ALDRICH, J.
INTRODUCTION
At issue in Serrano v. Stefan Merli Plastering Co., Inc. (2008) 162 Cal.App.4th 1014 [ 76 Cal.Rptr.3d 559] ( Serrano I) was a dispute about the reasonableness of fees a deposition reporter sought to charge a nonnoticing party for expedited copies. We held in Serrano I that the court in a pending action has the authority to (1) require a deposition reporter to provide a copy of a transcript to a nonnoticing party for a reasonable fee ( id. at p. 1035), and (2) determine the amount of the reasonable fee in the event of a dispute ( id. at p. 1038). We remanded the case to the trial court to determine whether the fee charged by the deposition reporter, Coast Court Reporters, Inc. (Coast), to plaintiffs Porfirio and Lourdes Serrano was unreasonable. On remand, the trial court ruled that the fee was unreasonable.
Thereafter, plaintiffs sought their attorney fees under the private attorney general statute, Code of Civil Procedure section 1021.5 (section 1021.5) from Coast. The trial court denied the fee request relying on the Supreme Court's decision in Adoption of Joshua S. (2008) 42 Cal.4th 945 [ 70 Cal.Rptr.3d 372, 174 P.3d 192] ( Joshua S.), which prohibits the award of private attorney general fees under section 1021.5 "against an individual who has done nothing to adversely affect the rights of the public or a substantial class of people other than raise an issue in the course of private litigation that could establish legal precedent adverse to a portion of the public. . . ." ( Joshua S., supra, at p. 949.) As set forth below, our review is deferential. We affirm the denial of private attorney general fees because the trial court's ruling was within the bounds of reason.
FACTUAL AND PROCEDURAL BACKGROUND
1. Serrano I
A detailed recitation of the facts and proceedings leading to the first appeal is set forth in Serrano I, supra, 162 Cal.App.4th at pages 1021 to 1025. Briefly, plaintiffs brought a personal injury action against a defendant with whom they subsequently settled. While the action was pending, the defendant took the deposition of one of the plaintiffs' experts and designated Coast as the deposition reporter. Plaintiffs' attorney requested a certified copy. When the defendant requested that the transcript be prepared on an expedited basis, Coast asked plaintiffs' counsel if he too wanted his certified copy to be expedited. Plaintiffs' counsel did. Thereafter, Coast billed plaintiffs' counsel for the transcript and added a fee for expediting the copy. Plaintiffs' counsel protested the expedition fee. Believing this fee to be proper, Coast responded that counsel would not receive the transcript on an expedited basis without payment of the fee. Plaintiffs then applied ex parte to the trial court in the underlying action for an order requiring Coast to provide a copy of the expert's deposition transcript without charging the expedition fee. Other depositions were being taken and so "[plaintiffs] and Coast agreed that the court would determine `the validity and reasonableness' of the expedited service fee and that the ruling would govern the fees for all other deposition transcripts in this action. Based on that agreement, Coast waived its COD requirement and delivered copies of the deposition transcripts to [plaintiffs'] counsel." ( Id. at p. 1021, fn. omitted.)
The trial court found Coast's practice of charging the nonnoticing party a substantial expedition fee to be "unconscionable" but, pursuant to Urban Pacific Equities Corp. v. Superior Court (1997) 59 Cal.App.4th 688 [ 69 Cal.Rptr.2d 635], it believed it had no authority to require a deposition reporter to charge other than what the market would allow. ( Serrano I, supra, 162 Cal.App.4th at p. 1024.) The court ordered plaintiffs to pay the full expedition fee charged for all depositions. ( Ibid.) Plaintiffs paid the amount and sought review by means of an extraordinary writ. We summarily denied the writ. ( Id. at pp. 1024-1025.)
In the course of plaintiffs' ensuing appeal, we solicited briefing from amici curiae. Three court reporter associations filed amicus curiae briefs on behalf of Coast. Coast argued, while a trial court may order a deposition reporter to deliver copies of a deposition transcript to a nonnoticing party and the nonnoticing party must pay for it, that the trial court had no authority to "`regulate the amount of the fee." ( Serrano I, supra, 162 Cal.App.4th at p. 1035.) We disagreed. Based on Code of Civil Procedure sections 2025.510, subdivision (c), 2025.570, subdivision (a), and 128, subdivision (a)(5), we held that trial courts have the power to require a deposition reporter to provide a copy of a deposition transcript to a nonnoticing party for a reasonable fee and that in the event of a dispute, the trial court was empowered to determine the amount of a reasonable fee. ( Serrano I, supra, at pp. 1037-1039.) We did not hold that expedition fees were per se unreasonable. Rather, we stated: "This does not preclude a deposition reporter from charging a reasonable fee for expediting the making, certification, and delivery of a copy. Although the reporter ordinarily sets the fee in the first instance, the reasonableness of the `expense' [citation] that a court may require a party to pay to obtain a copy of the transcript in a pending action is a question within the sound discretion of the trial court." ( Id. at p. 1038.) We remanded the case to the trial court to exercise its discretion to determine whether Coast's fees were reasonable. ( Id. at p. 1040.)
2. Remand after Serrano I
On remand, Coast argued that its expedition fee was reasonable. Plaintiffs countered that the entire fee was unreasonable. The trial court ruled that, "under the circumstances presented," Coast's entire expedition charge was unreasonable. The court ordered that amount refunded to plaintiffs. Coast promptly paid that amount plus prejudgment interest.
We denied Coast's petition for rehearing of Serrano I and the Supreme Court denied review and a request for depublication.
3. The instant motion for attorney fees (§ 1021.5)
Thereafter, plaintiffs sought their attorney fees from Coast pursuant to section 1021.5. Relying on Joshua S., supra, 42 Cal.4th 945, the trial court denied the fee motion. It explained: "I'm not here to try to take over an industry. I'm not here to regulate an industry. I'm just concerned with this case and the expedited charges." The court's order states: Plaintiffs were "not trying to vindicate the public's interest. Rather, [they were] trying to protect [their] own interest and in so doing, by virtue of a published opinion, [they] conferred a benefit to litigants." Plaintiffs filed a timely notice of appeal.
CONTENTION
Plaintiffs contend that the trial court erred in denying their section 1021.5 attorney fee motion.
DISCUSSION
1.
The guiding principles for applications for private attorney fees under section 1021.5
Codified in section 1021.5, the private attorney general doctrine, under which attorney fees may be awarded to successful litigants, "rests upon the recognition that privately initiated lawsuits are often essential to the effectuation of the fundamental public policies embodied in constitutional or statutory provisions, and that, without some mechanism authorizing the award of attorney fees, private actions to enforce such important public policies will as a practical matter frequently be infeasible. [Citations.]" ( Woodland Hills Residents Assn., Inc. v. City Council (1979) 23 Cal.3d 917, 933 [ 154 Cal.Rptr. 503, 593 P.2d 200] ( Woodland Hills.)) "`In short, section 1021.5 acts as an incentive for the pursuit of public interest-related litigation that might otherwise have been too costly to bring. [Citations.]'" ( Punsly v. Ho (2003) 105 Cal.App.4th 102, 109 [ 129 Cal.Rptr.2d 89], italics added.)
"Eligibility for section 1021.5 attorney fees is established when `(1) plaintiffs' action "has resulted in the enforcement of an important right affecting the public interest," (2) "a significant benefit, whether pecuniary or nonpecuniary has been conferred on the general public or a large class of persons" and (3) "the necessity and financial burden of private enforcement are such as to make the award appropriate."'" ( Joshua S., supra, 42 Cal.4th at pp. 951-952, fn. omitted, quoting Woodland Hills, supra, 23 Cal.3d at p. 935.) Because section 1021.5 "states the criteria in the conjunctive, each of the statutory criteria must be met to justify a fee award. [Citations.]" ( County of Colusa v. California Wildlife Conservation Bd. (2006) 145 Cal.App.4th 637, 648 [ 52 Cal.Rptr.3d 1].) The burden is on the claimant in the trial court to establish each prerequisite to an award of attorney fees under section 1021.5. ( Ryan v. California Inter scholastic Federation (2001) 94 Cal.App.4th 1033, 1044 [ 114 Cal.Rptr.2d 787]; Consumer Cause, Inc. v. Mrs. Gooch's Natural Food Markets, Inc. (2005) 127 Cal.App.4th 387, 401 [ 25 Cal.Rptr.3d 514].)
Section 1021.5 reads in relevant part: "a court may award attorneys' fees to a successful party against one or more opposing parties in any action which has resulted in the enforcement of an important right affecting the public interest if: (a) a significant benefit, whether pecuniary or nonpecuniary, has been conferred on the general public or a large class of persons, (b) the necessity and financial burden of private enforcement, or of enforcement by one public entity against another public entity, are such as to make the award appropriate, and (c) such fees should not in the interest of justice be paid out of the recovery, if any."
Generally, "[d]ecisions awarding or denying attorneys' fees are reviewed under an abuse of discretion standard." ( City of Santa Monica v. Stewart (2005) 126 Cal.App.4th 43, 82 [ 24 Cal.Rptr.3d 72].) "Whether the moving party has proved each of these prerequisites for an award of attorney fees pursuant to section 1021.5 is best decided by the trial court, and the trial court's judgment on this issue must not be disturbed on appeal `unless the appellate court is convinced that it is clearly wrong and constitutes an abuse of discretion.' [Citations.]" ( Family Planning Specialists Medical Group, Inc. v. Powers (1995) 39 Cal.App.4th 1561, 1567 [ 46 Cal.Rptr.2d 667].) This standard is deferential. Thereunder, "`"[t]o be entitled to relief on appeal . . . it must clearly appear that the injury resulting from such a wrong is sufficiently grave to amount to a manifest miscarriage of justice. . . ."' [Citation.] . . . `. . . [R]eversal is appropriate "where no reasonable basis for the action is shown." [Citation.]' [Citations.]" ( Baggett v. Gates (1982) 32 Cal.3d 128, 143 [ 185 Cal.Rptr. 232, 649 P.2d 874].)
Some courts have applied a de novo standard of review when the appellate court publishes an opinion in the case. (Cf. Los Angeles Police Protective League v. City of Los Angeles (1986) 188 Cal.App.3d 1, 7-8 [ 232 Cal.Rptr. 697].) When an appellate court issues an opinion, it is arguably in as good a position as the trial court to determine whether the legal right enforced through its opinion meets any of the three criteria of section 1021.5. (See Los Angeles Police Protective League v. City of Los Angeles, supra, at p. 8.) And, a "`de novo review of such a trial court order is warranted where the determination of whether the criteria for an award of attorney fees and costs in this context have been satisfied amounts to statutory' construction and a question of law.'" ( Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1175 [ 39 Cal.Rptr.3d 788, 129 P.3d 1].) As explained below, under either standard — abuse of discretion or de novo — the trial court's ruling must be affirmed.
2.
The Supreme Court in Joshua S.
established the applicable criteria here for determining under section 1021.5 whether the litigation "has resulted in the enforcement of an important right affecting the public interest."
As noted, if any of the section 1021.5 elements is not met, then the fee award is not justified. ( County of Colusa v. California Wildlife Conservation Bd., supra, 145 Cal.App.4th at p. 648.) We agree with the trial court that plaintiffs here failed to meet the first element. That is, plaintiffs did not demonstrate that their action resulted in the enforcement of an important right affecting the public interest. ( Joshua S., supra, 42 Cal.4th at pp. 951-952.) Stated otherwise, the Supreme Court's explication in Joshua S. indicates that the dispute here over expedition fees did not amount to public interest litigation. Where the trial court's ruling denying the attorney fee request was entirely consistent with Joshua S., it was not an abuse of discretion.
Joshua S. involved a dispute between a same-sex couple that had engaged in a practice known as "second parent" adoption, in which the same-sex partner of a birth mother adopted the child, while the birth mother retained her parental rights. After the couple's relationship ended, the birth mother challenged her former partner's adoption of the second child, Joshua, by arguing, inter alia, that the form of adoption had no legal basis. ( Joshua S., supra, 42 Cal.4th at p. 950.) The prior case concluded in a Supreme Court opinion that upheld second parent adoptions. ( Ibid.) Thereafter, the prevailing adoptive mother moved for section 1021.5 attorney fees on the basis that she had prevailed in the Supreme Court on "an issue of benefit to a large class of persons." ( 42 Cal.4th at p. 950.)
The Supreme Court concluded that attorney fees under section 1021.5 were not appropriately awarded because the losing party birth mother was "not the type of party on whom private attorney general fees were intended to be imposed." ( Joshua S., supra, 42 Cal.4th at p. 953.) With respect to the behavior of the party charged with paying attorney fees, according to the Supreme Court's review of the case law, "in virtually every published case in which section 1021.5 attorney fees have been awarded, the party on whom the fees have been imposed had done something more than prosecute or defend a private lawsuit, but instead had engaged in conduct that in some way had adversely affected the public interest." (Joshua S., supra, at p. 954, italics added; see id. at p. 955, fn. 3 [citing cases].) That is, the "public interest litigation obtained a substantial benefit by causing a change in the defendant's behavior, whose actions or failure to act was somehow impairing the statutory or constitutional rights of the public or a significant class of people." (Id. at pp. 954-955, italics added.)
The court also found support for its interpretation of public interest litigation such as would justify section 1021.5 attorney fees in the statute's legislative history. "[T]he Legislature was focused on public interest litigation in the conventional sense: litigation designed to promote the public interest by enforcing laws that a governmental or private entity was violating, rather than private litigation that happened to establish an important precedent." (Joshua S., supra, 42 Cal.4th at p. 956, italics added, citing Sen. Com. on Judiciary, Rep. on Assem. Bill No. 1310 (1977-1978 Reg. Sess.) as amended May 18, 1977, p. 1 and Sen. Com. on Judiciary, Hearing on Assem. Bill No. 1310 (1977-1978 Reg. Sess.) Aug. 14, 1977, testimony of John R. Phillips, p. 15.) The court explained, "[t]he enforcement of an important right affecting the public interest implies that those on whom attorney fees are imposed have acted, or failed to act, in such a way as to violate or compromise that right, thereby requiring its enforcement through litigation. It does not appear to encompass the award of attorney fees against an individual who has done nothing to curtail a public right other than raise an issue in the context of private litigation that results in important legal precedent." ( Joshua S., supra, at p. 956.) The court noted that "attorney fees have been awarded to those defending against suits by public entities, or those purporting to represent the public, that seek to expand the government's power to curtail important public rights. [Citation.]" ( Id. at p. 957, italics added.) Recognizing "in some cases the litigation underlying the section 1021.5 award can involve rights or benefits that are somewhat intangible, such as clarifying important constitutional principles," the Supreme Court explained that, "even in such cases, the party against whom the fees are awarded is responsible in some way for the violation of those rights and principles. [Citation.]" ( Joshua S., supra, at p. 958, italics added.)
The Joshua S. court viewed the birth mother, the person from whom the prevailing party sought to recover fees, as "a private litigant with no institutional interest in the litigation, and the judgment she sought in the present case would have settled only her private rights and those of her children and [the prevailing party adoptive mother]. She simply raised an issue in the course of that litigation that gave rise to important appellate precedent decided adversely to her." ( Joshua S., supra, 42 Cal.4th at p. 957, fn. omitted.) Courts may consider whether the litigation generated important appellate precedent when determining whether the litigation enforced an important right affecting the public interest. ( Id. at p. 958.) "But even when an important right has been vindicated and a substantial public benefit conferred, and when a plaintiff's litigation has transcended her personal interest, we conclude that section 1021.5 was not intended to impose fees on an individual seeking a judgment that determines only his or her private rights, but who has done nothing to adversely affect the public interest other than being on the losing side of an important appellate case." (Joshua S., supra, at p. 958, italics added.)
3. Joshua S.
is on point and is controlling Supreme Court precedent.
Serrano I is analogous to the prior litigation in
Joshua S. (Sharon S. v. Superior Court (2003) 31 CaWth 417 [
2 Cal.Rptr.3d 699, 73 P.3d 554]) and Coast is in the same position as the birth mother in that case. The trial court here denied plaintiffs' motion for private attorney general fees under section 1021.5 on remand, finding that in seeking an order for Coast to provide a copy of the deposition transcript without charging the expedited-service fee, plaintiffs were trying to protect their own private interest and not seeking to vindicate an important right affecting the public interest. As explained, our review is deferential. We affirm the denial of attorney fees because the trial court's ruling was clearly correct and well within the bounds of its discretion.
The trial court here did not abuse its discretion in concluding that Serrano I was a private dispute, not public interest litigation, notwithstanding our decision to publish Serrano I did have, as plaintiffs characterize it: a "public effect." "Although `it is a built-in consequence of [the Anglo-American principle of] stare decisis that "a legal doctrine established in a case involving a single litigant characteristically benefits all others similarly situated"' (Dawson, [ Lawyers and Involuntary Clients in] Public Interest Litigation [(1975)] 88 Harv. L. Rev. 848, 918 . . .), the doctrine of stare decisis has never been viewed as sufficient justification for permitting an attorney to obtain fees from all those who may, in future cases, utilize a precedent he has helped to secure. [Citations.]" ( Woodland Hills, supra, 23 Cal.3d at p. 946.)
At issue in Serrano I was a private business disagreement between plaintiffs and Coast only — not the entire deposition reporting industry — over the fees one side of the arrangement sought to charge the other side for services provided in the course of a larger personal injury lawsuit. ( Joshua S., supra, 42 Cal.4th at p. 953.) That private dispute raised an issue that resulted in a published appellate opinion. But, that dispute did not arise from an attempt to curtail any conduct on the part of Coast that was infringing a statutory or public right or violating a constitutional principle. Indeed, as we noted twice in Serrano I, Coast waived its fees and delivered all of the deposition transcripts to plaintiffs pending the trial court's determination of the reasonableness of the expedited-service fee. ( Serrano I, supra, 162 Cal.App.4th at pp. 1020, 1021.) Coast merely raised the argument that it, not the trial court, had the right to regulate the fees it charged. Although the dispute in Serrano I happened to result in legal precedent, and even though we happened to request amici curiae briefs, Serrano I did not transform this private disagreement over an invoice into public interest litigation because Coast was not purporting to represent the public and its conduct addressed in our opinion had not been impairing the statutory or constitutional rights of the public or even a large or significant class of people. ( Joshua S., supra, at pp. 954-955; Woodland Hills, supra, 23 Cal.3d at p. 946.) Indeed, our opinion in Serrano I did not pronounce a rule that all expedition fees are unreasonable; we merely clarified that the trial court had the power and discretion to determine the reasonableness of the particular fee that Coast was charging plaintiffs in this specific case. ( Serrano I, supra, at p. 1038.) The proceeding in Serrano I settled only plaintiffs' and Coast's private rights. Accordingly, the trial court acted within the bounds of reason in denying plaintiffs' attorney fees request. The trial court's determination that Serrano I did not result in enforcement of an important public right is entitled to deference and is easily upheld.
4.
Under our independent analysis, Serrano I
was not public interest litigation for purposes of section 1021.5 as explicated by Joshua S.
We may determine de novo whether our own opinion enforced a legal right that meets the criteria of section 1021.5. Serrano I did not result in the clarification or enforcement of an important public right or a constitutional principle as described by Joshua S. This court's earlier decision in Serrano I did not create new law or extend existing law. Our opinion merely reiterated the state of statutory authority (Code Civ. Proc., §§ 2025.510, subd. (c), 2025.570, subd. (a), 128), which empowers trial courts to regulate deposition fees. Nor did our opinion pronounce a new principle. Trial courts have long had the inherent power generally to control the conduct of ministerial officers and others connected with judicial proceedings. (Code Civ. Proc., § 128.) The trial court in Serrano I misunderstood its power and believed itself constrained by Urban Pacific Equities Corp. v. Superior Court, supra, 59 Cal.App.4th 688. Serrano I gave guidance by disagreeing with Urban and explicating the court's power. Therefore, we merely corrected a garden-variety error by a trial court that had mistakenly believed it lacked the authority to limit court reporter fees, with the result that Serrano I did not enforce a fundamental public right or constitutional principle that was being infringed by Coast.
The dissent makes much of our observation in Serrano I that deposition reporters are ministerial officers of the court to argue that Coast's conduct in "holding a necessary transcript hostage while demanding an unreasonable fee" transforms this dispute into public interest litigation. (See dis. opn., post, at pp. 192, 194.) Yet, as noted, the fee Coast charged was not unreasonable until the trial court ruled it so, and once the dispute arose between Coast and plaintiffs. Coast waived its fee and provided the deposition transcripts pending resolution of the disagreement by the trial court. Therefore, the fact that deposition reporters are ministerial officers of the court does not transform this disagreement into public interest litigation.
For these reasons, we reject plaintiffs' contention that, unlike Joshua S., this case "implicate[s] ongoing adverse impact to the public." Although vague, it appears that plaintiffs also argue that the trial court misread Joshua S. and ignored plaintiffs' mixed motives both to protect their own rights and to vindicate a public right. However, a similar argument, namely, that the attorney was motivated to defend a public right, was not successful in Joshua S. ( 42 Cal.4th at p. 951.) Moreover, we review a trial court's "actual ruling, not its reasons" ( Punsly v. Ho, supra, 105 Cal.App. at p. 113), and plaintiffs have not persuaded us that the trial court was clearly wrong. Joshua S. is on point as it discusses what sort of action gives rise to "public interest litigation" such as would justify the imposition of fees against the losing party. That case is not limited to adoptions.
To summarize, the trial court's determination that Serrano I was private litigation and did not result in the enforcement of an important public right is entitled to deference and is handily affirmed. Our independent review of our own opinion confirms the trial court's conclusion that Serrano I was not public interest litigation. As we conclude that the trial court did not abuse its discretion in denying plaintiffs private attorney general fees because plaintiffs had failed to show the first element of the section 1021.5 test ( County of Colusa v. California Wildlife Conservation Bd., supra, 145 Cal.App.4th at p. 648), we need not address plaintiffs' contentions touching on the remaining elements of the test.
DISPOSITION
The order is affirmed. Respondent to recover costs of appeal.
Klein, P. J., concurred.
CROSKEY, J., Dissenting.
I respectfully dissent.
I believe the trial court read the Supreme Court's opinion in Adoption of Joshua S. (2008) 42 Cal.4th 945 [ 70 Cal.Rptr.3d 372, 174 P.3d 192] ( Joshua S.) too broadly, and our prior opinion in Serrano v. Stefan Merli Plastering Co., Inc. (2008) 162 Cal.App.4th 1014 [ 76 Cal.Rptr.3d 559] ( Serrano I) too narrowly. An award of attorney fees under Code of Civil Procedure section 1021.5 (section 1021.5) is not inappropriate in this case. Therefore, I would reverse.
1. Serrano I
We held in Serrano I that the court in a pending action has the authority to require a deposition reporter to provide a copy of a transcript to a nonnoticing party for a reasonable fee. This is so because a deposition reporter acting, as Coast Court Reporters, Inc. (Coast), did, as a deposition officer, is a ministerial officer of the court. (Serrano I, supra, 162 Cal.App.4th at p. 1035.)
A deposition must be conducted under the supervision of a deposition officer who is authorized to administer an oath. (Code Civ. Proc., § 2025.320.) The deposition testimony must be recorded stenographically, unless the parties agree or the court orders otherwise. (Code Civ. Proc., § 2025.320.) In this case, Coast followed the common practice of acting as both deposition officer and certified shorthand reporter. ( Serrano I, supra, 162 Cal.App.4th at p. 1033.) The Code of Civil Procedure imposes certain obligations of nonbias and objectivity on deposition officers. (Code Civ. Proc., § 2025.320.) In addition, Code of Civil Procedure section 2025.570, subdivision (a) provides, in pertinent part, "unless the court issues an order to the contrary, a copy of the transcript of the deposition testimony made by, or at the direction of, any party, . . . if still in the possession of the deposition officer, shall be made available by the deposition officer to any person requesting a copy, on payment of a reasonable charge set by the deposition officer."
In this case, Coast violated its statutory duty as a deposition officer by refusing to deliver copies of its transcripts without payment of an unreasonable fee. Thus, Serrano I did not resolve a mere dispute between private parties regarding the reasonableness of a fee, but a dispute between a party to a litigation in the California courts and the deposition officer who was undermining that party's ability to prepare for trial by violating its own statutory duties.
The majority makes much of the fact that Coast "waived its fees and delivered all of the deposition transcripts to plaintiffs pending the trial court's determination of the reasonableness of the expedited-service fee." (Maj. opn., ante, at p. 189.) Yet Coast initially charged the unreasonable fee, then, when plaintiffs protested. Coast stated that "counsel would receive a certified copy of the transcript on an expedited basis only upon payment of the additional fee." ( Serrano I, supra, 162 Cal.App.4th at p. 1021.) Coast did not agree to deliver the transcripts without payment of the fee until after plaintiffs had sought ex parte relief, and the court had set the matter for a further hearing on the validity and reasonableness of the fee. ( Ibid.) Agreeing to provide the transcripts without payment of the fee pending trial court resolution of the issue does not erase the fact that Coast violated its statutory duty by initially refusing to provide the transcripts until it was paid its unconscionable fee.
2. Joshua S.
In Joshua S., the Supreme Court concluded that section 1021.5 fees are not appropriately awarded against a party who "only engaged in litigation to adjudicate private rights from which important appellate precedent happens to emerge, but has otherwise done nothing to compromise the rights of the public or a significant class of people." ( Joshua S., supra, 42 Cal.4th at p. 954.) The court reasoned that the unspoken justification for section 1021.5 fees "is that it is equitable to impose public interest attorney fees on parties that have done something to adversely affect the public interest," and that this requires something more than merely prosecuting or defending a lawsuit. ( 42 Cal.4th at p. 954.)
The court also recognized that, as a general rule, in cases where section 1021.5 fees have been awarded, the litigation "obtained a substantial benefit by causing a change in the defendant's behavior, whose actions or failure to act was somehow impairing the statutory or constitutional rights of the public or a significant class of people." ( Joshua S., supra, 42 Cal.4th at pp. 954-955.) The court then identified many of these prior cases in a lengthy footnote. ( Id. at p. 955, fn. 3.) These cases included litigation against private defendants, where the only wrongdoing by the defendants was against their own customers (e.g., Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663, 682-693 [ 38 Cal.Rptr.3d 36] [corporation labelled its products in violation of the false advertising law]; Beasley v. Wells Fargo Bank (1991) 235 Cal.App.3d 1407, 1412 [ 1 Cal.Rptr.2d 459], disapproved on other grounds in Olson v. Automobile Club of Southern California (2008) 42 Cal.4th 1142 [ 74 Cal.Rptr.3d 81, 179 P.3d 882] [bank improperly assessed fees against its credit card customers who failed to make timely payments or exceeded their credit limits]). Thus, it is clear that when the court spoke of defendants "whose actions or failure to act was somehow impairing the statutory or constitutional rights of the public or a significant class of people," the court was not restricting the application of section 1021.5 to public entities or those who violate the rights of the general public. Indeed, the Supreme Court was not restricting the application of section 1021.5, as it had been applied by the courts, at all; it was simply recognizing that all previous parties charged with fees under section 1021.5 had been parties who had engaged in some actual wrongdoing, and had not simply raised an issue in litigation which resulted in important appellate precedent.
Finally, the court pointed to the language of section 1021.5 which creates the first element of the test for attorney fees: that the action "has resulted in the enforcement of an important right affecting the public interest." The court focused on the word "enforcement," and concluded that "[t]he enforcement of an important right affecting the public interest implies that those on whom attorney fees are imposed have acted, or failed to act, in such a way as to violate or compromise that right, thereby requiring its enforcement through litigation. It does not appear to encompass the award of attorney fees against an individual who has done nothing to curtail a public right other than raise an issue in the context of private litigation that results in important legal precedent." ( Joshua S., supra, 42 Cal.4th at p. 956.) In short, the court was persuaded that "the parties against whom attorney fees should be assessed should be those responsible for the policy or practice adjudged to be harmful to the public interest." ( Id. at p. 957.)
In sum, the court held that "even when an important right has been vindicated and a substantial public benefit conferred, and when a plaintiffs litigation has transcended her personal interest, . . . section 1021.5 was not intended to impose fees on an individual seeking a judgment that determines only his or her private rights, but who has done nothing to adversely affect the public interest other than being on the losing side of an important appellate case." ( Joshua S., supra, 42 Cal.4th at p. 958.)
3. Joshua S.
Does Not Bar an Award of Attorney Fees in This Case
In the instant case, Coast argues that it is in the same position as the birth mother in Joshua S., as it did nothing to adversely affect the public interest, or a significant class of people, other than attempt to defend its expedition fees and ultimately be on the losing side of Serrano I. We disagree. Coast overlooks that it refused to deliver copies of its transcripts without payment of an unreasonable fee. As we stated in Serrano I, "For a deposition reporter to refuse to provide a copy of a transcript to a nonnoticing party in a pending action unless the party agrees to pay an unreasonable fee would be grossly unfair. Moreover, for a deposition reporter, as an officer of the court, to engage in such conduct would be an abuse of the reporter's authority." ( Serrano I, 162 Cal.App.4th at p. 1036.) Coast did exactly that. A deposition reporter which abuses its authority by withholding copies of its transcripts unless an unreasonable fee is paid has done an act which adversely affects the public interest.
We held in Serrano I that withholding a transcript unless a party agreed to pay an unreasonable fee would be "an abuse of the reporter's authority," and a violation of statutory requirements which, when read together, require that copies be provided for a reasonable fee (Code Civ. Proc., §§ 2025.510, subd. (c), 2025.570, subd. (a)). What had not been established was whether Coast's fee had, in fact, been unreasonable. Once the trial court concluded that Coast's fee was unreasonable in its entirety, it was necessarily established that Coast had abused its authority and violated the statutory requirements.
As Coast represented that the fee it charged plaintiffs was its standard fee for an expedited transcript copy, the conclusion that Coast's conduct adversely affected all nonparties who sought expedited transcript copies from Coast, and not merely the plaintiffs in this action, is inescapable.
To be sure, Serrano I involved more than whether a deposition reporter could withhold a transcript copy unless paid an unreasonable fee; the opinion also established a trial court's jurisdiction and authority to determine the reasonableness of the fee in the pending proceeding (even though the deposition reporter, while an officer of the court, was not a party to the action). Had this latter issue been the sole issue before us in Serrano I, and Coast had not charged an unreasonable fee or had not withheld the transcript, Coast would have a potentially viable argument that it falls within the scope of the rule of Joshua S. But this is not a case in which Coast simply litigated a private issue and ended up on the losing side of an opinion establishing trial court jurisdiction over deposition reporters' fees; Coast instead abused its authority as an officer of the court by holding a necessary transcript hostage while demanding an unreasonable fee. It is therefore not entitled to the benefit of the Joshua S. opinion. To the extent the trial court concluded otherwise, I believe it erred as a matter of law.
I believe the trial court further erred in its apparent reliance on the plaintiffs' initial motives. That is, the court stated, "Moving party was not trying to vindicate the public's interest. Rather [they were] trying to protect [their] own interest and in so doing, by virtue of a published opinion, [they] conferred a benefit to litigants." But whether a plaintiff pursued an action with the subjective motivation of benefitting himself or the public is not a controlling factor in determining whether the plaintiff is entitled to fees under section 1021.5. ( Satrap v. Pacific Gas Electric Co. (1996) 42 Cal.App.4th 72, 77 [ 49 Cal.Rptr.2d 348].) Joshua S. did not consider, or change, controlling law regarding the inapplicability of evidence of motive, rather, it rejected the attorney fee claim despite a substantial widespread public benefit because the party against whom fees were sought had done nothing wrong. In any event, even if plaintiffs' motivation in initially challenging the fees was purely selfish, there can be no doubt that their motivation in pursuing the issue on appeal was not. No party would spend over $100,000 to litigate $2,872 in deposition fees if motivated purely by its own financial interest.
I would therefore reverse and remand for a determination of whether plaintiffs are entitled to attorney fees under each of the elements which must be established for an award of fees pursuant to section 1021.5. (See Joshua S., supra, 42 Cal.4th at pp. 951-952; Los Angeles Police Protective League v. City of Los Angeles (1986) 188 Cal.App.3d 1, 6 [ 232 Cal.Rptr. 697].)
< class="paragraph"> The statute clearly states that "[e]ach CMRS provider shall act as a collection agent for the CMRS fund . . ." KRS § 65.7635(1). Therefore, in light of the definitions examined, the statute, at its most basic level and in no uncertain terms, requires TracFone to collect the service fees from its Kentucky customers. This is the same conclusion that Judge Conliffe reached in
Virgin Mobile. As Judge Conliffe stated, "it is clear that the Defendant is mandated to collect the fee in question from its customers. Any other interpretation would contravene the uniformity requirement of K.R.S. 65.7627."
This is a most reasonable analysis under the circumstances.
Under the 1998 Act, KRS 65.7627 provided, "The CMRS service charge shall have uniform application within the boundaries of the Commonwealth." As Judge Conliffe explained, if TracFone is not required to collect the service charge from its customers, then TracFone, and potentially its customers, would be treated differently than other CMRS providers, in violation of this statute.
B.
The 1998 Act, however, does not end with this clear provision requiring TracFone to collect the service fees. Rather, it goes on to prescribe a specific method of collection:
Each CMRS provider . . . shall,
as part of the provider's normal monthly billing process, collect the CMRS service charges levied upon CMRS connections under KRS 65.7629(3) from each CMRS connection to whom the
billing provider provides CMRS. Each
billing provider shall list the CMRS service charge as
a separate entry on each bill which includes a CMRS service charge.
KRS § 65.7635(1) (emphasis added). Without doubt, this statutory method of collection does not comport with TracFone's chosen business model. TracFone does not send its customers any "bills," much less utilize a "normal monthly billing process." Without a bill, there is no document on which TracFone would logically "list the CMRS service charge as a separate entry." According to TracFone, reference to this explicit collection method must mean that the statute applies only to postpaid cell phone providers who utilize traditional billing systems and not to prepaid providers.
In addressing this confounding issue, Judge Conliffe looked to principles of statutory construction for tax laws. He found that the prepaid provider's argument was the equivalent of a request for an exemption from a generally applicable tax. Under long-standing Kentucky law,
This Court agrees that the service fees are very similar to taxes and interpretation of these statutes should be in line with the interpretation of tax statutes. It appears that the parties join this analysis as each has recommended a method of interpretation following general tax statute principles.
[a] grant of exemption from taxation is never presumed; on the contrary, in all cases of doubt as to the legislative intention, or as to the inclusion of particular property within the terms of the statute, the presumption is in favor of the taxing
power, and the burden is on the claimant to establish clearly his right to exemption.
Martin v. High Splint Coal Co., 103 S.W.2d 711, 714 (Ky. 1937) (citation and quotation marks omitted). Therefore, Judge Conliffe determined that the statute's specific guidance on how to
collect the fees, while admittedly in conflict with prepaid providers' chosen business model, did not clearly create an implicit exemption to the general duty to collect the service fee.
TracFone contends that Judge Conliffe's "exemption" analysis began from a faulty assumption, i.e. that the statute applied to TracFone at all. According to TracFone, it does not seek an exemption to a general obligation, but rather, an interpretation that the statute applies only to postpaid providers, not prepaid. Under a different principle of tax law, TracFone argues that any ambiguities in the statute should be construed in its favor, as the obligated party, and against the CMRS Board, as the taxing power.
TracFone is correct that, as a general rule, "it is the function of the judiciary to construe the [tax] statute strictly and resolve doubts and ambiguities in favor of the taxpayer and against the taxing powers." George v. Scent, 346 S.W.2d 784, 789 (Ky. 1961). However, as explained above, that rule does not apply where the legislature has specifically stated that the tax apply to the party in question and that party is actually seeking an exemption. Id. Judge Conliffe's analysis that our circumstances more properly fit in the latter category "threads the needle" of a difficult question as well or better than any this Court can devise. The clear intent and language of the statute requires "each CMRS provider," which would include TracFone, to collect the service fees from each customer to whom they provide service. To interpret the statute to apply only to post-paid providers would, indeed, create an exemption for prepaid providers. Because such an exemption is not clearly required by the statute's plain language, the Court cannot grant one.
C.
To be sure, Judge Conliffe's decision is not binding upon this Court. Bradley v. Gen. Motors Corp., 512 F.2d 602, 605 (6th Cir. 1975). "However, th[e] court may give weight to the decision of a [state] trial court in determining what is the controlling law of [the state]." Id. That weight is considerable here because Judge Conliffe undertakes this difficult analysis in a convincing, well-reasoned and most thorough manner. Having considered the plain language of the statute and Kentucky's basic rules of statutory interpretation, this Court concludes that the Kentucky Supreme Court would quite likely follow Judge Conliffe's convincing analysis. Therefore, this Court's most prudent course is to follow it also.
III.
Although the Court sides with Judge Conliffe's opinion, it recognizes that TracFone has raised some legitimate counterpoints. However, none of those arguments have sufficient weight or logic to supplant Judge Conliffe's analysis. Though the 1998 Act's collection provisions are confusing, it remains clear that TracFone must collect the tax. For the reasons that follow, this Court believes that TracFone's arguments to the contrary will not persuade Kentucky's highest court.
A.
Perhaps TracFone's strongest argument that the 1998 Act did not apply to prepaid providers is that the statutes were amended in 2006 to specifically add language regarding prepaid providers. "[T]he presumption is that the legislature, by the amendment, intended to change the law." Whitley County Bd. of Educ. v. Meadors, 444 S.W.2d 890, 891 (Ky. 1969). According to TracFone, the 2006 Amendments only added language specifically applying the
collection duties to prepaid providers. However, TracFone makes too much of the change and the presumption. A closer examination of the amendments reveals that they only changed the method of collection, not the general collection obligation of cell phone providers.
The first sentence of the 2006 version of KRS § 65.7635 is identical to the 1998 version's first clause. Both read, "Each CMRS provider shall act as a collection agent for the CMRS fund." The definition of "CMRS provider" was largely unchanged, adding only the clarification that the term applies to both facilities-based resellers and non-facilities-based resellers. KRS § 65.7621. None of the changes shows that the term "CMRS provider" did not previously apply to prepaid providers. Thus, the general obligation of all CMRS providers to collect fees remained unchanged. Rather, the 2006 Amendments changed only the permissible methods of collection. Consequently, the Court concludes that the 2006 Amendments do not suggest any change in the 1998 Act's general requirement that all CMRS providers, including TracFone, act as collection agents.
"CMRS customer" and "CMRS connection" were also unchanged. The only change regarding the applicability of the fee was to note that, for prepaid customers, the fee is owed by those with a primary place of use in Kentucky (the same standard as the 1998 Act) and those with a Kentucky area code. Thus, the only change was to incorporate more CMRS connections (ones with Kentucky area codes), not to add a new classification of prepaid customers.
The CMRS Board argues that the 2006 amendments represent merely a clarification that prepaid providers were obligated to collect the fees as well. The Court need not make such a finding. Rather, as explained, the plain language of the statute does not effect any change on the obligation to collect. The obligation remains the same — all CMRS providers must collect the service fees from all of their customers. However, the amendments do effect a change in the law; they change the permissible method of collection, adding new options to make it easier for prepaid providers to comply with the law while retaining the same business model.
This analysis complies with basic rules of statutory interpretation regarding amendments. "Courts determine the defects in the original act, which defect the legislature intended to cure, and then construe the amendment to reduce or eliminate the defect intended to be remedied." 1A Norman J. Singer J.D. Shambie Singer, Statutes and Statutory Construction § 22:31 (7th ed. 2009). The defect in the original statute was that the prescribed method of collection did not comport with prepaid providers' chosen business model. The amendments clearly, and explicitly, remedy that defect and no other.
B.
Next, TracFone argues that because its customers owe the service fee and no one collected any fees under the 1998 Act after 2003, the Board cannot now force TracFone to remit fees out-of-pocket. Such an interpretation, of course, would completely alleviate the CMRS provider of its obligation to collect and remit the fees. Clearly, the statute did not intend this result.
Moreover, such a result is contrary to the plain language of the statute, which requires providers collect and remit the fees to the Board. KRS § 65.7635(1). The only time a provider is not responsible for remitting a fee to the Board is where the provider has not collected charges "for which [the] CMRS customer is billed." KRS § 65.7635(2). Here, it is undisputed that TracFone simply made no effort to collect the fees after 2003. It seems illogical that TracFone could impose its own failure to attempt to collect the fees as a defense to its failure to remit.
C.
TracFone also contends that it could not collect the fee using the method the 1998 Act requires and, therefore, its compliance was impossible. It cites two reasons for this impossibility.
First, it argues that building the fee into its suggested retail price would violate KRS § 65.7635(3), which provides that "[s]tate and local taxes shall not apply to CMRS service charges." TracFone sells the vast majority of its products through third party retailers. According to TracFone, if it built the fee into its suggested retail price, the retailers would automatically charge sales tax on the full retail price and, thus, would tax the fee. TracFone has presented nothing to suggest that it has attempted to work with retailers to collect the fee or determine a best method of doing so. Computer technology has assisted retailers to distinguish between products that have a sales tax and products that do not. TracFone has not convinced the Court that building the fee into its retail price without exposing customers to an unauthorized tax is a difficult, not to mention impossible, task.
TracFone's next argument is, again, premised on its business model. When a customer purchases a set amount of minutes for use, TracFone does not know if that customer will use those minutes over a week's time or several months. The service fee is seventy cents per month. Because TracFone does not know how long a phone will be used, it argues that it cannot know how much to collect from its customers. The Court recognizes that this presents some difficulty for TracFone. It is a difficulty, however, that again arises because of TracFone's business choices. Moreover, it is a difficulty that the Court is not convinced creates an impossibility. Put simply, TracFone's business choices do not alleviate its obligations under the statute.
TracFone asserts that it does not follow the use of its phones once they are activated and, therefore, does not know how long the customer uses the phone. This may be true. However, TracFone does submit quarterly reports to the Commonwealth stating the number of its customers. Therefore, TracFone does, in fact, know how many customers are active and for how long they have been active. Based on such information and actuarial calculations, TracFone could likely calculate the average number of minutes its customers use in a month and collect the fee based on that average.
Of course, it does not contend that it cannot follow the use, only that it does not.
Of course, TracFone could develop other methods for collecting the fee that vary slightly from its business model. For example, a customer could be required to set up an account with a certain reserve of funds to pay for the fee so long as the phone is activated. If the customer discontinues use of the phone prior to the account being exhausted, the money would simply be refunded to the customer's account. If the customer's account is depleted and they wish to obtain additional use of the phone, they may be required to put additional monies into the account. TracFone could also bill its customers each month for the fee. While these methods do require a change to TracFone's business model and may create additional expense, those facts do not relieve TracFone of its statutory duties. It has not put forth evidence of an actual impossibility in compliance.
D.
For its next argument, TracFone contends that applying the 1998 Act to it would violate the Due Process and Equal Protection clauses of the federal constitution. These arguments are not persuasive.
With regard to the Due Process clause, TracFone claims that the statute is unconstitutionally vague and that it could not have known what was required of it. This argument largely refashions TracFone's previous arguments — i.e. that the statute is ambiguous and that it could not comply with the prescribed billing methods. Based on the above analysis, however, the statute clearly states that all CMRS providers, which includes TracFone, must collect the service fees. Furthermore, there is no evidence that compliance with that general mandate would have been genuinely impossible. Therefore, the due process claim fails.
The Equal Protection claim largely refashions TracFone's argument that the customer, not TracFone, is responsible for paying the fees. According to TracFone, requiring it to pay when it did not collect would treat it differently than the postpaid providers who did collect from their customers. This argument is also flawed. First, TracFone is not similarly situated to postpaid providers that billed for, and collected, the service fees from their customers. TracFone freely admits that it made no attempt to collect the service fees. Had the postpaid providers made no attempt to collect, they too would be liable for the fees out-of-pocket. Second, requiring TracFone to collect the fees actually treats all CMRS providers the same; it does not prejudice prepaid providers or advantage postpaid providers. If prepaid providers are not required to collect the fees, they would gain a competitive advantage over their postpaid rivals. Such an interpretation would violate KRS § 65.7627, which provides, "The CMRS service charge shall have uniform application within the boundaries of the Commonwealth."
E.
Finally, TracFone contends that the Board's claims should be dismissed based on equitable grounds. First, it contends that the CMRS Board, despite knowing that litigation was possible, failed to implement a procedure to maintain records and destroyed many records of former board members. TracFone argues that this spoliation requires dismissal. Second, TracFone contends that the doctrine of laches bars any recovery by the Board because it failed to act in a reasonable and timely manner to ensure TracFone's compliance with the 1998 Act.
"Dismissal is the sanction of last resort." Beil v. Lakewood Eng'g Mfg. Co., 15 F.3d 546, 552 (6th Cir. 1994). Moreover, the party claiming spoliation must show that the destroyed evidence was relevant to the issues in the lawsuit. Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 107 (2d Cir. 2002). See also McDaniel v. Transcender, LLC, 119 Fed.Appx. 774, 782 (6th Cir. 2005) ("[I]t is a general rule that the intentional spoliation or destruction of evidence relevant to a case raises . . . an inference, that the evidence would have been unfavorable to the cause of the spoliator.") (emphasis added and quotation omitted). TracFone has not shown that any destroyed documents contained relevant evidence. This is a case of statutory interpretation. As a general matter, documentary evidence from either party would not impact the Court's analysis. The Court is charged with examining the plain language of the statute and the legislature's intent in enacting it. Put simply, TracFone has not shown that the destruction of any Board documents warrants such an extreme consequence as dismissal.
The only possible exception would be statements made to TracFone, as they may reflect on its defense of laches. However, TracFone has, or at a minimum had, possession of any such statements. Therefore, there is no basis for finding that destroyed copies of those statements warrants dismissal.
"The basis for the doctrine of laches is that neglect or omission to assert one's rights within a reasonable period of time, where it causes prejudice, injury, disadvantage or a change of position to the other party, will bar enforcement of that claimant's rights." Wigginton v. Commonwealth, ex rel. Caldwell, 760 S.W.2d 885, 887 (Ky. Ct. App. 1988). TracFone argues that it notified the Board of its interpretation of the 1998 Act in November of 2003 and that the Board's failure to bring this action prior to 2008 should bar its claims. The Court disagrees.
TracFone has presented no evidence that it was prejudiced, injured, disadvantaged or made a change in its position based on the delay. As explained, this case involves basic statutory interpretation. Nothing in the delay has caused the destruction of any evidence related to that interpretation. The Board never misled TracFone about its interpretation of the 1998 Act or its intention to seek remittance of the fees under it. Without showing some prejudice by the delay, the doctrine of laches does not apply. See Plaza Condo. Ass'n, Inc. v. Wellington Corp., 920 S.W.2d 51, 54 (Ky. 1996).
The Court's analysis with respect to spoliation and laches applies equally to TracFone's claims under the 2006 Amendments, which are discussed in Section IV.
IV.
The Court next considers the 2006 Amendments, which all parties agree require prepaid providers to collect and remit the service charges. The only dispute is whether TracFone must do so in the absence of an administrative ruling by the Board.
The relevant provision of the 2006 Amendments, which remains unchanged, provides,
For CMRS customers who purchase CMRS services on a prepaid basis, the CMRS service charge shall be determined according to one (1) of the following methodologies as elected by the CMRS provider:
(a) The CMRS provider shall collect, on a monthly basis, the CMRS service charge specified in KRS 65.7629(3) from each active customer whose account balance is equal to or greater than the amount of service charge; or
(b) The CMRS provider shall divide its total earned prepaid wireless telephone revenue received with respect to its prepaid customers in the Commonwealth within the monthly 911 emergency telephone service reporting period by fifty dollars ($50), multiply the quotient by the service charge amount, and pay the resulting amount to the board; or
(c) In the case of CMRS providers that do not have the ability to access or debit end user accounts, and do not have retail contact with the end-user or purchaser of prepaid wireless airtime, the CMRS service charge and collection methodology may be determined by administrative regulations promulgated by the board to collect the service charge from such end users.
KRS § 65.7635(1). Immediately after passage of the 2006 Amendments, TracFone notified the Board of its election of "Option C" and requested an administrative regulation detailing how it should determine and collect the fees. To this date, the Board has not responded. The parties dispute whether TracFone is required to collect the fees between the time it notified the Board of its election of "Option C" and the time the Board advises it of the proper collection method. No Kentucky court has considered this issue.
The Board's attorney quickly notified TracFone that its specific request that retailers be required to collect the fees was rejected. TracFone argues, with significant evidence, that such a rejection was withdrawn and that the Board promised to consider its request. For the reasons explained below, the Court finds this factual dispute immaterial. What is important is that the Board issued no advice on the proper method of collection.
A.
Prior to analyzing the central issue, the Court must consider an important prerequisite. "Option C" is not available to all CMRS providers. Rather, the CMRS provider must meet two criteria: (1) it "[can]not have the ability to access or debit end user accounts," and (2) it "[can]not have retail contact with the end-user or purchaser of prepaid wireless airtime." Id. The parties agree that TracFone meets the first requirement and, largely, meets the second. For its sales through third-party retailers, TracFone may elect "Option C." However, some of TracFone's sales are processed directly with the end-use customer, through either TracFone's website or retail phone line. For those customers, TracFone cannot elect "Option C." Yet, from the enactment of the 2006 Amendments until September of 2009, TracFone did not collect any fees from those direct customers. It offers no explanation or excuse for its failure. Because "Option C" was unavailable for those sales, TracFone was clearly obligated to collect the fees under Option A or B and is now liable for the past due fees for its direct customers.
B.
Whether TracFone owes any uncollected service fees for its customers who purchased through third-party retailers is a more difficult, and closer, question. Without doubt, the 2006 Amendments apply to prepaid providers, including TracFone. Thus, in the abstract, TracFone is obligated to collect the fees. The dispute, once again, involves the prescribed method of collection.
As explained, the 2006 Amendments permit TracFone to chose its method of collection from three options. It chose Option C, which provides,
In the case of CMRS providers that do not have the ability to access or debit end user accounts, and do not have retail contact with the end-user or purchaser of prepaid wireless airtime, the CMRS service charge and collection methodology may be determined by administrative regulations promulgated by the board to collect the service charge from such end users.
KRS § 65.7635(1)(c). Under this option, the proper method of collection "may be determined by administrative regulations promulgated by the board." Id. Two things are known: (1) the Board has not directed TracFone on the proper method of collection under Option C; and (2) TracFone has not remitted any service fees for its customers who purchase through third-party retailers since electing Option C. The issue is whether TracFone was obligated to collect under Option A or B while awaiting a response from the Board.
The Court begins its analysis with the language of the statute. Wheeler Clevenger Oil Co., Inc. v. Washburn, 127 S.W.3d 609, 614 (Ky. 2004). Unlike the difficulties seen in the 1998 Act, the 2006 Amendments provide clear guidance on how prepaid providers should collect the service fees. "For CMRS customers who purchase CMRS services on a prepaid basis, the CMRS service charge shall be determined according to one (1) of the following methodologies as elected by the CMRS provider." KRS § 65.7635(1) (emphasis added). The statute then provides three options, known as Options "A," "B," and "C." As the statute clearly states, a provider need only select one of the three options and that selection shall determine the method of collection to be used. Under the unambiguous terms of the statute, the CMRS Board is bound by that selection and must accept remittance of the fees pursuant to the selected method. If a provider selects Option A, the Board cannot require the provider to collect under Option B. The provider needs only select one method of collection and follow it.
Based on the plain language of the statute, Option C must work the same way. Nothing in the statute indicates that Option C is to be treated differently. Rather, Option C is listed as a viable choice, just as are Options A and B. The statute clearly requires a provider elect only "one (1) of the . . . methodologies." Id. Once Option C is elected, the burden shifts to the CMRS Board to advise Tracfone, either by administrative regulation or other appropriate means, of the proper method of collection. Any other reading of the statute would undermine the language of the statute that explicitly states that the "service charge shall be determined according to one (1) of the following methodologies as elected by the CMRS provider." Id. There is simply no statutory support for the Board's proposition that, while awaiting advice on the proper method of collection under Option C, the provider must utilize either Option A or B to collect and remit fees.
As explained more thoroughly below, the Board's advice may be that collection is required under Option A or B. The Board appears to have wide discretion in determining the proper method of collection under Option C. If it determines that Option A or B is feasible and acceptable for the prepaid provider that elects Option C, it may be able to require collection under those methods, so long as it acts on the provider's election of Option C. The Board's decision will then be judged against basic administrative law principles, such as the arbitrary and capricious standard of review. The Court expresses no view regarding whether the Board's decision may have retro-active effect.
Therefore, upon its initial election of Option C, TracFone has no legal obligation under the 2006 Amendments to remit fees for its non-direct customers until the CMRS Board advises it of the proper method of collection.
V.
Once again, the Court recognizes some merit in a different result. The CMRS Board has advanced several strong arguments that TracFone was required to collect the service fees, even in the absence of advice from the Board. However, as the following discussion demonstrates, none of these arguments change the Court's analysis.
A.
First, the Board points to the word "may" within the text of Option C and claims that its use allows the Board the option of not acting. Option C states, "the CMRS service charge and collection methodology may be determined by administrative regulations promulgated by the board to collect the service charge from such end users." KRS § 65.7635(1)(c) (emphasis added). As a general rule, "may" is given a permissive interpretation, meaning that it does not require action. KRS § 446.010(20). The Court disagrees with the Board's position that the use of "may" permits it simply to ignore the provider's clear election of Option C.
The use of the word "may" does present some interpretive difficulties, especially when it is read in context with the prior provision, which dictates that the "service charge shall be determined according to [the method] elected by the CMRS provider." The use of "shall" makes that provision mandatory. KRS § 446.010(29). Thus, as explained, the provider, not the board, chooses the collection option and the Board is bound by the choice. "Option C" does not dictate a specific method of collection, but rather, leaves the determination to the Board. In essence, Option C simply shifts the "selector" of the proper method of collection to the Board.
In that context, the use of "may" makes sense. The Board "may" promulgate an administrative regulation that provides a different method of collection than those offered by Options A and B; or, it "may" choose not to issue a new regulation. In such a case, it simply informs the provider that either Option A or B must be utilized. That is the risk that the provider takes by electing Option C.
The use of "may" definitively does not, however, permit the Board to simply ignore the provider's election of Option C. To do so ignores the use of "shall" in the statute's preceding provision. Furthermore, such an interpretation effectively rewrites the statute to excise Option C. The plain language of the statute provides three options for providers. Initially at least, it is their choice, not the Board's, as to which option to choose. The Court is "not at liberty to add or subtract from the legislative enactment nor discover meaning not reasonably ascertainable from the language used." Beckham v. Bd. of Educ. of Jefferson County, 873 S.W.2d 575, 577 (Ky. 1994).
B.
Second, the Board contends that it could not accept TracFone's proposal to require retailers to collect the fees and, therefore, its refusal to consider the request had no impact. True, the Board certainly had no obligation to accept TracFone's proposed rule. However, the provider has a statutory right to elect Option C. Once elected, the Board determines the proper method of collection, be it through a new regulation or other guidance. Until it does so, the provider cannot know the proper method of collection and has no obligation to guess.
This conclusion is further supported by the fact that a provider need not even propose a method under the statute. It can simply seek advice from the Board, under Option C, regarding the proper method of collection. Thus, the fact that TracFone's proposed methodology was beyond the Board's control does not change the analysis regarding TracFone's obligation to collect under Option C in the absence of administrative action.
Related to this last point, the Board argues that if it rejects a proposal under Option C, the provider will simply propose a new alternative that the Board cannot accept and will be able to continue avoiding collection of the fees. Certainly, this was not the legislature's intent. Nor is it the clear result of the Court's analysis.
The Court concludes that the Board must respond by advising the provider of the proper method of collection. Once the provider is so advised, it can no longer refuse to collect on a theory that it does not know the proper method of collection under Option C; it has been directly instructed on the proper method of collection. Thus, if it proposes a new method of collection, which surely would be permissible, it cannot wait for a determination on that new method. Rather, it must follow the previous instruction of the Board until the Board changes that instruction. This is the most reasonable interpretation of the statute.
C.
Finally, the Court recognizes some tension between its interpretation of the 1998 Act and its interpretation of the 2006 Amendments. Under the 1998 Act, the Court found that the general obligation to collect the fees outweighed any ambiguous language regarding the method of collection. Here, however, the Court has held that TracFone is exempt from the general obligation to collect because the Board has failed to advise it of the proper method of collection. One could easily wonder how the undefined method of collection relieves the general collection obligation under the 2006 Amendments but not under the 1998 Act. There is sound reasoning for the different treatment.
Under the 1998 Act, there were no options for alternative methods of collection. Rather, all providers were required to collect in the same manner. As explained above, TracFone sought an exemption from that requirement, one that was not clearly provided by the statute's plain language. The Court construed that request for an exemption against TracFone. The 2006 Amendments, on the other hand, provided prepaid providers with three options. TracFone exercised its statutory right to elect Option C. Thus, TracFone no longer seeks an implicit exemption; it seeks to follow the plain language of the statute. At best, the CMRS Board has raised some potential ambiguities in that language. Because no implicit exemption is sought, the basic statutory construction rules require those ambiguities be resolved in TracFone's favor. Thus, the different result under the different statutes is appropriate.
TracFone readily admits that it is generally required to collect the service fees under the 2006 Amendments.
VI.
The Court's opinion has considered only the issues of statutory interpretation and liability. Based on the preceding analysis, the Court finds that TracFone is obligated to remit service fees for the period of November 2003 through July 12, 2006, the effective date of the 2006 Amendments, for all of its customers and from July 12, 2006 through September 2009 for its customers that purchased services directly from TracFone. However, TracFone is not obligated to remit any fees under the 2006 Amendments for its non-direct customers until the CMRS Board directs it on the proper method of collection.
Several issues remain. The parties have not fully briefed, and the Court has not considered, the issue of damages. At this time, it is unclear whether the amount of service fees due will be disputed. If appropriate, the Board may make a new motion for summary judgment regarding damages. The Court also has not considered the issue of attorney fees, which may be granted to prevailing parties under KRS § 65.7635(5), or the issue of pre-judgment interest. Those issues may be raised and considered after the damages issues are resolved.
The Court will enter an Order consistent with this Memorandum Opinion.