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Before the
Federal Communications Commission
Washington, D.C. 20554
)
)
In the matter of File No. EB-07-IH-4089
)
Rally Capital, LLC NAL Acct. No. 200732080038
)
Apparent Liability for Forfeiture FRN No. 0015577208
)
)
NOTICE OF APPARENT LIABILITY FOR FORFEITURE
Adopted: September 20, 2007 Released: September 24, 2007
By the Chief, Investigations and Hearings Division:
I. INTRODUCTION
1. In this Notice of Apparent Liability for Forfeiture ("NAL"), we find
that Rally Capital, LLC ("Rally") apparently willfully or repeatedly
violated the Commission's rules by consummating unauthorized transfers
of control. Specifically, we find that Rally apparently violated
section 214 of the Communications Act of 1934, as amended (the "Act"),
and sections 63.03 and 63.24 of the Commission's rules by transferring
control of Telesphere Networks Ltd.'s ("Telesphere's") domestic and
international section 214 authorizations to Rally without obtaining
prior Commission approval. Based on our review of the facts and
circumstances surrounding this matter, we find that Rally is
apparently liable for a forfeiture of $16,000.
II. background
2. Section 214 of the Act requires telecommunications carriers to obtain
a certificate of public convenience and necessity from the Commission
before constructing, acquiring, operating or engaging in transmission
over lines of communications, or before discontinuing, reducing or
impairing service to a community. In accordance with section 63.03 of
the Commission's rules, any domestic carrier seeking to transfer
control of lines or authorization to operate pursuant to section 214
of the Act must obtain prior approval from the Commission. Similarly,
pursuant to section 63.24, a transfer of control of an international
section 214 authorization requires application to and prior approval
from the Commission. Section 63.24(e) requires that the proposed
transferee apply to the Commission for approval prior to the
consummation of the proposed transfer of control. The Commission
employs a public interest standard under section 214(a) of the Act
that involves the examination of the positive and negative public
interest impact of a proposed transaction.
3. For a transfer of control of a domestic or international section 214
authorization, the Commission defines control to include "actual
working control in whatever manner exercised and is not limited to
majority stock ownership." "Control" also includes direct or indirect
ownership or control, such as through intervening subsidiaries. The
Commission further defines a transfer of control of an international
section 214 authorization as a transaction in which the authorization
continues to be held by the same entity, but there is a change in the
entity or entities that control the authorization holder. A change
from less than 50 percent ownership to 50 percent or more ownership
shall always be considered a section 214 transfer of control.
4. Applicants may file a joint application to the Commission for prior
approval of a domestic and international section 214 transfers of
control. Commission action upon those joint applications may be
effected either through separate actions or through consolidated
action, as appropriate under the individual circumstances.
5. Telesphere, a Washington-state corporation based in Arizona, is a
telecommunications non-dominant carrier holding section 214 authority
to provide domestic interstate telecommunications as well as global
facilities-based and resale-based international telecommunications
services. In particular, Telesphere is an IP Ethernet carrier that
provides interstate IP-based voice, video and data services. Until
February 2007, Telesphere also provided wholesale international IP
services. Telesphere had no controlling shareholders prior to the
transfer of control.
6. Rally Capital, LLC ("Rally") is a Washington-state company that
specializes in communications investments. Rally is the secured and
only lender of Telesphere. On September 20, 2006, Rally completed an
accelerated conversion of Telephere debt to equity, acquiring a
majority stock ownership of 64.9 percent in Telesphere and effectively
obtaining control of Telesphere. Shortly thereafter on October 4,
2006, Rally acquired an additional 2.1 percent interest, increasing
the company's stock ownership in Telesphere to 67 percent.
7. On October 12, 2006, Rally and Telesphere filed a joint domestic and
international section 214 application to the Commission for approval
of the transfers of control. The applicants stated that the
acquisition of corporate control was necessary to improve immediately
the financial position of Telesphere. Subsequently on October 24,
2006, the applicants requested special temporary authority ("STA") for
Telesphere to continue operating under its domestic and international
section 214 authorizations pending the Commission's action on the
joint transfer of control application. The Commission granted the
international section 214 STA on October 25, 2006 and the domestic
section 214 STA on October 27, 2006. The Commission processed the
applicants' domestic section 214 application for transfer of control
under streamlined procedures and granted the application on November
30, 2006. The Commission also granted the applicants' application for
transfer of control of Telesphere's international section 214
authorization to Rally on December 7, 2006.
8. On June 15, 2007, the Enforcement Bureau issued a letter of inquiry
("LOI") to Rally directing the company to provide information and
documents regarding, among other things, the nature of the
unauthorized transfer of control and the applicants' corporate
affiliation. Rally responded to the LOI on June 29, 2007.
9. Under section 503(b)(1) of the Act, any person who is determined by
the Commission to have willfully or repeatedly failed to comply with
any provision of the Act or any rule, regulation, or order issued by
the Commission shall be liable to the United States for a forfeiture
penalty. Section 312(f)(1) of the Act defines willful as "the
conscious and deliberate commission or omission of [any] act,
irrespective of any intent to violate" the law. The legislative
history to section 312(f)(1) of the Act clarifies that this definition
of willful applies to both sections 312 and 503(b) of the Act and the
Commission has so interpreted the term in the section 503(b) context.
The Commission may also assess a forfeiture for violations that are
merely repeated, and not willful. "Repeated" means that the act was
committed or omitted more than once, or lasts more than one day. To
impose such a forfeiture penalty, the Commission must issue a notice
of apparent liability and the person against whom the notice has been
issued must have an opportunity to show, in writing, why no such
forfeiture penalty should be imposed. The Commission will then issue a
forfeiture if it finds by a preponderance of the evidence that the
person has violated the Act or a Commission rule. As we set forth
below, we conclude under this standard that Rally is apparently liable
for forfeiture for its apparent willful or repeated violations of
sections 63.03 and 63.24 of the Commission's rules.
III. Discussion
10. The fundamental issue in this case is whether Rally apparently
willfully or repeatedly violated the Commission's rules by
consummating its transfer of control of Telesphere's domestic and
international section 214 authorizations without prior Commission
approval. We answer this question affirmatively. Based on a
preponderance of the evidence, we therefore conclude that Rally is
apparently liable for a forfeiture of $16,000 for apparently willfully
or repeatedly violating section 63.03 and 63.24 of the Commission's
rules.
A. Unauthorized Domestic Section 214 Transfer of Control
11. We conclude that Rally apparently willfully or repeatedly violated
section 63.03 of the Commission's rules by failing to obtain
Commission approval prior to transferring control of Telesphere's
domestic section 214 authorization to Rally. The facts underlying this
case are undisputed. Rally acquired a majority stock interest in
Telesphere on September 20, 2006, resulting in a transfer of control
without prior Commission approval. Rally did not seek approval for
this transfer until October 12, 2006. Rally claimed that it needed to
"improve immediately the financial position of Telesphere" and that
such "exigent financial circumstances precluded [the company] from
seeking timely transaction consent from the Commission." Such
circumstances do not qualify as the type of transactions that section
63.03 exempts from prior Commission approval. Rally also confirmed
that it failed to seek or receive a domestic section 214 STA before
consummating the transfer of control. We therefore find that the
apparent domestic section 214 unauthorized transfer of control
violation continued from September 20, 2006 until October 27, 2006,
when the Commission granted Rally the domestic section 214 STA pending
the Commission's action on the transfer of control joint application.
A. Unauthorized International Section 214 Transfer of Control
12. Similarly, we conclude that Rally apparently willfully or repeatedly
violated section 63.24 of the Commission's rules by failing to obtain
Commission approval prior to transferring control of Telesphere's
international section 214 authorization to Rally. As mentioned above,
Rally admits that it acquired majority ownership of Telesphere on
September 20, 2006 without prior Commission approval. In addition,
Rally confirmed that it did not seek or receive an international
section 214 STA before consummating the transfer of control. Rally
does not claim its acquisition of control without approval was excused
under section 63.24(g) because it was involuntary, nor would the facts
support any such claim. We find that Rally's apparent violation
continued from September 20, 2006 until October 25, 2006, when the
Commission granted Rally the international section 214 STA pending the
Commission's action on the transfer of control joint application.
A. Proposed Forfeiture
13. Section 503(b)(2)(B) of the Act authorizes the Commission to assess a
forfeiture of up to $130,000 for each violation or each day of a
continuing violation, up to a statutory maximum of $1,325,000 for a
single act or failure to act. In determining the appropriate
forfeiture amount, we consider the factors enumerated in section
503(b)(2)(D) of the Act, including "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 require."
14. The Commission's Forfeiture Policy Statement and implementing rules
prescribe a base forfeiture of $8,000 for unauthorized substantial
transfers of control. In consideration of the factors enumerated in
section 503(b)(2)(D) for establishing the forfeiture amount, there is
no other evidence before us to suggest that the base amount should be
adjusted in any way. Accordingly, we find that the base forfeiture of
$8,000 against Rally is appropriate for the unauthorized transfer of
control of Telesphere's domestic section 214 authorization to Rally.
Similarly, we find that a proposed base forfeiture in the amount of
$8,000 against Rally is warranted for the unauthorized transfer of
control of Telesphere's international section 214 authorization to
Rally. Based on the facts and circumstances presented, we conclude
that a proposed forfeiture of $16,000 against Rally is warranted.
IV. ORDERING CLAUSES
15. IT IS Further ORDERED THAT, pursuant to section 503(b) of the
Communications Act of 1934, as amended, 47 U.S.C. S: 503(b), and
section 1.80 of the Commission's rules, 47 C.F.R. S: 1.80, that Rally
Capital, LLC is hereby NOTIFIED of its APPARENT LIABILITY FOR A
FORFEITURE in the amount of $16,000 for willfully or repeatedly
violating sections 63.03 and 63.24 of the Commission's rules.
16. IT IS FURTHER ORDERED THAT, pursuant to section 1.80 of the
Commission's Rules, within thirty days of the release date of this
NOTICE OF APPARENT LIABILITY, Rally Capital, LLC SHALL PAY the full
amount of the proposed forfeiture or SHALL FILE a written statement
seeking reduction or cancellation of the proposed forfeiture.
17. Payment by check or money order, payable to the order of the "Federal
Communications Commission," may be mailed to Forfeiture Collection
Section, Finance Branch, Federal Communications Commission, P.O. Box
358340, Pittsburgh, PA 15251. Payment by overnight mail may be sent to
Mellon Client Service Center, 500 Ross Street, Room 670, Pittsburgh,
PA 15262-0001, Attn: FCC Module Supervisor. Payment by wire transfer
may be made to: ABA Number 043000261, receiving bank Mellon Bank, and
account number 911-6229. The payment should note the NAL/Acct. No.
referenced in the caption.
18. The response, if any, to this NOTICE OF APPARENT LIABILITY FOR
FORFEITURE must be mailed to Hillary DeNigro, Chief, Investigations
and Hearings Division, Enforcement Bureau, Federal Communications
Commission, 445 12th Street, S.W., Suite 4-C330, Washington, D.C.
20554 and must include the NAL/Acct. No. referenced above. E-mail
address: hillary.denigro@fcc.gov.
19. The Commission will not consider reducing or canceling a forfeiture in
response to a claim of inability to pay unless the petitioner submits:
(1) federal tax returns for the most recent three-year period; (2)
financial statements prepared according to generally accepted
accounting practices (GAAP); or (3) some other reliable and objective
documentation that accurately reflects the petitioner's current
financial status. Any claim of inability to pay must specifically
identify the basis for the claim by reference to the financial
documentation submitted.
20. Requests for payment of the full amount of this Notice of Apparent
Liability for Forfeiture under an installment plan should be sent to:
Chief, Revenue and Receivables Operations Group, 445 12th Street, SW,
Washington, DC 20554.
21. IT IS FURTHER ORDERED that a copy of this NOTICE OF APPARENT LIABILITY
FOR FORFEITURE shall be sent by certified mail, return receipt
requested, to Kent D. Bressie, Counsel for Rally Capital, LLC, Harris,
Wiltshire and Grannis, LLP, 1200 Eighteenth Street, NW, Washington DC
20036.
FEDERAL COMMUNICATIONS COMMISSION
Hillary S. DeNigro
Chief, Investigations and Hearings Division
47 U.S.C. S: 214; 47 C.F.R. S:S: 63.03, 63.24.
See 47 U.S.C. S: 214(a).
See Implementation of Further Streamlining Measures for Domestic Section
214 Authorizations, Report and Order 17 FCC Rcd 5517, 5521, P: 5 (2002)
("2002 Streamlining Order"); 47 C.F.R. S:S: 63.03. See also id.
S: 63.03(d)(1) excluding all pro forma transactions, which do not result
in a change in the carrier's ultimate ownership or control, from the
domestic section 214 application and approval requirements); id. S:
63.04(d)(2) (requiring that a post-transaction notice be filed with the
Commission within 30 days of a pro forma transfer of a domestic section
214 authorization to a trustee, a debtor-in-possession, or any other party
pursuant to any applicable chapter of the Bankruptcy Code).
47 C.F.R. S: 63.24(a).
See generally 47 C.F.R. S: 63.24(e); see also id. 47 C.F.R. S: 63.24(d)
(excluding pro forma applications, or non-substantive assignments and
transfers of control that do not result in a change in the actual
controlling party or do not require prior Commission approval). Section
63.24(g) of the Commission's rules also establishes a narrow exception to
this application requirement for specified involuntary transfers involving
bankruptcy, foreclosure action, legal disability or death, for which only
a post-transaction notification is required. In a case involving
involuntary assignment or transfer of control to: a bankruptcy trustee
appointed under involuntary bankruptcy; an independent receiver appointed
by a court of competent jurisdiction in a foreclosure action; or, in the
case of death or legal disability, to a person or entity legally qualified
to succeed the deceased or disabled person under the laws of the place
having jurisdiction over the estate involved; the transferee must provide
post-transaction notice no later than 30 days after the event causing the
involuntary assignment or transfer of control. See 47 C.F.R. S: 63.24(g).
But see id. 47 C.F.R. S: 63.03 (categorizing these types of involuntary
transactions as pro forma assignments or transfers of control for domestic
section 214 applications).
See 47 U.S.C. S: 214(a).
47 C.F.R. S: 63.03 n.1; 47 C.F.R. S: 63.09(b).
Id.
47 C.F.R. S: 63.24(c).
See id; 47 C.F.R. S: 63.03 n.1.
47 C.F.R. S: 63.04(b).
2002 Streamlining Order, 17 FCC Rcd at 5524, P: 13.
The Commission granted Telesphere, formally known as Clear Sky Broadband,
Inc., section 214 authority to become a facilities based international
common carrier on September 9, 2005. See Public Notice, "International
Authorizations Granted, Section 214 Applications (47 C.F.R. S: 63.18);
Section 310(b)(4) Requests," 20 FCC Rcd 14650 (Int. Bur., rel. September
15, 2005) ("September 15, 2005 Public Notice"); FCC File No.
ITC-214-20050824-00344. Telesphere relies on the blanket section 214
authorization for the provision of domestic interstate telecommunications
services. Letter from Kent D. Bressie, Harris, Wiltshire & Grannis, LLP,
Counsel for Rally Capital, LLC, to Ms. Elizabeth Mumaw, Assistant Chief,
Investigations and Hearings Division, Enforcement Bureau, Federal
Communications Commission, dated June 29, 2007 ("LOI Response") at Inquiry
7.
See Telesphere Networks Ltd., Transferor and Licensee and Rally Capital,
Transferee, Application for Consent to Provide Global Facilities-Based and
Global Resale International Telecommunications Services and to Transfer
Control of Domestic Common Carrier Transmission Lines Pursuant to Section
214 of the Communications Act of l1934, as Amended, Consolidated
Application-Streamlined Processing Required, amended October 20, 2006
("Section 214 Transfer of Control Joint Application"). See also LOI
Response at Inquiry 6.
See LOI Response at Inquiry 5(b).
See Section 214 Transfer of Control Joint Application at 2; LOI Response
at 5.
See id.
See Section 214 Transfer of Control Joint Application at 3; LOI Response
at 5.
See id.
See id. Rally has further increased its ownership interest in Telesphere.
See LOI Response at 5.
See generally Section 214 Transfer of Control Joint Application.
See Section 214 Transfer of Control Joint Application at 3; LOI Response
at 5.
See Telesphere Networks Ltd., Transferor and Licensee and Rally Capital,
LLC, Transferee, Application for Consent to Transfer Control of a
Telecommunications Carrier Authorized to provide Global Facilities-Based
and Global Resale International Telecommunications Services and to
Transfer Control of Domestic Common Carrier Transmission Lines, Pursuant
to Section 214 of the Communications Act of 1934, as Amended Request for
Special Temporary Authority (filed October 24, 2006) ("Joint Application
for STA").
See LOI Response at Exhibit 9(a) (International Bureau granting
applicants' international section 214 STA on October 25, 2007) and Exhibit
9(b) (Wireline Competition Bureau granting applicants' domestic section
214 STA on October 27, 2006).
Public Notice, "Domestic Section 214 Application Filed for the Transfer of
Control of Telesphere Networks Ltd. To Rally Capital, LLC, Streamlined
Pleading Cycle Established, 21 FCC Rcd 12950 (Wir. Comp. Bur., rel.
October 30, 2006). Under this standard, 47 C.F.R. S: 63.03 prescribes six
categories of transactions that would not raise public interest concerns
and thus are presumptively accorded streamlined treatment, which allows
qualifying domestic telecommunications carriers expedited review of their
applications. See 47 C.F.R. S: 63.03(b).
Public Notice, "Notice of Domestic Section 214 Authorizations granted," 21
FCC Rcd 14080 (Wir. Comp. Bur., rel. November 30, 2006) ("November 30,
2006 Public Notice").
Public Notice, "International Authorizations Granted, Section 214
Applications (47 C.F.R. S: 63.18); Section 310(b)(4) Requests," 21 FCC Rcd
14186, 14190 (Int. Bur., rel. December 7, 2006) ("December 7, 2006 Public
Notice"); FCC File No. ITC-T/C-20061012-00465.
Letter from Trent B. Harkrader, Deputy Chief, Investigations and Hearings
Division, Enforcement Bureau, Federal Communications Commission, to Dennis
Weibling, Managing Director, Rally Capital, LLC, dated June 15, 2007
("LOI").
See LOI Response.
47 U.S.C. S: 503(b)(1)(B); 47 C.F.R. S: 1.80(a)(1); see also 47 U.S.C. S:
503(b)(1)(D) (forfeitures for violation of 14 U.S.C. S: 1464).
47 U.S.C. S: 312(f)(1).
H.R. Rep. No. 97-765, 97th Cong. 2d Sess. 51 (1982).
See, e.g., Application for Review of Southern California Broadcasting Co.,
Memorandum Opinion and Order, 6 FCC Rcd 4387, 4388 (1991) ("Southern
California Broadcasting Co.").
See, e.g., Callais Cablevision, Inc., Grand Isle, Louisiana, Notice of
Apparent Liability for Monetary Forfeiture, 16 FCC Rcd 1359, 1362, P: 10
(2001) ("Callais Cablevision") (issuing a Notice of Apparent Liability
for, inter alia, a cable television operator's repeated signal leakage).
Southern California Broadcasting Co., 6 FCC Rcd at 4388, P: 5; Callais
Cablevision, Inc., 16 FCC Rcd at 1362, P: 9.
47 U.S.C. S: 503(b); 47 C.F.R. S: 1.80(f).
See, e.g., SBC Communications, Inc., Apparent Liability for Forfeiture,
Forfeiture Order, 17 FCC Rcd 7589, 7591, P: 4 (2002) (forfeiture paid).
47 U.S.C. 47 C.F.R. S:S: 63.03, 63.24.
47 C.F.R. S:S: 63.03, 63.24.
LOI Response at 5.
See 47 C.F.R. S: 63.03(d)(2); LOI Response at 5.
See Joint Application for STA.
See id.
LOI Response at Inquiry 10.
47 U.S.C. S: 503(b)(2)(B); see also 47 C.F.R. S: 1.80(b)(2); Amendment of
Section 1.80(b) of the Commission's Rules, Adjustment of Forfeiture Maxima
to Reflect Inflation, Order, 19 FCC Rcd 10945 (2004).
47 U.S.C. S: 503(b)(2)(D).
See 47 C.F.R. S: 1.80; Forfeiture Policy Statement, 12 FCC Rcd 17087,
17113 (1997). See also One Call Internet, Inc. Section 214 Transfer of
Control of Domestic Transmission Lines Requirements, Order adopting
Consent Decree, 18 FCC Rcd 25718 (2003) (setting the voluntary amount at
$8,000 for possible unauthorized domestic section 214 transfer of
control).
See 47 C.F.R. S: 1.80.
47 C.F.R. S: 1.1914.
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Federal Communications Commission DA 07-4017
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Federal Communications Commission DA 07-4017