Evercom Sys., Inc. v. Iowa Utilities Bd.

• Decision Date: 14 October 2011
• Docket Number: No. 09–0427.,09–0427.
• Citation: 805 N.W.2d 758
• Parties: EVERCOM SYSTEMS, INC., Appellee, v. IOWA UTILITIES BOARD, Appellant,andOffice of Consumer Advocate, Intervenor–Appellant.
• Court: Iowa Supreme Court

805 N.W.2d 758

EVERCOM SYSTEMS, INC., Appellee,

v.IOWA UTILITIES BOARD, Appellant,andOffice of Consumer Advocate, Intervenor–Appellant.

No. 09–0427.

Supreme Court of Iowa.

Oct. 14, 2011.

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

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.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 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.

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 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 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 § 17A.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. 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...