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Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
In the Matter of )
)
GERRI MURPHY REALTY, INC., )
)
Complainant, )
v. ) File No. EB-01-TC-
F008
)
AT&T CORPORATION )
)
Defendant, )
)
MEMORANDUM OPINION AND ORDER
Adopted: October 12, 2001 Released:
October 15, 2001
By the Commission:
I. INTRODUCTION
1. In this Memorandum Opinion and Order, we deny the
above-captioned formal complaint filed by complainant Gerri
Murphy Realty, Inc. (GMRI). The Complaint raises three
issues for the Commission's consideration: (1) whether
AT&T's Tariff F.C.C. No. 1, Section 2.4.1.A on file with the
Commission at the time of the events giving rise to this
proceeding is lawful;1 (2) whether GMRI is liable pursuant
to AT&T's tariff for charges associated with long distance
telephone calls made in September 1999 by third parties who
obtained unauthorized access to GMRI's communications
system;2 and (3) whether AT&T's conduct with regard to the
unauthorized calls was unreasonable in violation of Sections
201(b), 203, and 206 of the Communications Act of 1934, as
amended.3 For the reasons discussed below, we conclude that:
(1) AT&T's tariff is lawful; (2) GMRI is liable under AT&T's
tariff for the unauthorized charges; and (3) AT&T's conduct
with regard to the unauthorized calls was not unreasonable
or otherwise in violation of the Communications Act.
II. BACKGROUND
A. Parties To the Proceeding
2. GMRI is a real estate agency incorporated in
Georgia.4 In 1996, GMRI acquired the assets of Head Realty,
Co. (Head Realty) and pursuant to that transaction, became a
subscriber to AT&T's 800 Service under AT&T Tariff F.C.C.
No. 2 and AT&T's Long Distance Message Telecommunications
Service (LDMTS) under AT&T Tariff F.C.C. No. 1. Pursuant to
the Head Realty transaction, GMRI also acquired a contract
with Southern Bell for ESSX-1 service, which it renewed in
1997.5 The ESSX system controlled GMRI's telephone service
and also controlled the physical phone lines connecting the
central office switch with GMRI.6 In addition, the ESSX-1
service included a Direct Inward Dialing feature that
allowed ``incoming calls from the exchange or toll network''
to ``be dialed directly to completion to'' any outbound
number.7 During the relevant time frame, GMRI was also using
an on site Panasonic telephone/voice mail system that was
password protected.8 Whether that system permitted external
or remote access is a matter of dispute.9
3. AT&T is an interexchange carrier (IXC) and, for
purposes of this proceeding, was engaged in the provision of
interLATA telecommunications services. Under the regulatory
framework in place at the time of the events giving rise to
this proceeding, AT&T was classified as a ``nondominant''
interexchange carrier. As a result, AT&T was required to
file and maintain tariffs with the Commission that contained
charges, terms, and conditions of its common carrier
offerings.
B. Underlying Facts
4. On or about September 7, 1999, AT&T noticed that
GMRI's 800 number was receiving a high number of inbound
calls from the New York area and that there was a high
number of international calls to locations where suspected
fraud has occurred in the past.10 AT&T's security division
then contacted GMRI to inform it of the unusual calling
patterns detected.11 Subsequent conversations ensued
between the parties, the contents of which are in dispute.
GMRI alleges that despite complying with all of AT&T's
recommendations, the fraudulent toll calls continued.12
AT&T contends that GMRI decided to contact GMRI's voice mail
technician to resolve the problem and, when advised to
authorize a block of the area codes at issue, initially
declined.13 According to AT&T, after several days of
continued unauthorized calling, AT&T placed a block on the
area codes without prior authorization and the toll fraud
ceased.14 GMRI contends that the toll fraud ceased only
after AT&T advised it to discontinue its 800 number except
for calls from Alaska and Guam.15
5. AT&T subsequently billed GMRI for all of the
telephone calls, both authorized and unauthorized, pursuant
to AT&T's Tariff F.C.C. No. 1, Section 2.4.1.A and F.C.C.
No. 2, Section 2.4.1.A.16
C. Procedural History
6. On March 8, 2000, GMRI filed an informal complaint
with the Commission alleging that AT&T's effort to collect
charges for unauthorized telephone calls originating from
GMRI's telephone number were illegal and unjust.17 On
November 16, 2000, AT&T filed its response, stating that it
could not offer any resolution to the complainant because
the account was in pre-litigation.18 On December 20, 2000,
the Commission's Consumer Information Bureau closed the
complaint.19
7. On February 5, 2001, AT&T filed a lawsuit against
GMRI in the United States District Court, Northern District
of Georgia, Atlanta Division20 seeking $90,270.89 in charges
for the provision of long distance telecommunications
services relating to the calls at issue.21 The District
Court stayed the proceeding pending the filing of a formal
complaint with the Commission, retained jurisdiction over
AT&T's claims, and dismissed GMRI's counterclaims.22 On May
15, 2001, GMRI filed the above-captioned Complaint alleging
that AT&T's tariff is unlawful, that GMRI is not liable for
the unauthorized calls and that AT&T's effort to collect the
unauthorized charges violates Sections 201, 203, and 206 of
the Communications Act.23
III. DISCUSSION
A. Lawfulness of AT&T's Tariff
8. GMRI challenges the lawfulness of AT&T's Tariff
F.C.C. No. 1, Section 2.4.1.A on grounds that the allocation
of risk associated with toll fraud is improperly placed on
individual customers.24 The relevant tariff provision
provides that ``[t]he Customer is responsible for the
payment...for LDMTS calls or services: -- Originated at the
Customer's number(s).'' GMRI suggests that ``a more
reasonable means for recovering the loss of the risk of toll
fraud is through spreading it and sharing it'' among AT&T's
entire customer base.25 We disagree that AT&T's tariff is
unlawful.
9. As AT&T notes in its Brief, it offers a variety of
enhanced NetProtect options to limit customer liability for
toll fraud.26 Furthermore, customers who do not choose one
of the enhanced NetProtect options are automatically
enrolled in AT&T's Basic service which caps liability at
$25,000 prior to AT&T's notification, and offers a 50
percent reduction in charges if the customer detects the
fraud first and notifies AT&T.27 We find that such
provisions both provide customers with reasonable security
options and create appropriate incentives for customers to
secure and monitor their telephone systems. Particularly in
view of the security options available to its customers, we
find no merit in GMRI's argument that AT&T should be
required to spread the risk of fraud over its entire
customer base. We therefore reject GMRI's allegation that
AT&T's tariff unlawfully allocates the risk of toll fraud to
individual customers.
B. Liability for Unauthorized Calls
10. GMRI contends that it is not liable for the
unauthorized calls placed over its telephone lines because
the calls were ``not specifically requested by GMRI, were
not made at GMRI's locations, were not originated at GMRI's
phones and were the result of telephone toll fraud.'' 28
While GMRI attempts to distinguish the facts in this case
from prior Commission precedent, our holding in Chartways
Technologies, Inc. v. AT&T29
is dispositive.
11. In Chartways, the Commission affirmed the Common
Carrier Bureau's determination that a customer who had
subscribed to AT&T's LDMTS and 800 services was liable for
unauthorized calls made from remote locations through the
customer's PBX system. Construing the very same tariff
provisions that are before the Commission in this
proceeding, the Commission held that ``the clear meaning of
the relevant tariff provisions is that the customer's
obligation includes liability for unauthorized usage
involving incoming 800 Service calls or LDMTS calls that
originate at the customer's numbers.'' 30 Moreover, the
Commission found that the unauthorized calls did, in fact,
originate at the customer's number even though the
unauthorized calls involved inbound 800 calls.31 The
Commission noted that each incoming unauthorized call using
the 800 service is ``separate and distinguishable'' from the
outgoing unauthorized calls using LDMTS.''32 As a result,
the Commission concluded that with regard to 800 Service,
there is no requirement under the tariff that a call
originate at the customer's number because all 800 calls
terminate there and because the service is specifically
designed to allow unknown callers access to the service.33
Hence, the complainant in Chartways was liable under the
tariff for charges associated with the incoming 800 calls.
With regard to the disputed outgoing LDMTS calls, the
Commission held in Chartways that because the unauthorized
callers were able to obtain a local dial tone from the
premises, the unauthorized calls did originate from
Chartways' numbers.34 The Commission therefore found that
Chartways was liable for these calls as well under AT&T's
tariff.35
12. While there is some dispute in the record as to
the particular facility misused by the callers, both parties
agree that the inbound callers used GMRI's ESSX system in
order to obtain a local dial tone.36 GMRI argues that
because the ESSX system was not within its immediate
control, the unauthorized calls did not ``originate at the
customer's number'' within the meaning of the relevant
tariff provision.37 We disagree. Consistent with our
decision in Chartways, we find that regardless of whether
GMRI had physical control over the ESSX system, that system
was exploited by the unauthorized callers who then made use
of GMRI's number to make fraudulent toll calls. Although
there are no stipulated facts in this proceeding to suggest
that GMRI had physical control over the ESSX system, we find
it significant that GMRI, with the assistance of BellSouth,
installed the ESSX system without consulting AT&T in any
way, and that it was this equipment that provided the point
of vulnerability for the unauthorized callers.38
Furthermore, there is no indication in the record that AT&T
had the ability to determine whether particular 800 or LDMTS
calls were authorized or that AT&T represented to GMRI that
it had such capabilities.39 In order to determine that the
high number of international calls placed over GMRI's lines
were fraudulent, AT&T first had to verify with GMRI that
those calls were not authorized. Moreover, there is evidence
in the record to suggest that GMRI could have made use of
several BellSouth service options to restrict its ESSX
service from making outbound calls.40 In addition, AT&T
offered several enhanced NetProtect options that, had GMRI
elected to subscribe to them, would have reduced its
liability associated with the unauthorized calls.41 We
therefore find that absent any evidence that AT&T was in a
position to restrict access to and egress from GMRI's ESSX
system, and because there is undisputed evidence in the
record suggesting that GMRI had control over the system,
GMRI is liable under AT&T's tariff for the charges
associated with the fraudulent calls.
C. Alleged Violations of the Communications Act
13. GMRI contends that AT&T's effort to collect the
unauthorized charges violates Sections 201, 203, and 206 of
the Communications Act.42 Specifically, GMRI argues that:
(1) AT&T breached its alleged duty to warn GMRI of the
potential for telephone fraud, and its alleged duty to
inform GMRI of the existence of four NetProtect programs
offered by AT&T to limit customer liability; and (2) AT&T
was negligent either in failing to block the fraudulent
calls immediately, or alternatively, in failing to promptly
disconnect or recommend the disconnection of GMRI's 800
number.43 We address these arguments below, rejecting
GMRI's contention that AT&T violated the Communications Act.
1. Alleged Duty to Warn or Inform
14. We find that GMRI's allegation that AT&T had a
duty to warn its customers of the risk of toll fraud, or to
inform its customers of other services it provides to reduce
liability in such circumstances, is not supported by
Commission precedent. In Chartways, and again in Directel,
Inc. v. AT&T,44 the Commission held that AT&T has no duty to
warn its customers of the risk associated with fraudulent
telephone activity.45 In Chartways, the Commission
concluded that the record did not demonstrate ``a failure by
AT&T to comply with any existing disclosure obligation
imposed by the Commission or required by Section 201(b) of
the Act.''46 The Commission further held that the record in
Chartways did not indicate that AT&T ``had any basis for
questioning [complainant's] choices about which security
measures to implement in connection with [it's] own
telecommunications equipment.''47 Similarly, in Directel,
complainants alleged that AT&T had an affirmative duty to
warn it of the risks associated with toll fraud.48
Referencing its decision in Chartways, the Commission
reiterated its position AT&T had no affirmative duty to warn
complainant about toll fraud risks.49 We find the same to
be true in this proceeding.
15. In support of its allegation that AT&T had an
affirmative duty to warn its customers of potential toll
fraud, GMRI cites language in a notice of proposed
rulemaking in which the Commission requested comment on
whether tariff provisions that fail to recognize an
obligation by the carrier to warn customers of risks are
unreasonable.50 Because the Commission never subsequently
issued an order or adopted a rule on the issue, the language
cited by GMRI cannot be used to support any allegations
regarding a carrier's duty to warn its customers about toll
fraud. As AT&T correctly notes, three years after the
Commission issued the NPRM on toll fraud, it decided
Directel, in which it held that AT&T had no affirmative duty
to warn the complainant about the risks associated with toll
fraud.51 We therefore find unpersuasive GMRI's argument
regarding AT&T's duty to warn customers about the risks of
toll fraud.52
16. GMRI further contends that AT&T had a duty to
inform its customers of other services it provides to reduce
any liability that may result from toll fraud.53 While we
agree that such information would be useful to consumers,
long-standing case law contradicts GMRI's claim that AT&T
had such a duty.54 GMRI's reliance on language the
Commission used in a proceeding implementing Section 254(g)
of the Communications Act is inapposite.55 We therefore
find that AT&T did not have a duty to inform GMRI of the
other services it provides that may have reduced GMRI's
liability under these circumstances.
2. Alleged Negligence
17. GMRI also contends that AT&T's conduct after the
toll fraud was discovered was unreasonable, in violation of
the Communications Act.56 Specifically, GMRI alleges that
AT&T was negligent either in failing to block the fraudulent
calls immediately, or alternatively, in failing to promptly
disconnect or recommend the disconnection of GMRI's 800
number.57 We reject GMRI's claims in this regard.
18. AT&T's tariff limits AT&T's liability to its
customers except in instances of willful misconduct.58 When
GMRI took service under this tariff, it implicitly agreed to
this standard of liability. Therefore, we limit our
discussion to whether AT&T's conduct, with regard to the
unauthorized calls, rose to the level of willful misconduct.
19. Willful misconduct has been defined as ``the
intentional performance of an act with knowledge that the
performance of that act will probably result in injury or
damage, or...the intentional omission of some act, with
knowledge that such omission will probably result in damage
or injury....''59 We conclude that AT&T did not engage in
any activity that supports a finding of willful misconduct.
To the contrary, the evidence in the record indicates that
immediately after AT&T discovered the high volume of calls
originating from GMRI's telephone lines, it contacted GMRI
to warn it of the potential of fraud.60 GMRI admits that
AT&T made several calls to GMRI, recommending preventative
action.61 GMRI contends that notwithstanding its compliance
with all of AT&T's recommendations, the fraudulent toll
calls continued until AT&T advised GMRI to discontinue its
800 number.62 While AT&T's factual account differs
significantly from GMRI's, even under the factual scenario
provided by GMRI, we find no evidence that AT&T took any
actions with the knowledge that its conduct would likely
injure GMRI. To the contrary, AT&T's actions were intended
to reduce the incidence of fraud. There is also no evidence
to suggest that AT&T made any affirmative representations to
GMRI that it would correct the problem and then failed to
follow up on those representations.63 In light of the
record before us, we find that any acts or omissions by AT&T
here do not constitute willful misconduct.64
IV. CONCLUSION
20. For the reasons discussed above, we find AT&T's
tariff lawful and find that GMRI is liable under AT&T's
tariff for the disputed charges associated with long
distance telephone calls made in September 1999 by third
parties who obtained unauthorized access to GMRI's
communications system. In addition, we conclude that AT&T's
effort to collect such charges pursuant to its tariff does
not violate Sections 201, 203, or 206 of the Communications
Act. V. ORDERING CLAUSES
21. Accordingly, IT IS ORDERED that, 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, the
above-captioned complaint filed by GMRI on May 15, 2001 is
DENIED.
22. IT IS FURTHER ORDERED that the Chief of the
Telecommunications Consumers Division of the Enforcement
Bureau shall forward a copy of this Memorandum Opinion and
Order to the Clerk, United States District Court for the
Northern District of Georgia.
FEDERAL COMMUNICATION COMMISSION
Magalie Roman Salas
Secretary
_________________________
1 Complaint at 12.
2 Id; see Brief of GMRI in Support of Formal Complaint,
Summary (filed July 27, 2001) (GMRI Brief).
3 Complaint at 11; 47 U.S.C. §§ 201, 203, 206.
4 Complaint at 3.
5 Id. at 5-6; see also AT&T's Brief at 1-2.
6 Complaint at 6.
7 See Georgia state tariffs of Southern Bell Telephone
and Telegraph Company, appended to GMRI's Complaint, Exhibit
J, Sections A112.8.1A and O.1.a.(2).
8 Complaint at 6; AT&T Brief at 2-3.
9 See Reply Brief of GMRI at 2 (Reply Brief).
10 AT&T Brief at 6; GMRI Brief at 2-3
11 AT&T Brief at 6; GMRI Brief at 3.
12 GMRI Brief at 4.
13 AT&T Brief at 7.
14 Id.
15 GMRI Brief at 4.
16 AT&T Brief at 7; GMRI Complaint at 1.
17 Joint Statement of the Parties (filed June 20, 2001) at
9 (Joint Statement).
18 Id; see AT&T Response, (filed November 16, 2000).
19 Joint Statement at 9.
20 AT&T Corp. v. GMRI, a/k/a Coldwell Banker GMRI, et al.,
Civil Action No. 1:01-CV-0337 (District Court Action).
21 Joint Statement at 9.
22 Id.
23 Complaint at 11; 47 U.S.C. §§ 201, 203, 206.
24 Complaint at 15.
25 Id.
26 AT&T Brief at 19. AT&T's NetProtect Plus Service
offers a $2,000 liability cap prior to notification of the
fraud, with a 50 percent reduction if the customer detects
the fraud first and notifies AT&T. AT&T's NetProtect
Premium has a $0 liability cap up to two hours after
notification of the fraud. See AT&T Tariff F.C.C. No. 1, §§
5.9, 5.8.
27 Id.
28 Complaint at 1.
29 8 FCC Rcd 5601 (1993).
30 8 FCC Rcd at 5603, ¶ 11.
31 Id. at 5603, ¶ 13.
32 Id.
33 Id. The Commission adds that ``the customer has, by
subscribing to the service, implicitly authorized any call
utilizing the service.'' Id.
34 Id.
35 Id.
36 AT&T Brief at 10; GMRI Brief at 9. AT&T contends that
the fraud was most likely facilitated by GMRI's on-site
voice mail system. See AT&T's Brief at 11.
37 GMRI's Reply Brief at 7.
38 See Chartways, 8 FCC Rcd at 5604, ¶ 16. Federal
courts have also recognized that in instances where the
complainant creates the vehicle and mechanism through which
the fraudulent calls are made, regardless of whether that
mechanism is in the immediate control of complainant, the
unauthorized toll calls ``originated'' at customer's number
within the meaning of the relevant tariff provision. See
AT&T v. Intrend Ropes and Twines, Inc., 944 F.Supp. 701, 710
(C.D. Ill. 1996).
39 We reject GMRI's unsupported allegations that AT&T
maintained control over the ESSX system merely by virtue of
its past affiliation with BellSouth or Lucent Technologies
Inc., the claimed manufacturer of the equipment used by
BellSouth to provide the ESSX service. See Complaint at 16.
40 See the ``Secondary Optional Features'' set forth in
Georgia state tariffs of Southern Bell Telephone and
Telegraph Company, appended to GMRI's Complaint, Exhibit J,
Sections A112.8.10.5. (w), (x), and (y); Code Restriction
Arrangements, Section A112.8.10.5. (m).
41 AT&T Brief at 1; Complaint at 11.
42 Complaint at 11; 47 U.S.C. §§ 201, 203, 206. GMRI
briefly alleges that AT&T's practices are unreasonable, in
violation of sections 201 and 203 of the Act, and that it is
entitled to recover damages under section 206.
43 GMRI Brief at 6-12.
44 11 FCC Rcd 7554 (1996).
45 Chartways, 8 FCC Rcd at 5604, ¶ 16; Directel, 11 FCC
Rcd at 7562-63, ¶ 19.
46 Chartways, 8 FCC Rcd at 5604, ¶ 16.
47 Id.
48 Directel, 11 FCC Rcd at 7558, ¶ 8.
49 Id. at 7562-63, ¶ 19.
50 Policies and Rules Concerning Toll Fraud, Notice of
Proposed Rulemaking, 8 FCC Rcd 8618, 8630, ¶ 24 (1993).
51 See AT&T Brief at 14, 15; Directel, 11 FCC Rcd 7554 at
¶ 19.
52 Because we find that AT&T did not have a duty to warn
GMRI of the risks associated with toll fraud, we do not
address whether AT&T breached that duty.
53 Complaint at 12.
54 See AT&T v. Intrend Ropes and Twines, Inc., 944 F.Supp.
at 708; see also Marco Supply Co. v. AT&T, 875 F.2d 434, 436
(4th Cir. 1989).
55 Policy and Rules Concerning the Interstate
Interexchange Marketplace, Implementation of Section 254(g)
of the Communications Act as Amended, CC Docket No. 96-61,
Second Report and Order, 11 FCC Rcd 20730 (1996) (Second
Report and Order. In Re: Western Union Tel. Co. 27 F.C.C.
2d 515 (1971) is not on point. The issue in that proceeding
was ``discrimination'' and the Commission's holding was
based on an extra charge imposed on customers for physical
delivery. GMRI makes no allegation of discrimination in
this proceeding. In addition, no extra charge was directly
imposed on GMRI for its lack of knowledge. To the contrary,
GMRI's failure to select one of AT&T's enhanced NetProtect
options automatically placed GMRI into the default
NetProtect option offered by AT&T.
56 Complaint at 2; GMRI's Brief at 10.
57 GMRI's Brief at 10.
58 See AT&T Tariff No. 1, Section 2.3.1. GMRI does not
argue that the willful misconduct provision of the tariff is
itself unlawful.
59 Berner v. British Commonwealth Pac. Airlines, Ltd., 346
F.2d 532, 536-37 (2d Cir. 1965), cert. denied, 382 U.S. 983
(1966).
60 Complaint at 7.
61 Id. at 8.
62 Id.
63 See MCI v. Management Solutions, Inc., 798 F.Supp. 50,
52 (D.Me.1992)(holding that affirmative representation to
correct a problem and subsequent failure to follow up on
those representations may constitute willful misconduct).
64 We reject GMRI's unsupported allegation that the actual
charges sought under AT&T's tariff for unauthorized
telephone fraud are unreasonable. See Complaint at 16.