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 OF FORFEITURE

     Adopted:  November 30, 2000                  Released:  
December 7, 2000    

By the Commission   

                        I.   INTRODUCTION

          In this  Order,  we  assess a  forfeiture  of  $750,000 
against Coleman Enterprises, Inc. d/b/a Local Long Distance, Inc. 
(``LLD'')   for   willful   or   repeated   violations   of   the 
Communications  Act  of  1934,  as  amended  (the  ``Act''),  and 
implementing Commission  rules  and  orders.  We  find  that  LLD 
willfully or  repeatedly  violated  section 258  of  the  Act  by 
changing the preferred  interexchange carriers  designated by  14 
consumers  without  their  authorization  (a  practice   commonly 
referred to as ``slamming'').1 

                         II.  BACKGROUND

          The facts and circumstances leading to the issuance  of 
our Notice  of Apparent  Liability for  Forfeiture (``NAL'')  are 
fully recited in the NAL and  need not be reiterated at  length.2  
Between June  1998 and  May 1999,  the Commission  processed  306 
consumer complaints regarding LLD.3  The Commission  investigated 
14 of these  complaints.  Each  of the  14 complainants  asserted 
that LLD  converted his  or her  preferred interexchange  carrier 
(``PIC'') without  authorization, and  each complainant  provided 
sworn statements and evidence  to that effect.  The  complainants 
also alleged that LLD telemarketers misrepresented material facts 
about LLD's services.  As described in the NAL, the scripts  used 
by LLD's telemarketers  offered a bill  consolidation service  to 
consumers,  but  did  not  reveal  that  agreeing  to  the   bill 
consolidation service would  result in  their preferred  carriers 
being changed  to  LLD.  The  scripts  used by  the  third  party 
verifiers and  the verification  tapes submitted  by LLD  confirm 
that the verifiers failed to ask if the consumer was  authorizing 
a switch of his or her  preferred carrier.  Further, in the  NAL, 
the Commission stated that LLD may have deceptively used, as  its 
name, the  generic term  ``local long  distance'' as  part of  an 
effort to confuse consumers.4

          In the  NAL,  based on  our  review of  the  facts  and 
circumstances surrounding these apparent violations, we concluded 
that LLD  was  apparently liable  for  a proposed  forfeiture  of 
$80,000 for each  of the 14  complaints involving allegations  of 
slamming through fraudulent sales and verification practices.  In 
total, we proposed a forfeiture of $1,120,000 for LLD's  apparent 
violation of section 258  of the Act  and the Commission's  rules 
and orders.5

                      III.      DISCUSSION

     4.   In its Response to the NAL, LLD does not challenge  the 
Commission's finding  that  LLD apparently  submitted  PIC-change 
orders to  the  complainants'  local  exchange  carriers  without 
authorization.   LLD  directs  its  argument  instead  towards  a 
mitigation of the  forfeiture amount.  Invoking  the factors  set 
forth in section 503(b)(2)(D) of  the Act,6 LLD asserts that  the 
amount  should   be  reduced   because:  (1)   the   Commission's 
verification rules  are unclear;  (2) the  third party  verifiers 
were independent contractors; (3) LLD had no intent to change the 
complainant's PIC without proper authorization; (4) LLD has taken 
important remedial  steps  to curtail  and  prevent  unauthorized 
conversions in  the future;  (5) LLD  has an  overall history  of 
compliance before the Commission; and, (6) LLD lacks the  ability 
to pay the forfeiture.  We address LLD's arguments below.

     A.  Commission's Verification  Rules and  LLD's Third  Party 

     5.   Several  of  the  arguments  LLD  makes  in  favor   of 
mitigating the forfeiture amount  concern the Commission's  third 
party verification rules and the  third party verifiers LLD  used 
in its  telemarketing process.   As stated  above, LLD  does  not 
contest its liability but argues that the proposed forfeiture  is 
too harsh, and should be reduced.7  As a basis for its request to 
reduce the forfeiture  amount, LLD argues  that the  Commission's 
third party verification rules  are ambiguous.  LLD  specifically 
claims that the Section 258  Order implicitly recognizes its  own 
ambiguity  concerning  the  verification  rules8  and  that   one 
Commissioner  assertedly  stated  that  the  existing  rules  are 
ambiguous.9  Further, LLD  argues that the  Commission based  the 
forfeiture, in part, upon the actions of LLD's independent  third 
party verifiers, which the Commission imputed to LLD.10  

     6.   The Commission's rules in effect during the time period 
relevant to  this  case11  squarely  place  responsibility  on  a 
carrier to obtain the consumer's authorization to switch  his/her 
service.  This authorization must subsequently be verified by one 
of several methods.  LLD claims  it used independent third  party 
verifiers, but whether the third party verifier used by LLD is an 
independent contractor is irrelevant  to LLD's liability in  this 
case.  The apparent  violations found  in the NAL  were based  on 
LLD's failure  to  obtain  that  initial  authorization  from  14 
consumers, before the third  party verification took place.   The 
Commission's  determination  was  based on  an  investigation  of 
LLD's  telemarketing  activities,  including  its   telemarketing 
scripts.  Specifically, the Commission found these scripts to  be 
misleading  about  the  services   LLD  offered.   Further,   the 
verification   tapes   LLD   submitted   revealed   that    LLD's 
telemarketers actively participated in the verification  process, 
further undermining  the consumer's  ability to  understand  what 
he/she was purchasing  and casting doubt  on the independence  of 
the verifier.12 The Commission  looked at these facts  concerning 
the 14  complaints  and  determined in  each  instance  that  the 
consumer had apparently not given LLD authorization to change its 
PIC to LLD.  The  Commission further noted  that the third  party 
verification scripts  and  tapes  LLD submitted  to  counter  the 
consumers' allegations  actually supported  the claims  that  the 
consumers  had  not  authorized  a  change  in  service.    These 
materials demonstrate  that  neither  LLD  nor  the  third  party 
verifiers asked the consumers if they had authorized a PIC change 
to LLD.   These  scripts and  tapes  do nothing  to  counter  the 
consumers' allegations that  they did not  authorize a change  in 
service in the  first instance.  We therefore find  no reason  to 
reduce the forfeiture amount in this regard.

     7.   We also reject LLD's  argument that the relevant  third 
party verification rules are  ambiguous in any material  respect.  
The fact the Commission sought  comment on whether to refine  its 
rules does  not mean  that those  rules failed  to provide  clear 
notice of the relevant legal requirements as they applied at that 
time.  Moreover, the issues that were the subject of the  Section 
258 Order are not relevant  to the instant case.13  In  addition, 
the separate  statement  of  one Commissioner  did  not  in  fact 
indicate  that  the  third  party  verification  requirement  was 
ambiguous  and,  in   any  event,   was  not   endorsed  by   the 
Commission.14  Accordingly,  we find  no ambiguity  in the  third 
party verification rules as they apply to this case.
     (B)  Remedial Steps
     8.   Although  LLD  further  maintains  that  it  has  taken 
remedial actions to address its unauthorized carrier changes, and 
that it stopped its telemarketing services in December 1998,15 we 
do not find these  actions sufficient to  mitigate the amount  of 
its forfeiture.  We believe that the actions LLD described in its 
compliance plan,16 such  as improving its  customer services  and 
establishing penalties  for  employees as  incentives  to  ensure 
compliance, are not  unusual for the  industry.  Moreover,  LLD's 
cessation of  its use  of  telemarketing activities  in  December 
1998, came months after the former Consumer Protection Branch  of 
the Common Carrier Bureau had forwarded many hundreds of informal 
consumer complaints to LLD for  its response.  We therefore  find 
no basis for a  downward adjustment of  the forfeiture amount  on 
this ground.
     (C)  Degree of Culpability

     9.   LLD argues that its  treatment of consumers, once  they 
complained about the unauthorized  changes in service,  indicates 
that LLD did  not intend  for the unauthorized  switches to  take 
place.  LLD further maintains  that the Commission should  reduce 
the forfeiture amount because the  precautions LLD placed in  the 
telemarketing training materials  indicate that LLD  did not  act 
willfully  to   harm   consumers.   We   find   these   arguments 
unpersuasive.  As to its treatment  of its customers, as the  NAL 
noted, LLD's responses  to its consumers  were ``barebones''  and 
did not address consumers' specific concerns about the misleading 
sales calls and verification practices.17  As to LLD's claim that 
it did not act willfully, it  has long been established that  the 
word ``willfully,'' as  employed in  section 503(b)  of the  Act, 
does not require a demonstration that LLD knew that it was acting 
unlawfully.18  Section 503(b)  requires only a  finding that  LLD 
knew it was doing the acts in question and that the acts were not 
accidental. Furthermore, section 258 of the Act imposes liability 
on the carrier responsible for submitting an unauthorized change, 
regardless of intent.19  LLD's treatment of harmed consumers  and 
contention that it  did not act  willfully neither exonerate  the 
company nor justify a reduction in the forfeiture amount.

     (D)  History of Compliance 

     10.  LLD further  argues that  a reduction  in the  proposed 
forfeiture is warranted  because it has  a history of  compliance 
before the Commission.   LLD states that  it ``was authorized  by 
the Commission in  1997 to provide  international switched  voice 
services,'' and  that  this is  the  ``first notice  of  apparent 
liability [LLD] has received from this Commission.''20  As stated 
in the Commission's Forfeiture  Policy Statement,21 a history  of 
overall compliance is one of the factors the Commission may  take 
into account in  its consideration  of downward  adjustment of  a 
forfeiture.  Here, although LLD  apparently only began  providing 
service in 1997, its record reflects an ongoing problem regarding 
consumer  complaints   that   involved   misrepresentation.    As 
mentioned above, the  Commission received  306 consumer  slamming 
complaints against  LLD  between June  1998  and May  1999.   The 
proposed forfeiture amount  for the 14  complaints for which  the 
NAL was issued reflects the seriousness of the violations  found.  
When we view LLD's pattern  of slamming violations alongside  its 
relatively short period of corporate existence, we are  convinced 
that it would be inappropriate  to reduce the forfeiture on  this 

     (E)  Ability To Pay

     11.  LLD last argues that payment of the full amount of  the 
proposed forfeiture  ``would place  an extreme  financial  strain 
upon the company,'' which ``has  been operating at a  significant 
loss  for  the  past  two  years.''23   LLD  requests  that   the 
Commission use its  discretion under section  503(b) of the  Act, 
and  reduce  or  rescind  its  forfeiture.24   In  considering  a 
carrier's claim of inability to pay, the Commission's rules state 
that any  showing of  why  a forfeiture  should be  reduced  must 
include a detailed factual statement, and other documentation and 
affidavits as may be relevant.25  Case precedent reveals that  an 
appropriate indicator of a carrier's ability to pay a  forfeiture 
is its  gross revenues.26   Here, LLD  has provided  federal  tax 
returns for 1997 and 1998,  an unaudited cash flow statement  for 
the year  ending  December  31, 1999,  and  bank  summaries  with 
alleged consumer credits listed.   In this instance, we  consider 
the most  reliable  and  recent financial  information  that  LLD 
provided us  to be  its  1998 federal  tax return  showing  gross 
revenues of  $9,420,696.48  for that  year.   We agree  that  the 
proposed forfeiture amount, $1,120,000, is somewhat excessive  in 
light of these  gross revenues and  LLD's financial  situation.27  
Accordingly, and in light of the seriousness of the violation, we 
reduce the forfeiture amount from $1,120,000 to $750,000.28 

                    IV.      ORDERING CLAUSES

     12.  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 LLD  Services 
Corporation 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,  and  the 
Commission's rules  and  orders governing  primary  interexchange 
carrier  conversions,  47  C.F.R.     64.1100,  64.1150.    For 
collection, the  Commission will  file a  proof of  claim at  the 
appropriate  time  in   LLD  Services  Corporation's   bankruptcy 

     13.  IT IS  FURTHER ORDERED  that a  copy of  this Order  of 
Forfeiture shall  be  sent by  certified  United States  mail  to 
Daniel G.  Coleman, President,  Coleman Enterprises,  Inc.  d/b/a 
Local Long Distance, Inc., 6053 Hudson Road, Suite 110, St. Paul, 
Minnesota 55125.

                                FEDERAL COMMUNICATIONS COMMISSION

                                Magalie Roman Salas

1    Section 258  states that  ``[n]o 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.  In the Notice of 
Apparent Liability that preceded this  Order, we also found  that 
LLD apparently  violated  section  201(b)  of  the  Act  for  its 
unreasonable and  egregious  marketing  practices.  We  declined, 
however, to propose a  forfeiture for those apparent  violations.   
Accordingly,  in  this  Order,  we  address  only  those     258 
violations for which we proposed a forfeiture amount.
2    Local Long Distance Inc.,  Notice of Apparent Liability  for 
Forfeiture, 14 FCC Rcd 13786 (1999) (LLD NAL).
3    Id. at n.7.
4    Id. at 13799.
5    Id. 
6    The  Act   at  section   503(b)(2)(D)  provides   that,   in 
determining the amount of the forfeiture penalty, the  Commission 
is required  to take  into  account "the  nature,  circumstances, 
extent, and gravity  of the  violation and, with  respect to  the 
violator,  the  degree  of  culpability,  any  history  of  prior 
offenses, ability to pay, and  such other matters as justice  may 
7    Response at 2.
8    Response at 6, citing the Section  258 Order, 14 FCC Rcd  at 
  164   [sic]-7[sic]  (the   four  paragraphs   which   discuss 
``Independent Third Party Verification'' are actually found at  
165 - 68 of the Section 258 Order, 14 FCC Rcd at 1601-02). 
9    Response at 4 and  6, referring to Commissioner  Furchtgott-
Roth's separate statement in Business Discount Plan, Inc., Notice 
of Apparent Liability of Forfeiture,  14 FCC Rcd 340, 369  (1998) 
(Business Discount NAL).
10   Response at 7- 8.
11   47 C.F.R.  64.1100(c)(1998).
12   LLD NAL, 14 FCC Rcd at 13801.
13   For example, the Section 258 Order addresses absolution, for 
consumers, of charges imposed by unauthorized carriers, liability 
of  subscribers  and  unauthorized  carriers,  preferred  carrier 
freezes, and  recovery of  additional amounts  from  unauthorized 
carriers.  None  of  these issues  are  involved in  the  instant 
14   See, supra, n. 9.  In his separate statement in the Business 
Discount NAL, Commissioner  Furchtgott-Roth said that  ``[b]efore 
we proceed much  further with  enforcement of  slamming rules  as 
they relate to marketing, the Commission should develop clear and 
unambiguous rules  delineating  permissible  marketing  practices 
from impermissible practices.''   Business Discount  NAL, 14  FCC 
Rcd at 369.  These comments appear directed to a section of  that 
NAL discussing misleading marketing  under Section 201(b) of  the 
Act, not the  Commission's slamming rules  regarding third  party 
verification.  See also  Business Discount Plan,  Inc., Order  of 
Forfeiture, 15  FCC  Rcd  14461, 14475-77  (2000),  and  Business 
Discount Plan, Inc., Order  on Reconsideration, FCC 00-424  (Dec. 
7, 2000).
15   Response at 8.
16   Because  of  the  extent  of  LLD's  misrepresentations   to 
consumers, in the NAL we required LLD to submit a compliance plan 
detailing how  it would  quickly  identify and  address  consumer 
inquiries  and  change   its  sales   scripts  and   verification 
practices.  LLD NAL, 14 FCC Rcd at 13804.
17   Id. at 13788.
18   ConQuest Operator Services  Corp., Order  of Forfeiture,  14 
FCC Rcd 12518,  12525, n.41 (1999)  (ConQuest Forfeiture  Order); 
Target Telecom Forfeiture Inc., Order  of Forfeiture, 13 FCC  Rcd 
4456 (Com.  Car. Bur.  1998) (Target  Telecom Forfeiture  Order), 
Southern California  Broadcasting  Co.,  Memorandum  Opinion  and 
Order, 6 FCC Rcd 4387, 4387-88 (1991).
19   47 U.S.C.  258; Section 258 Order, 14 FCC Rcd at 1539.  The 
Section 258 Order reiterates that the statute does not  establish 
an intent element  for a  violation of section  258.  A  carrier, 
therefore, would be liable for slamming if it was responsible for 
an  unauthorized  change,  regardless  of  whether  it  was  done 
20   Response at 1 and 11.
21   See 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,  17116  (1997) 
(Forfeiture Policy  Statement), recon.  denied,  15 FCC  Rcd  303 
22   See Brittan  Communications  International, Inc.,  Order  of 
Forfeiture, 15 FCC Rcd 4852 (2000) (Brittan Forfeiture Order).
23   Response at 11.
24   Id. at 3.
25   47 C.F.R.  1.80 (f)(3).
26   See, e.g., Target  Telecom Forfeiture Order,  13 FCC Rcd  at 
4464 (``the use of gross revenues to determine a party's  ability 
to pay  is reasonable,  appropriate, and  a useful  yardstick  in 
helping to analyze a company's financial condition for forfeiture 
27   LLD has  filed  for  bankruptcy  under  Chapter  11  of  the 
Bankruptcy Code.   Coleman  Enter.,  Inc.,  No.  00-33476  -  GFK 
(Bankr. D. Minn. filed Aug. 18, 2000). 
28   Filing for bankruptcy does not preclude the Commission  from 
issuing an  order defining  LLD's penalty  for slamming,  because 
under 11 U.S.C.  362(b) of the Bankruptcy Code, issuance of  the 
order in this kind of action is excepted from the automatic  stay 
against  collections.    See   United  States   v.   Commonwealth 
Companies, Inc., 913  F.2d 518,  522 (8th  Cir. 1990)  (excepting 
suits by government agencies which  fix damages for violation  of 
fraud and  consumer  protection laws  from  the stay  imposed  in 
bankruptcy actions).   Here, the  Commission  finds LLD  to  have 
violated section 258 of the Act, the goal of which is to  protect 
consumers from their long distance carriers being changed without 
their  authorization.   See  Implementation  of  the   Subscriber 
Carrier Selection  Changes Provisions  of the  Telecommunications 
Act of  1996  and  Policies  and  Rules  Concerning  Unauthorized 
Changes of Consumers' Long  Distance Carriers, Second Report  and 
Order and Further Notice of Proposed Rulemaking, 14 FCC Rcd 1508, 
1510 (1998). 
29   See Commonwealth Companies, 913 F.2d at 523.