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FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
In the Matter of )
) File No. ENF 99-09
Coleman Enterprises, Inc. )
d/b/a Local Long Distance, Inc. )
) NAL/Acct. No. 916EF0004
Apparent Liability for Forfeiture )
ORDER ON RECONSIDERATION
Adopted: May 3, 2001 Released: May
By the Commission
In this Order, we deny a Petition for Reconsideration
(``Petition'') filed by Coleman Enterprises, Inc. (d/b/a Local
Long Distance, Inc.) (``CEI''). CEI requests that the Commission
review its Order of Forfeiture,1 which imposed a forfeiture of
$750,000 against CEI for willful or repeated violations of
section 2582 of the Communications Act of 1934, as amended (the
``Act''), and our related rules and orders. In the Forfeiture
Order, the Commission found that CEI willfully or repeatedly
violated section 258 of the Act by changing the preferred
interexchange carriers (``PICs'') designated by 14 consumers
without their authorization (a practice commonly referred to as
Between June 1998 and May 1999, the Commission
processed 306 consumer complaints against CEI.3 Following an
investigation of 14 of these complaints, the Commission issued a
Notice of Apparent Liability for Forfeiture (``NAL'') against
CEI.4 Each of the 14 complainants asserted that CEI converted
his or her PIC without authorization, and each complainant
provided sworn statements and evidence to that effect. The
complainants also alleged that CEI telemarketers misrepresented
material facts about CEI's services. The Commission found that
CEI was apparently liable for a proposed forfeiture of $80,0005
for each of the 14 complaints involving allegations of slamming
through fraudulent sales and verification practices.6 In total,
we proposed a forfeiture of $1,120,000.7 CEI filed a response
seeking recission or reduction of the proposed forfeiture
amount.8 In the Forfeiture Order, we rejected most of CEI's
arguments, but reduced the amount of the forfeiture to $750,000
based on certain financial information CEI included in its
response indicating its inability to pay the full amount assessed
in the NAL.9
On January 8, 2001, CEI filed the instant petition for
reconsideration (``Petition'') with the Commission. In its
Petition, CEI argues that the Commission should either rescind
the forfeiture or reduce it further. Specifically, CEI claims
that: 1) the Commission did not consider all the financial
information CEI submitted; 2) precedent suggests that the
forfeiture amount is too high and that CEI's bankruptcy filing
warrants a further reduction; 3) CEI's crediting of consumer
accounts and cessation of telemarketing activities warrant a
downward adjustment; and 4) it is against the public interest and
the interests of other bankruptcy creditors for CEI to pay a
forfeiture now.10 The Commission previously considered and
rejected some of these arguments in the Forfeiture Order. We
will, therefore, limit the discussion below to those new
arguments raised by CEI.11
Section 503(b) of the Act authorizes the Commission to
assess forfeitures for each violation of the Act or any rule,
regulation or order issued by the Commission under the Act.12 In
the Forfeiture Policy Statement, the Commission adopted
guidelines for assessing these forfeitures,13 and "retain[ed]
discretion to take action in specific cases as warranted."14
Within the context of the Commission's broad discretion, the
forfeiture guidelines currently establish a $40,000 base
forfeiture amount as a starting point in assessing liability for
slamming violations.15 In granting a downward adjustment of a
forfeiture amount, the Commission considers the seriousness of
the violation, the company's good faith or voluntary disclosure,
its history of overall compliance, and its inability to pay.16
The Commission may also adjust this amount upward based on, among
other factors, the egregious of the misconduct.17
A. Ability to Pay
1. Financial Documentation Submitted by CEI
CEI argues that in assessing CEI's forfeiture
liability, the Commission did not properly take into account as a
mitigating factor CEI's ability to pay. According to CEI, the
Commission arbitrarily relied solely on CEI's 1998 federal tax
return in its Forfeiture Order. CEI contends that the
Commission's failure to take 1997 and 1999 data into account
resulted in an incorrect assessment of CEI's inability to pay the
As explained in the Forfeiture Order,19 the Commission
has discretion to determine what documentation it considers as
reliable and objective evidence of ability to pay.20 Here, CEI
provided federal tax returns for 1997 and 1998 to show that it
operated at a loss. The Commission has stated however, that when
gross revenues are sufficiently large, the fact that a business
might be operating at a loss does not in and of itself indicate
the business cannot afford to pay the forfeiture.21 According to
the tax returns, CEI's gross revenues for 1997 and 1998 were
$1,464,394.66 and $9,420,696.48 respectively. In reviewing CEI's
1997 tax returns, we see that apparently 1997 was the company's
first full year of operation.22 CEI chose not to provide its
1999 federal tax return. Instead, it provided an unaudited cash
flow statement for the year ending December 31, 1999, and bank
summaries with alleged consumer credits listed.23 Using our
discretion, the Commission determined the most recent, reliable
financial information that CEI provided to be its 1998 federal
tax return. The Commission then reduced the forfeiture amount
from $1,120,000 to $750,000, based on CEI's 1998 gross revenues,
balanced by the seriousness of CEI's violations.24 We believe
this approach was eminently sound, and therefore reject CEI's
arguments in this regard. 2. Past Precedent and Bankruptcy Filing
CEI argues that the $750,000 forfeiture amount is
disproportionately high in light of past Commission cases. CEI
states that ``the Commission has typically assessed forfeitures
ranging from less than 0.70% to 3.91% of a carrier's gross
revenues,''25 and that because the forfeiture amount assessed for
CEI represents almost 8% of its 1998 gross revenues, it should be
reduced for that reason alone.26 CEI's claim is a misleading
statement of Commission case law and practice. CEI cites to
several cases to support its contention that the Commission has
typically assessed forfeitures ranging from less than 0.70% to
3.91% of a carrier's gross revenues.27 None of the orders cited
by CEI for this proposition, however, state that the forfeiture
amount assessed in the order is "typical." Rather, the orders
all find that the assessed forfeiture amount is not "excessive"
or that it is "appropriate" given the facts and circumstances as
well as the respective companies' gross revenues. 28
8. In the NAL the Commission proposed a forfeiture amount
against CEI of $80,000 for each of 14 violations, for a total of
$1,120,000. In the Forfeiture Order, we reduced that amount by
$370,000 to $750,000 based on its inability to pay the full
amount of the proposed forfeiture, balanced against the
seriousness of the violations. We believe this is a significant
reduction and are not persuaded that it should be reduced further
given the nature of the violations at issue.
9. CEI also argues that the Commission did not
``specifically consider [CEI's] ability to pay in light of its
bankruptcy filing under Chapter 11 of the Bankruptcy Code''
(``Chapter 11'').29 It claims that the Commission has reduced
forfeiture amounts in at least two cases when a respondent has
raised its bankruptcy filing as a mitigating factor.30 One of
those cases, Transnational Network, Inc., involved a carrier who
filed bankruptcy under protection of Chapter 11 during its
application for review of an $8,000 violation for failure to
respond to Commission inquiries.31 The Commission denied the
application for review, but sua sponte reduced the forfeiture to
a nominal amount.32 CEI's violations are far more egregious
because they involve repeated misrepresentations made to numerous
consumers resulting in the unauthorized conversion of consumers'
telecommunications service. Therefore, we find the TNI Order
irrelevant to the facts in this proceeding. Further, we note
that we have already reduced the forfeiture against CEI by far
more, in absolute terms, than we reduced the forfeiture in the
TNI Order. In the other case cited by CEI, Interstate Savings,
Inc.,33 the Commission rescinded a forfeiture slamming order
after the carrier, Interstate Savings, Inc. (``ISI'') converted
its Chapter 11 filing to a Chapter 7 liquidation under the
bankruptcy code. In so doing, the Commission stated:
[O]ur decision to rescind the forfeiture in no way
exonerates ISI for its unlawful actions. . . ISI
committed a particularly egregious violation of the
Commission's PIC-change rules. . .We note that while
the slamming violation in this instance occurred while
ISI was in Chapter 11 reorganization, it subsequently
converted to Chapter 7 liquidations, and thus will no
longer continue to operate as a common carrier. We
will not hesitate to scrutinize a carrier's compliance
with the Act and our rules and orders while in
bankruptcy and take enforcement action where
appropriate, particularly if the carrier at issue plans
to continue operation both during and after the Chapter
11 reorganization process.34
Because CEI continues in its Chapter 11 status, and has not
stopped its common carrier functions, Interstate Savings, Inc.,
provides no support for CEI's argument that the forfeiture should
be reduced or rescinded. In fact, the above-quoted language
indicates quite the opposite.
10. CEI argues that the Commission has declined to reduce
or rescind forfeitures against carriers in Chapter 11 bankruptcy
``only in cases where the carriers have continued to violate the
Commission's rules after and in spite of receiving repeated
inquiries, notices of complaints and Notices of Apparent
Liability for forfeiture from the Commission regarding the
violations.''35 CEI claims it has cooperated fully with the
Commission at all times during its investigation, and that,
therefore, its forfeiture should be rescinded or reduced. In
support of this argument, CEI cites to J.C. Maxwell Broadcasting
Group, Inc.,36 and William Flippo.37 Both of these carriers
continued alleged rule violations after a Notice of Apparent
Liability for Forfeiture was issued against them, and in response
to the NALs, both informed the Commission of their filing for
bankruptcy.38 In both forfeiture orders, the Commission stated
that although there was precedent for reducing a forfeiture where
bankruptcy was raised, no reduction was warranted or justified
based on the facts and circumstances of those cases.39
11. But continuation of offenses is not a prerequisite for
the Commission to decline forfeiture reduction, even in a
bankruptcy situation. In another slamming case, Long Distance
Services, Inc., the carrier, Long Distance Services, Inc.
(``LDS''),40 argued, inter alia, that its forfeiture for two
slamming violations should be reduced because it was taking
remedial action. LDS had also filed for Chapter 11 bankruptcy
protection. The Commission did not reduce the forfeiture,
stating that LDS's remedial efforts did not alter the fact that
the violations had taken place, and further stating that ``[a]ll
common carriers are required to comply with the Commission's
rules, regardless of their size or resources, particularly those
rules targeted to protect consumers from deceptive practices.''41
We find that CEI's purported cooperation with the Commission
after its violations, whether standing alone or coupled with its
Chapter 11 bankruptcy filing, is not an adequate basis for
reducing the forfeiture in this case.
B. Credits Given to Consumers
12. CEI further argues that the Commission should have
mitigated the proposed forfeiture amount based on CEI issuing
credits to consumers who were slammed.42 Subsequent to the
filing of CEI's response to the NAL but prior to the issuance of
the Forfeiture Order, CEI submitted bank summaries and
information that purportedly demonstrated that CEI had issued
$2,538,074 in consumer credits.43 This amount, CEI claims, had a
significant adverse impact on its financial condition and ability
to pay the forfeiture.44 But Commission precedent required CEI
to reimburse slammed consumers for PIC-change costs, and to re-
rate consumer's bills to the amount the consumers would have paid
their preferred carrier.45 The record does not establish that
for every customer, CEI did more than required in terms of
issuing credits.46 We therefore decline to find that CEI's
alleged compliance with our customer re-rating policy warrants
further reduction of the forfeiture amount. Furthermore, as
stated above, a carrier's remedial efforts do not alter the fact
that the violations have taken place.47
C. Public Interest
13. Finally, CEI claims that because the Commission has on
occasion stated that it is not in the public interest to issue a
forfeiture against a company in bankruptcy, CEI's forfeiture
should likewise be rescinded.48 We disagree. It is well
established that the Commission has discretion to evaluate each
case based on the facts and circumstances presented.49 Moreover,
the public interest is served by punishing those who engage in
activities that violate the statute or Commission rules.
Imposition of a forfeiture in this case sends a strong message to
the industry that such violations will not be tolerated and also
provides incentive to CEI to discontinue its unlawful practices.
Given the egregious nature of the violations in this case, we
believe that this enforcement action is warranted despite the
potential adverse effects on CEI's other creditors.
CONCLUSION AND ORDERING CLAUSES
14. In the Forfeiture Order the Commission discussed the
seriousness of CEI's slamming offenses, considered CEI's claims
of remedial measures, history of compliance, inability to pay,
and determined that the proposed forfeiture amount should be
lowered from $1,120,000 to $750,000.50 CEI's arguments in its
reconsideration petition do not persuade us that we should
reverse this finding.
15. Accordingly, for the reasons stated above, IT IS
ORDERED, pursuant to Section 405 of the Communications Act, as
amended, 47 U.S.C.§ 405, and Section 1.106 of the Commission's
Rules, 47 C.F.R. § 1.106, that the Petition for Reconsideration
filed by Coleman Enterprises, Inc. IS DENIED.
16. Accordingly, IT IS ORDERED pursuant to section 503(b)
of the Act, 47 U.S.C. § 503(b), and section 1.80(f)(4) of the
Commission's rules, 47 C.F.R. § 1.80(f)(4), that Coleman
Enterprises Inc. SHALL FORFEIT to the United States Government
the sum of seven hundred and fifty thousand dollars ($750,000)
for violating section 258 of the Act, 47 U.S.C. § 258, as well as
the Commission's rules and orders in effect from June, 1998
through May, 1999 governing interexchange carrier conversions.
FEDERAL COMMUNICATIONS COMMISSION
Magalie Roman Salas
1 Local Long Distance, Inc., Order of Forfeiture, 15 FCC Rcd
24385 (2000) (Forfeiture Order).
2 Section 258 provides in pertinent part that ``no
telecommunications carrier shall submit . . . a change in a
subscriber's selection of a provider of telephone exchange
service or telephone toll service except in accordance with such
verification procedures as the Commission shall prescribe.'' 47
U.S.C. § 258.
3 Forfeiture Order, 15 FCC Rcd at 24385.
4 Local Long Distance, Inc., Notice of Apparent Liability for
Forfeiture, 14 FCC Rcd 13786 (1999) (CEI NAL).
5 The Commission set the forfeiture at $80,000 for each
violation based on the egregiousness of CEI's misconduct. See
e.g., All American Telephone Company, Inc., Notice of Apparent
Liability for Forfeiture, 13 FCC Rcd 15040, 15041 (1998); Brittan
Communications International, Inc., Order of Forfeiture, 15 FCC
Rcd 4852 (2000); Amer-I-Net Services Corp., Order of Forfeiture,
15 FCC Rcd 3118 (2000); Vista Services Corporation, Order of
Forfeiture, 15 FCC Rcd 20646 (2000), recon. pending.
6 CEI NAL, 14 FCC Rcd at 13786.
8 Coleman Enterprises, Inc., Response to Notice of Apparent
Liability, File No. ENF99-09 (filed Sept. 29, 1999).
9 Forfeiture Order, 15 FCC Rcd at 24390.
10 Petition at 2-8.
11 Reconsideration is appropriate only where the petitioner
either shows a material error or omission in the original order
or raises additional facts not known or existing until after the
petitioner's last opportunity to present such matters. WWIZ,
Inc., 37 FCC 685, 686 (1964), aff'd sub nom. Lorain Journal Co.
v. FCC, 351 F2d 824 (D.C. Cir. 1965), cert. denied, 383 U.S. 967
(1966); 47 C.F.R. § 1.106 (b)(2). A petition that simply repeats
arguments previously considered and rejected will be denied.
Bennett Gilbert Gaines, 8 FCC Rcd 3986, 3987 (Rev. Bd. 1993).
12 47 U.S.C. § 503(b)(1)(B). 47 C.F.R. § 1.80.
13 Commission's Forfeiture Policy Statement and Amendment of
Section 1.80 of the Rules to Incorporate the Forfeiture
Guidelines, Report and Order, 12 FCC Rcd 17087, 17089 (1997)
(Forfeiture Policy Statement), recon. denied, 15 FCC Rcd 303
14 Forfeiture Policy Statement, 12 FCC Rcd at 17093.
15 Id at 17115.
16 Id. at 17100-101.
18 Petition at 2.
19 Forfeiture Order, 15 FCC Rcd at 24389.
20 See Forfeiture Policy Statement, 12 FCC Rcd at 17107.
21 PJB Communications, Order of Forfeiture, 7 FCC Rcd 2088
22 In its response to the NAL, CEI stated that it was
``authorized by the Commission in 1997 to provide international
switched voice services.'' NAL Response at 1.
23 CEI filed the 1997 and 1998 tax returns with its NAL
response on September 29, 1999. It subsequently submitted the
unaudited financial 1999 information in February, 2000.
24 Forfeiture Order, 15 FCC Rcd at 24389.
25 Petition at 3, citing Target Telecom, Inc., Order of
Forfeiture, 13 FCC Rcd 4456, 4464 (Com. Car. Bur.1998) (Target
Telecom Forfeiture Order), Afton Communications Corp., Memorandum
Opinion and Order, 7 FCC Rcd 6741 (Com. Car. Bur.1992) (Afton
Communications Forfeiture Order), David L. Hollingsworth d/b/a/
Worland Services, Memorandum Opinion and Order, 7 FCC Rcd 6640,
6641 (Com. Car. Bur. 1992) (Hollingsworth Forfeiture Order), and
PJB Communications Forfeiture Order, 7 FCC Rcd at 2088.
26 Petition at 4.
27 Petition at 3, referring to Target Telecom Forfeiture Order,
13 FCC Rcd at 4464, n.45 (1998).
28 Target Telecom Forfeiture Order, 13 FCC Rcd at 4464, Afton
Communications Forfeiture Order, 7 FCC Rcd at 6742,
Hollingsworth, Forfeiture Order , 7 FCC Rcd at 6641, and PJB
Communications Forfeiture Order, 7 FCC Rcd at 2089.
29 Petition at 4.
31 Transactional Network, Inc., Memorandum Opinion and Order,
92 FCC 2d 1494 (1982)(TNI Order).
32 Id. at 1495.
33 Interstate Savings, Inc., d/b/a/ ISI Telecommunications,
Memorandum Opinion and Order, 12 FCC Rcd 2934 (1997).
34 Id. at 2937.
35 Petition at 5.
36 J.C. Maxwell Broadcasting Group, Inc., Memorandum Opinion
and Order, 8 FCC Rcd 784 (Mass Med. Bur. 1993) (Maxwell
37 William Flippo, Forfeiture Order, 15 FCC Rcd 23340 (Enf.
Bur. 2000) (Flippo Forfeiture Order).
38 Maxwell Forfeiture Order, 8 FCC Rcd at 784, Flippo
Forfeiture Order, 15 FCC Rcd at 23340.
40 Long Distance Services, Inc., Order of Forfeiture, 13 FCC
Rcd 4444 (Com. Car. Bur. 1998) (Long Distance Services Forfeiture
41 Id. at 4452.
42 Petition at 6 - 7.
43 Letter from Thomas K. Crowe, Counsel for CEI, to Colleen K.
Heitkamp, Deputy Div. Chief, Telecommunications Consumers
Division (February 25, 2000).
44 Petition at 6.
45 See Target Telecom Forfeiture Order, 13 FCC Rcd at nn. 29,
42, citing Franks v. U.S. Telephone, E-86-11, DA 4260
46 Letter from Thomas K. Crowe to Colleen K. Heitkamp, supra,
n.44. As evidence of consumer credits, CEI submitted bank
summaries and a CD-Rom identifying full or partial credit given
for customers' cancellation requests, principally by billed
telephone number, date, and amount. Although this information
identified a portion of the full and partial credits issued to
its customers from one of CEI's underlying carriers, CEI could
not say specifically how much of the credits were attributable to
47 See supra text accompanying nn. 40 - 41.
48 Petition at 7 - 8.
49 See Triple X Broadcasting, 46 R.R. 2d 788, 790 (Broadcast
Bur. 1979) (The Commission ``is not bound to deal with all cases
at all times as it has dealt with some that appear comparable.'')
citing Continental Broadcasting Co. v. FCC, 439 F.2d 580
(D.C.Cir. 1971), cert. denied, 403 U.S. 905 (1971).
50 Forfeiture Order, 15 FCC Rcd at 24390.