Click here for Microsoft Word Version

This document was converted from
WordPerfect or Word to ASCII Text format.

Content from the original version of the document such as
headers, footers, footnotes, endnotes, graphics, and page numbers
will not show up in this text version.

All text attributes such as bold, italic, underlining, etc. from the
original document will not show up in this text version.

Features of the original document layout such as
columns, tables, line and letter spacing, pagination, and margins
will not be preserved in the text version.

If you need the complete document, download the
Word or WordPerfect version or Adobe Acrobat version (above).


                           Before the
                     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 
8, 2001

By the Commission   

                        I.   INTRODUCTION

          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 

                         II.  BACKGROUND

          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    

                      III.      DISCUSSION

          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.    


     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.
7    Id. 
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.
17   Id.
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.
30   Id.
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 
Forfeiture Order).
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.
39   Id.
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 
(Com.Car.Bur. 1986).
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 
unauthorized conversions.
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.