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.
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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
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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.
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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.
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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.