COMMISSION RON MCDOUGALL, assignee, and ) PAYTEL NORTHWEST, INC., ) Docket No. UT-970112 Complainant, ) ) Volume 1 vs. ) Pages 1 - 71 ) U S WEST COMMUNICATIONS, INC., ) Respondent. ) ----------------------------- ) A hearing in the above matter was held on July 23, 1997 at 9:35 a.m. at 1300 South Evergreen Park Drive Southwest, Olympia, Washington, before Administrative Law Judge MARJORIE R. SCHAER. The parties were present as follows: U S WEST COMMUNICATIONS, INC. by Lisa Anderl, Attorney at Law, 1600 7th Avenue, Room 3206, Seattle, Washington 98191. RON MCDOUGALL, by DAVID J.W. HACKETT, Attorney at Law, 601 Union Street, Suite 4400, Seattle, Washington 98101-2352. THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION STAFF, by MARY M. TENNYSON, Senior Assistant Attorney General, 1400 South Evergreen Park Drive Southwest, PO Box 40128, Olympia, Washington 98504-0128. Cheryl Macdonald, CSR Court Reporter P R O C E E D I N G S JUDGE SCHAER: The hearing will come to order. This is a hearing in docket No. UT-970112 which is a complaint by Ron McDougall and Paytel Northwest, Inc. against U S WEST Communications, Inc. alleging that U S WEST failed to file tariffs for public access line services in a timely manner which led to excessive rates for such services. This is a pre-hearing conference that was set by notice of pre-hearing conference dated July 2, 1997. It's taking place on July 23, 1997 in Olympia, Washington. The hearing is being held before Administrative Law Judge Marjorie R. Schaer. We had some discussion off the record. I indicated we would take appearances first and we will take any motions or petitions to intervene, and then we will take argument on the motions for summary determination. Following that argument, we will go off the record to discuss scheduling and other issues if necessary. So let's begin with appearances starting with the appearance of the complainant, please. MR. HACKETT: Yes. My name is David Hackett. I make an appearance for Ron McDougall, the complainant in this matter. My address is Miller Nash, 4400 Two Union Square, 601 Union Street, Seattle, Washington 98101. My phone number is 206- 622-8484. JUDGE SCHAER: Why don't you go ahead and give your fax number too in case I would need it. MR. HACKETT: My fax number is 622-7485. JUDGE SCHAER: For the respondent, please. MS. ANDERL: Appearing on behalf of U S WEST Communications, Inc., my name is Lisa Anderl. I'm in house counsel with U S WEST, Inc. My mailing address is 1600 Seventh Avenue, Room 3206, Seattle, 98191. My telephone number is area code 206-343-4052 and my fax number is 206-343-4040. JUDGE SCHAER: And for the Commission staff, please. MS. TENNYSON: My name is Mary M. Tennyson. I'm a senior assistant attorney general representing Commission staff. My address is 1400 South Evergreen Park Drive Southwest P.O. Box 40128, Olympia, Washington 98504-0128. My telephone number is 360-753-1964 and my fax number is 360-586-5522. JUDGE SCHAER: Thank you. Is there anyone else in the hearing room that represents someone who wants to be an intervenor in this matter that has not spoken up? And I will let the record reflect that the only people present in the hearing room are counsel for the parties and a representative of U S WEST and a representative of the Commission staff. So we will move on, then, to the motions for summary determination on liability. I have a motion from your client, Mr. Hackett. MR. HACKETT: Yes. JUDGE SCHAER: And then I have a cross motion from your client, Ms. Anderl; is that right? MS. ANDERL: Yes. JUDGE SCHAER: And so would you like to address those as one argument or would you like to have first the argument on your motion and then the argument on your cross motion? MS. ANDERL: I prefer just to address them as one. MR. HACKETT: That would be my desire as well. JUDGE SCHAER: All right. Let's go ahead in that manner, then. We'll start with you, Mr. Hackett. MR. HACKETT: Just before I start, it's our position that the Commission should be able to grant summary judgment on this matter today one way or another. We are not aware of any material facts that would prevent ruling as a matter of law based on the pleadings that have been submitted by the parties. The basic facts in this matter, the reason that we are before the Commission is because we initially filed an action with the Superior Court. We had a similar motion brought before the Superior Court seeking damages for U S WEST violation of a Commission order under RCW 80.04.440. The Superior Court declined to enter that summary judgment mainly because it was confused as to the meaning and effect of the Commission's orders, the fourth and fifth supplemental orders in the Northwest Pay Phone Association's prior action against U S WEST complaining of PAL rates, and I will be referring to those fourth and fifth supplemental orders throughout. As a result of being unclear with the meaning of those fourth and fifth supplemental orders, particularly the effect of the denial of an emergency motion for stay in the fifth order, and the requirement to file tariff revisions within 20 days in the fourth order, the Superior Court determined to defer jurisdiction to the Commission and that is why we then refiled this action here. What we are asking for in this proceeding is essentially twofold. First, we are asking for direct relief for violation of RCW 80.04.220 and 230 due to the fact that U S WEST has charged rates to the assignors or assignees of Ron McDougall which are either unlawful or unreasonable as being in violation of the fourth supplemental order; or, in the alternative, if this Commission feels that it lacks jurisdiction to enter damages or for whatever other reason is not able to grant the requested relief, we have requested a declaratory order or a clarifying order essentially stating what the Commission meant by the fourth and fifth supplemental order so that we may then proceed again to Superior Court as the Superior Court allowed in its order initially deferring jurisdiction to the Commission so that we can take that order back to the Superior Court and seek the damages that we would be entitled to under RCW 80.04.440. Our argument is essentially that by violating the filing requirements in the fourth supplemental order U S WEST has stripped the assignors of roughly 100 days of reduced PAL rates. There are two statutes that form the basis for this claim, RCW 80.04.220 and 230. These allow the Commission to award damages or what might be called a refund if the company has charged unreasonable rates or unlawful rates. The March 17, 1995 fourth supplemental order in the PAL matter ordered U S WEST to enact 1FB rates for public access lines. These 1FB rates were to be filed within 20 days of the March 17 order which resulted in a filing date of April 6, 1995. It is uncontroverted on this record that U S WEST did not file anything on April 6, 1995. Indeed it did not file the compliance tariffs until well into July of 1995. Instead of filing those compliance tariffs U S WEST instead sought an untimely emergency motion for stay. There is no doubt under the APA that a motion for stay must be filed within 10 days of the Commission's order. Moreover, there is no doubt under the APA that the simple act of requesting reconsideration does not automatically stay a decision. U S WEST has been before this Commission enough times to know that if it wishes to stay the effect of an order in the fourth supplemental order requiring it to file revised tariffs within 20 days that it must affirmatively seek that relief. It simply cannot file for reconsideration and wait for the Commission to rule on that reconsideration. On April 7 counsel for the Northwest Pay Phone Association, Brooks Harlow, sent U S WEST a letter which is reflected in the record informing U S WEST that it was violating the fourth supplemental order by not filing those tariff revisions within 20 days as specifically required by the Commission. So there is no doubt as well that the U S WEST failure to file within 20 days was a willful violation of that order, and I would like to point the Commission's attention toward the Court of Appeals decision in Allied Financial Services vs. Mangnum 864P second one 72 Wn. App. 164 where the Court of Appeals stated that "A violation of a court order without reasonable excuse will be deemed willful." So, as a matter of law, by failing to file within 20 days as required by the Commission, U S WEST's failure was willful and was a violation of a clear provision of that order. As I mentioned, U S WEST instead filed an emergency stay of the fourth supplemental order. In the fifth supplemental, order which was issued on June 30, 1995, the Commission denied this stay. They also, as clearly reflected in that order, denied U S WEST's motion for reconsideration. The only possible legal effect of denying the emergency motion for stay was to keep the provisions of the fourth supplemental order in full effect and that provision was simply that a filing had to have been made by April 6. If any other meaning is given to that denial of an emergency motion for stay, in effect, U S WEST would have been granted that emergency motion for stay. They would have gotten the active relief if liability is not imposed in this case that they requested through an emergency motion for stay and the Commission denied. U S WEST we also believe is wrong that the fifth supplemental order or the sixth supplemental order forgave the requirements of the fourth supplemental order that a filing be made by April 6. In essence it's like a situation where a child has skipped school for two weeks and their parent says, Well, you've skipped school for two weeks; you're going to go for the next two weeks. That does not relieve that child of the consequences of having skipped school for the prior two weeks. It simply recognizes the reality you can't order somebody to go to school for the two weeks that have already passed. That's essentially what the Commission did in the fifth and sixth supplemental orders. They said that U S WEST will file within 20 days of the fifth supplemental order, the idea being that, of course, the Commission couldn't order U S WEST to file by April 6 because that date had already passed. However, that did not mean that the consequences of that failure to comply with the fourth supplemental order had been waived or forgiven by the Commission. To the contrary, by denying the emergency motion for stay, the Commission automatically kept the provisions of the fourth supplemental order requiring a filing by April 6 in full effect and force and thus provided the basis for my clients to seek a refund of the rates that were excessive between that period. The bottom line here is that U S WEST needs to be held accountable for violating the fourth supplemental order. U S WEST makes an argument that even if they had filed by April 6 as required by the Commission that was no guarantee that the rates would be effective at any time before September 1, which is in fact when they did become effective. We believe that this argument is simply not credible. As a regular course, if U S WEST is required to file tariff revisions or if it files a new tariff, that tariff is generally effective upon 30 days. Indeed, if the Commission had ordered a rate increase for the PAL, we have no doubt that U S WEST would have gotten that rate increase into effect as soon after April 6 as it could have possibly done. But even if you look at the Theresa Jensen affidavit in this matter, she says that U S WEST needed in essence 48 days to implement the rate reductions for the PAL and the offsetting rate increases. If you take that 48 days and you count it from April 6 when they should have filed instead of counting it from July 15 when they actually did file -- or I believe that was July 11 -- you would have an effective date of May 24 which means that my clients and the assignees in this matter would have lower PAL rates from May 24, 1995, not from September 1, 1995 when they actually resulted. Now, staff acknowledges in its pleadings filed in this matter that U S WEST is in technical violation of the fourth supplemental order. We agree that it is definitely a violation. However, we do not agree that it is necessarily a technical violation because it is a violation that has resulted in real damages and in real harm to my clients. As a result of the roughly 101 days of delayed PAL reductions, my clients have faced significant damages, which we believe they can be determined through a later proceeding, and as a result of that U S WEST should be held accountable. That's what the statutes of this state require. If the Commission's orders are to have any effect in terms of requiring compliance filings, this is the case where they need to have effect and this is the case where U S WEST needs to be held to the terms of that fourth supplemental order. JUDGE SCHAER: Are the parties to the Superior Court action the same parties? Is there an identity of parties between that actions and this action? MR. HACKETT: Yes. Essentially, there is. We initially started out in the Superior Court with a plaintiff, Karyn St. Lorraine, which was the assignee of the claims that Mr. McDougall now has. Ms. St. Lorraine took and assigned those claims to Mr. McDougall before summary judgment was entered by the Superior Court. So by the time summary judgment was entered by the Superior Court Mr. McDougall was the same plaintiff. Paytel, however, was not individually named in the Superior Court. JUDGE SCHAER: Paytel was not a party in the Superior Court? MR. HACKETT: They were one of the assignors but they were not a named party, no. JUDGE SCHAER: And Paytel was a party to the Commission proceeding that resulted in the order that PAL rates should be lowered? MR. HACKETT: Yes, Paytel was. JUDGE SCHAER: Were the other complainants parties to that proceeding? MR. HACKETT: Mr. McDougall was not a party to that proceeding. I don't believe that any of the other assignors were parties to that proceeding. The Northwest Pay Phone Association and Paytel, I believe, were the only parties. JUDGE SCHAER: What date was the Superior Court action brought? MR. HACKETT: The Superior Court action was brought -- I believe a copy of the complaint is found in the declaration of Mr. Harlow. That was brought on April 5, 1996 was the filing date. I believe it was also served on U S WEST on that same day. JUDGE SCHAER: So it was brought essentially a year after? MR. HACKETT: Yes. And the complaint was brought under RCW 80.04.440 which has a two year statute of limitations. JUDGE SCHAER: But if I look at your complaint you haven't addressed Commission staff's argument that what you are complaining in paragraphs 4.4 and 4.7 is that these were excessive or exorbitant rates, and that under our statute you need to bring that complaint within six months. What's your response to that? MR. HACKETT: My response to that is that we are also bringing our complaint under RCW 80.04.230 which allows a complaint based on unlawful rates to be brought within two years. It is our position that by violating the fourth supplemental order and by not filing those tariff revisions in a timely manner U S WEST was charging an unlawful rate from that point and therefore would fall under the two-year statute. As for the unreasonable or exorbitant rates, we agree with Commission staff that the statute does state a six-month statute of limitations. JUDGE SCHAER: Well, look at page 5 of your complaint with me, if you would. MR. HACKETT: Certainly. JUDGE SCHAER: I checked this again last night and I don't see any statement here -- I see that you've cited 230 at the top of the page but I don't see any allegation of unlawful rates. I see two different paragraphs that talk about excessive or exorbitant rates. MR. HACKETT: If you will give me a minute to review the complaint. JUDGE SCHAER: Certainly. MR. HACKETT: Having read the complaint, I would agree with you that does not use the word "unlawful" in the complaint itself. However, the citations RCW 80.04.230 clearly invokes that portion of the statute; under 230 unlawful is the exclusive standard for relief. In addition, since we are in a notice pleading state and the Commission in vocation the civil rules, I believe that this complaint is sufficient to raise a cause of action under RCW 80.04.230 in that it states all the facts that are necessary to raise a cause of action under that statute for charging unlawful rates. Further, through Paytel summary judgment brief and its reply brief we have made it clear that we are also seeking relief for unlawful rates. If the court does not believe that it is clear from the complaint, we would ask and in fact move at this point to amend the complaint, add the word "unlawful" to paragraph 4.4. JUDGE SCHAER: What I would like you to do -- I mean, what you've described in your complaint in paragraphs 4.4 and 4.7 is your allegation, at least at that point, that what you were talking about here, failure to file within 20 days, that cause led to the effect of having excessive or exorbitant rates. What standard are you using or what analysis are you using to distinguish between what are excessive or exorbitant rates and what are unlawful rates? MR. HACKETT: I think as a matter of law any rate that is unlawful is excessive or exorbitant. In this situation, U S WEST was ordered to file a rate reduction. Therefore, if it violated that requirement its rate was unlawful but it was also excessive, since it was required to impose a rate reduction, and exorbitant for that matter as well. JUDGE SCHAER: I am not sure that I'm hearing from you what you think makes a difference between what's an unlawful rate and what's an exorbitant rate. You've said that unlawful rates are exorbitant but presumably all exorbitant rates aren't unlawful. MR. HACKETT: Yes. JUDGE SCHAER: What makes this from an exorbitant into an unlawful? MR. HACKETT: I think what makes this one -- I'm not certain what an exorbitant rate by itself would be, but I think what makes this an unlawful and exorbitant rate is the fact that it violated the fourth supplemental order. JUDGE SCHAER: So you say that this violated the fourth supplemental order and that that order -- because something was not filed under the time length of that order, an existing rate that was existing in tariff became an unlawful rate. MR. HACKETT: Yes. In that fourth supplemental order the Commission found that the PAL rate put Pay Phone Association members in a price squeeze. They found that to not be an appropriate rate. Therefore, it at that point ordered a filing by April 6. Assuming that that became effective in 30 days we believe that from that point on it was an unlawful rate. We are not taking the position that from the time of the fourth supplemental order it was an unlawful rate, but we are taking the position that by failing to timely file and get that rate into effect, at that point it became an unlawful rate, essentially, by ignoring the Commission's direction and continuing to charge the tariff that was on file instead of filing a revised tariff as required by the Commission, U S WEST violated that order and charged an unlawful rate. JUDGE SCHAER: So in theory you could have argued that this was an exorbitant rate from the date that that complaint was filed? MR. HACKETT: In theory. JUDGE SCHAER: And could have sought, in that case, a reduction for that period and then you would have argued that it became an unlawful rate at the point that -- MR. HACKETT: Yes, I think we could have. JUDGE SCHAER: -- at the point that the order -- I'm just trying to sort those two out. Also, you've mentioned but not really analyzed for me the position taken by U S WEST that they were allowed under the terms of the order to file a tariff by a certain date but to have a different effective date for that tariff. What's your legal basis for saying that's not allowed? MR. HACKETT: In that situation we are -- we feel that that is entirely immaterial due to the facts on the record and our desire to get summary judgment in this matter. We are not pursuing the difference between a July 15 effective date or a September 1 effective date apart from the fourth supplemental order. It's simply a matter of economics for my client. We believe that essentially the tariff that the Commission approved was not the tariff that went into effect, but that is not an argument that we're pursuing in this matter. The reason I say that that is immaterial is because the Commission should look at the time line between April 6 and an effective date of those April 6 tariff revisions that should have been filed which would have made everything effective roughly May 24, and that's using the difference between July 15 and September 1. So in essence if U S WEST did indeed need 48 days to bring those tariffs into effect, the difference between July 15 and September 1, that 48 days should have been taken up between April 6 and May 24 which would have resulted in effective tariffs on May 24 rather than on September 1. JUDGE SCHAER: Did your client who was a party to the previous case, did Paytel Northwest -- or also the Pay Phone Association, I believe, are both parties here and were parties in the previous -- MR. HACKETT: The Pay Phone Association is not a party here. JUDGE SCHAER: Not a party here so just Paytel. Did Paytel in the previous complaint case pursue in that case with the Commission by filing motion -- any kind of post hearing motions or responses to pleadings from U S WEST to pursue this argument in that case? Did you argue to the Commission when they came out with their fifth supplemental order giving a new filing date that they should reconsider that decision and modify that statement because the effective period should b