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Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of

AT&T Corp.,



All American Telephone Co.,

e-Pinnacle Communications, Inc., and
















File No. EB-09-MD-010


Adopted: June 10, 2014 Released: June 10, 2014

By the Commission:


On April 30, 2010, AT&T Corp. (AT&T) filed a formal complaint against All American Telephone Co. (All American), e-Pinnacle Communications, Inc. (e-Pinnacle), and ChaseCom (ChaseCom) (collectively, Defendants) under Section 208 of the Communications Act of 1934, as amended (Act). On March 22, 2013, the Commission ruled in favor of AT&T on Counts I and II of the Complaint. Thereafter, the Defendants filed a Petition for Reconsideration and Clarification under Section 1.106 of the Commission's rules. For the reasons explained below, we dismiss the Petition on procedural grounds and, as an independent and alternative basis for this decision, deny it on the merits.

Beehive Telephone Co., Inc. and Beehive Telephone Co., Inc. Nevada (collectively, Beehive), which are neither parties to this litigation nor to the district court case from which this litigation arose, also filed a Petition for Reconsideration. As discussed below, we dismiss the Beehive Petition because Beehive has not satisfied the requirements for non-parties to seek reconsideration of a Commission order in an adjudicatory proceeding.


At all relevant times, the Defendants purported to provide terminating interstate switched access services to AT&T, an interexchange carrier, pursuant to federal tariffs that the Defendants filed with the Commission. The Defendants charged AT&T for terminating interstate switched access services, but AT&T refused to pay, asserting that the Defendants were not providing such services in accordance with their federal tariffs and were sham entities.

The Defendants sued AT&T in federal district court to collect the access charges billed, alleging, inter alia, that AT&T's refusal to pay violated the Defendants' federal tariffs, Section 201(b) of the Act, and Section 203(c) of the Act. AT&T filed an answer and counterclaims, asserting federal law claims that Defendants violated Sections 201(b) and 203 of the Act. AT&T also claimed that, regardless of whether Defendants provided access services pursuant to tariff, they committed unreasonable practices through "sham" arrangements designed for the purpose of inflating access charges. The District Court issued two primary jurisdiction referrals. The First Court Referral Order, issued on March 16, 2009, referred AT&T's "sham entity" counterclaim to the Commission. AT&T effectuated this referral by filing an informal complaint with the Commission on April 15, 2009, which it converted into a formal complaint on November 16, 2009.

Thereafter, Defendants requested that the District Court refer additional issues to the Commission, which the District Court did on February 5, 2010. At Commission staff's direction, AT&T filed an Amended Complaint to effectuate certain issues in the Second Court Referral Order. After the pleading cycle closed, the Commission ruled in favor of AT&T on Counts I and II of its Complaint. The Commission found, based on the totality of the record, that Defendants were "sham" Competitive Local Exchange Carriers (CLECs) created to "capture access revenues that could not otherwise be obtained by lawful tariffs," and that billing AT&T for access charges in furtherance of this scheme constitutes an unjust and unreasonable practice in violation of Section 201(b) of the Act. The Commission also found that Defendants violated Sections 201(b) and 203 of the Act by billing for services that they did not provide pursuant to valid and applicable tariffs.


We Dismiss Defendants' Petition on Procedural Grounds.

The Defendants' Petition and Reply repeat many arguments that the Commission has already fully considered and rejected. These include the Defendants' assertions that (1) the Commission ignored a statutory deadline; (2) the Commission ignored the contentions made in Defendants' March 15[th] Request for Declaratory Ruling; (3) the Order was based upon a collateral attack on the rates and practices of a non-party that were never subject to investigation; (4) Defendants' rates are "conclusively deemed reasonable" because Beehive's rates are "deemed lawful" and are the only rates that could apply; (5) Defendants' discovery rights were unreasonably restricted; (6) the formal complaint process was inherently prejudicial to the Defendants and failed to answer critical questions referred by the District Court; (7) the complaint proceeding took a fragmented view of the service provided in order to prevent the Defendants from defending themselves; (8) the Order failed to address AT&T v. Jefferson Telephone; (9) the Order made findings that are inconsistent with established Commission precedent; and (10) the formal complaint process was designed to reach a predetermined conclusion and demonstrated bias. Defendants' repetition of the same arguments here does not provide grounds for reconsideration.

The balance of the Defendants' arguments could -- and thus should -- have been made before the Commission released the Order. These include Defendants' assertions that (1) the Commission's procedural decisions in the complaint proceeding and action in a related tariff proceeding demonstrated bias; and (2) Defendants' tariffs allowed service to be provided by contract. Accordingly, we dismiss the Petition on procedural grounds.

We Otherwise Deny the Petition on the Merits.

As an independent and alternative basis for this decision, we deny the Petition on the merits. As detailed below, the Petition offers no basis that warrants altering the Commission's findings.

The Defendants' Attacks on Procedural Rulings Are Unfounded.

Defendants' challenges to the Commission's procedural rulings are baseless. First, the Defendants incorrectly assert that the Commission failed to address the merits of their March 15[th] Petition for Declaratory Ruling. That Petition was a request that the Commission reconsider its earlier procedural orders regarding implementation of the District Court referrals. The Commission already had twice rejected the Defendants' suggested approach to effectuate the District Court referrals, and we deny their attempt here as repetitive.

Second, Defendants argue that they were improperly denied opportunities for discovery. The Defendants' argument mischaracterizes their discovery requests and the Commission staff's discovery-related rulings. Section 1.729(a) of the Commission's rules provides that "[r]equests for interrogatories . . . may be used to seek discovery of any non-privileged matter that is relevant to the material facts in dispute in the pending proceeding," and the staff's discovery rulings were consistent with that rule. Specifically, the staff granted all of Defendants' discovery requests relating to Beehive, and four requests relating to bifurcated damages issues were denied without prejudice. Neither of the two remaining discovery requests denied by staff pertained to Beehive and, consequently, would not have been useful to rebut the testimony challenged by the Defendants.

Third, the Defendants claim that the Commission failed to provide the District Court with guidance it purportedly sought when the Defendants asked the District Court to allow them to pursue additional discovery in the court proceedings. The District Court never sought guidance on that discovery request and, in fact, expressly denied the Defendants' request. The District Court has never suggested that the Commission should modify its processes. On the contrary, the District Court expressly declined Defendants' invitation to "micromanage the agency's interlocutory determinations."

Nor did the Commission act in an arbitrary and capricious manner by not answering all of the referred questions in one proceeding. AT&T elected to bifurcate its liability and damages claims, as it was entitled to do under Commission rules. Commission staff ruled that the issues raised in Count III of AT&T's Complaint (alleging that the Defendants are not entitled to collect any compensation for access services under a quantum meruit, quasi-contract, constructive contract, or any other state law theory) would be addressed in AT&T's supplemental complaint for damages, if any. Thus, the damages proceeding will encompass the remaining issues referred by the District Court, including the issues on which Defendants request clarification.

Fourth, Defendants contend that, "under established precedent," the Commission lacks jurisdiction in any further proceedings to determine what rate, if any, AT&T must pay for the services Defendants provided. As this issue was not decided in the Order, but will be adjudicated during a later damages phase, it is not ripe for reconsideration. Moreover, All American v. AT&T does not support their assertion. All American v. AT&T addressed whether a collection action for a customer-carrier's failure to pay another carrier's tariffed charges gives rise to a claim under Section 208 for breach of the Act itself. The Commission found that it did not. That order says nothing at all about a customer's (AT&T's) claims against carriers (Defendants) concerning the carriers' unjust and unreasonable conduct. In addition, in both of its referrals, the District Court found that the Commission has the expertise and "is in the best position" to determine the appropriate rate for the Defendants' services, and that any decision by the District Court to set an appropriate rate might discriminate against other customers of the CLECs.

Defendants Have Adduced No Evidence that the Commission Is Biased.

The Defendants' claim that the Commission is biased has no merit whatsoever. Administrative officials are presumed to be honest, objective, and capable of judging particular controversies fairly and on the basis of their own circumstances. To prevail on their claim that Commission bias has denied them due process, Defendants must show "an unacceptable probability of actual bias on the part of those who have actual decisionmaking power." The Defendants have not produced any meaningful evidence to meet that burden. Instead, they merely cite their objections to the Commission's handling of the District Court's primary jurisdiction referrals as purported evidence of bias. The Defendants offer no reason to revisit the Commission's rejection of those objections. Adverse rulings in proceedings are not by themselves sufficient to show actual bias, and bias cannot be inferred from a pattern of rulings on motions.

Characterizing AT&T's claims as falling within the scope of Section 208(b)(1) of the Act, Defendants claim that the Order is untimely under that provision's requirement that the Commission issue an order within five months of the date the underlying complaint was filed. Defendants contend that the Commission's alleged failure to meet the deadline further evidences bias against them. The Commission has made it clear, however, that Section 208(b)(1)'s deadline applies only to formal complaints that involve "investigation[s] into the lawfulness of a charge, classification, regulation or practice" contained in tariffs filed with the Commission. AT&T does not challenge the lawfulness of a charge, classification, regulation or practice contained in a tariff that would fall within the parameters of Section 208(b)(1). Instead, AT&T asserts that the Defendants misapplied their tariff and that they -- wholly apart from their tariffs -- engaged in conduct that violates Section 201(b). Thus, the Defendants have not demonstrated that the Commission violated a statutory directive.

The Order Is Consistent with the Prospective USF/ICC Transformation Order.

Defendants incorrectly assert that the Commission's findings contravene the USF/ICC Transformation Order. As the Defendants acknowledge, the USF/ICC Transformation Order is prospective and has no binding effect on complaints that were pending at the Commission at the time of its adoption and release. Nevertheless, relying upon snippets from and mischaracterizations of the USF/ICC Transformation Order, Defendants argue that carriers who act unjustly and unreasonably in violation of the Act and Commission rules may do so with impunity as long as they benchmark their access rates to the competing incumbent local exchange carrier. Nothing in the USF/ICC Transformation Order supports this contention. Indeed, the Commission's prior decisions demonstrate the exact opposite to be the case.

The USF/ICC Transformation Order is completely consistent with the outcome of this case. The USF/ICC Transformation Order took immediate steps to curtail "wasteful arbitrage schemes" that resulted in consumer costs exceeding hundreds of millions of dollars annually, and specifically identified access stimulation as one of the "most prevalent arbitrage activities." The record in this proceeding overwhelmingly demonstrates that the Defendants were created to exploit exactly the type of loopholes that the USF/ICC Transformation Order attempts to close. The USF/ICC Transformation Order does not, as Defendants contend, "expressly legitimize" access stimulation in every instance. Nor does it insulate the Defendants from the consequences of a finding that their conduct was unjust, unreasonable, and unlawful, in violation of the Act and the Commission's rules.

We Dismiss Beehive's Petition for Reconsideration.

In order to seek reconsideration of a Commission order in an adjudicatory proceeding to which it was not a party, a petitioner must (1) demonstrate with particularity that the petitioner's "interests are adversely affected" by the order, and (2) show that the petitioner has "good reason why it was not possible for [the petitioner] to participate in the earlier stages of the proceeding." Beehive fails to satisfy either requirement.

Beehive maintains that its interests are adversely affected by the Order because other interexchange carriers could use the Commission's "sham entity" finding as precedent in an action seeking damages from Beehive. Beehive has not identified any actual damages or economic injury it has sustained as a result of the Order; rather, it focuses exclusively on potential future or hypothetical damages. The Commission has made clear, however, that a party is neither adversely affected nor aggrieved by "the mere precedential value of an adjudicatory order in a section 208 complaint proceeding."

Beehive next asserts that the Order deprives it of its constitutional due process right to a fair hearing in connection with the "sham arrangement" issue that the United States District Court for the District of Utah referred to the Commission in separate litigation involving Beehive, Sprint Communications Company L.P. (Sprint), and All American. In Beehive's view, the Order prejudged the "sham arrangement" issue referred in the Utah Referral Order, and the Commission purportedly did not afford Beehive "proper notice and . . . an opportunity to present a defense" before issuing the Order. But the Order contained no findings that Beehive violated Section 201(b), which is what Beehive contends triggered notice and due process obligations. The Commission's complaint proceedings are a matter of public record, and the Commission was under no obligation to notify Beehive -- which was not a party to this proceeding -- of the allegations relating to it. Regardless, it is undisputed that Beehive was fully aware of the allegations in AT&T's complaint that resulted in the Order, and that Beehive chose not to intervene in the proceeding.

Nor has the Order deprived Beehive of the opportunity to have the issues raised in the Utah Referral Order heard by a neutral decision-maker. The Utah Referral Order requests the Commission's guidance regarding the application of Beehive's tariff when considered in the context of undisputed facts. Beehive's tariff was not at issue in the Order, and the Commission made no determinations regarding Beehive's tariff or whether Beehive's conduct violated Section 201(b) of the Act. Beehive has no basis for claiming that it has been denied due process before it even has had the opportunity to present its defenses to Sprint's claims. Nor is Beehive correct in assuming that the Commission will not give Beehive a full and fair opportunity to defend itself. Beehive will have ample opportunity, consistent with the terms of the Utah Referral Order, to present its legal arguments and defenses regarding the issues identified in the Utah Referral Order during the course of the Sprint complaint proceedings, and those issues will be decided based on the record in that case.

Beehive offers no credible justification for failing to seek to intervene earlier in this proceeding. To begin, Beehive's reliance upon the notice requirement in Section 1.223(a) of the Commission's rules, which concerns proceedings designated for hearing in cases involving applications for construction permits and station licenses, is misplaced. This rule is inapplicable here because this case has not been designated for hearing and does not involve applications for construction permits and station licenses. Although in Section 208 complaint cases the Commission has looked to rule 1.223(b)'s standards for intervention (i.e., whether the party has an interest in the proceeding and how participation will assist the Commission), it has not adopted that rule's notice requirement outside of the cases which the rule governs. Moreover, notice to Beehive would have been completely unnecessary. As Beehive readily admits, for more than two years prior to release of the Order, it knew of the claims implicating its conduct and could have sought leave to participate in the case. Beehive chose not to. AT&T v. BellSouth, which Beehive cites, articulates the standard the Commission uses when evaluating petitions for reconsideration by non-parties in complaint proceedings, and it supports denial of the Beehive Petition because Beehive could have attempted to intervene in this case if it were concerned about protecting its rights. The public record in this case gave Beehive "every reason to understand that one option available to the Commission" was to find that Beehive was instrumental to the sham, and Beehive can hardly claim "surprise" by the Commission's findings to that effect.

Similarly unavailing is the contention that Commission staff thwarted Beehive's "last-ditch effort to participate in this proceeding" by failing to hold the Order in abeyance pending the filing of Sprint's complaint effectuating the Utah Court Referral, which purportedly would have allowed Beehive to seek consolidation of the two cases. This argument misses the point because it wrongly assumes that Beehive could not have participated at the Commission until Sprint filed its complaint. Beehive could have filed a motion to intervene years earlier when it learned that its conduct figured prominently in AT&T's claims against the Defendants. In all events, consolidating the two proceedings when the draft Order was on the verge of circulation would have made no sense. The parties in this case generated a vast record. Consolidation would have meant injecting new parties (Sprint and Beehive), as well as different tariffs, tariff periods, and defenses, into the proceeding after the record had closed. Moreover, the Commission would have had to devise a way to reconcile the Utah Referral Order's directive regarding the parties (including Beehive) not disputing the undisputed facts detailed in the Utah Referral Order with the absence of any such limitation in the First Court Referral Order or the Second Court Referral Order giving rise to the instant litigation. Staff appropriately exercised its discretion not to consolidate the cases.

ordering clauseS

Accordingly, IT IS HEREBY ORDERED, pursuant to Sections 4(i), 4(j), 201, 203, 208, and 405 of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), 154(j), 201, 203, 208, 405, and Section 1.106 of the Commission's rules, 47 C.F.R. § 1.106, that the Petition of All American Telephone Co., Inc., e-Pinnacle Communications, Inc., and ChaseCom for Reconsideration and Clarification is DISMISSED on procedural grounds and, as an independent and alternative basis for this decision, DENIED for the reasons stated herein.

Accordingly, IT IS FURTHER ORDERED, pursuant to Sections 4(i), 4(j), and 208 of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), 154(j), 208, and Sections 1.41 and 1.727 of the Commission's rules, 47 C.F.R. §§ 1.41, 1.727, that All American's Emergency Motion to Address Jurisdictional and Due Process Issues is DENIED.

Accordingly, IT IS FURTHER ORDERED, pursuant to Sections 4(i), 4(j), 201, 203, 208, and 405 of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), 154(j), 201, 203, 208, 405, and Section 1.106 of the Commission's rules, 47 C.F.R. § 1.106, that Beehive's Petition for Reconsideration is DISMISSED.


Marlene H. Dortch