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Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
APCC Services, Inc., )
Data Net Systems, LLC, )
Davel Communications, Inc., )
Jaroth, Inc. dba Pacific Telemanagement )
Services, and )
Intera Communications Corp., )
)
Complainants, )
)
)
v. ) File No. EB-02-MD-012
)
TS Interactive, Inc., )
)
Defendant. )
ORDER
Adopted: December 19, 2002 Released: December
20, 2002
By the Chief, Enforcement Bureau:
I. INTRODUCTION
1. In this Order, we grant a motion for default judgment
against TS Interactive, Inc. (``TS Interactive''), thereby
resolving a formal complaint proceeding filed by APCC
Services, Inc., et al. (``APCC'' or ``Complainants'')
against TS Interactive pursuant to section 208 of the
Communications Act of 1934, as amended (the ``Act'').1 The
complaint alleges that TS Interactive breached section 276
of the Act2 by failing to pay dial-around compensation to
Complainants for certain categories of completed coinless
calls originating from payphones, in violation of Commission
rules and orders.3 For the following reasons, we grant
APCC's motion for default judgment to the extent indicated
below.
II. BACKGROUND
2. Complainants identify themselves as either payphone
service providers (``PSPs'') or the agents of PSPs for the
billing and collection of ``dial-around compensation.''4
Defendant TS Interactive is described by Complainants as a
switch-based reseller of certain communications services of
Global Crossing Ltd. (``Global Crossing''); as such, TS
Interactive allegedly provides interstate and intrastate
telephone toll service, and carries traffic originating from
payphones owned or represented by Complainants.5
3. On April 19, 2002, Complainants filed the formal
complaint in this proceeding against TS Interactive seeking
to recover unpaid ``dial-around compensation'' that
Defendant was allegedly required to pay Complainants under
section 276 of the Act and section 64.1300 et seq. of the
Commission's rules.6 Specifically, Complainants allege that
TS Interactive failed to pay them dial-around compensation,
despite entering a contract with Global Crossing in which TS
Interactive assumed the responsibility to make such payments
after February 28, 1999.7 In accordance with the
Commission's formal complaint procedures, Complainants
indicated their desire to have the liability issues resolved
prior to the consideration of damages, and requested leave
to file a supplemental complaint for damages in the event
that the liability issues are resolved in their favor.8
4. TS Interactive participated in the pre-answer stage of
this proceeding by making an initial settlement proposal and
by specifically requesting an extension of time to file its
answer.9 Eventually, however, TS Interactive indicated to
Commission staff in a telephone conference that it did not
intend to take part further in this proceeding.10
Consistent with this stated position, TS Interactive failed
to submit an answer to the complaint, as required by the
Commission's formal complaint rules.11 In a letter dated
July 10, 2002, Commission staff weighed the consequences of
TS Interactive's failure to file an answer, and determined
that, on or before August 9, 2002 (thirty days from the date
of the letter), Complainants had to either withdraw the
complaint (in order to file an informal complaint against TS
Interactive alleging identical claims) or file a motion for
default judgment, and that a failure to take either of these
steps could result in a dismissal for failure to
prosecute.12 This date was later extended to September 6,
2002.13 Accordingly, on September 6, 2002, Complainants
filed a Motion for Default Judgment on the issue of
liability.14 Consistent with its failure to file an answer,
TS Interactive also failed to file an opposition to
Complainants' Motion for Default Judgment.
III. DISCUSSION
5. Section 1.724(a) of the Commission's rules requires a
defendant in a formal complaint proceeding to file an answer
within twenty days of service of the formal complaint,
unless otherwise directed by the Commission.15 Furthermore,
section 1.724(d) of the Commission's rules states that
``[a]verments in a complaint . . . are deemed to be admitted
when not denied in the answer.''16
6. The Commission has at its disposal ``a wide range of
sanctions to address violations or abuses of [its] formal
complaint rules, including summary grant or dismissal of a
complaint.''17 Although the Commission's formal complaint
rules do not address default judgments specifically, when a
defendant fails knowingly to answer a complaint against it,
the Commission may find the defendant in default, and may
consider the material facts alleged in the complaint to be
admitted.18
7. In determining whether we should issue a default
judgment here, we examine the Federal Rules of Civil
Procedure for guidance.19 Rule 55 of the Federal Rules of
Civil Procedure states that, when a party against whom a
judgment for affirmative relief is sought has failed to
plead or otherwise defend, a default judgment may be entered
against it.20 Federal courts construing Rule 55 have held
that they have broad discretion in determining the
appropriateness of entering a default judgment. Factors a
court may consider include: whether the facts alleged in the
complaint state a valid claim; whether the defendant has
clearly failed to defend; whether the defendant's failure to
defend has continued for a significant period of time;
whether the defendant's failure to defend derives from
excusable neglect or a good faith mistake; whether the
defendant's failure to defend has substantially prejudiced
the plaintiff's rights; whether the plaintiff has prosecuted
the matter properly; whether the claim concerns important
matters of public policy; and whether the claim seeks
substantial monetary damages.21 We find it appropriate to
use these factors here. For the reasons described below,
applying those factors here, we conclude that complainants
are entitled to a default judgment on liability.
8. First, the alleged facts, if true, constitute a
violation of law.22 For payphone traffic between October 7,
1997 and November 23, 2001, the Commission's rules and
orders required switch-based resellers such as TS
Interactive to pay dial-around compensation to a PSP if the
switch-based reseller entered into a contract with the first
facilities-based IXC requiring the switch-based reseller to
compensate the PSP.23 In this case, the complaint alleges
that TS Interactive entered into just such a contract.
Specifically, the complaint alleges that on May 3, 1999, TS
Interactive entered a contract called a ``Payphone Dial-
Around Compensation Agreement'' with Global Crossing (then
known as Frontier Communications),24 in which TS Interactive
assumed ``sole responsibility for the reporting and payment
of per call payphone `dial-around compensation' charges''
for its customers' calls from payphones that were carried
over Global Crossing's network.25 This contract between the
parties was effective as of February 28, 1999. Thus,
applying the alleged facts to the applicable law, we
conclude that the complaint states a valid basis for
requiring TS Interactive to pay dial-around compensation to
Complainants during the period at issue in the complaint.
9. Second, we conclude that TS Interactive has clearly
failed to defend the complaint; that TS Interactive's
failure to defend has continued for a significant period of
time; and that TS Interactive's failure to defend does not
derive from excusable neglect or a good faith mistake. TS
Interactive plainly received timely notice of the complaint
and of the deadline for filing its answer. Indeed, as
stated above, counsel for TS Interactive participated in the
early stages of this proceeding, and on one occasion even
specifically requested an extension of time to file its
answer.26 Moreover, as indicated above, TS Interactive
communicated a conscious intent not to participate in this
proceeding, and, consistent with that position, failed to
respond to the answer, participate in status conferences, or
respond to correspondence sent by Commission staff setting
forth procedures for Complainants to pursue a default
judgment.27 This failure to participate or otherwise defend
the complaint has lasted for several months, and TS
Interactive has neither offered a legitimate rationale for
its failure to participate nor shown any indication that it
has had a change of heart regarding its conduct. We
therefore find that TS Interactive clearly, knowingly, and
repeatedly failed to defend against the complaint.
10. Third, Complainants have been substantially prejudiced
by the delay caused by TS Interactive's failure to defend
the complaint. As described above, the ``Payphone Dial-
Around Compensation Agreement'' between the parties
indicates that Complainants are entitled to the compensation
they seek. TS Interactive's failure to participate in this
proceeding has delayed the payment of this compensation.
11. Fourth, Complainants have properly prosecuted this
case. Complainants have complied with the Commission's
formal complaint rules (including the rules regarding
service and filing), and have participated in a number of
status conferences with Commission staff. Moreover, as
discussed above, Complainants entered into settlement
negotiations with TS Interactive during the initial stage of
this proceeding. Only when further settlement talks
appeared fruitless, and TS Interactive indicated its intent
to no longer participate in this proceeding, did
Complainants file their motion for default.
12. Finally, the claim presented here is not an important
matter of public policy, such as a constitutional or
statutory construction issue, but rather is a
straightforward, private payment dispute. Moreover,
although the complaint does not requests specific damages,
Complainants do indicate that if TS Interactive is not
forthcoming in its responses to discovery requests arising
from a subsequent supplemental complaint for damages,
Complainants ``will seek judgment in the amount of
$99,000.''28 Such an amount is not so large as to preclude
a default judgment.29
13. In conclusion, we find that TS Interactive is in
default regarding the liability alleged in the complaint.
Thus, we grant APCC's motion for default judgment on
liability. In accordance with the Commission's formal
complaint procedures, APCC may file a supplemental complaint
for damages within sixty (60) days of the release of this
order (unless the 60-day period is extended by order).30
14. In addition, Complainants request that the Commission
order the Defendant to pay interest on the past-due dial-
around compensation at an annual rate of 11.25%, although
Complainants have failed to justify the imposition of such a
rate. We deny this request, without prejudice to
Complainants' ability to request a payment of interest in
its supplemental complaint for damages. If Complainants
decide to request such relief, they must explain the
appropriateness of a particular interest rate, based upon
past Commission precedent.31
IV. ORDERING CLAUSES
15. Accordingly, IT IS ORDERED, pursuant to sections 1,
4(i), 4(j), 208 and 276 of the Communications Act of 1934,
as amended, 47 U.S.C. §§ 151, 154(i), 154(j), 208, and 276,
sections 1.720-1.736 and 64.1300-64.1320 of the Commission's
rules, 47 C.F.R. §§ 1.720-1.736, 64.1300-64.1320, and
authority delegated by sections 0.111 and 0.311 of the
Commission's rules, 47 C.F.R. §§ 0.111, 0.311, that the
Complainants' motion for default judgment IS GRANTED to the
extent indicated herein.
16. IT IS FURTHER ORDERED, pursuant to sections 4(i), 4(j),
208, and 276 of the Communications Act of 1934, as amended,
47 U.S.C. §§ 154(i), 154(j), 208, and 276, sections 1.720-
1.736 and 64.1300-64.1320 of the Commission's rules, 47
C.F.R. §§ 1.720-1.736, 64.1300-64.1320, and authority
delegated by sections 0.111 and 0.311 of the Commission's
rules, 47 C.F.R. §§ 0.111, 0.311, that the defendant in this
proceeding IS IN DEFAULT and the factual averments contained
in APCC's complaint ARE DEEMED ADMITTED.
17. IT IS FURTHER ORDERED, pursuant to sections 1, 4(i),
4(j), 208 and 276 of the Communications Act of 1934, as
amended, 47 U.S.C. §§ 151, 154(i), 154(j), 208, and 276,
sections 1.720-1.736 and 64.1300-64.1320 of the Commission's
rules, 47 C.F.R. §§ 1.720-1.736, 64.1300-64.1320, and
authority delegated by sections 0.111 and 0.311 of the
Commission's rules, 47 C.F.R. §§ 0.111, 0.311, that the
above-captioned complaint IS GRANTED to the extent indicated
herein.
FEDERAL COMMUNICATIONS COMMISSION
David H. Solomon
Chief, Enforcement Bureau
_________________________
1 47 U.S.C. § 208.
2 47 U.S.C. § 276.
3 See 47 C.F.R. §§ 64.1300-64.1320. The Commission
promulgated these rules to implement section 276 of the Act, 47
U.S.C. § 276.
4 APCC Services, Inc., et al., v. TS Interactive,
Complaint, File No. EB-02-MD-012 (filed April 12, 2002) at 2, 11,
¶¶ 1, 21 (``Complaint''). ``Dial-around compensation'' refers to
the per-call payments that interexchange carriers (``IXCs'') must
make to PSPs for certain categories of completed coinless calls
originating from payphones, including access code calls and calls
to subscriber toll-free numbers. 47 C.F.R. §§ 64.1300 et seq.
5 Complaint at 2, 11, ¶¶ 2, 22.
6 Complaint at 3, ¶ 4; 47 C.F.R. §§ 64.1300 et seq.; 47
U.S.C. § 276.
7 Complaint at 3, 11, ¶¶ 5, ¶ 23; Attachment 2.
8 Complaint at 13, ¶ 33. See 47 C.F.R. § 1.722.
9 See APCC Services, Inc., et al., v. TS Interactive,
Letter from Douglas R. Hirsch, Counsel for TS Interactive, to
Warren Firschein, Attorney, Market Disputes Resolution Division,
Enforcement Bureau, FCC, File No. EB-02-MD-012 (May 15, 2002);
APCC Services, Inc., et al., v. TS Interactive, Letter from
Warren Firschein, Attorney, Market Disputes Resolution Division,
Enforcement Bureau, FCC, to Albert H. Kramer, Counsel for
Complainants, and Douglas R. Hirsch, Counsel for TS Interactive,
File No. EB-02-MD-012 (May 31, 2002); APCC Services, Inc., et
al., v. TS Interactive, Letter from Warren Firschein, Attorney,
Market Disputes Resolution Division, Enforcement Bureau, FCC, to
Albert H. Kramer, Counsel for Complainants, and Douglas R.
Hirsch, Counsel for TS Interactive, File No. EB-02-MD-012 (May
15, 2002).
10 See APCC Services, Inc., et al., v. TS Interactive,
Letter from Warren Firschein, Attorney, Market Disputes
Resolution Division, Enforcement Bureau, FCC, to Albert H.
Kramer, Counsel for Complainants, and Douglas R. Hirsch, Counsel
for TS Interactive, File No. EB-02-MD-012 (July 10, 2002) (``July
10 Letter'').
11 Id. at 2. See 47 C.F.R. §§ 1.724, 1.720.
12 July 10 Letter at 2. We note that this matter was one
of a series of similar cases filed by APCC against switched-based
resellers for the recovery of dial-around compensation. See APCC
Services, Inc. et al. v. Advanced Business Telephone, Complaint,
File No. EB-02-MD-007 (filed April 12, 2002); APCC Services, Inc.
et al. v. Bee Line Long Distance, Complaint, File No. EB-02-MD-
008 (filed April 12, 2002); APCC Services, Inc. et al. v. Gadjraj
& Sons Import & Export, Inc., Complaint, File No. EB-02-MD-009
(filed April 12, 2002); APCC Services, Inc. et al. v. Orion
Telecommunications, Complaint, File No. EB-02-MD-010 (filed April
12, 2002); APCC Services, Inc. et al. v. Tekbilt World
Communications, Inc., Complaint, File No. EB-02-MD-011 (filed
April 12, 2002); APCC Services, Inc. et al. v. United
Technological Systems, Inc., Complaint, File No. EB-02-MD-013
(filed April 12, 2002); APCC Services, Inc. et al. v. Vertex
Group, Complaint, file No. EB-02-MD-014 (filed April 12, 2002).
The defendants in several of those cases failed to file an answer
or otherwise participate in the proceeding. In each case where
the defendant failed to answer, the staff required APCC to either
withdraw the complaint or file a motion for default judgment, or
risk a dismissal for failure to prosecute, to encourage APCC to
prosecute these matters to their conclusion promptly. See APCC
Services, Inc. et al. v. Advanced Business Telephone, Letter from
Warren Firschein, Attorney, Market Disputes Resolution Division,
Enforcement Bureau, FCC, to Albert H. Kramer and Edward G.
Modell, counsel for Complainants, and Robert Gold, President,
Advanced Business Telephone, File No. EB-02-MD-007 (dated May 24,
2002); APCC Services, Inc. et al. v. United Technological
Systems, Inc., Letter from Warren Firschein, Attorney, Market
Disputes Resolution Division, Enforcement Bureau, FCC, to Albert
H. Kramer and Edward G. Modell, counsel for Complainants, and
S.K. Mohan, President, United Technological Systems, Inc., File
No. EB-02-MD-013 (dated May 24, 2002); APCC Services, Inc. et al.
v. Tekbilt World Communications, Inc., Letter from Warren
Firschein, Attorney, Market Disputes Resolution Division,
Enforcement Bureau, FCC, to Albert H. Kramer and Edward G.
Modell, counsel for Complainants, and Carl Saling, President,
Tekbilt World Communications, Inc, File No. EB-02-MD-011 (dated
May 24, 2002); APCC Services, Inc. et al. v. Vertex Group, Letter
from Warren Firschein, Attorney, Market Disputes Resolution
Division, Enforcement Bureau, FCC, to Albert H. Kramer and Edward
G. Modell, counsel for Complainants, and Anderson Lin, President,
Vertex Group, File No. EB-02-MD-014 (dated May 24, 2002) (each
stating that, in similar cases where defendant had not filed an
answer and otherwise failed to make an appearance, ``Complainants
must, on or before July 8, 2002 (forty-five (45) days from the
date of this letter), either withdraw the complaint, or file a
motion for default judgment, and that a failure to take either of
these steps may result in a dismissal for failure to
prosecute.'').
13 APCC Services, Inc., et al., v. TS Interactive, Letter
from Warren Firschein, Attorney, Market Disputes Resolution
Division, Enforcement Bureau, to Allan C. Hubbard, Counsel for
Complainants, and Douglas R. Hirsch, Counsel for TS Interactive,
FCC, File No. EB-02-MD-012 (August 9, 2002).
14 APCC Services, Inc., et al., v. TS Interactive, Motion
for Default Judgment with Supporting Memorandum of Law, File No.
EB-02-MD-008 (September 6, 2002) (``Motion for Default
Judgment'').
15 47 C.F.R. § 1.724(a).
16 47 C.F.R. § 1.724(d).
17 Implementation of the Telecommunications Act of 1996,
Amendment of Rules Governing Procedures to be Followed When
Formal Complaints are Filed Against Common Carriers, Report and
Order, 12 FCC Rcd 22497, 22610, ¶ 278 (1997) (``Formal Complaints
Order''), recon. denied, 16 FCC Rcd 5681 (2001). See
Implementation of the Telecommunications Act of 1996, Amendment
of Rules Governing Procedures to be Followed When Formal
Complaints are Filed Against Common Carriers, Second Report and
Order, 13 FCC Rcd 17018, 17054, ¶ 65 (1998) (``Formal Complaints
Second Report and Order'').
18 See Philippine Long Distance Telephone Co. v. Dialback
USA, Inc., Memorandum Opinion and Order, 12 FCC Rcd 12023 (Com.
Car. Bur. 1997) (``Dialback''); Computer Phone Services, Inc. v.
AT&T Corp., Memorandum Opinion and Order, 12 FCC Rcd 766 (Form.
Compl. & Inv. Br.-Enf. Div., Com. Car. Bur. 1997); Texas Cable
and Telecommunications Ass'n v. GTE Southwest Inc., Order, 14 FCC
Rcd 2975 (Cable Serv. Bur. 1999). We note that, at the time of
the Dialback decision, section 1.724(b) of the Commission's rules
explicitly indicated that a defendant's failure to file an answer
in a formal complaint proceeding could result in an order entered
against the defendant in accordance with the allegations
contained in the complaint. See 47 C.F.R. § 1.724(b)(1996).
Although this provision no longer appears explicitly in the
Commission's rules, the general principle remains, as evidenced
by GTE Southwest, Inc. (addressing a motion for default judgment
in the context of a pole attachment complaint filed pursuant to
section 224 of the Act), and the Commission's statements in the
Formal Complaints Order and Second Report and Order. See n.17,
supra.
19 Cf., Formal Complaints Order, 12 FCC Rcd at 22535, ¶ 85
(formally adopting a rule similar to Fed.R.Civ.P. 26(a)(1) for
section 208 formal complaint proceedings); Formal Complaints
Second Report and Order, 13 FCC Rcd at 17052, ¶ 60 (adopting a
rule similar to Fed.R.Civ.P. 26(a)(2)(B) for Accelerated Docket
proceedings).
20 Fed.R.Civ.P. 55.
21 See 10a CHARLES A. WRIGHT, ARTHUR R. MILLER, & MARY K.
KANE, FEDERAL PRACTICE AND PROCEDURE § 2685 (1998).
22 Consistent with section 1.724(d) of the Commission's
rules, we consider these facts to be admitted. See para. 5,
supra.
23 See, e.g., Bell-Atlantic-Frontier, Inc., et al., v. MCI
Telecommunications Corp., Memorandum Opinion and Order, 2002 WL
1842441 (F.C.C.) (released August 14, 2002) at n.31. See also 47
C.F.R. § 64.1300 (2000).
24 Frontier Communications merged with Global Crossing,
which later merged with Citizens Communications Company. See
Complaint at 2, ¶ 2 n.1; Joint Applications of Global Crossing
Ltd., and Citizens Communications Company For Authority to
Transfer Control of Corporations Holding Commission Licenses and
Authorizations Pursuant to Sections 214 and 310(D) of the
Communications Act and Parts 20, 22, 63, 78, 90, and 101 of the
Commission's Rules, Memorandum Opinion and Order, 16 FCC Rcd 8507
(Com. Car. Bur., Int. Bur., Cab. Serv. Bur., Wireless Telecom.
Bur., 2001); Global Crossing Ltd. and Frontier Corporation,
Memorandum Opinion and Order, 14 FCC Rcd 15911 (Wireless Telecom.
Bur., Int. Bur., and Com. Car. Bur., 1999).
25 Complaint at Attachment 2.
26 APCC Services, Inc., et al., v. TS Interactive, Letter
from Douglas R. Hirsch, counsel for TS Interactive, to Warren
Firschein, Attorney, Market Disputes Resolution Division,
Enforcement Bureau, FCC, File No. EB-02-MD-012 (May 15, 2002).
27 See, e.g., July 10 Letter at 2-3.
28 Motion for Default Judgment at 5.
29 We note that section 1.727(e) of the Commission's rules
provides that a ``[f]ailure to oppose any motion may constitute
grounds for granting of the motion.'' 47 C.F.R. § 1.727(e).
Here, TS Interactive failed to respond to Complainants' motion
for default judgment. This failure provides further support for
our decision to grant the Complainants' motion.
30 47 C.F.R. § 1.722.
31 In particular, Complainants should discuss why an
11.25% rate is appropriate in this case, given the Commission's
recent ruling that the interest rate for payphone cases should
match the IRS interest rate. Implementation of the Pay Telephone
Reclassification and Compensation Provisions of the
Telecommunications Act of 1996, Fourth Order on Reconsideration
and Order on Remand, 17 FCC Rcd 2020 (2002).