If your company has received a Letter of Inquiry (“LOI”), Notice of Apparent Liability for Forfeiture (NAL) or Citation from the FCC’s Enforcement Bureau, you should consider engaging an attorney experienced in FCC enforcement work. The following summary reviews some general information in this area.
Enforcement Investigation Subject Matters
FCC enforcement investigations have targeted telecom, cable television and broadcast providers, equipment manufacturers and others. Recent telecom enforcement matters have included:
- failure to make required contributions to the Federal Universal Service Fund or timely file Forms 499A and 499Q reporting assessable revenues,
- failure to obtain FCC approvals for transfer-of-control or asset sale corporate transactions,
- failure to obtain a Section 214 certificate to provide international service,
- failure to properly report network outages,
- failure to provide hearing-aid compatible and e911 compatible wireless phones,
- collusive bidding in spectrum auctions,
- deceptive marketing, particular for prepaid calling cards,
- billing for services not requested by the customer — “cramming,”
- changing a customer’s pre-subscribed service provider without authorization — “slamming,” and
- non-filing of required reports, e.g. Customer Proprietary Network Information (“CNPI”) reports.
While sometimes the FCC gathers the information on its own and issues a Notice of Apparent Liability for Forfeiture (NAL) as the first step in the investigation, most of the time the FCC begins by issuing a Letter of Inquiry (LOI). The LOI will direct that the company produce documents and provide other information specified in the LOI. The LOI will also direct that the company supply a verification from a company officer executed under penalty of perjury attesting to the truth and completeness of the response. The LOI will set a due date for responses (often 30 days) that may be very aggressive. The LOI will typically provide a sentence or two that describes the potential substantive violation of the Communications Act and/or FCC rules being investigated. The LOI will state that it is an “order” of the FCC and that failure to timely and fully respond to it will constitute an independent violation of FCC rules.
Past experience is helpful in preparing a response to the LOI, as the same issues recur. There is a negotiation process if extensions of time to respond to particular requests are needed, or if certain requests in the LOI are unduly burdensome, have limited or no relevancy to the investigation, or are vague. There is a way to avoid forcing the company’s CEO or other officer to purport to verify under penalty of perjury detailed facts regarding the company’s operation of which he/she has no direct knowledge. There is a also a process for requesting that the response to the LOI be kept confidential and exempted from disclosure under the Freedom of Information Act (FOIA) to competitors and others.
While each case is different, thoroughly and timely responding to the LOI is often the company’s first chance to show that it is a good corporate citizen and that either (a) no violation occurred, or (b) any arguable violation has been remedied going forward. It is imperative to always keep in mind that the FCC staffer conducting the investigation is not an ordinary litigation opponent – he or she is also the “judge” who will, subject to review within the FCC, make the initial decision on whether to issue an NAL.
After the response to the LOI is complete, our Firm will sometimes prepare on behalf of the client an analytical letter that reviews the evidence and the law. This letter may be submitted by itself, or with a request to negotiate a consent decree. Consent decrees are agreed upon resolutions of enforcement investigations. They are discussed in more detail below.
One advantage of having outside counsel interact with the FCC on enforcement investigations is that the FCC investigators cannot use every conversation as an opportunity to spontaneously ask questions directly to the Company’s executives. If the FCC does ask questions to outside counsel, there is time to vet responses.
The investigation may take enough time that the FCC becomes concerned that the one year statute-of-limitations for most types of NALs will soon be expiring. In this situation, the FCC may request that the company agree to “toll” (postpone) the running of the statute-of-limitations. The risk of refusing to enter into a tolling agreement is that the FCC may rush to issue an NAL before the statutory deadline, in order to preserve its options in the investigation.
If the FCC proceeds to issue an NAL, the NAL document will describe the alleged violation in more detail and will propose the amount of a monetary forfeiture, and state a time period within which the company may respond to the NAL. The proposed forfeiture amount is supposed to be based on the FCC’s forfeiture guidelines and precedent from prior FCC cases.
The company receiving the NAL can elect to pay the proposed forfeiture, which generally ends the case, or to instead file a formal written response that denies liability and/or presents reasons why the forfeiture should be reduced. It is sometimes possible to begin consent decree negotiations at this post-NAL stage, although it is better to do before the NAL is issued. If the Company responds to the NAL and no consent decree is negotiated, the FCC will enter an order that imposes the forfeiture proposed in the NAL, or reduces or cancels it.
The FCC’s forfeiture order is not the end of the process. In most situations, the company is only legally compelled to pay the forfeiture when the FCC successfully sues for a judgment on the forfeiture in federal district court. A sometimes-overlooked statute prohibits the FCC from taking other adverse regulatory actions, e.g. refusal to renew licenses, until the district court either affirms the forfeiture or the company elects to pay it. The federal district court is supposed to review both liability for the forfeiture and the amount of the forfeiture “de novo,” giving no deference to the FCC. Most cases conclude before the district court stage.
There are several variations from the procedural path described above. One variation is that, before issuing a NAL to various types of companies who neither hold FCC licenses or authorizations nor are applicants for them, the FCC must first issue a “citation” letter. The FCC can issue a NAL to companies in this favored category only if they persist in their violation after receiving the citation letter. There is an opportunity to contest a citation letter and to request that it be withdrawn.
Issuing and collecting monetary forfeitures is not the FCC’s only enforcement remedy. The FCC will also sometimes direct that companies take specific steps to come into compliance or deter future violations. On occasion the FCC will threaten to revoke FCC licenses needed by the company, or even blacklist its officers so they can’t work at other FCC-regulated firms.
Defenses, Prosecutorial Discretion, Consent Decrees, and Payment Plans
The best defense to an FCC enforcement investigation is to show that the company did not violate the law, or that any violation occurred outside the short one-year statute-of-limitation within which the FCC must issue most NALs. Sometimes the defenses are substantive – the company is in compliance. Sometimes the defenses are technical. Did the FCC complete the long checklist of procedural requirements necessary to issue an enforceable rule, including Office of Management and Budget (OMB) approval for “information collections?” How should the statute-of-limitations be applied when there is a series of events, some of which occurred more than one year ago? The second-best approach may be to show that any violations that occurred were isolated incidents that caused little or no harm and that the company has put into place procedures so that they do not recur.
If the company desires to settle the investigation, it may contact the Enforcement Bureau to discuss the possibility of a consent decree. Consent decrees usually have at least two key elements: (1) the company’s agreement to make a “voluntary contribution” of money to the U.S. treasury, (2) a compliance plan to prevent recurrence of violations. Some consent decrees provide for payment of the “voluntary contribution” in installments. Depending on the circumstances, the FCC may accept a voluntary contribution amount that is lower than the forfeiture it would have imposed without a settlement. The consent decree should cancel any NAL that has been issued, possibly allowing the Company to truthfully represent to lenders and other regulators that it has not been fined. A consent decree may “look better” than a forfeiture order or NAL. A company entering into a consent decree should also contact its tax adviser to evaluate whether or not the voluntary contribution is deductible on income taxes as a business expense – a forfeiture is generally a non-deductible penalty.
The price of entering into a consent decree is generally the commitment to enter into a specific compliance plan that may require periodic reporting to the FCC for the next several years, particular training of personnel, and changes to business practices. The pros and cons must be evaluated.
Finally, some violations of FCC rules involve failure to pay money to an FCC fund such as the Federal Universal Service Fund (FUSF). It is helpful in these cases to work out a payment plan with the FUSF administrator (the Universal Service Administrative Company, or USAC) to satisfy the underlying arrearage, before the Enforcement Bureau becomes involved and seeks to add a forfeiture on top of the arrearage, interest, and penalties already assessed by the Fund.
If your company receives a Letter of Inquiry from the Federal Communications Commission or is subjected to a Notice of Apparent Liability or Citation and you seek professional assistance, please contact Jonathan S. Marashlian at (703) 714-1313 or firstname.lastname@example.org.
For more information on Marashlian & Donahue’s Dispute Resolution & Litigation Practice, FCC Enforcement Division, please visit our website.
DISCLAIMER: This Advisory provides general information not intended to be used in any specific situation and does not constitute legal advice.