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A. 1. a.(1)(a) i) a) 1. 1. 1. a.(1)(a) i) a)20 yO' X   ( X'x  #XP\  P6Q XP#Federal Communications Commission`(#dDA 97807 ă   yxdddy ( ă X'`*#XP\  P6Q XP# Before the x Federal Communications Commission  X'+Washington, D.C. 20554 Đ\  Xl4In the Matter of hhCq) ` `  hhCq)  X>4Direct Impact Telecommunications, Inc.,q)  X'4Complainant,` `  hhCq) ` `  hhCq)  X4` ` v. hhCq) ppFile No. E9534 ` `  hhCq)  X 4American Teletronics Long Distance, Inc.,q)  X 4Defendant.` `  hhCq)  X '|  MEMORANDUM OPINION AND ORDER Đ\ 5 Adopted: April 15, 1997; Released: April 18, 1997 \\ By the Chief, Common Carrier Bureau:  X'<l I. INTRODUCTION Đ\  X4 e  1. ` ` Direct Impact Telecommunications, Inc. (Direct Impact), a reseller of long distance  x"and international telecommunications services, filed a formal complaint on July 7, 1995, alleging  x@that American Teletronics Long Distance, Inc. (ATLD), another reseller of long distance services,  xviolated the Commission's rules and orders, and Section 201(b) of the Communications Act of  Xr4 x1934, as amended (the Act), regarding the selection of primary interexchange carriers (PICs).EZr+ {O' "< Ѝ#C\  P6QpP##C\  P6QpP#See 47 U.S.C.  201(b). Section 201(b) states in relevant part that "[a]ll charges, practices, classifications,  x and regulations for and in connection with such communication service, shall be just and reasonable, and any such  yO}'charge, practice, classification, or regulation that is unjust and unreasonable is hereby declared to be unlawful[.]"#Xx6X@DQ.7X@#E  x<The dispute arises out of a contract between the parties relating to the resale of AT&T Corp.'s  x(AT&T's) Software Defined Network (SDN) services. ATLD filed its answer on August 23,  x1995, along with a crosscomplaint. In its crosscomplaint, ATLD alleges that it was damaged  xas a result of Direct Impact's misrepresentations regarding the type of SDN service it was  xreselling to ATLD. Direct Impact filed a motion to dismiss defendant's affirmative defenses and  x"a motion to dismiss defendant's crosscomplaint, arguing that both the affirmative defenses and  xthe crosscomplaint are based on a contractual dispute that is unrelated to the Communications  xMAct. For the reasons stated below,   @--@we grant Direct Impact's complaint against ATLD and dismiss ATLD's crosscomplaint. "!,))ZZ"  X4=f II. BACKGROUND \  X4 e O 2. ` ` On December 31, 1990, Direct Impact agreed to resell to ATLD SDN service  X4 xpurchased from AT&T. O44ԍ#C\  P6QpP#Complaint at 2.#Xx6X@DQ.7X@# ATLD agreed, in return, to compensate Direct Impact for those  X4 xcustomers recruited by ATLD and placed on the AT&T SDN service resold by Direct Impact.Dh {O'ԍId. at 34. D  xATLD agreed, moreover, to compensate Direct Impact for customers placed on that resold SDN  Xv4 xservice that were recruited by Direct Impact.:v {O! 'ԍId.: ATLD was to compensate Direct Impact using two  xmethods. First, ATLD was to pay Direct Impact $350,000 for the right to place customers  xobtained by ATLD's own efforts onto the SDN service resold by Direct Impact to ATLD.  x<Second, ATLD would pay Direct Impact on a commission basis for each customer obtained by  X 4 xpDirect Impact that was placed on the same SDN service.  OW4ԍ#C\  P6QpP##C\  P6QpP#Id. at 23. #Xx6X@DQ.7X@# In summary, there were two groups  xZof customers created under this agreement. One group consisted of customers obtained by ATLD  x&and a second group consisted of customers obtained by Direct Impact. Those customers obtained  xby Direct Impact signed a Letter of Agency (LOA) authorizing Direct Impact to choose their  X 4 xlPIC.: , {O'ԍId.: Both groups were to be placed by ATLD on SDN service that was sold by AT&T to  X 4 xDirect Impact and then by Direct Impact to ATLD.  {O'Ѝ#C\  P6QpP##C\  P6QpP#Id. at Exhibit A. It is the group of customers obtained by Direct Impact that is at the center of this dispute.  Xb4 e 9 3. ` ` Sometime after the agreement between the parties was executed, a dispute arose  xregarding the type of SDN service resold by Direct Impact. According to ATLD, Direct Impact  x/misrepresented the type of SDN service it had purchased from AT&T, and, as a result, ATLD  xallegedly could not begin providing service to either of the customer groups that were the subject  X4 xof the agreement.P  O 4ԍ#C\  P6QpP#Answer at 1516. #Xx6X@DQ.7X@# ATLD then changed both customer groups from Direct Impact's resold SDN  X4 xservice to a different reseller's service.   O"4ԍ#C\  P6QpP##C\  P6QpP#Id. at 1718.#Xx6X@DQ.7X@# Once Direct Impact discovered that its customer group  x}had been placed with a different reseller's SDN service, it informed ATLD in January 1994 that  X4 xVit would take its customers back.B   yO&'ԍComplaint at 4. B Soon thereafter, Direct Impact placed those customers with"  ,-(-(ZZ"  X4 xanother carrier.  {Oy'ԍ#C\  P6QpP##C\  P6QpP#See Complainant's Answers to Defendant's First Set of Interrogatories at 5.#Xx6X@DQ.7X@# On July 12, 1994, ATLD switched Direct Impact's customer group to a carrier  X4 xof ATLD's choice without informing Direct Impact. Z {O'ԍ#C\  P6QpP##C\  P6QpP#See Respondent's Answers to Complainant's Interrogatories at 3.#Xx6X@DQ.7X@# Direct Impact discovered that their  xIcustomers had been switched by ATLD and switched them back to an SDN provider of Direct  X4 xImpact's choice on July 15, 1994.@  yOX'ԍComplaint at 4.@ ATLD switched Direct Impact's customers a third time on  X4 xAugust 25, 1994 and, on that same day, Direct Impact switched them back.:| {O 'ԍId.: ATLD and Direct  X4Impact repeated such actions one more time on October 15, 1994.B {OL 'ԍId. at 45.B  X_4A III. DISCUSSION \  X1' A.` ` Alleged PIC Change Violation  X 4` ` 1. Contentions of the Parties  X 4 e z 4. ` ` Complainant. Direct Impact alleges that ATLD switched its customers from a  xRprovider of SDN service chosen by Direct Impact to a service provider chosen by ATLD in  X 4 xviolation of Section 201(b) of the Act.  yO'ԍ#C\  P6QpP#Complaint at 2.#Xx6X@DQ.7X@#ю Direct Impact asserts that its contract with ATLD  xVestablished a proprietary right permitting Direct Impact to select the common carrier that would  Xy4 xprovide the resold SDN service to its customer group.y0  {OZ' " Ѝ#C\  P6QpP##C\  P6QpP#Id. at Exhibit A. Article VI of the agreement says, in part, that "[t]he parties agree that customer and client  x relationships, customer lists and other client and partition information and relationships developed by [ATLD] and  x [Direct Impact] through the course of this Agreement belongs to [ATLD] and [Direct Impact], respectively. [Direct  x Impact] and [ATLD] further agree not to solicit or contact in any way, nor otherwise contact for business purposes  x related to telecommunications services from any such client, customer, or partition relation of [Direct Impact] or  yOD'[ATLD] during this Agreement and for a period of two (2) years from the termination of this Agreement."#Xx6X@DQ.7X@# Direct Impact claims that it possesses  xLOAs that reflect this understanding between ATLD and Direct Impact, on the one hand, and Direct Impact and its customers, on the other hand. Those LOAs say, in part,    We have appointed Direct Impact as our Agent to act in our name and on our behalf in the selection of our primary long distance carrier.  9This appointment of agency gives Direct Impact the authority to issue instructions  and otherwise participate with our Local Exchange Company, all Interexchange  Carriers, and our Interconnect Company in matters relating to our long distance",-(-(ZZr"  X4service(s)."h Oy4Ѝ#C\  P6QpP#Complainant's Answers to Defendant's First Set of Interrogatories at 4. #Xx6X@DQ.7X@#     xDirect Impact argues that because ATLD had knowledge of both the agreement and the LOAs,  xATLD knew of the exclusive relationship between Direct Impact and its customers and that it  X4could not change their SDN service without first obtaining their permission.Dh yO'ԍComplaint at 56. D  Xv4 e  5. ` ` Defendant. ATLD contends that it moved Direct Impact's customer group to  xanother SDN provider because those customers were experiencing delays in service provisioning.  x/ATLD also asserts that, after Direct Impact moved the customer groups from ATLD's chosen  xRSDN service provider, it moved the customers a second time. ATLD claims that the LOAs  xysigned by Direct Impact's customers, in conjunction with the agreement between ATLD and  X 4 xDirect Impact, authorized ATLD to change the underlying service provider.  O4ԍ#X\  P6G;pP##C\  P6QpP#See Respondent's Answers to Complainant's Interrogatories at 3.#Xx6X@DQ.7X@# Moreover, ATLD  xcontends, it was unaware that delays in provisioning might occur because Direct Impact  X 4 xpmisrepresented the type of SDN service that was to have been provided under the agreement.  yO'ԍ#C\  P6QpP#Answer at 1718.#Xx6X@DQ.7X@#я  xIt asserts that it would have lost substantial income if it had not switched customers to a different  X 4service provider. ( {O'ԍ#X\  P6G;pP##C\  P6QpP#Id.#Xx6X@DQ.7X@#ѯ  Xy'` ` 2. Decision  XK4 e  6. ` ` The instant complaint raises issues that are governed by the Commission's  X44 xrequirements regarding verification of PIC changes. Following the divestiture of AT&T,4 {O' "I ԍUnited States v. American Tel. & Tel., 552 F. Supp. 131 (D.D.C. 1982), aff'd sub nom., Maryland v. United  {Oi'States, 460 U.S. 1001 (1983) (Modification of Final Judgment).   X4 x}interexchange carriers (IXCs) began to compete for presubscription\  yO' " ԍPresubscription is the process that enables each customer to select a PIC, from among several available  {O ' xD carriers, that will provide long distance telephone service on a 1+ basis.  Investigation of Access and Divestiture  {Ov!'Related Tariffs, 101 FCC 2d 911, 928 (1985) (Allocation Order). agreements with potential  X4 x}customers as a result of the equal access: yO#' "R ԍEqual access for IXCs is that which is equal in type, quality, and price to the access to local exchange  {O$'facilities provided to AT&T and its affiliates. Modified Final Judgment, 552 F. Supp. at 227. rules and procedures the Commission and the courts",-(-(ZZ"  X4 ximposed on the long distance telephone industry.X {Oy' x Ѝ#C\  P6QpP##C\  P6QpP# Investigation of Access and Divestiture Related Tariffs, 101 FCC 2d 911 (1985) (Allocation Order), recon.  {OC' ! denied, 102 FCC 2d 503 (1985); Investigation of Access and Divestiture Related Tariffs, Phase I, 101 FCC 2d 935  O 4 !7 (1985) (Waiver Order).#Xx6X@DQ.7X@# #C\  P6QpP#The Commission adopted further amendments to its PICchange rules shortly before the  {O' !b complaint in this proceeding was filed.  Policies and Rules Concerning Unauthorized Changes of Consumers' Long  {O' !^ Distance Carriers, FCC 95225, released June 14, 1995. Because the rules adopted in this order were not in effect  yOy'at the time ATLD switched Direct Impact's customers, they do not apply to the current case.#Xx6X@DQ.7X@#X Under the Commission's original allocation  X4 xplan, which was promulgated in the Allocation Order, IXCs were required to have on file a LOA  xsigned by the consumer before submitting to the LEC an order to change an enduser customer's  X4 xIPIC.[X {O 'ԍAllocation Order, 101 FCC 2d at 929.[ This requirement was challenged by IXCs, however, on the grounds that it would inhibit  xcompetition because consumers frequently would not execute the LOAs even though they agreed  xto change their PIC. In response to these concerns, the Commission relaxed the requirement and  Xx4 xallowed IXCs to initiate PIC changes if they had "instituted steps to obtain signed LOAs."zx {O' x ԍWaiver Order, 101 FCC 2d at 942. Despite the consumer protection mechanisms established by the  {O' ! Commission in the Allocation Order and the Waiver Order, some carriers, especially those using telemarketers to  ! obtain customers, continued to engage in the practice of "slamming." Slamming refers to the unauthorized change  ! of a customer's preferred interexchange carrier. In response to a petition filed by AT&T and MCI  ! Telecommunications Corporation (MCI) in accordance with a court settlement between them, the Commission  {O' !U adopted rules and procedures for verification of long distance service telemarketing sales. See American Telephone  {O' ! and Telegraph Company, Petition for Rule Making, CC Docket No. 9164, Notice of Proposed Rule Making, 6 FCC  {O' ! Rcd 1689 (1991); Policies and Rules Concerning Changing Long Distance Carriers, CC Docket No. 9164, Report  {O]' !7 and Order, 7 FCC Rcd 1038 (1992), recon. denied, 8 FCC Rcd 3215 (1993). Those requirements, set out in Section 64.1100 of the Commission's rules, 47 C.F.R. 64.1100, are not at issue here because telemarketing is not involved.z This  xrequirement was the rule in effect at the time that Direct Impact filed its complaint against ATLD.  X 4 e ` 7. ` ` Applying the Commission's PICchange requirements established in its Allocation  X 4 xOrder and subsequent Waiver Order,V  {OF'ԍSee footnote 20, supra. V we find that ATLD has violated the PICchange  xrequirements established in those orders. The LOAs signed by Direct Impact's customers  X 4 xauthorize only Direct Impact to choose their primary interexchange carrier.Z  {O'ԍSee paragraph 4,  supra.Z Moreover, there  xis nothing in the record showing that ATLD took steps to obtain LOAs directly from these  xcustomers before switching their PICs. The language in the LOAs at issue clearly specifies that  xDirect Impact is the only agent of its customers for the purpose of choosing a primary long  xdistance carrier. We also note that Direct Impact included in its complaint several letters from  x3customers stating that they disapproved of ATLD's change, and that the change was done without  XQ4 xMtheir permission.Q O&4ԍ#C\  P6QpP#Complaint at Exhibit B. #Xx6X@DQ.7X@# Moreover, Article VI of the contract between ATLD and Direct Impact shows"QR,-(-(ZZ"  xcthat both parties intended to reserve full control over decisions involving the customers that they  X4 xrespectively recruited.  {Ob'ԍ#X\  P6G;pP##C\  P6QpP#See footnote 16, supra. Thus, neither the language in the LOAs nor the terms of the agreement  xbetween the parties permitted ATLD to change the SDN service provider of Direct Impact's  xEcustomers. We conclude, therefore, that ATLD has violated the Commission's PICchange  X4 xrequirements, as promulgated in the Allocation Order and Waiver Order, by failing to  x"demonstrate that it had obtained prior authority from Direct Impact's customers to switch them  xto another SDN provider. ATLD's failure to obtain that permission is a violation of the  xCommission's rules and is therefore an unjust and unreasonable practice under Section 201(b) of  XJ4the Act.{!JZ {OU 'ԍ47 U.S.C.  201(b); see also Allocation Order, 101 FCC 2d at 929.{  X 4 e   8. ` ` Because Direct Impact has demonstrated that ATLD has violated the Commission's  X 4 xPICchange requirements, it may recover any actual damages that it can prove."Z  {O' x ԍ#C\  P6QpP##C\  P6QpP#See, e.g., MCI v. Pacific Northwest Bell Telephone Company, 5 FCC Rcd 216, 226 (1990)(a complainant  !| has a right under the Communications Act to recover damages if it can establish that a defendant has charged unjust  yO4'and unreasonable rates in violation of Section 201 of the Act). #,(\  P6QHs,P# Pursuant to the  xCommission's rules, Direct Impact is entitled, within 60 days after public notice of this decision  x8on the merits, to file a supplemental complaint concerning its claimed damages amounting to  X 4 x$73,321.64.#  {O'ԍ#C\  P6QpP#See 47 C.F.R.  1.722; see also Complaint at 6. #Xx6X@DQ.7X@#Ѿ The supplemental complaint should specifically detail how Direct Impact arrived at the alleged damage amount.  X{' B.` ` ATLD CrossComplaint  XM'` ` 1.  Contentions of the Parties  X4 e 0 9. ` ` CrossComplainant. ATLD alleges that Direct Impact misrepresented the type  X4 xof SDN service that Direct Impact purchased from AT&T.$ yOY'ԍ#C\  P6QpP#CrossComplaint at 18.#Xx6X@DQ.7X@#ѕ As a result of its reliance on Direct  xImpact's misrepresentations, ATLD claims, it experienced unexpected delays in providing service  X4 xto its customers and Direct Impact's customers.%0  {O!'ԍ#X\  P6G;pP##C\  P6QpP#Id.#Xx6X@DQ.7X@#ѯ ATLD argues, without citing to any provision  xof the Communications Act or the Commission's rules or orders, that it should be compensated for the losses it incurred as a result of the unexpected provisioning delays.  X~4 e  10.` ` CrossDefendant. In its motion to dismiss ATLD's crosscomplaint, Direct Impact"~ %,-(-(ZZ"  X4 xasserts that the Commission has no jurisdiction over the issues raised by ATLD.& yOy'ԍ#C\  P6QpP#Complainant's Motion to Dismiss Defendant's CrossComplaint at 3.#Xx6X@DQ.7X@# Direct Impact  x&contends that ATLD's crosscomplaint raises issues relating to their agreement. It argues that the  xcrosscomplaint should be dismissed for failure to allege a violation of the Act or the  X4Commission's rules or orders.'X {O'ԍ#X\  P6G;pP##C\  P6QpP#Id.#Xx6X@DQ.7X@#ѯ  X'` ` 2.  Decision  X_4 e  11. ` `  We dismiss ATLD's crosscomplaint. We will not consider a complaint unless that  xcomplaint states a cause of action under either the Communications Act or the Commission's  X14 xrules or orders.(1 {O 'ԍ#X\  P6G;pP##C\  P6QpP#See 47 U.S.C.  208(a).#Xx6X@DQ.7X@# In its crosscomplaint, ATLD does not contend that Direct Impact violated the  xAct or the Commission's rules or orders. Rather, ATLD alleges that Direct Impact  xmisrepresented the type of SDN service it resold to ATLD. It also claims that it was financially  xharmed by the unexpected delays in the provision of service to the two customer groups  xidentified in its agreement with Direct Impact. Resolution of ATLD's allegations requires only an interpretation of the agreement between the parties. We therefore dismiss the crosscomplaint.  X'$0 IV. ORDERING CLAUSES Đ\  Xb4 e  12. ` ` ACCORDINGLY, IT IS ORDERED, pursuant to Sections 4(i), 201(b), and 208  xof the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 201(b), 208, and the  xauthority delegated by Sections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, that Direct Impact's complaint IS GRANTED.  X4 e  13.` ` IT IS FURTHER ORDERED, pursuant to Sections 4(i) and 208 of the  x}Communications Act of 1934, as amended, 47 U.S.C.  154(i), 208, and authority delegated by  xuSections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, that Direct Impact's motion to dismiss ATLD's affirmative defenses IS DENIED.  X|4 e  14. ` ` IT IS FURTHER ORDERED, pursuant to Sections 4(i) and 208 of the  x}Communications Act of 1934, as amended, 47 U.S.C.  154(i), 208, and authority delegated by  xuSections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, that Direct Impact's motion to dismiss ATLD's crosscomplaint IS GRANTED.  X 4 e  15. ` ` IT IS FURTHER ORDERED, pursuant to Sections 4(i) and 208 of the  x}Communications Act of 1934, as amended, 47 U.S.C.  154(i), 208, and authority delegated by  xSections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, that ATLD's crosscomplaint IS DISMISSED WITH PREJUDICE. "!|(,-(-(ZZ "Ԍ X4 e  16.` ` IT IS FURTHER ORDERED that Direct Impact, in accordance with Section 1.722  xof the Commission's Rules, 47 C.F.R.  1.722, MAY FILE a supplemental complaint concerning damages within 60 days after public notice of this decision. ` `  hhCqFEDERAL COMMUNICATIONS COMMISSION ` `  hhCqRegina M. Keeney ` `  hhCqChief, Common Carrier Bureau