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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Direct Impact Telecommunications, Inc., ) Complainant, ) ) v. ) File No. E-95-34 ) American Teletronics Long Distance, Inc., ) Defendant. ) MEMORANDUM OPINION AND ORDER Adopted: April 15, 1997; Released: April 18, 1997 By the Chief, Common Carrier Bureau: I. INTRODUCTION 1. Direct Impact Telecommunications, Inc. (Direct Impact), a reseller of long distance and international telecommunications services, filed a formal complaint on July 7, 1995, alleging that American Teletronics Long Distance, Inc. (ATLD), another reseller of long distance services, violated the Commission's rules and orders, and Section 201(b) of the Communications Act of 1934, as amended (the Act), regarding the selection of primary interexchange carriers (PICs). The dispute arises out of a contract between the parties relating to the resale of AT&T Corp.'s (AT&T's) Software Defined Network (SDN) services. ATLD filed its answer on August 23, 1995, along with a cross- complaint. In its cross-complaint, ATLD alleges that it was damaged as a result of Direct Impact's misrepresentations regarding the type of SDN service it was reselling to ATLD. Direct Impact filed a motion to dismiss defendant's affirmative defenses and a motion to dismiss defendant's cross- complaint, arguing that both the affirmative defenses and the cross-complaint are based on a contractual dispute that is unrelated to the Communications Act. For the reasons stated below, we grant Direct Impact's complaint against ATLD and dismiss ATLD's cross-complaint. II. BACKGROUND 2. On December 31, 1990, Direct Impact agreed to resell to ATLD SDN service purchased from AT&T. ATLD agreed, in return, to compensate Direct Impact for those customers recruited by ATLD and placed on the AT&T SDN service resold by Direct Impact. ATLD agreed, moreover, to compensate Direct Impact for customers placed on that resold SDN service that were recruited by Direct Impact. ATLD was to compensate Direct Impact using two methods. First, ATLD was to pay Direct Impact $350,000 for the right to place customers obtained by ATLD's own efforts onto the SDN service resold by Direct Impact to ATLD. Second, ATLD would pay Direct Impact on a commission basis for each customer obtained by Direct Impact that was placed on the same SDN service. In summary, there were two groups of customers created under this agreement. One group consisted of customers obtained by ATLD and a second group consisted of customers obtained by Direct Impact. Those customers obtained by Direct Impact signed a Letter of Agency (LOA) authorizing Direct Impact to choose their PIC. Both groups were to be placed by ATLD on SDN service that was sold by AT&T to Direct Impact and then by Direct Impact to ATLD. It is the group of customers obtained by Direct Impact that is at the center of this dispute. 3. Sometime after the agreement between the parties was executed, a dispute arose regarding the type of SDN service resold by Direct Impact. According to ATLD, Direct Impact misrepresented the type of SDN service it had purchased from AT&T, and, as a result, ATLD allegedly could not begin providing service to either of the customer groups that were the subject of the agreement. ATLD then changed both customer groups from Direct Impact's resold SDN service to a different reseller's service. Once Direct Impact discovered that its customer group had been placed with a different reseller's SDN service, it informed ATLD in January 1994 that it would take its customers back. Soon thereafter, Direct Impact placed those customers with another carrier. On July 12, 1994, ATLD switched Direct Impact's customer group to a carrier of ATLD's choice without informing Direct Impact. Direct Impact discovered that their customers had been switched by ATLD and switched them back to an SDN provider of Direct Impact's choice on July 15, 1994. ATLD switched Direct Impact's customers a third time on August 25, 1994 and, on that same day, Direct Impact switched them back. ATLD and Direct Impact repeated such actions one more time on October 15, 1994. III. DISCUSSION A. Alleged PIC Change Violation 1. Contentions of the Parties 4. Complainant. Direct Impact alleges that ATLD switched its customers from a provider of SDN service chosen by Direct Impact to a service provider chosen by ATLD in violation of Section 201(b) of the Act. Direct Impact asserts that its contract with ATLD established a proprietary right permitting Direct Impact to select the common carrier that would provide the resold SDN service to its customer group. Direct Impact claims that it possesses LOAs that reflect this understanding between ATLD and Direct Impact, on the one hand, and Direct Impact and its customers, on the other hand. Those LOAs say, in part, We have appointed Direct Impact as our Agent to act in our name and on our behalf in the selection of our primary long distance carrier. This appointment of agency gives Direct Impact the authority to issue instructions and otherwise participate with our Local Exchange Company, all Interexchange Carriers, and our Interconnect Company in matters relating to our long distance service(s). Direct Impact argues that because ATLD had knowledge of both the agreement and the LOAs, ATLD knew of the exclusive relationship between Direct Impact and its customers and that it could not change their SDN service without first obtaining their permission. 5. Defendant. ATLD contends that it moved Direct Impact's customer group to another SDN provider because those customers were experiencing delays in service provisioning. ATLD also asserts that, after Direct Impact moved the customer groups from ATLD's chosen SDN service provider, it moved the customers a second time. ATLD claims that the LOAs signed by Direct Impact's customers, in conjunction with the agreement between ATLD and Direct Impact, authorized ATLD to change the underlying service provider. Moreover, ATLD contends, it was unaware that delays in provisioning might occur because Direct Impact misrepresented the type of SDN service that was to have been provided under the agreement. It asserts that it would have lost substantial income if it had not switched customers to a different service provider. 2. Decision 6. The instant complaint raises issues that are governed by the Commission's requirements regarding verification of PIC changes. Following the divestiture of AT&T, interexchange carriers (IXCs) began to compete for presubscription agreements with potential customers as a result of the equal access rules and procedures the Commission and the courts imposed on the long distance telephone industry. Under the Commission's original allocation plan, which was promulgated in the Allocation Order, IXCs were required to have on file a LOA signed by the consumer before submitting to the LEC an order to change an end-user customer's PIC. This requirement was challenged by IXCs, however, on the grounds that it would inhibit competition because consumers frequently would not execute the LOAs even though they agreed to change their PIC. In response to these concerns, the Commission relaxed the requirement and allowed IXCs to initiate PIC changes if they had "instituted steps to obtain signed LOAs." This requirement was the rule in effect at the time that Direct Impact filed its complaint against ATLD. 7. Applying the Commission's PIC-change requirements established in its Allocation Order and subsequent Waiver Order, we find that ATLD has violated the PIC-change requirements established in those orders. The LOAs signed by Direct Impact's customers authorize only Direct Impact to choose their primary interexchange carrier. Moreover, there is nothing in the record showing that ATLD took steps to obtain LOAs directly from these customers before switching their PICs. The language in the LOAs at issue clearly specifies that Direct Impact is the only agent of its customers for the purpose of choosing a primary long distance carrier. We also note that Direct Impact included in its complaint several letters from customers stating that they disapproved of ATLD's change, and that the change was done without their permission. Moreover, Article VI of the contract between ATLD and Direct Impact shows that both parties intended to reserve full control over decisions involving the customers that they respectively recruited. Thus, neither the language in the LOAs nor the terms of the agreement between the parties permitted ATLD to change the SDN service provider of Direct Impact's customers. We conclude, therefore, that ATLD has violated the Commission's PIC-change requirements, as promulgated in the Allocation Order and Waiver Order, by failing to demonstrate that it had obtained prior authority from Direct Impact's customers to switch them to another SDN provider. ATLD's failure to obtain that permission is a violation of the Commission's rules and is therefore an unjust and unreasonable practice under Section 201(b) of the Act. 8. Because Direct Impact has demonstrated that ATLD has violated the Commission's PIC-change requirements, it may recover any actual damages that it can prove. Pursuant to the Commission's rules, Direct Impact is entitled, within 60 days after public notice of this decision on the merits, to file a supplemental complaint concerning its claimed damages amounting to $73,321.64. The supplemental complaint should specifically detail how Direct Impact arrived at the alleged damage amount. B. ATLD Cross-Complaint 1. Contentions of the Parties 9. Cross-Complainant. ATLD alleges that Direct Impact misrepresented the type of SDN service that Direct Impact purchased from AT&T. As a result of its reliance on Direct Impact's misrepresentations, ATLD claims, it experienced unexpected delays in providing service to its customers and Direct Impact's customers. ATLD argues, without citing to any provision of the Communications Act or the Commission's rules or orders, that it should be compensated for the losses it incurred as a result of the unexpected provisioning delays. 10. Cross-Defendant. In its motion to dismiss ATLD's cross-complaint, Direct Impact asserts that the Commission has no jurisdiction over the issues raised by ATLD. Direct Impact contends that ATLD's cross-complaint raises issues relating to their agreement. It argues that the cross-complaint should be dismissed for failure to allege a violation of the Act or the Commission's rules or orders. 2. Decision 11. We dismiss ATLD's cross-complaint. We will not consider a complaint unless that complaint states a cause of action under either the Communications Act or the Commission's rules or orders. In its cross-complaint, ATLD does not contend that Direct Impact violated the Act or the Commission's rules or orders. Rather, ATLD alleges that Direct Impact misrepresented the type of SDN service it resold to ATLD. It also claims that it was financially harmed by the unexpected delays in the provision of service to the two customer groups identified in its agreement with Direct Impact. Resolution of ATLD's allegations requires only an interpretation of the agreement between the parties. We therefore dismiss the cross-complaint. IV. ORDERING CLAUSES 12. ACCORDINGLY, IT IS ORDERED, pursuant to Sections 4(i), 201(b), and 208 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 201(b), 208, and the authority delegated by Sections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, that Direct Impact's complaint IS GRANTED. 13. IT IS FURTHER ORDERED, pursuant to Sections 4(i) and 208 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 208, and authority delegated by Sections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, that Direct Impact's motion to dismiss ATLD's affirmative defenses IS DENIED. 14. IT IS FURTHER ORDERED, pursuant to Sections 4(i) and 208 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 208, and authority delegated by Sections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, that Direct Impact's motion to dismiss ATLD's cross-complaint IS GRANTED. 15. IT IS FURTHER ORDERED, pursuant to Sections 4(i) and 208 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 208, and authority delegated by Sections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, that ATLD's cross- complaint IS DISMISSED WITH PREJUDICE. 16. IT IS FURTHER ORDERED that Direct Impact, in accordance with Section 1.722 of the Commission's Rules, 47 C.F.R.  1.722, MAY FILE a supplemental complaint concerning damages within 60 days after public notice of this decision. FEDERAL COMMUNICATIONS COMMISSION Regina M. Keeney Chief, Common Carrier Bureau