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Premio Computer, Inc. (Los Angeles U.S.D.), Los Angeles, CA

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Released: July 7, 2014
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Federal Communications Commission

DA 14-967

Before the

Federal Communications Commission

Washington, DC 20554

In the Matter of

)

)

Request for Waiver or Review of a Decision of the

)

Universal Service Administrator by

)

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Premio Computer, Inc.

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File No. SLD-143513

(Los Angeles Unified School District)

)

Los Angeles, California

)

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Schools and Libraries Universal Service

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CC Docket No. 02-6

Support Mechanism

)

ORDER

Adopted: July 7, 2014

Released: July 7, 2014

By the Acting Chief, Telecommunications Access Policy Division, Wireline Competition Bureau:

1.

Consistent with precedent,1 we deny the request of Premio Computer, Inc. (Premio) seeking

review of a decision2 by the Universal Service Administrative Company (USAC) rescinding a portion of

the E-rate program (more formally known as the schools and libraries universal service support program)

funding committed for the Los Angeles Unified School District (LAUSD) for funding year 1999. The

record shows that USAC properly determined that Premio should not have received E-rate support for

equipment that it did not deliver.

2.

Background. LAUSD sought and received a funding commitment for the purchase of

computers from Premio that would function as network servers.3 After taking receipt of 30 of 128

computers, LAUSD directed Premio to suspend its delivery of the remaining 98 computers.4

1 Request for Review of a Decision of the Universal Service Administrator by Sprint-Florida, Inc., Schools and

Libraries Universal Service Support Mechanism, CC Docket No. 02-6, Order, 27 FCC Rcd 14998 (Wireline Comp.

Bur. 2012) (recovering funding from service provider after finding that E-rate supported equipment was not

installed).

2 Request for Review and Waiver of the Decision of the Universal Service Administrator by Premio Computer, Inc.,

Schools and Libraries Universal Service Support Mechanism, CC Docket No. 02-6, at 4 (dated Oct. 27, 2006)

(Request for Review).

3 See Letter from USAC, Schools and Libraries Division to Steve Newton, Premio Computer, Inc. (dated Oct. 26,

1999) (Funding Commitment Decision Letter).

4 Request for Review at 5-6, 20. Before Premio provided any of the computers, LAUSD learned that its

telecommunications contractor would not be able to install wiring for network connectivity, and without that wiring

the computers would be ineligible for E-rate funding because they would not function as servers. See USAC

website, Eligible Services List for Funding Year 1999,

http://www.usac.org/_res/documents/sl/pdf/ESL_archive/EligibleServicesList_102399.pdf (last visited June 18,

2014).

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Federal Communications Commission

DA 14-967

Notwithstanding LAUSD’s direction, Premio made the remaining 98 devices available to LAUSD and

made several unsuccessful attempts to deliver them.5

3.

Even though LAUSD refused to accept delivery of the remaining computers, Premio

submitted invoices to USAC for the 128 computers, including the 98 undelivered computers, and received

reimbursement from USAC in the amount of $1,856,980. On April 9, 2001, more than 10 months after

LAUSD suspended delivery of the computers, Steve Newton of Premio certified that Premio complied

with program rules and that the services for which Premio submitted invoices to USAC were eligible for

E-rate support.6 At no point did Premio inform USAC that it had not delivered and installed the

computers for which it submitted invoices and received payment from USAC.

4.

In 2003, Premio sued LAUSD for breach of contract, breach of implied covenant of good

faith and fair dealing, intentional interference with a contract and negligent interference with a contract

for its refusal to accept and pay for its portion of the 98 remaining devices.7 During the pendency of that

litigation, LAUSD informed USAC that it had never taken delivery of 98 computers for which USAC had

reimbursed Premio.8 Upon becoming aware of the situation, USAC initiated commitment adjustment

(COMAD) proceedings and issued a Notification of Improperly Disbursed Funds to Premio on August

10, 2005, seeking a refund of $1,517,769 because services were not delivered.9 Premio appealed the

decision, and USAC denied the appeal.10

5.

Discussion. Based on our review of the record, we deny Premio’s appeal. We find that

Premio improperly received E-rate support for equipment that it never delivered. The fact that LAUSD

refused delivery of the computers does not alleviate Premio of its culpability in this matter.

6.

Premio’s argument that recovery would contravene the Commission’s policy directive that

USAC finish its investigations and seek recovery within five years of the final delivery of service for a

specific funding year is unavailing.11 As an initial matter, Premio miscalculates the time frame at issue

when it claims the five year period of time expired on May 5, 2005.12 In exhorting USAC to seek

recovery within five years, the Commission was clear that the five year period would begin after the last

5 Email from Paul Loh, Counsel for Premio Computer, Inc., to Kristy Carroll, USAC (dated Dec. 13, 2004).

6 See Schools and Libraries Universal Service, Service Provider Annual Certification Form, OMB 3060-0856

(October 1998) (FCC Form 473).

7 First Amended Complaint, Premio Computer, Inc. v. Los Angeles Unified School District, Superior Court for the

State of California, Case No. BC290348 (filed Apr. 16, 2003).

8 See Letter from Richard A. Deeb, Los Angeles Unified School District, to Kristy Carroll, USAC (dated Sept. 16,

2003). This letter references a conversation between LAUSD representatives and USAC representatives, but does

not reveal the contents of the conversation.

9 See Letter from USAC, Schools and Libraries Division, to Steve Newton, Premio (dated Aug. 10, 2005)

(Notification of Improperly Disbursed Funds). The Funding Disbursement Reports attached to the letter stated:

“[FCC rules] are violated if the service provider receives payment for services and/or products that it did not deliver

to the eligible entity. Since the services were invoiced via a [Service Provider Invoice form], this violation was

caused by an act or omission of the service provider because the service provider is responsible for ensuring that it

only receives support for services and/or products that it actually provides to its customers.”

10 See Letter from USAC, Schools and Libraries Division, to Paul J. Loh, Counsel for Premio (dated Aug. 30, 2006).

11 See Request for Review at 17-22.

12 Id. at 18.

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Federal Communications Commission

DA 14-967

day of the funding year in which the services could be provided.13 In this case, USAC did seek recovery

within the five years of the last date the services in question could have been delivered.14 We also

understand the Commission’s direction to USAC to initiate and complete investigations within five years

to be a policy preference, not an absolute bar to recovery.15 In some instances, consistent with its general

obligation to recover funds improperly disbursed, the Commission has elected to proceed with recovery

even when more than five years has lapsed between final delivery of services for a specific funding year

and the initiation of an investigation.16 In this case, upon learning that it had provided E-rate support for

undelivered computers, USAC promptly took action, which was both appropriate and consistent with

Commission precedent.

7.

We further find that Premio has not demonstrated that good cause exists to justify a waiver

of Commission rules.17 Premio argues that the money it expended manufacturing the computers and its

willingness to deliver them to LAUSD justifies a waiver.18 We find these arguments unconvincing. It

does not serve the public interest to have Premio, or any other company, receive E-rate funds for products

it has not delivered. The fact that LAUSD refused delivery does not change our analysis. Once LAUSD

refused delivery, the dispute was between LAUSD and Premio. Indeed, Premio sued LAUSD for breach

of contract with respect to the equipment at issue. Even if Premio failed to reach a resolution to the

13 See Schools and Libraries Universal Support Mechanism, CC Docket No. 02-6, Fifth Report and Order, 19 FCC

Rcd 15812, 15818–19, para. 32 (Schools and Libraries Fifth Report and Order) (specifying that investigations

should be complete “within a five year period after final delivery of service for a specific funding year”). Premio

argues that the five-year period should begin on the date services were delivered. See Request for Review at 20.

14 Services were last provided on May 5, 2000, the last day of the funding year for non-recurring services was

September 30, 2000, and the five-year administrative limitations period lapsed on September 30, 2005. USAC

issued the Notification of Improperly Disbursed Funds on August 10, 2005, which is within the five-year

administrative limitations policy period.

15 See Schools and Libraries Fifth Report and Order, 19 FCC Rcd at 15809, para. 1 (“[W]e announce our policy

regarding the timeframe in which USAC and the Commission will conduct audits or other investigations relating to

use of E-rate funds.”). See also id. at 15818, para. 31 (where the Commission finds that “announcing a general

policy in this area is in the public interest”); id. at 15818–19, para. 32 (again describing the limitations period as a

policy).

16 In the Lakehills Order, the Commission upheld USAC’s rescission of funding requests even though the five-year

document retention period had lapsed because “USAC’s recovery of government funds paid to an applicant or

service provider who has no just right to keep the funds is not barred by the passage of time.” Request for Review of

Decisions of the Universal Service Administrator by Joseph M. Hill Trustee in Bankruptcy for Lakehills Consulting,

LP, CC Docket No. 02-6, Order, 26 FCC Rcd 16586, 16601, para. 28 (2011) (Lakehills Order). See also United

States v. Wurts, 303 U.S. 414, 416, 58 S.Ct. 637, 638 (1938) (“The Government’s right to recover funds, from a

person who received them by mistake and without right, is not barred unless Congress has ‘clearly manifested its

intention’ to raise a statutory barrier [to recovery].”) (citations omitted). Congress has imposed no such statutory

barrier to recovery but, to the contrary, in the Debt Collection Improvement Act (DCIA), 31 U.S.C. § 3701 et seq.,

has generally directed agencies to “try to collect a claim of the [U.S.] Government for money or property arising out

of the activities of, or referred to, the agency.” 31 U.S.C. § 3711(a)(1).

17 Generally, the Commission’s rules may be waived if good cause is shown. 47 C.F.R. § 1.3. The Commission

may exercise its discretion to waive a rule where the particular facts make strict compliance inconsistent with the

public interest. Northeast Cellular Telephone Co. v. FCC, 897 F.2d 1164, 1166 (D.C. Cir. 1990) (Northeast

Cellular). In addition, the Commission may take into account considerations of hardship, equity, or more effective

implementation of overall policy on an individual basis. WAIT Radio v. FCC, 418 F.2d 1153, 1159 (D.C. Cir.

1969); Northeast Cellular, 897 F.2d at 1166. Waiver of the Commission’s rules is appropriate only if both (i)

special circumstances warrant a deviation from the general rule, and (ii) such deviation will serve the public interest.

Northeast Cellular, 897 F.2d at 1166.

18 See Request for Review at 22-23.

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Federal Communications Commission

DA 14-967

lawsuit that made it whole, there is no reason that universal service fund contributors should have to

shoulder that burden.

8.

Consistent with the Schools and Libraries Fourth Report and Order,19 we direct USAC to

continue recovery actions against Premio. The Commission has ordered USAC to direct recovery actions

against the party or parties that committed the rule or statutory violation in question.20 Here, we conclude

that USAC correctly directed recovery against Premio because it submitted invoices for equipment that it

never delivered.

9.

ACCORDINGLY, IT IS ORDERED, pursuant to the authority contained in sections 1-4

and 254 of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151-154 and 254, and sections

0.91, 0.291, 1.3 and 54.722(a) of the Commission’s rules, 47 C.F.R. §§ 0.91, 0.291, 1.3 and 54.722(a), the

Request for Review filed by the petitioner IS DENIED.

FEDERAL COMMUNICATIONS COMMISSION

Vickie S. Robinson

Acting Chief

Telecommunications Access Policy Division

Wireline Competition Bureau

19 See Federal-State Joint Board on Universal Service et al., CC Docket Nos. 96-45, 97-21 and 02-6, Order on

Reconsideration and Fourth Report and Order, 19 FCC Rcd 15252 (2004) (Schools and Libraries Fourth Report and

Order).

20 See id. at 15255, para. 10 (concluding that recovery actions should be directed to the party or parties that

committed the rule or statutory violation in question).

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