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Legal Proceedings.
The Federal Communications Commission (the “FCC”) undertakes inquiries and investigations of TRS providers for the purpose of, among other things, analyzing the efficiency, effectiveness, appropriateness and/or validity of the funds that are disbursed to the various TRS service providers. It is our understanding that these inquiries are intended to obtain information about TRS providers’ practices, and include, but are not limited to, investigation of compliance and possible violations of the Communications Act of 1934 and rules promulgated by the FCC including inter alia rules limiting marketing activities, lobbying activities, emergency calls via TRS, creation and registration of 10-digit numbers. During 2007 and 2008, and most recently on April 1, 2009,
we received various letters of inquiry from the FCC relating to the conduct of our marketing operations, compliance with certain rules service and other matters. We are unable to predict the outcome of these investigations, which could result in the imposition of fines, the imposition of restrictions on its ability to participate in the NECA reimbursement program or the creation of compliance programs established by the FCC. We have responded to the various requests made by the FCC.
On March 10, 2009, we filed a complaint in Sacramento County Superior Court against American Sign Language Services Corporation, or ASLS, and other defendants alleging breach of contract and various tort claims in connection with the defendants’ operation of two video relay service call centers with us in 2008 and the defendants’ subsequent opening and operation of a competing call center. The complaint seeks compensatory and punitive damages in an amount to be determined at trial and injunctions prohibiting disclosure of our trade secrets. The defendants subsequently removed the case to the United States District Court for the Eastern District of California. On or about April 20, 2009, the defendants answered our complaint, and
ASLS filed a counterclaim alleging breach of contract and various tort claims. ASLS seeks compensatory and exemplary damages, an order enjoining us from opening certain call centers and disgorgement of profits. We believe that ASLS’ counterclaim is without merit, and we intend to vigorously defend against such allegations. As of the filing of this quarterly report on Form 10-Q, we have not accrued any liability related to ASLS’ counterclaim, as we do not believe at such time that our liability to ASLS is probable and capable of being reasonably estimated. If we are not successful in defending such counterclaims, we could be liable for monetary damages that could have a material adverse effect on our results of operations, financial condition and cash flows.
On June 25, 2009, the
Company received a subpoena for documents from the grand jury for the United States District Court for the District of Columbia. We believe that other companies within our TRS industry are subject to similar investigations. The Company is in the process of providing documents in response to the subpoena. We are unable to predict the outcome of this investigation.
On June 26, 2009, the Company received
subpoenas from the Securities and Exchange Commission (the “SEC”) for documents and the testimony of the Company’s Chief Financial Officer pursuant to a formal order of investigation into the Company. The Company is in the process of providing documents to the SEC. We are unable to predict the outcome of this investigation.
We sought review from the U.S. Court of Appeals for the Tenth Circuit of two FCC rulings issued in 2007 and 2008 that purported to impose certain limitations on TRS providers’ ability to communicate with their customers and to market their services generally. We challenged various restrictions on TRS providers that had been articulated by the FCC in its declaratory rulings concerning the use of revenues received from the TRS fund to lobby customers, the use of customer data and various marketing practices. On June 4, 2009, the court overturned the FCC’s position prohibiting the use of revenues received from the TRS fund to lobby customers and prohibiting TRS providers from using customer data collected in the course of handling TRS for lobbying or other purposes. The court did not overturn the FCC’s position prohibiting TRS providers from engaging in various marketing practices, however, we did not challenge this prohibition in its entirety.
Various other claims and legal proceedings that are generally incidental to the normal course of our business are pending or threatened against us. Although we cannot predict the outcome of those matters, in the opinion of management, any liability arising from them will not have a material adverse effect on our financial position, results of operations or liquidity.
We are reimbursed by the National Exchange Carriers Association (“NECA”) for certain costs, including costs related to the implementation of 10-digit numbers, and for each VRS conversation minute. The current regulatory climate indicates that the FCC may be experiencing pressure to prohibit or limit the reimbursement of various costs and
minutes generated from the use by us of VRS in the workplace. Some recent comment letters submitted to the FCC from outside parties have specifically noted that VRS providers may be artificially increasing the use of VRS calls to increase revenue.