**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
Division[^20] 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&T*[^29]

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;
    s*ee also Marco Supply Co. v. AT&T*, 875 F.2d 434, 436 (4^th^ 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.