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Before the
FEDERAL COMMUNICATIONS COMMISSION
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
Verifiers
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
ground.22
(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
action.29
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
Secretary
_________________________
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
require."
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
proceeding.
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
intentionally.
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
(1999).
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
purposes'').
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.