Opinion ID: 793859
Heading Depth: 2
Heading Rank: 2

Heading: Creation and Operation of the Billing System

Text: 9 In May 1997, defendant-appellant ACL contracted with Telecom Malagasy, the national telecommunications carrier for Madagascar, for (1) the right to carry calls placed to certain international telephone numbers assigned to Madagascar, (2) the right to collect charges for these calls, and (3) the right to terminate these calls at any location of ACL's choice, including locations outside Madagascar. The right to carry calls to these numbers was valuable because of the calls' high per-minute tariffed rate under U.S. telecommunications law. Revenue generated from these calls would ultimately be divided between ACL, Telecom Malagasy, various phone-call carriers, ACL's billing agents, a company that distributed the dialer program mentioned above, and various adult-website operators. 10 To exploit ACL's right to carry calls to these Madagascar phone numbers, ACL contracted with Global Internet Billing, Inc. (GIB) for GIB to market the dialer program to adult-website operators and to use its best efforts to generate a minimum usage volume. ACL agreed to provide GIB with the Madagascar telephone numbers for inclusion in GIB's dialer program. ACL paid a portion of call revenues to GIB, which in turn paid the adult-website operators, effectively making GIB a paid intermediary between ACL and the website operators. 11 ACL also needed to arrange for the carriage of calls from a computer's modem to the U.K. internet servers that would connect the calling computer to an adult website in the United States. Accordingly, in January 1999, ACL contracted with two companies, AT & T and AT & T U.K., to carry the calls. AT & T agreed to carry calls placed to ACL's Madagascar phone numbers to the London facilities of AT & T U.K. AT & T U.K. would then carry the calls to the designated U.K. internet servers. AT & T was responsible for billing and collection for these calls, and using ANI information, AT & T billed phone-line subscribers for the ACL calls on their regular monthly telephone statements. 12 The content of the telephone statements received by the subscribers is relevant here. AT & T charged subscribers only the tariffed rates for phone calls to Madagascar. It listed the charges in the Long Distance section of the bills, with Madagascar as the Place Called. Under the Important Information header, the bills stated that nonpayment of toll charges may result in disconnection of local service, and other services may be restricted if not paid. 13 In the roughly-seven-month period beginning in January 2000, when adult-website operators started using ACL's system to provide adult-entertainment services to computer users, AT & T's billings for traffic to ACL's Madagascar numbers totaled $29 million, as compared to $1.6 million in total billings during the previous twelve months. At the same time, the percentage of total billings refunded to subscribers who contested their bills spiked from 8% in the previous year to 38% during this period. 14 ACL's contract with AT & T, together with ACL's other agreements, established a multitiered cascading-payment structure: AT & T sent to AT & T U.K. the amounts due both AT & T U.K. and ACL; AT & T U.K. then paid ACL from those funds. ACL then paid GIB, who in turn paid the adult-website operators. Each entity kept some of the money along the way. (Telecom Malagasy was compensated separately by both AT & T and ACL for providing the phone numbers.) This arrangement was in effect from January 2000 until July 2000, when AT & T terminated the contract and stopped carrying calls for ACL. The district court deemed this the AT & T Period. After AT & T terminated the agreement, ACL turned to Sprint as a replacement. ACL reached an agreement with Sprint which contemplated Sprint performing billing and collection functions, as AT & T did, but Sprint then quickly entered into a new agreement that released it from these duties. Under the new agreement, Sprint agreed to carry calls to the London facilities of AT & T U.K. (now renamed Viatel), but it would leave billing and collection to ACL by providing ACL with the ANI information identifying the subscribers whose telephone lines were used to call ACL's Madagascar numbers. As it did in the AT & T agreement, ACL warranted that it would receive the calls and terminate them in Madagascar. ACL agreed to pay a per-minute fee to Sprint and AT & T U.K./Viatel for serving as carriers of the phone calls. This Sprint Period lasted from July 2000 through September 2000, when Sprint stopped carrying calls to ACL's Madagascar phone numbers. 15 To handle billing and collection during the Sprint Period, ACL entered into an agreement, in Verity's name, with eBillit, Inc., a subsidiary of Integretel, Inc. The agreement required eBillit to prepare and mail bills to line subscribers, collect payments from them, and handle their complaints. The eBillit bills were branded with the Verity logo and were separate from the line subscribers' regular telephone bills. These Verity bills contained an invoice number, an account number, the subscriber's telephone number, a summary of charges, a due date, and a statement in capital letters that this bill accounts for international calls, from your modem to a Madagascar number, for website access. The bills contained a Detail of Charges section in which the city called was listed as one of several cities within Madagascar. Defendant-appellant Robert Green approved the format of these bills. 16 The bills also contained a 1-800 number provided for line subscribers to call with questions about their bills. That number was widely used. During the Sprint period, 91,683 bills were sent to line subscribers and at least 24,986 subscribers contacted Verity about the bills. Calling the customer-service center was not a positive experience for many invoice recipients. The center was so understaffed that 72% of the calls placed to it were abandoned by callers. While waiting on hold for a customer-service representative, callers were played a recording warning that [f]ailure to pay a Verity International bill may result in the blocking of your phone line to services of this nature from a variety of content providers and further collection activity of past due amounts. Once connected to a customer-service representative, callers had to weather a hard sustain approach that involved the representative advising callers that the charges were valid, that the charges must be paid, and that nonpayment would subject the line subscriber to further collection activity. Robert Green and Marilyn Shein instructed the call center to maintain this hard-sustain approach, which did not change until the FTC brought the present lawsuit. During the Sprint Period, the Verity bills resulted in $1.6 million in collected billings and over 500 consumer complaints to the FTC. The billing system has not been resurrected after Sprint stopped carrying its calls.