Evercom Systems, Inc. v. Iowa Utilities Board , 805 N.W.2d 758 ( 2011 )

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
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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.
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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
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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
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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.
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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
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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.
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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.
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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.
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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
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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
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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).
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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
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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.