general plumbing corporation, } new york telephone company … · new york telephone company and )...

Federal Communications Commission DA 96-966

Before theFederal Communications Commission

Washington, O.C. 20554

In the Matter of ))

General Plumbing Corporation, }.) File Nos. E-93-1.00

Complainant, ) E-93-101)

v. ))

New York Telephone Company and ) MCI Telecommunications ) Corporation, )

) Defendants. )

MEMORANDUM OPINION AND ORDER

Adopted: June 17, 1996; Released: June 20, 1996

By the Chief, Common Carrier Bureau:

I. INTRODUCTION

l. General Plumbing Corporation (GPC) has filed a complaint against New York Telephone Company (NYT) and MCI Telecommunications Corporation (MCI), pursuant to Section 208 of the Communications Act of 1934, as amended (the "Act") - 1 GPC alleges that MCI and NYT have violated Section 201(b) of the Act, 2 in connection with certain telephone calls that were fraudulently placed by an alleged third party over a phone line leased by GPC from NYT. The crux of GPC's complaint is that the calls originated on the network side of the demarcation point on one of GPC's telephone lines and that GPC, therefore, should not be held liable for those charges. Both MCI and NYT deny the allegations and have moved to dismiss the complaint. For the reasons and to the extent stated below, we grant GPC's complaint.

II. BACKGROUND

A. The Original Pleadings.

2 . GPC is a New York corporation providing plumbing services in the New York Metropolitan area. 3 MCI provides GPC with

1 47 U.S.C. § 208.

2 47 U.S.C. § 201(b) .

3 GPC Complaint at 2 .

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interexchange services, while NYT provides GPC with local exchange services. 4 According to GPC, MCI started to bill it for unauthorized calls in January 1992. 5 GPC states that it immediately notified MCI and NYT about the unauthorized calls and that NYT representatives visited GPC's premises between February and May 1992, but did not prevent the continuation of the unauthorized calls despite NYT's assurance that it was taking measures to prevent such calls. 6

3. Because the unauthorized calls persisted, GPC turned to its equipment vendor, Cortel Business Systems, to address the problem. On the weekend beginning May 22, 1993, a Cortel employee removed the bridging clip from GPC's demarcation point, purportedly to make it technically impossible for anyone to place calls over that line from GPC's premises. Cortel also attached a voice- activated tape recorder to the network side of the demarcation point to confirm that conversations were being held on GPC's line. The tape recorder was left in place through the weekend. 7 At the end of that weekend, GPC's controller Stephen Korn and Cortel's service technician Judith Lutz retrieved and reviewed the tape recording and discovered that a number of telephone calls had been placed over the telephone line, even though the line was no longer connected to telephone, equipment on GPC's premises. 8 These calls were confirmed by subsequent telephone bills from MCI to GPC. 9

4. According to GPC, on May 26, 1993, Mr. Korn and Ms. Lutz met with NYT technician Joseph Montebianco to listen to the line that was disconnected from GPC's demarcation point. 10 Both Mr. Korn and Ms. Lutz assert that Mr. Montebianco acknowledged hearing conversations over the disconnected line during that meeting. 11 Moreover, Mr. Korn avers that Mr. Montebianco stated the belief that some unknown party had accessed the line between GPC's

Id.

5 Id. at 2.

• Id.

Id. at 3; see Affidavit of Stephen Korn, signed August 11, 1993, enclosed as Exhibit B to GPC's complaint (Korn Affidavit); Affidavit of Judith Lutz, signed July 20, 1993, enclosed as Exhibit C tc GPC's complaint (Lutz Affidavit).

. 6 GPC Complaint at 3; Korn Affidavit at 2; Lutz Affidavit at 1.

GPC Complaint at Exhibit A.

15 GPC Complaint at 3; Korn Affidavit at 2-3; Lutz Affidavit at 1-2.

: Korn Affidavit at 3; Lutz Affidavit at 2.

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premises and NYT's central office and placed the unauthorized calls. 12 Hence, GPC contends that the unauthorized calls were the result of a "clip-on" device .placed at some point on NYT's facilities. GPC argues that, because it does not, and could not, exercise control over access to or use of NYT's facilities, GPC cannot be liable for the charges related to these unauthorized calls. 13 GPC urges the Commission to find MCI's attempt to impose charges on GPC for these calls to'be an unjust and unreasonable practice under Section 201(b) of the Communications Act. 14 GPC further requests that the Commission determine the responsibility of NYT and MCI for those charges, and other relief as may be deemed "just and proper" under the Commission's rules. 15

5. In its answer, MCI raises two arguments. First, MCI cites a provision from its Tariff F.C.C. No. 1, which states that a customer is responsible for all charges related to the provision of long distance service, even when those charges are incurred as a result of "misuse, or abuse of the customer's service." 16 MCI's second argument is that it cannot be required to credit GPC for these unauthorized charges under Chartways Technologies v. AT&T Communications. 17 because the Commission in that proceeding held that a carrier can lawfully collect for fraudulent calls in circumstances where a carrier did not .have access to or control

12 Korn Affidavit at 3.

13 GPC Complaint at 3-4.

14 Section 201 (b) of the Act states that

All charges, practices, classifications, and regulations for and in connection with such communication service, shall be just and reasonable, and any such charge, practice, classification, or regulation that is unjust or unreasonable is hereby declared to be unlawful.

47 U.S.C. § 201(b).

15 GPC Complaint at 5-6.

16 MCI Answer at 4-5 (citing Tariff F.C.C. No. 1, page 12.3.3, Section B - 7.01, effective December 1, 1991).

17 FCC 93-394, 8 FCC Red 5601 (1993).

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over the facilities used to place the unauthorized calls. 18 MCI argues, in effect, that even if "clip-on" fraud occurred, MCI should be allowed to collect from its customer because the unauthorized calls were placed over facilities and equipment it does not control.

6. For its part, NYT denies in its answer that the unauthorized calls were made by "clip-on" fraud and states that neither it nor MCI has violated Section 201(b) of the Act. 19 While NYT admits that Mr. Montebianco was present at GPC's premises on May 26, 1993, NYT alleges that Mr. Montebianco heard "cross-talk" on the line in question, and did not hear conversations as alleged by GPC. 20 NYT also admits that it changed the physical path of the line in question and made several visits in an attempt to correct the problem. 21 By changing the physical path of the line in question,' NYT argues, there is no way that the unauthorized calls could have continued unless they were being placed by someone with access to GPC's premises. 22 NYT either denies the rest of GPC's allegations or denies having sufficient knowledge to comment upon them.

B. Briefs Filed by the Parties.

7. In its brief, GPC distinguished its situation from that of the customer in Chartways by asserting that its PBX (.private branch exchange) does not have a remote access feature, which allows a person who is not on the premises to call into a PBX and then make an outgoing call over one of the PBX lines. 23 GPC concludes that it would be impossible, therefore, for someone to access its PBX from outside of GPC's premises and then make an outgoing call that would .be billed to GPC. 24 GPC relies on

18 MCI Answer at 5. According to MCI, the Commission in Chartways refused to impose liability on AT&T for unauthorized calls placed over the customer's PBX. Id. MCI says that because the customer, not AT&T, had access to and control over the PBX in that case AT&T could not be held liable for costs associated with the unauthorized calls. Id.

19 NYT Answer at 1-2.

20 Id. at 2.

21 Id.

22 NYT Brief at 5-6.

23 GPC Brief at 8.

Id.

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Chartwavs25 for the proposition that a carrier cannot lawfully collect charges for unauthorized calls from a customer unless the calls were placed over facilities that are totally controlled by that customer. 26

8. In its brief, MCI -reiterates that it cannot be held liable for the charges related to the unauthorized calls because it does not control or have access to the facilities used to make the calls. 27

9. NYT's brief adds several arguments to its case. First, NYT argues that it cannot be held liable for the charges related to the unauthorized calls made over GPC's line unless the Commission finds that NYT was grossly negligent or engaged in willful misconduct. 28 NYT also questions, for the first time, whether Ms. Lutz performed the line-removal test correctly: NYT argues, in effect, that the record does not establish that Ms. Lutz taped conversations made over GPC's line while it was disconnected from GPC's demarcation point. 29 NYT also asserts, for the first time, that GPC failed to provide NYT with a copy of the tape recording and that its service technician -- Mr. Montebianco -- "does not recall" meeting with Ms. Lutz and Mr. Korn. 30 NYT also asserts that it found no evidence that its facilities have been tampered with or accessed by anyone on the network side of the demarcation point. 31 NYT maintains that the unauthorized calls were placed by someone using either a second telephone set or other device from within GPC's premises. 32

10. In its reply brief, GPC attempts to refute NYT's assertion that someone placed the unauthorized calls from GPC's

25 FCC 93-394, 8 FCC Red 5601 (1993).

26 GPC Brief at 7-10.

27 MCI Brief at 5-6.

28 .NYT Brief at 2 (citing AT&T v. New York City Human Resources Administration. 833 F. Supp. 962 (S.D.N.Y. 1993); Annual 1985 Access Tariff Filings. 2 FCC Red 1416 (1987); Gentile v. Garden Citv Alarm Company. 541 N.Y.S. 2d 505 (App. Div. 1989)).

29 Id. at 4.

30 Id. at 5.

31 Id. at 5-6.

32 Id. at 6.

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premises. 33 GPC explains that there are several lines that are accessible through its PBX and that its PBX places calls over those lines using a hunt sequence. 34 GPC explains that if someone were placing unauthorized calls through its PBX, 35 those calls would not all go over the one line in question, but would be dispersed randomly over all of its lines. 36 Finally, GPC takes issue with NYT's challenge of the line removal test, asserting that Ms. Lutz is an experienced technician capable of properly separating the line in question from GPC's demarcation point. 37 NYT filed a reply brief essentially reiterating its earlier arguments.

III. DISCUSSION

A. Commission Orders on Toll Fraud.

11. Two Commission orders bear upon the issue of toll fraud - - Chartwavs38 and United Artists Payphone Corporation v. New York Telephone Company. 39 In Chartwavs. an AT&T customer experienced toll fraud when someone, using the remote access feature of that customer's PBX, placed over $80,000 worth of unauthorized calls using that customer's service. 40 The Commission found that the customer, Chartways, had, "at all times, . . . the capability to restrict the access to and egress from its PBX." 41 The Commission also ruled that Chartways had failed to take precautions that would have prevented the toll fraud, including disabling the remote access feature and changing the authorization code needed to gain

33 GPC Reply Brief at 4.

34 Id. The "hunt sequence" feature of a PBX, or private branch exchange, sends each call made from the PBX owner's premises to a randomly selected line among the several lines connecting from that PBX to the local exchange carrier's facilities. See W.J. & M.M. Blyth, "Telecommunications: Concepts, Development, and Management," 73-76 (1985) .

35 None of the parties have presented any evidence which shows that the premises occupied by GPC are shared with other tenants.


37 Id. at 3-5.

38 FCC 93-394, 8 FCC Red at 5601.

39 FCC 93-387, 8 FCC Red 5563 (1993) .

40 FCC 93.394, 8 FCC Red at 5601.

41 Id. at 5604.

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access to the PBX. 42 Based on these findings, the Commission found that AT&T had not acted unlawfully in charging Chartways for the costs associated with the disputed calls. 43

12. In United Artists, the Commission found that AT&T had acted unlawfully in attempting to hold the complainant liable for toll fraud charges, because the complainant had been diligent in adopting practices meant to prevent toll fraud and avoid becoming a "customer" of AT&T. 44 The complainant, a public payphone provider, purposely did not presubscribe its phones to any interexchange carrier, and it ordered several services from its local exchange carrier that were meant to block long distance calls or would alert an operator that there were certain billing restrictions on its lines. 45 Despite all of these precautions, callers were still able to place unauthorized long distance calls over the payphone provider's telephones. 46 Under AT&T's relevant tariff provisions, a "customer" who could lawfully be charged for the calls, was the person who had "ordered" service from AT&T. The Commission determined that AT&T had acted unlawfully in charging the complainant for the calls at issue, finding that " ... [United Artists] did not intentionally or constructively order service from AT&T." 47 United Artists, the Commission concluded, had avoided ordering service from AT&T intentionally by instructing its local exchange carrier not to presubscribe United Artists payphones to AT&T and had avoided ordering AT&T's service constructively by adopting a myriad of precautions to prevent unauthorized calls. 48

B. Decision.

13. The decisions in both Chartways and United Artists appear to hinge on the question of control. In Chartways. the Commission ruled that AT&T acted lawfully in holding its customer liable for

42 Id.

43 Id. at 5504-05.

44 FCC 93-387, 8 FCC Red at 5563.

45 Id. at 5566. Because United Artists' payphones were not intended to allow interstate calling, the Commission's unblocking requirements did not apply. Id. at 5563 & n.7 (citing 47 C.F.R. § 64. 708 (d) , which defines aggregator phones as, in part, those that allow interstate operator service calling).

46 FCC 93-387, 8 FCC Red at 5563-64.

47 Id. at 5565-66.

48 Id. at 5564.

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the disputed charges because Chartways controlled the access to and operation of its PBX. In contrast, the complainant in United Artists escaped liability because it did everything possible to prevent toll fraud, including instructing its local exchange carrier not to presubscribe its payphones, and the defendants in that case allowed .the unauthorized calls placed through the payphone-provider's telephones to occur., Hence, the Commission ruled that AT&T's attempt to collect the disputed charges was unlawful. This being the case, it would appear that there are two crucial questions in this'proceeding. First, is GPG a "customer" cf MCI and, if so, is that status somehow affected by the precautions taken by GPC to prevent unauthorized calls? Second, did the unauthorized calls placed in this case originate on GPC's side of the demarcation point or on NYT's-side of the demarcation point? 49

14. GPC's Status as a Customer. The Commission'.s decision in United Artists focuses on United Artists' relationship with AT&T. United Artists, the Commission concluded, was not a customer of AT&T, as that, term is defined in AT&T's tariff, because it did not "order" service as that term was defined by the Commission. 50 In this case, MCI's tariff defines a customer as

The person, firm, corporation, or other entity which orders service . . . and which is responsible for the payment of charges and for compliance with MCI tariff regulations. ... A customer is responsible for the payment; of all charges for service used and for

: - It is well-established that a customer is responsible for all of the wiring and telephone equipment leading up to the demarcation point and the local exchange company is responsible for all equipment and its network beyond the demarcation point. See Review of Sections 68.104 and 68.213 of the Commission's Rules Concerning Connection of Simple Inside Wiring of the Telephone Network. CC Docket No. 88-57, Report and Order, 5 FCC Red 4686 (1990) . The demarcation point is defined as

[t]he point of interconnection between the telephone company communications facilities and terminal equipment, protective apparatus or wiring at a subscriber's premises.

li. at 4691; see aisg 47 C.F.R. § 68.3 (1994).

1=0 United Artists. 8 FCC Red at 5565. The Commission defined "order" as "a request that something be supplied." Id.

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compliance with MCI tariff regulations. 51

Unlike United Artists, whose payphones were not presubscribed to AT&T, GPC's telephone line is presubscribed to MCI. Hence, GPC cannot argue that it avoided intentionally ordering MCI's service, as United Artists did in its case. Because we find that GPC is a customer of MCI and intentionally ordered service, there is no need to discuss the issue of constructive ordering under the United Artists analysis.

15. Origination of Calls. A crucial question in this case is whether the unauthorized calls that are the basis of GPC's complaint originated on GPC's side of the demarcation point or at a point on the line controlled and accessed by NYT. This question is crucial because in both Chartways and United Artists, the Commission emphasized the extent of control exercised by the partie's over the facilities used to make unauthorized calls. 52 We conclude that the calls originated on NYT's facilities.

16. In arriving at our conclusion, we give considerable weight to the affidavits submitted by Ms. Lutz, the Cortel service technician who performed the test of removing the line in question from GPC's demarcation point. 53 The record shows Ms. Lutz has over ten years of demonstrated experience as a technician and we cannot accept NYT's unsupported assertion that the test was improperly performed. 54 NYT's assertion that it never received a copy of the tape recording made by Ms. Lutz is unavailing. NYT does not refute GPC's assertion that NYT never asked for a copy of the tape; nor did NYT respond to GPC's offer during these proceedings to provide NYT a copy of the tape. 55

51 MCI Telecommunications Corporation, Tariff F.C.C. No. 1, page 7, effective July 1, 1991.

52 Chartwavs. 8 ECC Red at 5604; .United Artists. 8 FCC Red at 556,6.

53 NYT Brief at 4.

54 Equally unpersuasive is NYT's assertions that Mr. Montebianco "does not recall" meeting with Ms. Lutz, when both she and Mr. Korn of GPC stated, in sworn affidavits, that Mr. Montebianco was present and heard conversations over the line that was disconnected from the demarcation point. NYT Brief at 5. We accord no weight to Mr. Montebianco's statement, in the face of sworn affidavits submitted by Ms. Lutz and Mr. Korn. The fact that he does not recall such a meeting, as opposed to denying that it ever happened, weighs in favor of GPC's witnesses.


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17. GPC successfully distinguishes its situation from "the situation faced by AT&T's customer in Chartways because GPC's PBX does not have a remote access feature. 56 One of the Commission's reasons for ruling that AT&T's attempt to collect the charges incurred by Chartways was lawful is that the customer failed to prevent access to its PBX via a remote access line connected to the PBX, thereby allowing individuals access to the PBX from outside of the customer's premises. 57 The Commission concluded that because AT&T did not have access to' or control over the use of its customer's remote access feature, it was not in a position to prevent the toll fraud that occurred and, therefore, AT&T could lawfully require Chartways to pay for those unauthorized calls. GPC's PBX does not have a remote access feature, thus making it unlikely that someone from outside of GPC's premises gained access to its line through the PBX. The crux of GPC's argument is that the calls originated from a point beyond its demarcation point.

18. GPC also strongly contradicts NYT's assertions that the calls were made from within GPC's premises. 58 We are satisfied with GPC's explanation that if the calls had been placed from its premises telephones, the calls could not have gone over the same line repeatedly because its PBX uses a hunt sequence to place GPC calls over several lines, representing different telephone numbers. 59 The unauthorized calls have used the same line and, thus, the same telephone number. 60 NYT fails to provide any evidence that would refute this point.

19. NYT, in its brief, stresses the fact that it allegedly changed a pair of wires associated with the telephone number used to incur the toll fraud charges. 61 NYT does not convincingly explain, however, why the disputed calls continued after NYT had changed those wires. It merely continues to assert that someone, either a GPC employee or an individual with access to GPC's premises, must have placed the disputed calls from inside GPC's premises. 62 Since GPC has met its burden of establishing a prima facie case, that the unauthorized calls have not originated from

56 GPC Brief at 8.

57 Chartwavs. 8 FCC Red at 5604.

58 NYT Brief at 6.


60 GPC Brief at 3.

61 NYT Brief at 3-4.

62 NYT Reply Brief at 2.

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its side of the demarcation point, the burden of persuasion shifts to NYT." The fact that NYT cannot explain why the calls continued, together with GPC's evidence regarding its PBX hunt sequence feature and the test performed by Ms. Lutz, places on NYT the burden of showing either that GPC is wrong or that the calls could not have been placed from NYT's side of the demarcation point. NYT has failed on both of these counts.

20. Hence, we find that because GPC is a customer of MCI and ordered MCI's service, MCI appropriately charged GPC for the calls placed over GPC's line and did not violate the Act by doing so. GPC will be allowed, however, to recover the charges for those unauthorized calls from NYT because GPC has proven that the calls originated from NYT's side of the demarcation point. NYT was unable to explain how those calls could continue to be carried over the same line when GPC's PBX uses a hunt sequence and when that PBX does not have a remote access feature. Moreover, NYT's evidence that its technician does not recall meeting with GPC representatives was unconvincing. We conclude that NYT acted unreasonably, in violation of section 201 (b) of the Act, by failing to correct the breach of security that occurred on NYT's side of the network demarcation point, a portion of the line over which GPC had no legal right or duty to take action.

63 The Commission adheres to the "preponderance of the evidence" standard promulgated by § 556(d) of the Administrative Procedure Act, 5 U.S.C. § 556 (d) . Sea Island Broadcasting .Corporation v. Federal Communications Commission. 627 F.2d 240, 243 (D.C. Cir. 1978) . Under Section 556 (d) , the proponent of a rule or order has the burden of proof. State of Maine v. U.S. Department of Labor, 669 F.2d 827, 829 (1st Cir. 1982). This has been interpreted to refer to the burden of production and not the ultimate burden of persuasion. Id. A party is said to have satisfied its burden of production, and thus established a prima facie case, if the evidence presented is sufficient to enable a reasonable person to draw from it the inference sought to be established. Id. at 830. Once a party has established a prima facie case, the- burden shifts to the party opposing the proposed rule or order. Environmental Defense Fund, Inc. v. Environmental Protection Agency. 548 F.2d 998, 1914 (D.C. Cir. 1976).

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Federal Commanications Commission DA 96-966

IV. ORDERING CLAUSES

21. 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), 208, and authority delegated by Section 0.291 of the Commission's Rules, 47 C.F.R. § 0.291, that GPC's complaint IS DENIED with regards to MCI and IS GRANTED with regards to NYT.

FEDERAL COMMUNICATIONS COMMISSION

RegiAa M. Keeney Q Chief, Common Carrier Bureau

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general plumbing corporation, } new york telephone company … · new york telephone company and )...

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