Last week, the FCC issued a Notice of Apparent Liability against a telecom carrier for failing to pay Universal Service Fund (USF) contributions. This aspect of the NAL underscores the FCC’s continued emphasis on USF enforcement, but is, in and of itself, not uncommon in FCC enforcement. The NAL proposes fines of slightly more than $1.5 million for failing to pay USF (including an upward adjustment of $500,000 representing one-half of the highest outstanding amount owed), plus $160,000 in proposed fines for related violations involving the filing of 499-Qs and failure to pay NANPA, LNP and FCC regulatory fees.
In a significant departure from prior practice, however, the FCC proposes not only to hold the carrier liable for the violations, but also to extend liability to the carrier’s sole owner, an individual. The Commission asserts that it may “pierce the corporate veil” in this instance and hold the individual liable for the forfeitures proposed against the carrier. The NAL asserts that it is appropriate to pierce the corporate veil if (1) there is a common identity of officers, directors or shareholders, (2) there is common control between entities, and (3) it is necessary to preserve the integrity of the Communications Act and to prevent the entities from defeating the purpose of statutory provisions.
This is the first time the FCC has asserted veil-piercing in a forfeiture proceeding, and the first time it has proposed to apply it to an individual. The two prior cases cited by the FCC, for example, involved (a) calculation of the statute of limitations based on an informal complaint that identified a closely-related and similarly named sister company and (b) the exercise of the FCC’s spectrum allocation authority. Neither case involved proposed forfeitures or FCC enforcement. If it is successful, the FCC’s action would represent a significant expansion of its forfeiture authority. Moreover, if the claim holds, virtually any wholly-owned entity could be subject to veil piercing in the enforcement context.