#########  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**

1 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**

2 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]

3 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]{.underline}

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 rules[^8] 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 case[^11] 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]{.underline} 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]{.underline}

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]{.underline}

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]{.underline} 

######### 

#########  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]{.underline}

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 (8^th^ 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.