest admitted that because Mellody never asked Qwest to

check the wiring inside the house, the trouble charge should not have

been billed.   Qwest explained the charge resulted from an error by a

technician who had recently transferred into the state from Arizona

where the rules for repair charges are different. Qwest credited Mellody’s

account for the disputed charge. The Board issued a proposed finding

that the Qwest technician made a mistake, resulting in an incorrect

charge.

      II. Proceedings.

      In each of these three cases, OCA filed a petition with the Board

alleging a violation of Iowa Code section 476.103 and requesting a

proceeding to consider a civil monetary penalty pursuant to that section.

The Board denied all three petitions.

      In denying the request in Costerisan’s case, the Board found:

      [T]he Board does not find reasonable grounds for further
      investigation. The Board finds that any change in service
      providers made in this case was unsolicited, unintentional,
      temporary, and unlikely to recur.

             The Board is familiar with Consumer Advocate’s
      position regarding the assessment of civil penalties for
      inadvertent violations. In this case, however, because the
      Board does not believe further investigation would produce
      information that would support a finding of a slamming or
      cramming violation on the part of either MCI or Frontier,
      thus leading to possible civil penalties, the Board will deny
      Consumer Advocate’s petition for proceeding to consider civil
      penalty.
      In denying the request in Atkinson’s case, the Board found:

      The record shows, at most, that a misunderstanding
      occurred between Mr. Atkinson and McLeodUSA with regard
      to the precise terms and conditions as to when the $95
                                     7
      trouble charge would apply, but he nonetheless authorized a
      service call knowing there could be a charge. . . . It is only
      reasonable to conclude he would have authorized the service
      call even if the McLeodUSA script had been more precise,
      because he needed to determine why his service was
      unsatisfactory. The undisputed facts in this case do not
      establish reasonable grounds for further investigation of this
      case.
      In denying the request in Mellody’s case, the Board found:

      Board staff has determined in this case, and Qwest has
      confirmed, that the technician working on Mr. Mellody’s
      daughter’s telephone line committed an error. Qwest has
      credited the customer and corrected the mistake. As stated
      above, the Board does not believe that these circumstances
      create any reasonable grounds for further proceeding to
      consider civil penalty.
      OCA sought judicial review. In Costerisan’s case, the district court

granted motions by Frontier and MCI for permissive intervention. The

court consolidated the cases. The district court affirmed the findings of

the Board on all the issues raised.        OCA appealed the district court’s

decision.

      III. Discussion and Analysis.

      A. Board Denials. OCA argues that effective August 1, 2006, the

Board materially changed its procedures regarding the granting of

hearings to assess civil penalties under Iowa Code section 476.103. The

pertinent parts of that statute provide:

            3.   The board shall adopt rules prohibiting an
      unauthorized change in telecommunications service. The
      rules shall be consistent with federal communications
      commission regulations regarding procedures for verification
      of customer authorization of a change in service. The rules,
      at a minimum, shall provide for all of the following:

            ....

            g.   Procedures for a customer, service provider, or
      the consumer advocate to submit to the board complaints of
      unauthorized changes in service.

            4. a. In addition to any applicable civil penalty set out
      in section 476.51, a service provider who violates a provision
                                           8
      of this section, a rule adopted pursuant to this section, or an
      order lawfully issued by the board pursuant to this section,
      is subject to a civil penalty, which, after notice and
      opportunity for hearing, may be levied by the board, of not
      more than ten thousand dollars per violation. Each violation
      is a separate offense.

Iowa Code § 476.103.

      Having docketed OCA petitions for civil penalties under section

476.103(4) as a matter of course for three years, the Board began to deny

most of OCA’s petitions after notifying OCA that future petitions would

be   denied        unless   there   were    “reasonable   grounds     for   further

investigation.”

      OCA claims that the Board’s orders denying its petitions for

proceedings to consider civil monetary penalties in these three cases are

arbitrary and capricious. OCA’s many contentions of error regarding the

Board’s denials can be summarized into two general claims:                  (1) the

procedures utilized by the Board following the change in procedure

resolve questions of fact without hearing the evidence or allowing for

discovery     or    cross-examination      in   contravention   of   constitutional

standards; and (2) the Board prejudicially altered its procedures in cases

arising under Iowa Code section 476.103 in ways that are inconsistent

with prior practice and precedent, without a rational reason.

      1. Constitutional violation. OCA claims the procedures utilized by

the Board following the described change in practice resolve disputed
questions of fact without hearing the evidence, or allowing for discovery

or cross-examination, resulting in outcomes that are not reliable, in

violation of constitutionally required procedural due process. OCA states

that the Board relies on an informal paper process to resolve material

disputes of adjudicative fact. OCA further contends that this procedure

gives a false sense of authenticity to the claims the companies make for
                                      9

the veracity of their records and, therefore, deprives consumers of the

only real evidence they have, their testimony. OCA states these biased

and unreliable results do not meet constitutional standards.

      We first review the procedures utilized by the Board.     For every

consumer complaint the Board receives, it must follow the extensive

procedures required by Iowa Code section 476.3.       To implement these

requirements, the Board promulgated Iowa Administrative Code chapter

199—6. Iowa Code section 476.3 demands that the Board create a file

for every written complaint submitted by a consumer involving contested

behavior by a utility company. Iowa Code § 476.3(1). Once the file is

created, the Board must forward the consumer complaint and any

additional evidence to the utility company. Iowa Admin. Code r. 199—

6.3(1).   A copy of the file is also sent to OCA.       Id. r. 199—6.3(2).

According to the Board’s rules, the utility company has twenty days to

file a response to the complaint.     Id. r. 199—6.3(3).   The company is

required to forward a copy of this response to OCA. Id. The response

must address each allegation made by the consumer and recite any

supporting facts, statutes or rules. Id. The utility company must also

enclose copies of any documents related to the complaint that are not

confidential or privileged. Id.

      After reviewing the utility’s response, the Board may request any

additional information it deems necessary to resolve the complaint. Id. r.

199—6.4(1).         When the Board is satisfied that all the relevant

information has been gathered, it issues a proposed resolution to the

complaint.    Id.    The copies of the proposed resolution are sent to the

consumer, the utility company, and OCA. Id. If either of the parties or

OCA is dissatisfied with the proposed resolution, that party may file a

request for formal complaint proceedings within fourteen days of the
                                      10

issuance of the proposed resolution. Id. r. 199—6.5(1). If a request is

made, the Board shall then “consider whether formal complaint

proceedings should be initiated.” Id. r. 199—6.5(3). These procedures

apply to all consumer complaints brought under Iowa Code section

476.103. Id. rs. 199—6.8, 199—22.23(4).

      If the Board determines that a formal complaint proceeding is not

warranted, interested parties, including OCA, may seek judicial review of

the Board’s decision under the Iowa Administrative Procedure Act, Iowa

Code chapter 17A.      See id. r. 199—6.5(3).      Regardless of whether a

formal hearing is granted on the consumer’s complaint, the Board

retains discretion on whether to levy a penalty on a provider. See Iowa

Code § 476.103(4)(a) (providing board may levy, after notice and

opportunity to be heard, civil penalties for violations of this section).

      The function of the Board up to this point in the complaint process

is primarily the resolution of the consumer’s complaint. With respect to

the imposition of a civil penalty, however, the Board is simply gathering

information to determine whether a civil penalty may be appropriate,

thereby warranting further action by the Board. We do not determine

whether due process rights attach at this point, as the parties do not

raise this issue. See generally Citizens’ Aide/Ombudsman v. Rolfes, 454

N.W.2d 815, 818 (Iowa 1990) (stating procedural due process rights do

not attach to those agency actions that are purely investigative and do

not deprive anyone of his life, liberty, or property (citing Hannah v.

Larche, 363 U.S. 420, 440–41, 80 S. Ct. 1502, 1513–14, 4 L. Ed. 2d

1307, 1320–21 (1960))).

      Assuming that OCA has a protected interest in having the Board

pursue civil penalties, we consider what process is due.          The United

States Supreme Court addressed the issue of when a party must be
                                      11

afforded an evidentiary hearing before an agency in Mathews v. Eldridge,

424 U.S. 319, 335, 96 S. Ct. 893, 903, 47 L. Ed. 2d 18, 33 (1976). In

determining that prior to the termination of social security benefits the

party receiving those benefits need not be afforded an opportunity for an

evidentiary hearing, the Court applied a three part balancing test. Id.

The court weighed: (1) the private interest implicated; (2) the risk of an

erroneous deprivation of such interest through the procedures used, and

the probable value, if any of additional or substitute procedural

safeguards; and (3) the government’s interest, including the function

involved and fiscal and administrative burdens that additional or

substitute procedural requirements would entail. Id.

      Applying this test in this case, we determine that the Board’s

procedures do not violate constitutional due process standards.              The

private interest implicated in this case is not the consumer’s right to a

refund; it is OCA’s (or rather the State’s) deprivation of the right to a civil

penalty.     The consumer’s right to recourse for a telecommunications

company allegedly incorrectly changing service providers or allegedly

charging for services not ordered has already been adjudicated by the

Board at this point in the proceedings.       See Iowa Code § 476.3.         The

private interest implicated, therefore, is simply the deterrent effect of a

civil penalty. That interest, while important, is minimal here where the

violations    resulted   from   employee   error,   action   less   likely   than

intentional misconduct to be avoided in the future by imposition of a

penalty.

      The second part of the balancing test is the risk of an erroneous

deprivation of OCA’s interest and the probable value of any additional

procedural safeguards. In these particular cases, the Board has

determined not to pursue civil penalties because the violations were the
                                    12

result of unintentional mistakes, and the erroneous charges were

removed.    The potential deprivation of a penalty is, therefore, low

because given the outcome of the consumer’s complaint, it is unlikely a

penalty would be imposed. See Mathews, 424 U.S. at 341, 96 S. Ct. at

906, 47 L. Ed. 2d at 37 (“[T]he degree of potential deprivation that may

be created by a particular decision is a factor to be considered in

assessing the validity of any administrative decisionmaking process.”).

As noted above, the current Board procedure allows for extensive

evidence gathering from the consumer and the provider. We conclude,

therefore, the probable value of any additional procedural safeguards is

minimal.

      The last part of the Mathews balancing test is the government’s

interest, including the function involved and the fiscal and administrative

burdens that additional or substitute procedural requirements would

entail. OCA is requesting that the Board provide for formal hearing on

every petition it files for civil penalties. As the Board noted in its order

denying OCA’s request for reconsideration in the Atkinson complaint,

providing a hearing in only those cases that have a reasonable basis for

further action is “an efficient means of allocating the agency’s limited

resources in order to serve the public interest and the interests of the

customer, the public utility and Consumer Advocate.” We agree. We find

that the Board’s policy of allowing formal hearings for civil penalty

petitions only in cases with reasonable grounds for further investigation

does not violate constitutional due process standards.

      2.   Prejudicially altered procedures.    OCA claims the Board’s

procedural change in 2006, wherein OCA’s petitions for civil penalties

would be denied unless there were “reasonable grounds for further

investigation,” violated Iowa Code section 17A.19(10)(h).        This code
                                      13

section authorizes relief from agency action, other than a rule, when that

action is “inconsistent with the agency’s prior practice or precedents,

unless the agency has justified that inconsistency by stating credible

reasons sufficient to indicate a fair and rational basis for the

inconsistency.” Iowa Code § 17A.19(10)(h).

      We elaborated on this section in Finch v. Schneider Specialized

Carriers, Inc., 700 N.W.2d 328, 332 (Iowa 2005), wherein we stated:

             The reporter-draftsman for the 1998 amendments has
      written that paragraph (h) provides a specific example “of
      agency action that any reviewing court should overturn as
      unreasonable, arbitrary, capricious, or an abuse of
      discretion.” The author suggests that this language does not
      really change the law, “but it should result in somewhat
      more structured, informed, and systematic review by the
      courts under the unreasonable, arbitrary, capricious, and
      abuse of discretion standards, and clearer arguments by and
      instructions to litigants with respect to the arguments that
      may be made with respect to such matters.” We agree
      paragraph (h) does not change the law and was intended to
      amplify review under the unreasonable, arbitrary,
      capricious, and abuse-of-discretion standards.
Id. (quoting Arthur Earl Bonfield, Amendments to Iowa Administrative

Procedure Act, Report on Selected Provisions to Iowa State Bar Association

and Iowa State Government 69 (1998)).

      The intent of paragraph (h) is not to prohibit any change in

practice or procedure, but rather, the rule requires “consistency in

reasoning and weighing of factors leading to a decision tailored to fit the

particular facts of the case.”     Anthon-Oto Cmty. Sch. Dist. v. Pub.

Employment Relations Bd., 404 N.W.2d 140, 144 (Iowa 1987). Thus, “an

agency’s failure to conform to its prior decisions[,] or furnish sufficient

reasoning from which to distinguish them, may give rise to a reversal

under [chapter 17A].”   Id. at 143.    Iowa Code section 17A.19(10)(h) is

intended to address inconsistencies in agency decisions for individual
                                    14

cases; it does not provide a vehicle to challenge changes in agency

procedure that are applicable to all cases that come before the agency.

      The 2006 change was not an inconsistency related to a case

decision; it was a uniform change intended to conform the Board’s

procedures to the governing statute’s provisions.     The Board claims it

had been incorrectly interpreting and applying the requirements of

sections 476.3 and 476.103. It asserts that in changing its practice from

routinely granting formal hearings on OCA’s petitions to granting

hearings only in those cases showing reasonable grounds for further

investigation, it was simply conforming its practice to the requirements of

these statutes.

      Iowa Code section 476.103(4) provides that “a service provider who

violates a provision of this section, a rule adopted pursuant to this

section, or an order lawfully issued by the board pursuant to this

section, is subject to a civil penalty, which, after notice and opportunity

for hearing, may be levied by the board . . . .” According to the plain

language of the statute, only if a provider violates the section and the

Board has decided to consider the imposition of a civil penalty must a

hearing be held.   There is, however, nothing in section 476.103 that

requires the Board to levy a penalty, nor is there any provision for OCA

to commence proceedings on its own. Further, the statute must be read

in conjunction with Iowa Code section 476.3 which mandates the

procedures for the Board in investigating complaints:       “If . . . there

appears to be any reasonable ground for investigating the complaint, the

board shall promptly initiate a formal proceeding.” Iowa Code § 476.3

(emphasis added). It is from this section that the Board took its current

standard for granting hearings for purposes of considering civil penalties.
                                     15

      Where, as here, “an agency concludes that its application of a

statute is in error, it is not required to go on indefinitely misapplying the

statute; it may alter the application.”    Bair v. Estate of Biggins, 356

N.W.2d 551, 555 (Iowa 1984). In each of the three cases at issue, the

Board specifically found that there was no violation of the statute—only

mistakes or miscommunications. Thus, the Board was neither required

to assess a civil penalty in these three cases nor provide a formal hearing

on that issue. Because the Board concluded there were no reasonable

grounds for further investigation for purposes of imposing a civil penalty,

it properly refused to provide a formal hearing. We conclude, therefore,

that the Board’s procedural change conformed to the statutory scheme.

      B.   Court’s Refusal to Admit Exhibits.        OCA alleges that the

district court abused its discretion in refusing to admit OCA’s exhibits

submitted for the first time on judicial review. OCA claims these exhibits

were offered to prove what occurred in the agency and to facilitate the

court’s search for errors of law.

      The standard the district court relied upon in denying OCA’s

motion for the admission of new evidence is derived from Iowa Code

section 17A.19(7) which states:     “In proceedings for judicial review of

agency action a court may hear and consider such evidence as it deems

appropriate.”    Iowa Code § 17A.19(7).     We review the district court’s

refusal to admit OCA’s new exhibits on appeal for abuse of discretion.

Medco Behavioral Care Corp. of Iowa v. Iowa Dep’t of Human Servs., 553

N.W.2d 556, 562 (Iowa 1996).

      Iowa Code section 17A.19(7) gives a reviewing court the discretion

to receive and consider additional evidence that was not available to the

agency.    Id.   This discretion, however, is for the limited purpose of

“ ‘highlighting what actually occurred in the agency in order to facilitate
                                        16

the court’s search for errors of law or unreasonable, arbitrary, or

capricious action.’ ”   Id. (quoting Krause v. State ex rel. Iowa Dep’t of

Human Servs., 426 N.W.2d 161, 165 (1988)). The additional evidence is

for the purpose of determining whether the agency exceeded its legal

authority or committed legal error. Id. It is not to be used to retry the

factual issues in district court. Id.

      The district court found that the proffered evidence did not pass

“the basic threshold of relevance—‘having any tendency to make the

existence of any fact that is of consequence to the determination of the

action more probable or less probable than it would be without the

evidence.’ ” Iowa R. Evid. 5.401. In denying admission of most of the

exhibits OCA requested be admitted, the district court stated:

      The vast majority of the materials sought to be included in
      the record by the petitioner pertain to other consumer
      complaints and dispositions not pertinent to the matters at
      hand. The petitioner seeks to expand this already crowded
      field to encompass virtually the entire recent universe of
      complaints involving alleged similar conduct by carriers and
      other unrelated agency action. There is no reason to further
      muddy the waters by including most of this information.
      OCA claimed the additional evidence was offered to “highlight[]

what actually occurred in the agency in order to facilitate the court’s

search for errors of law or unreasonable, arbitrary, or capricious action.”

OCA states that relevance before the district court should not be

determined solely with reference to the adjudicative facts of the cases.

Relevancy, it argues, may also relate to the alleged errors for which

review is sought. OCA contends the errors of which it complains are not

tied to the specific facts of any one case; they are errors of a general

nature, repeated from case to case when the decisions under review are

issued. It is the cumulative impact of these continuous errors that OCA

asks the court to address.
                                          17

       The only issue before the district court was the Board’s refusal to

grant hearings in these three cases. 1           Because the exhibits would not

have shed light on the Board’s decision not to grant hearings for the

assessment of civil penalties in the three cases before the court, the

district court did not abuse its discretion in denying OCA’s petition to

admit the additional exhibits.

       IV. Disposition.

       We find that the Board’s orders denying OCA’s petitions for

proceedings to consider civil penalties in these three cases were not in

contravention of constitutional standards, nor arbitrary and capricious

under the standards contained in Iowa Code section 17A.19(10)(h). We

also find that the district court did not abuse its discretion in denying

OCA’s petition to admit additional exhibits.              Therefore, we affirm the

district court’s judgment.

       AFFIRMED.

       All justices concur except Appel, J., who takes no part.

       1OCA  did not separately seek judicial review of the Board’s policy decision to
change its general practice of granting a hearing on every request by OCA for a civil
penalty. This issue was raised only insofar as it affected the orders in these particular
cases.