ATT Lawsuit

FILED
DALLAS COUNTY
3/11/2016 10:28:05 AM
FELICIA PITRE
DISTRICT CLERK
1-CIT ES
Tonya Pointer
DC-16-02810
Cause No. __________
KENNETH ELAN, Derivatively on Behalf
of AT&T INC.,
Plaintiff,
v.
RANDALL L. STEPHENSON, RAFAEL

DE LA VEGA, JOYCE M. ROCH, JOHN
B. MCCOY, LAURA D'ANDREA TYSON,
JON C. MADONNA, MATTHEW K.
ROSE, SCOTT T. FORD, MICHAEL B.
MCCALLISTER, CYNTHIA B. TAYLOR,

BETH E. MOONEY, JAMES H.
BLANCHARD, GILBERT F. AMELIO,
PATRICIA P. UPTON, LYNN M.
MARTIN, REUBEN V. ANDERSON,
JAIME CHICO PARDO, and JAMES P.
KELLY,
Defendants,
-and
AT&T INC., a Delaware corporation,
Nominal Defendant.
IN THE DISTRICT OF
DALLAS COUNTY, TEXAS
_______ JUDICIAL DISTRICT
STOCKHOLDER DERIVATIVE PETITION FOR BREACH OF FIDUCIARY DUTY

AND UNJUST ENRICHMENT
Pursuant to Rule 190.1 of the Texas Rules of Civil Procedure, plaintiff Kenneth Elan
("Plaintiff") would show that discovery is intended to be conducted under Level 3 of this Rule
due to the complexity of the case. Plaintiff, by his attorneys, submits this stockholder derivative
petition for breach of fiduciary duty and unjust enrichment against the defendants named herein.
NATURE AND SUMMARY OF THE ACTION
1.
This is a stockholder derivative action brought by Plaintiff on behalf of nominal
defendant AT&T Inc. ("AT&T" or the "Company") against certain of its officers and directors
for violations of law, breaches of fiduciary duty and unjust enrichment. This action arises out of
defendants' complete and utter failure to oversee the Company's business and ensure it complied
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with the law. For years, the Individual Defendants (as defined herein) breached their duty of
loyalty to the Company which has resulted in AT&T including unauthorized third-party charges
in its customers' wireless bills and failing to present such charges in a fair and comprehensible
manner. The Company's billing practices violated section 5(a) of the Federal Trade Commission
Act ("FTC Act"), 15 U.S.C. 45(a) ("Section 5(a)"), section 201(b) of the Communications Act
of 1934 ("Communications Act"), 47 U.S.C. 201(b) ("Section 201(b)"), section 64.2401 of the
Truth-in-Billing rules, 47 C.F.R. 64.2401 ("Section 64.2401"), and various state laws. As a
result of this wrongdoing, the Federal Trade Commission ("FTC"), Federal Communications
Commission ("FCC"), and state authorities fined the Company a record $105 million.
2.
Since the late 1980s, AT&T has charged its telecommunications customers for
third-party products and services that the customers did not authorize, a practice that is
commonly known as "cramming." As noted by regulators, cramming can only occur with the
approval of a telecommunications carrier. In particular, the carrier allows third-parties to place
charges on its customers' telephone bills. The carrier (which controls access to the consumers'
wireless bills) establishes such an arrangement (typically via contract) with a third-party vendor
that purportedly provides the service that the customer is being charged for and/or a billing
intermediary that the vendor has contracted with (also known as an aggregator). The third-party
vendors and billing aggregators have been able include charges on the bills of service carriers'
customers, including wireless bills, with or without authorization from the customer for those
charges. As revealed by numerous legal and enforcement actions related to cramming, as well as
regulatory investigations and reports, "proof of authorization is not generally provided to or
required by the billing carrier" and "[t]he billing carrier may not require the aggregator [or
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vendor] to clearly identify the good, product, or service for which the consumer is being
charged."1
3.
AT&T's third-party billing practices generally follow this model. AT&T relies on
aggregators to ensure that the third-party vendors obtain authorization from AT&T's customers
for submitted charges. However, the third-party vendors and aggregators often did not obtain
such authorization. Consequently, AT&T's customers received bills with charges for services
they never agreed to or requested. Moreover, AT&T's telecommunication services bills failed to
present the third-party charges in a fair or legally compliant manner making it difficult for its
customers to decipher the erroneous charges. Even when customers were able to determine that
the Company charged them for unauthorized third-party charges and notified AT&T accordingly,
the Company inconsistently provided assistance and refunds, at times refusing to provide any
refunds.
4.
customers.
Initially, the Company engaged in cramming for both its landline and wireless
It discontinued its landline cramming practice in early 2012, in the face of
overwhelming regulatory scrutiny and imminent legislative and enforcement action. AT&T
continued this practice on its wireless customers until at least 2014, even though there is no
substantive difference between landline and wireless cramming. Wireless cramming violates
substantially the same laws as landline cramming, and by the time AT&T agreed to stop landline
cramming, wireless cramming posed an equal or greater threat to AT&T and its customers.
5.
Moreover, for over a decade, regulators and consumers have specifically and
negatively securitized wireless cramming. In fact, AT&T faced numerous lawsuits dating back
See 2012 Further Notice (as defined herein); see also 2014 Staff Report (as defined herein).
-3-
to at least 2005 concerning wireless cramming. The Company and its management also received
ample warning establishing the serious threat posed by wireless cramming, including millions of
customer complaints, numerous alerts and reports from industry auditors, internal reports, and
repeated regulatory probing. While these warnings continued to pour into AT&T, the Company
(and other benefactors of cramming) misled regulators to believe that cramming was not a
serious threat. These efforts enabled AT&T to continue to collect the easy revenues provided by
third-party charges (including unauthorized charges) in violation of law.
6.
Persistent consumer complaints drove ongoing investigations into wireless
cramming. By 2014, the Company could no longer deny that wireless cramming was a pervasive
problem and significant threat. Consequently, on October 8, 2014, the Company settled with
federal regulators and state authorities for $105 million related to AT&T's improper wireless
billing practices and potential violations of law.
7.
The Individual Defendants are ultimately responsible for the Company's improper
third-party billing practices and the resulting fine. As detailed herein, despite the importance of
its wireless segment and the magnitude and duration of the cramming issue at AT&T, the
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JURISDICTION AND VENUE

8.
This Court has jurisdiction over each defendant named herein.
AT&T is a
corporation that conducts business in and maintains operations in and throughout Texas. The
Individual Defendants also have sufficient minimum contacts with Texas so as to render the
exercise of jurisdiction by this Court permissible under traditional notions of fair play and
substantial justice.
9.
Venue is proper in this Court because one or more of the defendants either resides
in or maintains executive offices in this County, a substantial portion of the wrongs complained
of herein, including the defendants' primary participation in the wrongful acts detailed herein and
aiding and abetting and conspiracy in violation of fiduciary duties owed to AT&T occurred in
this County, and defendants have received substantial compensation in this County by doing
business here and engaging in numerous activities that had an effect in this County.
THE PARTIES
Plaintiff
10.
Plaintiff was a stockholder of AT&T at the time of the wrongdoing complained
of, has continuously been a stockholder since that time, and is a current AT&T stockholder.
Nominal Defendant
11.
Nominal defendant AT&T is a Delaware corporation AT&T is a leading provider
of telecommunications services in the United States and the world and offers products such as
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wireless communications, local exchange services, long-distance services, data/broadband and

Internet services, video services, telecommunications equipment, managed networking, and
wholesale services. The Company operates through wireless subsidiaries, wireline subsidiaries,
and other subsidiaries.
As of December 31, 2014, AT&T served more than 120 million
subscribers. AT&T maybe served with process at 208 S. Akard Street, Dallas, Texas 75202.
Defendants
12.
Defendant Stephenson is AT&T's CEO, President, and Chairman of the Board
and has been since June 2007 and a director and has been since June 2005.
Defendant
Stephenson was also AT&T's Chief Operating Officer from 2004 to June 2007; Chief Financial
Officer from 2001 to 2004; and held various other positions with the Company beginning in
1982. Defendant Stephenson breached his fiduciary duty of loyalty by knowingly or recklessly:
(i) failing to implement internal controls over Board-level reporting, compliance with applicable
law and the Company's own internal policies, and communications with regulators;
and (iii) causing or allowing the Company to bill its customers for unauthorized third-party
charges and present such charges on its bills in violation of applicable law.
Defendant
Stephenson also breached his fiduciary duties by causing or allowing significant control gaps in
the Company's anti-cramming program.
AT&T paid defendant Stephenson the following
compensation as an executive:
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Defendant Stephenson may be served with process at 5333 Edlen Drive, Dallas, Texas 75220.
13.
Defendant Rafael de la Vega ("de la Vega") is AT&T's Vice Chairman, and Chief
Executive Officer of AT&T Business Solutions and International and has been since February
2016. Previously, Defendant de la Vega was President and Chief Executive Officer of AT&T
Mobile and Business Solutions from August 2014 until February 2016. Defendant de la Vega
was also AT&T's President and Chief Executive Officer of AT&T Mobility and Consumer
Markets from 2007 to 2014. Defendant de la Vega breached his fiduciary duty of loyalty by
knowingly or recklessly: (i) failing to implement internal controls over Board-level reporting,
compliance with applicable law and the Company's own internal policies, and communications
with regulators; and (ii) causing or allowing the Company to bill its customers for unauthorized
third-party charges and present such charges on its bills in violation of applicable law.
Defendant de la Vega also breached his fiduciary duties by causing or allowing significant
control gaps in the Company's anti-cramming program. AT&T paid defendant de la Vega the
following compensation as an executive:
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Defendant de la Vega may be served with process at 1210 Troon Court, Alpharetta, Georgia
30005.
14.
Defendant Joyce M. Roch ("Roch") is an AT&T director and has been since
October 1998.
Defendant Roch breached her fiduciary duty of loyalty by knowingly or
recklessly: (i) failing to implement internal controls over Board-level reporting, compliance with
applicable law and the Company's own internal policies, and communications with regulators;
and (ii) causing or allowing the Company to bill its customers for unauthorized third-party
charges and present such charges on its bills in violation of applicable law. Defendant Roch
also breached her fiduciary duties by causing or allowing significant control gaps in the
Company's anti-cramming program. AT&T paid defendant Roch the following compensation
as a director:
Fiscal
Year
2014
2013
2012
2011
Fees Paid in Cash

$157,600
$139,400
$116,600
$120,900
Stock Awards
$150,000
$150,000
$150,000
$150,000
All Other
Compensation
$13,646
$8,165
$19,352
$15,251
Total
$321,246
$297,565
$285,952
$286,151
Defendant Roch may be served with process at 2 Flowing Wells Lane, Savannah, Georgia
31411.
15.
Defendant John B. McCoy ("McCoy") is an AT&T director and has been since
the October 1999. Defendant McCoy was AT&T's Lead Director from March 2007 to March
2008. Defendant McCoy breached his fiduciary duty of loyalty by knowingly or recklessly: (i)
failing to implement internal controls over Board-level reporting, compliance with applicable
law and the Company's own internal policies, and communications with regulators; and (ii)
causing or allowing the Company to bill its customers for unauthorized third-party charges and
present such charges on its bills in violation of applicable law. Defendant McCoy also breached
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his fiduciary duties by causing or allowing significant control gaps in the Company's anticramming program. AT&T paid defendant McCoy the following compensation as a director:
Fiscal
Year
2014
2013
2012
2011
Fees Paid in Cash

$151,900
$151,600
$132,900
$148,000
Stock Awards
$150,000
$150,000
$150,000
$150,000
All Other
Compensation
$15,102
$10,102
$23,746
$24,394
Total
$317,002
$311,702
$306,646
$322,394
Defendant McCoy may be served with process at 6767 N. Ocean Boulevard, Apt. 15, Boynton
Beach, Florida 33435.
16.
Defendant Laura D'Andrea Tyson ("Tyson") is an AT&T director and has been
since October 1999. Defendant Tyson is also a member of AT&T's Audit Committee and has
been since at least March 2011; Chair of the Public Policy and Corporate Reputation Committee
and has been since May 2015 and a member and has been since May 2012. Defendant Tyson
breached her fiduciary duty of loyalty by knowingly or recklessly: (i) failing to implement
internal controls over Board-level reporting, compliance with applicable law and the Company's
own internal policies, and communications with regulators; and (ii) causing or allowing the
Company to bill its customers for unauthorized third-party charges and present such charges on
its bills in violation of applicable law. Defendant Tyson also breached her fiduciary duties by
causing or allowing significant control gaps in the Company's anti-cramming program. AT&T
paid defendant Tyson the following compensation as a director:
Fiscal Year
2014
2013
2012
2011
Fees Paid
in Cash
$144,000
$137,700
$123,700
$135,100
Stock Awards
$150,000
$150,000
$150,000
$150,000
Change in
Pension Value
and NonQualified
Deferred
Compensation
Earnings
$5,498
$6,907
$1,640
$3,000
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All Other
Compensation
$102
$102
$7,739
$6,957
Total
$299,600
$294,709
$283,079
$295,057
Defendant Tyson may be served with process at 2015 Los Angeles Avenue, Berkeley, California
94707.
17.
Defendant Jon C. Madonna ("Madonna") is an AT&T director and has been since
September 2002. Defendant Madonna is also Chair of AT&T's Audit Committee and has been
since at least March 2010. Defendant Madonna was AT&T's Lead Director from February 2010
to January 2012. Defendant Madonna breached his fiduciary duty of loyalty by knowingly or
charges and present such charges on its bills in violation of applicable law. Defendant Madonna
also breached his fiduciary duties by causing or allowing significant control gaps in the
Company's anti-cramming program.
AT&T paid defendant Madonna the following
compensation as a director:
Fiscal
Year
2014
2013
2012
2011
Fees Paid in Cash

$172,100
$172,100
$159,200
$195,300
Stock Awards
$150,000
$150,000
$150,000
$150,000
All Other
Compensation
$102
$1,102
$7,856
$8,962
Total
$322,202
$323,202
$317,056
$354,262
Defendant Madonna may be served with process at 27235 N. 103rd Street, Scottsdale, Arizona
85262.
18.
Defendant Matthew K. Rose ("Rose") is an AT&T director and has been since
September 2010. Defendant Rose was also a member of the Public Policy and Corporate
Reputation Committee from at least November 2011 to May 2012. Defendant Rose breached his
fiduciary duty of loyalty by knowingly or recklessly: (i) failing to implement internal controls
over Board-level reporting, compliance with applicable law and the Company's own internal
- 10 -
policies, and communications with regulators; and (ii) causing or allowing the Company to bill
its customers for unauthorized third-party charges and present such charges on its bills in
violation of applicable law. Defendant Rose also breached his fiduciary duties by causing or
allowing significant control gaps in the Company's anti-cramming program.
AT&T paid
defendant Rose the following compensation as a director:

Fiscal
Year
2014
2013
2012
2011
Fees Paid in Cash

$134,600
$138,300
$124,600
$128,100
Stock Awards
$150,000
$150,000
$150,000
$150,000
All Other
Compensation
$22,064
$15,102
$4,239
$15,801
Total
$306,664
$303,402
$278,839
$293,901
Defendant Rose may be served with process at 1110 Post Oak Place, Westlake, Texas 76262.
19.
Defendant Scott T. Ford ("Ford") is an AT&T director and has been since June
2012. Defendant Ford was also a member of the Public Policy and Corporate Reputation
Committee from at least July 2012 to March 2014. Defendant Ford breached his fiduciary duty
of loyalty by knowingly or recklessly: (i) failing to implement internal controls over Board-level
reporting, compliance with applicable law and the Company's own internal policies, and
communications with regulators; and (ii) causing or allowing the Company to bill its customers
for unauthorized third-party charges and present such charges on its bills in violation of
applicable law. Defendant Ford also breached his fiduciary duties by causing or allowing
significant control gaps in the Company's anti-cramming program. AT&T paid defendant Ford
the following compensation as a director:
Fiscal
Year
2014
2013
2012
Fees Paid in Cash

$137,900
$134,000
$71,783
Stock Awards
$150,000
$150,000
$150,000
All Other
Compensation
$102
$102
$51
Total
$288,002
$284,102
$221,834
Defendant Ford may be served with process at 22311 Highway 10, Little Rock, Arkansas 72223.
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20.
Defendant Michael B. McCallister ("McCallister") is an AT&T director and has
been since February 2013.
Defendant McCallister is also a member of AT&T's Audit
Committee and has been since February 2013. Defendant McCallister is also a member of the
Public Policy and Corporate Reputation Committee and has been since May 2013. Defendant
McCallister breached his fiduciary duty of loyalty by knowingly or recklessly: (i) failing to
implement internal controls over Board-level reporting, compliance with applicable law and the
Company's own internal policies, and communications with regulators; and (ii) causing or
allowing the Company to bill its customers for unauthorized third-party charges and present such
charges on its bills in violation of applicable law. Defendant McCallister also breached his
fiduciary duties by causing or allowing significant control gaps in the Company's anti-cramming
program. AT&T paid defendant McCallister the following compensation as a director:
Fiscal
Year
2014
2013
Fees Paid in Cash

$142,000
$132,683
Stock Awards
$150,000
$150,000
All Other
Compensation
$17,876
$12,813
Total
$309,876
$295,496
Defendant McCallister may be served with process at 8644 N. Morning Glory Road, Paradise
Valley, Arizona 85253.
21.
Defendant Cynthia B. Taylor ("Taylor") is an AT&T director and has been since
June 2013. Defendant Taylor is also a member of AT&T's Audit Committee and has been since
June 2013; and a member of the Public Policy and Corporate Reputation Committee and has
been since May 2015. Defendant Taylor breached her fiduciary duty of loyalty by knowingly or
charges and present such charges on its bills in violation of applicable law. Defendant Taylor
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Company's anti-cramming program. AT&T paid defendant Taylor the following compensation
as a director:
Fiscal
Year
2014
2013
Fees Paid in Cash

$147,400
$80,517
Stock Awards
$150,000
-
All Other
Compensation
$5,102
$60
Total
$302,502
$80,577
Defendant Taylor may be served with process at 218 Terrace Drive, Houston, Texas 77007.
22.
Defendant Beth E. Mooney ("Mooney") is an AT&T director and has been since
September 2013. Defendant Mooney is also a member of the Public Policy and Corporate
Reputation Committee and has been since at least September 2014. Defendant Mooney breached
her fiduciary duty of loyalty by knowingly or recklessly: (i) failing to implement internal
controls over Board-level reporting, compliance with applicable law and the Company's own
internal policies, and communications with regulators; and (ii) causing or allowing the Company
to bill its customers for unauthorized third-party charges and present such charges on its bills in
violation of applicable law. Defendant Mooney also breached her fiduciary duties by causing or
allowing significant control gaps in the Company's anti-cramming program.
AT&T paid
defendant Mooney the following compensation as a director:

Fiscal
Year
2014
2013
Fees Paid in Cash

$130,600
$39,367
Stock Awards
$150,000
-
All Other
Compensation
$102
$15,034
Total
$280,702
$54,401
Defendant Mooney may be served with process at 11 Colony Lane, Cleveland, Ohio 44108.
23.
Defendant James H. Blanchard ("Blanchard") was AT&T's Lead Director from
January 2012 to January 2014 and a director from December 2006 to April 2014. Defendant
Blanchard breached his fiduciary duty of loyalty by knowingly or recklessly: (i) failing to
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implement internal controls over Board-level reporting, compliance with applicable law and the
Company's own internal policies, and communications with regulators; and (ii) causing or
allowing the Company to bill its customers for unauthorized third-party charges and present such
charges on its bills in violation of applicable law. Defendant Blanchard also breached his
fiduciary duties by causing or allowing significant control gaps in the Company's anti-cramming
program. AT&T paid defendant Blanchard the following compensation as a director:
Fiscal
Year
2014
2013
2012
2011
Fees Paid in Cash

$54,467
$211,300
$163,500
$143,500
Stock Awards
$150,000
$150,000
$150,000
Change in
Pension Value
and NonQualified
Deferred
Compensation
Earnings
$45,363
$55,003
$115
$52,542
All Other
Compensation
$261,469
$27,240
$8,640
$23,737
Total
$361,299
$443,543
$322,255
$369,779
Defendant Blanchard may be served with process at 6929 Standing Boy Road, Unit 17,
Columbus, Georgia 31904.
24.
Defendant Gilbert F. Amelio ("Amelio") was AT&T's Lead Director from
February 2008 to February 2010 and a director from February 2001 to July 2013. Defendant
Amelio was also a member of the Public Policy and Corporate Reputational Committee from at
least March 2011 to May 2012. Defendant Amelio breached his fiduciary duty of loyalty by
Defendant Amelio also breached his fiduciary duties by causing or allowing significant control
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gaps in the Company's anti-cramming program. AT&T paid defendant Amelio the following
Fiscal
Year
2013
2012
2011
Fees Paid in Cash

$118,200
$149,600
$156,500
Stock Awards
$150,000
$150,000
$150,000
Change in
Pension Value
and NonQualified
Deferred
Compensation
Earnings
$218
$83
$1,087
All Other
Compensation
$250,060
$5,831
$5,980
Total
$518,478
$305,514
$313,567
Defendant Amelio may be served with process at 5940 Lake Geneva Court, Reno, Nevada
89511.
25.
Defendant Patricia P. Upton ("Upton") was an AT&T director from June 1993 to
April 2011. Defendant Upton was also a member of the Public Policy Committee from at least
March 2011 to April 2011.
Defendant Upton breached her fiduciary duty of loyalty by
Defendant Upton also breached her fiduciary duties by causing or allowing significant control
gaps in the Company's anti-cramming program. AT&T paid defendant Upton the following
Fiscal
Year
2011
Fees Paid in Cash

$47,433
Change in
Pension Value
and NonQualified
Deferred
Compensation
Earnings
$4,490
- 15 -
All Other
Compensation
$254,969
Total
$306,892
Defendant Upton may be served with process at 1019 Rock Ledge Road, Heber Springs, Arizona
72543.
26.
Defendant Lynn M. Martin ("Martin") was an AT&T director from October 1999
to April 2012.
Defendant Martin breached her fiduciary duty of loyalty by knowingly or
charges and present such charges on its bills in violation of applicable law. Defendant Martin
Company's anti-cramming program. AT&T paid defendant Martin the following compensation
as a director:
Fiscal
Year
2012
2011
Fees Paid in Cash

$37,067
$142,600
Stock Awards
$150,000
All Other
Compensation
$254,536
$20,321
Total
$291,603
$312,921
Defendant Martin may be served with process at 6140 S.E. Morning Dove Way, Hobe Sound,
Florida 33455.
27.
Defendant Reuben V. Anderson ("Anderson") was AT&T's Lead Director from
January 2014 to April 2015 and a director from December 2006 until April 2015. Defendant
Anderson was also Chair of the Public Policy and Corporate Reputation Committee from at least
March 2011 to April 2015. Defendant Anderson breached her fiduciary duty of loyalty by
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Defendant Anderson also breached his fiduciary duties by causing or allowing significant control
gaps in the Company's anti-cramming program. AT&T paid defendant Anderson the following
Fiscal
Year
2014
2013
2012
2011
Fees Paid in Cash

$200,600
$145,300
$124,900
$142,150
Stock Awards
$150,000
$150,000
$150,000
$150,000
Change in
Pension Value
and NonQualified
Deferred
Compensation
Earnings
$92,701
$114,219
$953
$112,689
All Other
Compensation
$102
$102
$3,792
$13,636
Total
$443,403
$409,621
$279,645
$418,475
Defendant Anderson may be served with process at 1782 Fairwood Drive, Jackson, Mississippi
39213.
28.
Defendant Jaime Chico Pardo ("Chico") was an AT&T director from September
2008 until April 2015. Defendant Chico was also a member of the Audit Committee from at
least March 2011 to March 2015. Defendant Chico breached his fiduciary duty of loyalty by
Defendant Chico also breached his fiduciary duties by causing or allowing significant control
gaps in the Company's anti-cramming program. AT&T paid defendant Chico the following
Fiscal
Year
2014
2013
2012
2011
Fees Paid in Cash

$143,800
$145,100
$131,400
$136,300
Stock Awards
$150,000
$150,000
$150,000
$150,000
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All Other
Compensation
$15,102
$15,102
$15,102
$102
Total
$308,902
$310,202
$296,502
$286,402
Defendant Chico may be served with process at Miguel de Cerrvantes Saavedra 255, Colonia
Ampliacin Granada, 11520 Mxico, D.F., Mxico.
29.
Defendant James P. Kelly ("Kelly") was an AT&T director from December 2006
until April 2015. Defendant Kelly was also a member of the Audit Committee from at least
March 2011 to March 2015.
Defendant Kelly breached his fiduciary duty of loyalty by
Defendant Kelly also breached his fiduciary duties by causing or allowing significant control
gaps in the Company's anti-cramming program. AT&T paid defendant Kelly the following
Fiscal
Year
2014
2013
2012
2011
Fees Paid in Cash

$140,000
$147,100
$126,000
$141,700
Stock Awards
$150,000
$150,000
$150,000
$150,000
All Other
Compensation
$102
$102
$3,419
$3,673
Total
$290,102
$297,202
$279,419
$295,373
Defendant Kelly may be served with process at 713 Moores Mill Road N.W., Atlanta, Georgia
30305.
30.
The defendants identified in 12-13 are referred to herein as the "Officer
Defendants." The defendants identified in 12, 14-29 are referred to herein as the "Director
Defendants." The defendants identified in 16-17, 20-21, 28-29 are referred to herein as the
"Audit Committee Defendants." The defendants identified in 16, 18-22, 24-25, 27 are referred
to herein as the "Public Policy and Corporate Reputation Committee Defendants." Collectively,
the defendants identified in 12-29 are referred to herein as the "Individual Defendants."
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DUTIES OF THE INDIVIDUAL DEFENDANTS

Fiduciary Duties
31.
By reason of their positions as officers and directors of the Company, each of the
Individual Defendants owed and owe AT&T and its stockholders fiduciary obligations of trust,
loyalty, good faith, and due care, and were and are required to use their utmost ability to control
and manage AT&T in a fair, just, honest, and equitable manner. The Individual Defendants were
and are required to act in furtherance of the best interests of AT&T and not in furtherance of
their personal interest or benefit.
32.
To discharge their duties, the officers and directors of AT&T were required to
exercise reasonable and prudent supervision over the management, policies, practices, and
controls of the affairs of the Company. By virtue of such duties, the officers and directors of
AT&T were required to, among other things:
(a)
conduct the affairs of the Company in an efficient, business-like manner in
compliance with all applicable laws, rules, and regulations; and

(b)
remain informed as to how AT&T conducted its operations, and, upon
receipt of notice or information of imprudent or unsound conditions or practices, make

reasonable inquiry in connection therewith, and take steps to correct such conditions or practices
and make such disclosures as necessary to comply with applicable law.
Additional Duties of the Board Committees
33.
The Audit Committee Charter imparts heightened duties on its members. In
relevant part, the Audit Committee Defendants were responsible for assisting the Board in its
oversight of the performance of the Company's internal audit function and the compliance by the
Company with legal and regulatory requirements. Likewise, the Public Policy and Corporate
- 19 -
Reputation Committee has heightened duties pursuant to its Charter. Specifically, the Public
Policy and Corporate Reputation Committee Defendants were responsible for assisting the Board
in its oversight of policies related to protecting the Company's reputation, including its public
policy positions, social responsibility efforts, and the Company's brands.
Breaches of Duties
34.
The conduct of the Individual Defendants complained of herein involves a
knowing and culpable violation of their obligations as officers and directors of AT&T, the
absence of good faith on their part, and a reckless disregard for their duties to the Company that
the Individual Defendants were aware or reckless in not being aware posed a risk of serious
injury to the Company.
35.
The Individual Defendants breached their duty of loyalty and good faith by failing
to establish internal controls at AT&T and allowing the Company to engage in systematic
overbilling of its customers for unauthorized third-party charges, improper practices that violated
applicable law, and caused AT&T to incur substantial damage.
36.
The Individual Defendants, because of their positions of control and authority as
officers and/or directors of AT&T, were able to and did, directly or indirectly, exercise control
over the wrongful acts complained of herein. The Individual Defendants also failed to prevent
the other Individual Defendants from taking such illegal actions. As a result, and in addition to
the damage the Company has already incurred, AT&T has expended, and will continue to
expend, significant sums of money.
APPLICABLE LAW
37.
Section 5(a) of the FTC Act, prohibits "unfair or deceptive acts or practices in or
affecting commerce." Misrepresentations or deceptive omissions of material fact constitute
- 20 -
deceptive acts or practices prohibited by Section 5(a) of the FTC Act. Acts or practices are
unfair under Section 5 of the FTC Act if they cause substantial injury to consumers that
consumers cannot reasonably avoid themselves and that is not outweighed by countervailing
benefits to consumers or competition. 15 U.S.C. 45(n). The practice of placing unauthorized
charges on consumers' phone bills is prohibited by Section 5 as both a deceptive and unfair
practice. This is especially true where the format or presentation of the bill serves to disguise the
charges or otherwise does not conspicuously present the charges to the consumer.
38.
Section 201(b) of the Communications Act outlaws communication service
providers engaged in interstate commerce (such as AT&T) from using unjust or unreasonable
charges or practices. Section 201(b) states, in pertinent part, that "[a]ll charges, practices,
classifications, and regulations for and in connection with [interstate or foreign] communication
service [by wire or radio], shall be just and reasonable, and any such charge, practice,
classification, or regulation that is unjust or unreasonable is declared to be unlawful." The
inclusion of unauthorized charges on consumers' telephone bills is an "unjust and unreasonable"
practice under Section 201(b).
39.
The FCC's Truth-in-Billing rules, Section 64.2401 require that wireless carrier
(such as AT&T) present their telephone bills in a clearly organized manner such that third-party
charges are separated from the carrier's charges for telecommunications services and provide "a
brief, clear, non-misleading, plain language description of the service or services rendered."
Specifically, Section 64.2401 of the Truth-in-Billing rules require, in part:2
The Truth-in-Billing rules were originally adopted in April 1999. They have been modified or
revised a number of times, including at times (such as in 2012) in direct response to the
cramming threat. Since at least 2005, the Truth-in-Billing rules required wireless carriers to
provide on brief, clear, non-misleading, and plain language descriptions on wireless bills. The
- 21 -
(a) Bill organization. Telephone bills shall be clearly organized, and must comply
with the following requirements:
(1) The name of the service provider associated with each charge must be
clearly and conspicuously identified on the telephone bill.
(2) Where charges for two or more carriers appear on the same telephone
bill, the charges must be separated by service provider.
(3) Carriers that place on their telephone bills charges from third parties
for non-telecommunications services must place those charges in a
distinct section of the bill separate from all carrier charges. Charges in
each distinct section of the bill must be separately subtotaled. These
separate subtotals for carrier and non-carrier charges also must be clearly
and conspicuously displayed along with the bill total on the payment page
of a paper bill or equivalent location on an electronic bill. For purposes of
this subparagraph "equivalent location on an electronic bill" shall mean
any location on an electronic bill where the bill total is displayed and any
location where the bill total is displayed before the bill recipient accesses
the complete electronic bill, such as in an electronic mail message
notifying the bill recipient of the bill and an electronic link or notice on a
Web site or electronic payment portal.
(4) The telephone bill must clearly and conspicuously identify any
change in service provider, including identification of charges from any
new service provider. For purpose of this subparagraph "new service
provider" means a service provider that did not bill the subscriber for
service during the service provider's last billing cycle. This definition shall
include only providers that have continuing relationships with the
subscriber that will result in periodic charges on the subscriber's bill,
unless the service is subsequently canceled.
(b) Descriptions of billed charges. Charges contained on telephone bills must
be accompanied by a brief, clear, non-misleading, plain language description of
the service or services rendered. The description must be sufficiently clear in
presentation and specific enough in content so that customers can accurately
assess that the services for which they are billed correspond to those that they
have requested and received, and that the costs assessed for those services
conform to their understanding of the price charged.
FCC explicitly reminded wireless carriers of the applicability of the Truth-in-Billing rules to
wireless billing during revision processes in at least 2011-2012.
- 22 -
40.
Various state laws also prohibit or strictly regulate unauthorized charges on
telephone bills. For example, Texas Utilities Code section 17.151, which, in part, prohibits
"charges for a new product or service to be billed on a customer's telephone or retail electric bill"
unless "the customer has clearly and explicitly consented to obtain the product or service offered
and to have the associated charges appear on the customer's telephone or electric bill and the
consent has been verified as provided by Subsection (b)." Section 17.151 further requires that
third-party vendors and billing aggregators contract with the billing utility (e.g., AT&T) to place
charges on the billing utility's customers' bills and provide a toll-free number and address for the
consumer to dispute charges. Further, third-party vendors and billing aggregators "may not use
any fraudulent, unfair, misleading, deceptive, or anticompetitive marketing practice to obtain
customers."
41.
In addition, California's anti-cramming statute, Public Utility Code section 2890
prohibits the inclusion of unauthorized charges on consumers' telephone bills and requires the
telephone bill clearly identify and include a separate billing section for each third-party biller,
include the amount being charged for each product or service, include a clear and concise
description of the service, product, or other offering for which a charge has been imposed, and
include information regarding how to resolve any dispute about that charge. California's anticramming statute further requires comprehensive refunds for affected California customers.
42.
California's ant-cramming regime also requires quarterly reporting to the
California Public Utilities Commission (the "CPUC") regarding cramming. In 2000, CPUC
adopted in Decision D.00-03-020 (as modified by D.00-11-015) which requires all billing
telephone companies and billing agents to create and submit a summary report for each calendar
month that includes:
- 23 -
(a) the total number of consumer complaints received each month for each service
provider and billing agent;
(b) the name, address, and telephone number of each entity receiving
complaints;[3]
(c) the total number of working telephone numbers billed for each entity for
which complaints were received;
(d) for billing agents, the total number of subscribers billed by each service
provider for which complaints were received; for billing telephone companies, the
total number of subscribers billed by each service provider for which the billing
telephone company directly bills and each billing agent;
(e) for billing agents, the total dollars billed by each service provider; for billing
telephone companies, the total dollars billed by each service provider for which
the billing telephone company directly bills and each billing agent.
43.
In 2006, the CPUC adopted General Order 168, Part 4 (then strengthened it in
2010) to clarify and buttress California's anti-cramming regime.4 General Order 168, Part 4,
reinforces that "[t]he Billing Telephone Corporation is ultimately responsible for refunding all
unauthorized charges" presented in its bill, and places affirmative duties on the billing telephone
corporation. These duties require the billing telephone corporation to "conduct a reasonable
inquiry of [the third-party vendor's] history of violations of state or federal [consumer protection]
law," to "monitor[] the billings it controls for the purpose of preventing and detecting
unauthorized charges," and to "have in place and comply with a protocol for identifying
unauthorized charges and suspending or terminating billing services to any Billing Agent or
Service Provider that has submitted unauthorized charges." They also require "the prompt
This requirement is not applicable to billing agents.
In March 2006, the CPUC adopted General Order (G.O.) 168 Part 4, Market Rules to Empower
Consumers and to Prevent Fraud Rules Governing Cramming Complaints. On November 2,
2010, in response to recurring unauthorized charges despite extensive consumer efforts to
combat cramming, the CPUC issued Decision D.10-10-034 revising G.O. 168 Part 4.
- 24 -
termination of billing services to Billing Agents and Service Providers that present unauthorized
charges" by the billing telephone corporation. In particular, General Order 168, Part 4 requires:
Billing Telephone Corporations shall bill Subscribers only for authorized charges.
Billing Telephone Corporations shall adopt protocols which prohibit Billing
Agents and Service Providers from submitting, directly or indirectly, charges for
billing through a Billing Telephone Company that the Subscriber has not
authorized. Billing Telephone Corporations must monitor or cause to be
monitored, either directly or through a Billing Agent, or other entity, each Service
Provider's continuing compliance with this requirement. Such monitoring shall
include review of the Service Provider's marketing materials, scripts, customer
verification records, or other such information as may be necessary to
demonstrate that the Service Provider is obtaining valid Subscriber authorizations.
* * *
Responsibilities of Billing Telephone Corporations: Prior to approving a
Service Provider or Billing Agent for the provision of billing services, the Billing
Telephone Corporation shall directly or through another entity conduct a
reasonable inquiry of the Service Provider's or Billing Agent's history of
violations of state or federal law or rules relating to consumer protection and
current ability to operate lawfully.
California's anti-cramming regime, including quarterly reports to the CPUC, explicitly applies to
both wireline and wireless telephone corporations.
AT&T ILLEGALLY BILLS ITS WIRELESS CUSTOMERS FOR
UNAUTHROIZED THIRD-PARTY CHARGES
44.
AT&T is a leading provider of telecommunications services in the United States
and the world. The Company's wireless segment is its largest segment and easily its most
profitable segment in terms of operating income.
In 2011, wireless segment revenues
accounted for about 50% of AT&T's revenues and have steadily grown by 2% each year since.
The wireless segment's operating income accounted for 166%, 127%, and 145% of AT&T's total
operating income in 2011, 2012, and 2014, respectively. Without its wireless segment, AT&T
would have operated at a loss in each of those years as its other corporate expenses exceeded its
wireline segments operating income in each of those years.
- 25 -
45.
For decades, AT&T has been charging its customers for third-party products and
services that the customers did not authorize, a practice that is commonly known as "cramming."
As a result, on October 8, 2014, the FTC filed a complaint against AT&T for its unlawful
wireless cramming and billing practices (the "FTC Complaint"). That same day, the FCC
announced that it, the FTC, and the attorney generals for the fifty states and District of Columbia
had settled their investigations of AT&T's illegal wireless cramming and billing practices. The
settlement requires AT&T to pay more than $105 million, the largest enforcement action in FCC
history. Under the settlement, AT&T must pay $80 million to be distributed to current and
former AT&T customers who were billed for third-party services they did not authorize, $20
million to state governments participating in the settlement, and $5 million as a penalty payment
to the U.S. Treasury.
The settlement also imposed additional compliance reporting and
recordkeeping requirements on the Company relating to billing and cramming.

46.
AT&T's settlement with state and federal authorities centered on one prevalent
wireless cramming method that involves unauthorized charges for monthly subscriptions to
Premium Short Messaging Services ("PSMS"). Third-party PSMS providers distribute content
such as ringtones, wallpaper, and text messages that include horoscopes, flirting tips, celebrity
gossip, and other information to consumers, typically at a price of $9.99 per month. To do so, a
PSMS provider obtains a "short code" from the Cellular Telecommunications & Internet
Association ("CTIA") that allows it to distribute content to consumers through Short Messaging
Services ("SMS"). The PSMS vendor or its billing aggregators also uses the short code to apply
charges (purportedly for such content) to the wireless bills of wireless carriers' customers,
including AT&T's customers. AT&T's customers' wireless bills often included charges for
- 26 -
PSMS products or services that the customer never requested, never received, or both. Wireless
cramming, however, extends beyond unauthorized PSMS charges.
47.
AT&T relies on the third-party vendors and/or aggregators to obtain authorization
from AT&T's customers for the third-party charges. These third parties, however, have in many
cases failed to obtain valid authorization from AT&T's customers, but AT&T still included those
charges on those customers' wireless bills. AT&T gave its customers no reason to expect
unauthorized charges on their bills. The Company's communications with potential customers
rarely (if ever) involve discussion of third-party services and charges.
AT&T's wireless
contracts make prominent representations about the voice and data services the Company
provides, but buries information about third-party services in lengthy and complicated terms and
conditions clauses.
48.
Indeed, AT&T's wireless billing practices were deceptive during the relevant
period. The first page of both AT&T's online and hard copy wireless bills contained a summary
of charges. The third-party charges were included under the generic descriptor "New Charges"
though the charges were not always "new." The "New Charges" descriptor also included charges
for phone and data services provided by AT&T. The third-party charges were not separated
individually or included under a more accurate and descriptive heading. The "New Charges" line
item in the summary was included in the "Total Amount Due" that AT&T represented was "Due
in Full by" a specific date, leading many of its customers to believe that they were obligated to
pay for any unauthorized third-party charges included in their bills. Also, at times during the
relevant period, other parts of AT&T's wireless bills further deceived its customers into believing
they were responsible for unauthorized third-party charges. Both online and hard copy wireless
bills included a section titled "Monthly Charges." The line items included within this category
- 27 -
were primarily AT&T charges for its data services. This category, however, also included a line
item for "AT&T Monthly Subscriptions" which deceptively included third-party charges.
49.
AT&T's customers remained largely unaware that the Company would (or even
could) channel unauthorized third-party charges to them through its monthly billing for its voice
and data services. Even those customers that noticed that their bill was overstated would have to
decipher AT&T's misleading bill format/presentation to determine that unauthorized third-party
charges caused the overstatement. Then, in the context of PSMS charges, the customer would
have to locate the PSMS text corresponding to the unauthorized subscription charge and respond,
"STOP" in order to prevent future third-party charges. The customer would have to do this for
each unauthorized third-party charge. Further, if a customer was able to stop new third-party
charges, the customer was still on the hook for previous unauthorized charges. As detailed by
the FTC Complaint:
[I]n some instances, beginning in March 2013, Defendant has sent text messages
to consumers regarding subscriptions. In many instances, these messages did not
mention charges at all. In numerous instances, consumers receiving these text
messages thought they were spam and ignored the messages. Even if consumers
noticed and opened the text messages, they would still have to take action to stop
the charges from appearing on their bills.
50.
To obtain a refund for past unauthorized charges, an AT&T customer would have
to contact AT&T directly. However, when AT&T's customers sought refunds for unauthorized
third-party charges from AT&T, the Company often refused to provide the refunds.
explained in the FTC Complaint:
In some instances, Defendant has told consumers that there is nothing it can do
about the unauthorized charges. In other instances, Defendant's customer
service representatives have instructed consumers to seek a refund directly from
the third-party merchant. At times, however, Defendant's representatives have
failed to provide accurate contact information for the third-party merchant. In
yet other instances, Defendant has asserted that consumers authorized the charge,
despite the fact that Defendant has not had records of the purported authorization
and AT&T went so far as to inform consumers who called to complain about
- 28 -
As
unauthorized charges that the consumers had authorized the charges by not
responding to text messages sent by the third-party merchants. In other
instances, Defendant has refused to grant a full refund. In numerous instances,
AT&T has charged consumers for at least a year for third-party subscription
services yet only offered a two month refund. Further, if a consumer previously
had complained about an unauthorized third-party charge, AT&T instructed its
customer care representatives not to offer any refund.
51.
Worse, "in October 2011, AT&T notified its third-party merchants that it was
changing its refund policy to 'help lower refunds,' and AT&T's customer service representatives
would be 'blocked' from offering more than a one-time two month refund."
52.
AT&T's cramming practices violated state and federal law.
AT&T violated
Section 5(a) of the FTC Act by misrepresenting that certain charges appearing on its wireless
bills were for services provided by AT&T and authorized by the customer, when those charges
were unauthorized and provided by third-parties, if provided at all.
AT&T overbilled its
customers for unauthorized charges and, therefore, caused financial harm to those customers that
did not provide any countervailing benefit and that AT&T could have reasonably avoided had
the Board instituted the necessary internal controls (discussed in more detail below).
53.
In addition, AT&T's inclusion of unauthorized charges on its customers' wireless
bills was "unjust and unreasonable" in violation of Section 201(b). AT&T violated the FCC's
Truth-in-Billing rules because, during the relevant period, AT&T's wireless bills failed to
provide a brief, clear, non-misleading, and plain language description of the third-party charges.
Further, AT&T's inclusion of the third-party charges in its wireless bills was not sufficiently
clear in presentation and specific enough in content so that AT&T's customers could accurately
assess that the third-party subscriptions for which they were billed corresponded to services
actually requested and received, and that the costs assessed for those services conform to their
understanding of the price charged. The Company's third-party billing practices also violated
- 29 -
state anti-cramming laws for the same or similar reasons, including failing to list third-party
charges separately, and violated various other state laws that prohibit unlawful, unfair, deceptive,
and misleading business practices, such as section 17200 of California's Unfair Competition
Law.
THE BOARD COMPLETELY DISREGARDED ITS DUTIES
TO PREVENT ILLEGAL BILLING PRACTICES AT AT&T AND
OVERSEE THE COMPANY'S BUSINESS IN GOOD FAITH
54.
AT&T's ongoing illegal billing practices and resulting $105 million fine were
entirely preventable had the Board instituted reporting and compliance controls at AT&T. As
discussed in more detail herein, the Company was privy to repeated and abundant warnings that
its wireless bills included rampant unauthorized charges and otherwise violated applicable law.
The unauthorized charges and unlawful billing practices, however, persisted for years as a result
of the Board's failure to implement any semblance of a system of reporting and compliance
controls at AT&T.
55.
In particular, the Board failed to implement any controls to monitor, detect, and
report noncompliance with internal policies and applicable law, including controls to monitor
AT&T compliance with the FTC Act, the Communications Act, the Truth-in-Billing rules, and
various state laws and regulations.
The Board also failed to implement controls over the Company's

communications with regulators, including those that require full, fair, and accurate
communications.
- 30 -
AT&T and Company Management Possessed Abundant Information Establishing the

Impropriety of Its Third-Party Wireless Billing Practices Including Repeated Warning that
Its Wireless Bills Included Unauthorized Charges
56.
Cramming grew out of the 1984 divestiture of AT&T and de-tariffing of
telephone billing and collection in 1986.5 Following the break-up of AT&T, regional bell
operating companies, also known as local exchange carriers, began providing billing collection
services to AT&T and other companies that offered long-distance services for landlines. Id.
With time, AT&T (and other telephone companies) realized it could leverage these billing
platforms to bring in additional revenues via third-party products and services not directly related
to phone service.
57.
By the late 1990s, cramming on landlines began to receive increasing negative
attention from regulators, legislators, and enforcement agencies.
In response, William E.
Kennard ("Kennard"), then-Chairman of the FCC, held a meeting on May 20, 1998, with
industry constituents, including the third-party providers of billing and collection services, to
develop a set of guidelines to combat cramming. In his opening remarks, Kennard described
cramming as a serious problem likely to become even more serious in the near future. Other
regulators/legislators echoed Kennard's concerns. For example, then-Congressman Barton J.
Gordon of Tennessee characterized cramming as the fastest growing consumer fraud, and one
that affects the most vulnerable consumers. Following the conference, the FCC released an
agreed upon set of guidelines meant to protect consumers' rights to: "(1) a clear, concise
description of services being billed, (2) full disclosure of all terms and conditions, (3) billing for
5
U.S. Senate Committee on Commerce, Science, and Transportation Office of Oversight and
Investigations Majority Staff Report, Cramming on Mobile Phone Bills: A Report on Wireless
Billing Practices (July 30, 2014 (the "2014 Staff Report"); see also U.S. Senate Committee on
Commerce, Science, and Transportation Office of Oversight and Investigations Majority Staff
Report, Unauthorized Charges on Telephone Bills (July 12, 2011) (the "2011 Staff Report").
- 31 -
authorized services only, and (4) prompt and courteous treatment of all disputed charges."
Industry constituents successfully combated further regulatory action against landline cramming,
including potential additional probing and federal legislation, by downplaying the extent of
cramming and pledging to follow the FTC's cramming guidelines. Still, at least one state
legislator enacted legislation to combat cramming at that timein December 1999, California
passed its anti-cramming statute, Public Utility Code section 2890.
58.
Despite heightened regulatory attention surrounding landline cramming and
industry pledges to self-regulate, AT&T failed to include necessary consumer protections in its
third-party billing practices and continued to subject its customers to fraudulent charges and
substantial financial risk.
Over the next decade, wide reports of unauthorized charges on
landline bills swept across the industry and resulted in dozens of state and federal enforcement
actions and tens of millions of dollars in liability against third-party crammers.6 That decade
also saw an uptick in legislation in response to ongoing consumer complaints. For example, the
CPUC reinforced California's anti-cramming statute via commission decisions and additional
See, e.g., Office of the Attorney Gen. v. Email Disc. Network, No. 372006CA2475, Settlement
Agreement (Fla. 2d Cir. Feb. 15, 2007) (settlement of 2006 lawsuit brought by the Florida
Attorney General against third-party vendor, Email Discount Network, for charging 20,000
Florida consumers' landline telephone bills for e-mail accounts and coupons they did not request
or use); Office of the Illinois Attorney General, Madigan Reaches Agreement with US Credit
Find to Prevent Phone Cramming (June 18, 2009) (discussing settlement of 2009 lawsuit
brought by the Illinois Attorney General against, third-party vendor, US Credit Find, for
charging (without authorization) more than 9,000 Illinois consumers' landline telephone bills for
a purported online credit tutorial); FTC v. Inc21.com Corp., 745 F. Supp. 2d 975, 982-83 (N.D.
Cal. 2010) (awarding the FTC a $37.9 million judgment against third-party vendors, including
Inc21.com Corporation, for charging up to 97% of their customers' landline telephone bills
without obtaining express authorization); FTC v. Hold Billing Services, Ltd., No. 5:98-cv-00629FB (W.D. Tex. 1998); FTC v. Nationwide Connections, Inc., No. 9:06-cv-80180-KLR (S.D. Fla.
2006) (involving $30 million of fabricated collect call charges on the landline bills of millions of
consumers).
- 32 -
implementing regulations. The CPUC explicitly extended California's anti-cramming regime to

wireless carriers (such as AT&T) and required monthly tracking and quarterly reporting to the
CPUC regarding third-party charges included on the carrier's telephone bills. Additional state
legislatures also enacted statutes prohibiting or strictly regulating cramming on telephone bills.7
For example, on September 1, 2009, Texas amended Texas Utilities Code section 17.151, which,
in part, prohibits placement of charges for a new products or services on a customer's telephone
bill without clear and explicit consent from the customer and the "use any fraudulent, unfair,
misleading, deceptive, or anticompetitive marketing practice."
59.
In August 2009, the FCC began a long and comprehensive investigation into
cramming. On August 27, 2009, the FCC adopted the Consumer Information and Disclosure,
Truth-in-Billing and Billing Format, IP-Enabled Services, Notice of Inquiry, (the "2009 NOI")
to explore ways to protect consumers against cramming and empower them to protect
themselves.
The 2009 NOI noted ongoing complaints regarding cramming despite the
representations by industry constituents that they would voluntary adopt best practices to combat
cramming.
The 2009 NOI sought comment on the extent to which cramming remained
a problem for consumers and why. In response to the 2009 NOI, several state and federal
regulatory and law enforcement entities, as well as consumer organizations, filed comments
stating that unauthorized charges continue to be a substantial problem for consumers. For
See, e.g., Texas Utilities Code section 17.151 (first effective Aug. 30, 1999, and as amended
Sept. 1, 2009); Virginia Code section 56-479.3 (effective July 1, 2010); Title 9 Vermont Statute
section 2466 (effective May 27, 2011); Michigan Compiled Laws section 484.2502 (first
effective 1991, and as amended Mar. 25, 2014); Chapter 815 Illinois Compiled Statute
505/2HHH (first effective Nov. 30, 2009, and as amended Jan. 1, 2013); Title 52 Pennsylvania
Administrative Code section 64.23.
- 33 -
example, the FTC filed comments citing increased consumer complaints and specific instances
of cramming that resulted in tens of millions of dollars in damages to consumers.
60.
By 2011, U.S. regulators stepped up their scrutiny of cramming and telephone
services carriers received repeated warnings regarding cramming. On May 11, 2011, the FTC
held a cramming forum entitled ''Examining Phone Bill Cramming: A Discussion."8 Throughout
the nearly seven-hour public conference, various panels discussed the serious, persistent, and
harmful nature of phone bill cramming, as well as steps that the telephone billing industry could
take to detect, monitor, and prevent cramming. AT&T management did not just attend the
conference, it presented at it. Among the speakers at the conference was AT&T Assistant Vice
President Kent Wardin.
Mr. Wardin acknowledged that cramming has been a known,
recurring issue at AT&T since at least January 2010.9 The FTC warned the forum attendees
that it treats cramming as both "deceptive" and "unfair" conduct under the FTC Act and that
courts have upheld its authority to do so.
61.
On June 16, 2011, in response to consumer complaints that they had been
crammed, the FCC announced the issuance of Notices of Apparent Liability for Forfeiture
("NALs") in four cases. The NALs addressed unauthorized charges on thousands of telephone
bills and proposed an aggregate of $11.7 million in forfeitures. In each case, the FCC concluded
that a long distance reseller operated a constructively fraudulent enterprise in which it billed
Federal Trade Commission, Forum Transcript (May 11, 2011) available at

https://www.ftc.gov/sites/default/files/documents/public_events/phone-bill-cramming-discussion
/10511phoneworkshop.pdf.
9
In actuality, as described herein, the issue was known to the Company well before January
2010.
- 34 -
consumers via a billing aggregator for services the consumer did not request or authorize (or in
some cases even receive).
62.
On July 12, 2011, the Senate Committee released its 2011 Staff Report, which
reported the results of an investigation into landline cramming initiated by Rockefeller in 2010.10
The 2011 Staff Report confirmed the existence of widespread cramming on landline telephone
bills that had likely cost consumers billions of dollars over the preceding decades. Specifically,
it found that:
third-party billing on wireline telephone bills was a billion-dollar industry, with over
$10 billion in charges placed on consumer bills over a five year period;
a substantial percentage of the charges placed on consumers' telephone bills were

likely unauthorized;
telephone companies profited from cramming, generating over $1 billion in revenue

from placing third-party charges on customer bills over preceding years;
cramming affected every segment of the landline telephone customer base, from
individuals to small businesses, non-profits, corporations, government agencies, and
educational institutions;
many third-party vendors were illegitimate and created solely to exploit third-party
billing;
many telephone customers who were crammed did not receive help from their
telephone companies; and
10
Prior to launching the investigation, in June 2010, the Senate Committee sent letters to three
carriers, AT&T, Verizon Communications Inc. ("Verizon"), and Qwest Communications
International Inc. ("Qwest"), requesting information about their awareness of cramming and the
steps they had taken to address it.
- 35 -
telephone companies were aware that cramming was a major problem on their
third-party billing systems.11
The 2011 Staff Report also concluded that the telephone companies' anti-cramming safeguards
have largely failed, and that carriers inaccurately used low complaint statistics to show
cramming was not a problem. The 2011 Staff Report cited significant evidence for its findings.
For example, the underlying investigation involved calls to approximately 1,700 randomly
selected individuals billed for third-party services which led to discussion with approximately
500 of these individuals. According to the report, "[n]ot a single individual or business owner
reported that they had authorized the third-party vendors' charges on their telephone bills." The
report also noted that, in preceding five years, more than 500,000 consumers contacted Qwest,
Verizon, and AT&T to complain about unauthorized third-party charges, but received little to no
assistance.
63.
Also on July 12, 2011, the FCC released a Notice of Proposed Rulemaking
seeking to update the 2009 NOI and further comment on proposed rules designed to
assist consumers in detecting and preventing unlawful and fraudulent cramming (the "2011
NPRM"). In short, the proposed rules would require carriers to, inter alia, notify subscribers
clearly and conspicuously, at the point of sale, on each bill, and on their websites, of the option
to block third-party charges from their telephone bills and place charges from non-carrier third
parties in a bill section separate from carrier charges. The 2011 NPRM explained that "[t]hirdparty charges appear on a telephone bill only as a result of carriers' practice of placing them
there, and that the problem of crammed third-party charges depends on and arises from the
relationship between the common carrier and its consumer." The 2011 NPRM also noted that
11
See also 2014 Staff Report.
- 36 -
the proposed rules were rooted in the existing Truth-in-Billing rules that required clear,
conspicuous, non-misleading, and unambiguous billing, and that failure to identify the purported
service underlying the charge and the service provider may be misleading to the consumer,
especially when that failure leads the consumer to believe that the charge was for a
telecommunications service provided by the carrier. The FCC therefore asserted its authority
over cramming issues pursuant to applicable law.
64.
In support of the proposed rules, the 2011 NPRM cited evidence of growing
consumer complaints related to cramming and that the number of complaints likely substantially
understates the actual extent of the problem, as well as efforts made by benefactors of cramming
to avoid drawing attention to unauthorized charges. The 2011 NPRM also referenced evidence
of wireless cramming and sought further comment on whether the proposed protections should
also apply to that practice, while asserting the FCC's authority to do so. Numerous consumer
protection groups and government agencies submitted initial and reply comments in support of
the FCC's proposed rules, as well as their application to wireless cramming. For example,
twenty-five state Attorneys General submitted joint comments stressing the extent and
seriousness of the cramming problem. Their joint comments stated that, "despite both the
success of state-federal regulatory cooperation in fighting cramming and Attorney General
lawsuits against crammers for violations of consumer protection laws, cramming remains a
problem." The joint comments also astutely noted that cramming remains an attractive business
model because it is profitable and easy to submit unauthorized charges.
65.
The CPUC's reply comments to the 2011 NPRM stressed the importance of
applying cramming rules to wireless carriers in addition to wireline carriers.
The CPUC
explained that the industry practices voluntarily adopted by many wireless carriers, including the
- 37 -
"double opt-in" mechanism for PSMS charges, do not meet California's anti-cramming
requirements. The CPUC then described California's anti-cramming requirements pertaining to
wireless carriers.12 The CPUC also noted that it had "successfully prosecuted twelve formal
cramming cases [to date] under [California's] anti-cramming statutes and rules, resulting in total
fines of more than $60 million and total restitution of more than $13 million for California
consumers."
66.
AT&T was well aware of the 2011 NPRM and even submitted initial and reply
comments of its own. AT&T, in its initial comments filed October 24, 2011, took the position
that its existing policies over third-party billing, including for its wireless customers, sufficiently
addressed the cramming problem and thus further regulation was unnecessary. These comments,
however, included certain misrepresentations in furtherance of campaign of deceit undertaken by
the benefactors of cramming and meant to dissuade further scrutiny or regulation of wireless
cramming. Similar misrepresentations regarding the seriousness of landline cramming and the
industry's ability to self-regulate had successfully placated federal regulators for close to a
decade (until recently). For example, in its initial comments, AT&T stated that it "separately
identifies third-party monthly charges" in its wireless bills. However, as revealed by the FTC
Complaint, the first page of AT&T's wireless bills included third-party charges within the same
descriptor as charges for phone and data services provided by AT&T.
67.
In support of its initial comments, the Company also attached the comments it
submitted in connection with the FTC's May 11, 2011 forum and a presentation, that overviewed
its anti-cramming policy. Those comments correctly stated that "[c]ramming is a complex
12
See supra, Applicable Law section, pp. 21-26.
- 38 -
problem, the causes of which change constantly" and that an "anti-cramming program must
employ multiple strategies to be effective."
However, it incorrectly asserted that AT&T's
program was effective because it employed multiple strategies and responded to changes in
cramming practices.
68.
AT&T's reply comments to the 2011 NPRM filed December 5, 2011, further
misrepresented that "cramming is not a significant issue for the wireless industry," that "the vast
majority of third-party charges on their bills are authorized, conclusions supported by audits
and/or complaint monitoring processes," that "the number of reported cramming complaints is
low, especially wireless-related complaints," and that the Company's practices were effective in
protecting against cramming. In actuality, AT&T was well aware that wireless cramming was a
growing trend and represented a significant threat to the Company and its wireless customers.
69.
In fact, by the time AT&T submitted its reply comments to the 2011 NPRM in
December 2011, the Company had already been entangled in numerous lawsuits surrounding its
wireless cramming practices. Since at least 2005, victims of wireless cramming filed numerous
(at least sixteen) class action lawsuits against AT&T and other defendants in at least sixteen
states. Many of those actions were consolidated in the Southern District of California in the In re
Jamster Marketing Litigation (MDL No. 1751) (the "Jamster MDL"). In May 2008, AT&T
attempted to settle the mobile cramming class actions via settlement of an action in Georgia that
had not been consolidated, McFerren v. AT&T Mobility, No. 2008 CV151322 (Ga. Sup. Ct.
Fulton Cnty.) (the "McFerren action"). Plaintiffs successfully motioned to enjoin settlement of
the McFerren action to the extent it involved claims underlying the Jamster MDL and criticized
AT&T for its failure to disclose the McFerren action. The Jamster MDL settled in 2010. The
settlement of these numerous class action lawsuits cost AT&T as much as millions of dollars.
- 39 -
70.
On February 27, 2008, AT&T resolved a separate investigation by the Office of
the Attorney General for the state of Florida into its wireless cramming practices. AT&T agreed
to pay $2.5 million for attorney's fees and costs of the investigation, disclose to its Florida
consumers that for the next six months they are eligible to receive a credit or refund for thirdparty charges on their mobile bills, pay up to millions more to credit or refund the full amount of
the third-party charges, and make substantial changes to its third-party billing practices in
Florida. In terms of changes to its third-party billing practices, the settlement agreement required
that AT&T provide its customers via its online billing portal information concerning third-party
charges on their account and their ability to seek refunds, as well as provide monthly wireless
service bills with clearly, conspicuously, and separately listed third-party charges and a readily
accessible phone number to dispute such charges. AT&T also had to offer a free purchase
blocker feature to any customer that disputed a third party-charge. In connection with any
internet-based purchase of third-party content, the settlement agreement required that AT&T
include certain provisions in all of its contracts with third-party vendors and billing aggregators.
Such provisions included prohibitions on certain deceptive practices, for example backdoor
authorizations obtained through inclusion of pre-checked boxes, and requirements that thirdparties clearly and conspicuously disclose certain information, such as offer price and how to
cancel a charge.
71.
Numerous consumer complaints and auditor alerts specific to mobile cramming
also predated the Company's December 2011 reply comments to the 2011 NPRM. As revealed
by the FTC Complaint, in 2011 alone, AT&T received over 1.3 million calls alerting the
Company that its billing practices caused or allowed rampant unauthorized third-party charges.
In 2011, complaints specific to wireless cramming had increased to about 30% of all cramming
- 40 -
complaints from only about 16% between 2008 and 2010. Many of these complaints implicated
the same or similar issues and violations of law underlying the mobile cramming lawsuits filed
against AT&T between 2005 and 2008.
72.
In addition to receiving numerous and ongoing warnings via customer complaints,
AT&T also received alerts from industry auditors regarding deceptive third-party wireless
charges and third-party failures to obtain authorization for wireless charges. The CTIA audits
third-party content providers (particularly PSMS providers) for compliance with industry
standards. In 2010, the CTIA began providing carriers (like AT&T) and billing aggregators
access to online reports that provided the results of these audits, including the details and severity
of each violation it encountered. In addition, carriers receive e-mail notification of new audit
findings and weekly reports of all discovered violations. The weekly reports are also compiled
into monthly reports to the carriers which identify the PSMS billing aggregators with the most
failures. Industry alerts continued to implicate the same or similar mobile-cramming issues
underlying the lawsuits filed against AT&T between 2005 and 2008, ongoing customer
complaints, and even previous industry reports/alerts.
73.
One alert circulated in March 2011, highlighted a Facebook application that
claimed it allowed users to see who looks at their Facebook profiles most frequently for free.
The application required users to complete a short "survey" that included entering their mobile
phone number. The application never revealed who looked at the users' Facebook profiles, but
users were charged for a third-party subscription despite the application's claim of being free.
AT&T received this alert by no later than March 2011, but continued to charge its customers for
this subscription until at least February 2012 and other subscriptions purportedly offered by the
same third-party merchant until at least August 2012.
- 41 -
74.
AT&T was also privy to substantial information surrounding lawsuits against
third-party content providers and aggregators. For example, in 2009, the Washington Attorney
General entered into a consent decree with Tatto Inc. ("Tatto"), a PSMS provider, for cramming
practices.
The Company, nonetheless, continued to charge its customers for subscriptions
offered by Tatto and its related entities until at least August 2012.13 Similarly, in March 2011,
the Texas Attorney General settled its case against Eye Level Holdings, LLC d/b/a Jawa alleging
deceptive practices in marketing its subscriptions (specifically a PSMS scheme) that cost
consumers in Texas millions in unauthorized wireless charges (the "Jawa action"). Jawa paid
nearly $2 million to settle the charges.
The Jawa action alerted the Company to the
ineffectiveness of the double opt-in requirement and unreliability of aggregators to obtain or

verify consumer authorization for third-party charges.
75.
Even internal reports and the Company's own data called attention to the alarming
rise of unauthorized third-party charges at AT&T. For example, pursuant to California's anticramming regime, the Company prepared reports to the CPUC that supported ongoing
unauthorized third-party charges included on its customers' wireless bills. In addition, pursuant
to internal policies in effect since at least 2010, AT&T calculated and monitored refund rates of
each subscription on its network. The Company derived a refund rate by calculating the dollar
amount of monthly refunds for each third-party subscription as a percentage of the revenue
charged that month for that subscription. As explained in the FTC Complaint, the Company
believed that, "[i]n [its] experience, customer refund rates are a good indication of a problem
13
See also FTC v. Tatto, Inc., No. 2:13-cv13-8912-DSF-FFM (C.D. Cal. Dec. 5, 2013) (in which
the FTC alleged that defendants placed millions of dollars on consumers' wireless phone bills for
text messages that consumers did not authorize; and defendants ultimately agreed to surrender
over $10 million in assets to settle these charges).
- 42 -
with [third-party subscription] service." Still, AT&T continued to charge its customers for thirdparty subscriptions with repeatedly high refund rates, some as high as 40% in a single month.
For example, despite suspending Tatto-related subscriptions at least eight times between
February 2011 and June 2012 due to excessive refund rates or noncompliant marketing, AT&T
continued charging existing "subscribers" during each suspension and did not terminate thirdparty subscriptions offered by Tatto.
76.
By March 2012, AT&T buckled under the weight of intense regulatory pressure
regarding landline cramming and agreed to stop placing third-party charges on its customers'
landline telephone bills. Many of the warnings specific to mobile cramming (as detailed above)
concerned the same or similar issues underlying the regulatory pressure that led the Company to
terminate third-party landline billing. Mobile cramming also implicated substantially the same
violations of law as landline cramming. AT&T nonetheless failed to heed these warnings,
including the significant warnings inherent in the circumstances surrounding the Company's
termination of third-party landline billing. The Company continued its illicit wireless billing
practices, including allowing the placement of unauthorized third-party charges on its wireless
customers' bills.
77.
AT&T also continued to deceive regulators regarding the seriousness of the
wireless cramming threat. On April 27, 2012, the FCC issued a Report and Order and Further
Notice of Proposed Rulemaking (the "2012 Further Notice") seeking comments on additional
measures to prevent landline cramming as well as measures to address wireless cramming. The
2012 Further Notice largely tracked the 2011 Staff Report. The 2012 Further Notice also further
reinforced the similarities between landline cramming and wireless cramming. For example, it
described third-party billing arrangements and deceptive schemes of third-party landline billers
- 43 -
consistent with the mobile-cramming schemes described herein. The 2012 Further Notice (as
well as the substantial regulation, legislation, and enforcement actions surrounding landline
cramming during the preceding years) also alerted AT&T that voluntary industry anti-cramming
"standards" were not effective.
78.
Comments submitted in response to the 2012 Further Notice specific to wireless
cramming were also predictable. Consumer groups and state agencies argued that cramming was
a serious problem and called for required stringent regulation.
Benefactors of cramming
continued to mislead regulators by downplaying mobile cramming.
For example, AT&T
submitted initial and reply comments in response to the 2012 Further Notice that misleadingly
downplayed the seriousness of the mobile cramming threat. AT&T's comments represented that
wireless cramming complaints were few, that voluntary measures adequately combatted wireless
cramming, and that there was no basis for rules specific to wireless cramming. 14 In its reply
comments filed July 20, 2012, AT&T went as far as stating that "many wireless customers enjoy
the convenience of having [third-party] charges appear on their wireless bill."
79.
The FCC ultimately adopted certain measures more explicit in their protection of
consumers against landline cramming, but relying, in part, on the misrepresentations of industry
constituents, including AT&T, the FCC did not explicitly apply those protections to wireless
consumers. Still, the 2012 Further Notice emphasized that the proposed rules are rooted in
existing law and that wireless carriers remain subject to its legal duties. The FCC explicitly
warned wireless carriers that it has the authority to and will take enforcement action against
wireless carriers that engage in cramming practices.
14
The 2014 Staff Report contradicts these representations.
- 44 -
80.
Consumer complaints regarding wireless cramming continued to rise in 2012,
driving continued regulatory investigations of the practice. On June 12, 2012, then-Chairman of
the Senate Committee, Rockefeller, sent defendant Stephenson a letter expressing serious
concern regarding the rise of mobile cramming (the "June 2012 Letter"). Rockefeller explained
that the Senate Committee's investigation into landline cramming:
[S]howed that cramming on wireline telephone bills was a problem of epidemic
proportions, costing American consumers and businesses billions of dollars in
unauthorized third-party charges over the past decade. I am now concerned that
cramming on wireless bills has the potential to become a similar problem.
While acknowledging AT&T's decision to stop allowing the placement of third-party charges on
landline telephone bills, he asserted that that action is "meaningless if cramming simply
migrates from wireline telephone bills to wireless bills."
81.
Rockefeller then warned defendant Stephenson and AT&T of increasing
complaints regarding unauthorized third-party charges on wireless bills, many of which related
to the monthly PSMS charges for purported text message content. Rockefeller aptly commented
that "[t]hese so-called 'services' are remarkably similar to some of the so-called 'services' the
Committee uncovered through its investigation of cramming on wireline telephone bills."
82.
The June 2012 Letter specifically alerted defendant Stephenson and AT&T to the
fact that the "double opt-in process is not working properly" and "the opt-out processes for
these services are not functioning properly either" and directed him to numerous media reports
related to mobile cramming. It also called attention to the Company's failure to heed the
concerns of "state attorneys general, consumer groups, and Congress" and the "alarmingly
similar[ity]" of this response to the industry's response to concerns related to landline cramming
in the late 1990s. In the late 1990s, landline carriers downplayed landline cramming as an
- 45 -
insignificant concern, though that practice ultimately resulted in billions of dollars in losses to
consumers from unauthorized charges.
83.
Before requesting that AT&T provide information to help the Senate Committee
better understand wireless cramming and prevention efforts, Rockefeller ominously stated that
"we would be remiss to ignore the lesson that were learned from the failures of third-party
billing through wireline bills." Specifically, the June 2012 Letter requested that defendant
Stephenson provide responses to the following questions by July 11, 2012:
1.
Identify each billing aggregator that has had an agreement with AT&T to
place third-party charges on wireless bills at any time during the last two
years.
2.
Identify each third-party vendor that has had third-party charges placed on
AT&T's customers' wireless phone bills at any point during the last two
years.
For each such third-party vendor, provide the following
information:
a.
All d/b/a's, addresses, and telephone numbers used by the thirdparty vendor;
b.
The billing descriptors for the third-party vendor and for each of
the third-party vendor's products or services, as they appeared on
AT&T's customers' bills;
c.
The name and contact information for the officers, directors, or

other principals of the third-party vendor;
d.
A description of the products or services the third-party vendor

was providing to AT&T's customers and the amount the third-party
vendor charged AT&T's customers for the products or services on
a monthly basis; and
e.
The total dollar amount the third-party vendor charged AT&T's

customers through third-party charges on AT&T's bills, for each of
the last two years.
3.
Explain why AT&T places third-party charges on its customers' wireless

telephone bills.
4.
Does AT&T have a process for vetting potential third-party vendors

before permitting them to place charges on customers' wireless telephone
bills? If so, please explain this process.
- 46 -
5.
Explain AT&T's "double opt-in" process and its "opt-out" process for
third-party charges on wireless bills.
6.
Identify the steps that AT&T is taking to monitor and control the
occurrence of unsolicited text messages.
7.
How should consumers respond to unsolicited text messages?
84.
On July 23, 2012, the FTC issued a press release entitled "FTC Calls Wireless
Phone Bill Cramming a Significant Consumer Problem." In the press release, the FTC identifies
cramming as a growing concern and stated that "[m]obile cramming is likely to continue to grow
as cramming schemes expand beyond the landline platform and mobile phones are more
commonly used for payments." The FTC further posited that industry best practices may not be
effective in stopping mobile cramming.
85.
In November 2012, AT&T wrongly assured the Senate Committee that "double
opt-in procedures of all then existing Billing Aggregators were reviewed and certified" as
compliant with the company's consent management program." See 2014 Staff Report.
86.
On March 1, 2013, Rockefeller sent defendant Stephenson a second letter which
referenced further evidence of increasing wireless cramming and AT&T's ineffective consumer
protection against unauthorized third-party charges (the "March 2013 Letter"). The additional
evidence included (without limitation): reviews on consumer complaint websites regarding
unauthorized charges on wireless bills; comments filed with the FCC by the National
Association of State Utility Consumer Advocates ("NASUCA") that involved study findings
establishing an increase in wireless cramming; and data obtained from the CPUC revealing a
high refund rate to California consumers for third-party charges.
The March 2013 Letter
indicated that AT&T representatives had met with the Senate Committee and represented that the
- 47 -
Company is addressing wireless cramming. In light of the stark contradiction between the
Company's representations and the Senate Committee's ongoing investigation, Rockefeller
expressed concern that AT&T "has not been supportive of [his] efforts to address" "the
ongoing problems with wireless cramming."
87.
The March 2013 Letter also called attention to Rockefeller's introduction of the
Fair Telephone Billing Act of 2012 and its attempt to include provisions related to wireless
cramming. It later reasserted concerns that certain industry constituents (such as AT&T) were
inappropriately downplaying wireless cramming, as they had done with landline cramming in the
late 1990s. Rockefeller then commented on inevitable legislation related to wireless cramming,
and requested defendant Stephenson and the Company assist in the process by providing the
following information:
1.
The wireless billing data your company provided to the California Public
Utilities Commission in 2012; and
2.
Since July 2012, all documents and communications related to customer

complaints or inquiries about third-party charges on your customers'
wireless telephone bills.
The March 2013 Letter requested defendant Stephenson provide this information by March 22,
2013.
88.
On April 16, 2013, the FTC filed a formal action against a major third-party
merchant, Wise Media, LLC ("Wise Media"), alleging unauthorized charges to mobile
consumers.15 The complaint charged Wise Media with placing over $10 million on consumers'
15
See FTC v. Wise Media, LLC, N.D. Ga. No. 1:13cv1234 (N.D. Ga. Apr. 16, 2013) (the "Wise
Media action").
- 48 -
wireless bills for unauthorized charges for PSMS containing horoscopes, love and flirting tips,
and other information.
89.
On April 17, 2013, the FCC held a workshop on wireless cramming which
warned of the dangers of mobile cramming.16 AT&T representatives attended and even served
as a panelist at this workshop. On May 8, 2013, the FTC held a forum, referred to as the ''Mobile
Cramming Roundtable," which further warned of the dangers of mobile cramming.17
For
example, this forum called attention to the parody between the wireline and wireless cramming
issues, as well as state anti-cramming laws and previous lawsuits against mobile crammers,
including the Wise Media action and the Jawa action.18
90.
The FTC continued its scrutiny of cramming in the wireless industry by launching
formal investigations against the major wireless carriers, including AT&T. The FCC and state
authorities also launched investigations of cramming and billing practices of mobile carriers,
including AT&T.
As a result of these investigations, authorities undertook at least six
enforcement actions against carriers for alleged cramming that ultimately resulted in hundreds of
millions of dollars in fines.
91.
2013 Letter").
On June 12, 2013, Rockefeller sent defendant Stephenson a third letter (the "June
In the June 2013 Letter, Rockefeller warned AT&T that the information
16
See Federal Communications Commission, Workshop: Bill Shock and Cramming (Apr. 17,
2013) available at https://www.fcc.gov/events/workshop-bill-shock-and-cramming.
17
See Federal Trade Commission, Mobile Cramming, An FTC Roundtable (May 8, 2013)
available at https://www.ftc.gov/news-events/events-calendar/2013/05/mobile-cramming-ftcroundtable.
18
See Federal Trade Commission, Mobile Cramming Roundtable Transcript (May 8, 2013)
https://www.ftc.gov/sites/default/files/documents/public_events/Mobile%20Cramming%20Roun
dtable/30508mob.pdf.
- 49 -
previously provided by the Company as well as public information indicate that AT&T knows
about the ongoing customer complaints concerning unauthorized third-party charges on their
wireless bills.
He also asserted new evidence of wireless cramming, including (without
limitation) a report from the Vermont Office of the Attorney General showing that 60% of
consumers surveyed believed they had received unauthorized third-party charges on their
wireless bills, as well as referenced the Texas Attorney General's Jawa action and the FTC's
Wise Media action against third-party vendors for wireless cramming. Rockefeller astutely
observed that, "[t]hese and other accounts should have put the wireless industry on alert
regarding the need to vigilantly monitor compliance with the double opt-in requirements." He
then requested the following additional information regarding AT&T's double opt-in process:
1.
Explain AT&T's process for verifying that a customer has authorized

third-party billing on AT&T's wireless billing platform through the double
opt-in process, and provide illustrative customer authorization records.
2.
Does AT&T have a system for maintaining customer authorization records

for each customer? If so, please describe this system in detail. If AT&T
does not keep such records, please indicate what entity maintains these
records and explain how AT&T is able to verify individual customer
authorizations without these records.
3.
Does AT&T have a system under which it accesses and reviews customer
authorization records relating to third-party vendors? If so, please
describe this system in detail.
4.
How many times has AT&T accessed and reviewed customer

authorization records upon learning of an allegation of unauthorized third
party billing on a customer wireless account? How many of those
instances resulted in a penalty to the vendor? How many of those
instances resulted in a refund to the consumer? Please describe any other
follow-up steps AT&T took as a result of such review.
5.
Describe any consumer query, complaint, or refund threshold AT&T uses

to identify problematic practices of third-party vendors who charge
consumers for services through AT&T's wireless billing system, and any
procedures AT&T has in place for addressing situations where vendors
exceed such thresholds. In your response, please discuss how any such
procedures apply to aggregators who contract with such vendors.
- 50 -
6.
Does AT&T have a system for categorizing by subject matter the

customer queries, complaints, or request for refunds AT&T receives
regarding wireless bills? If so, please state those categories and the
percentage of customer refunds in 2012 associated with each category.
7.
Explain any routine auditing processes that AT&T has in place to verify
that third-party vendors who charge consumers through AT&T's wireless
billing system are obtaining appropriate consumer consent. In your
response please state how often these audits are conducted and provide the
Committee with documents sufficient to show what materials are received
from the third-party vendors to prove a valid consent process occurred.
8.
What steps, if any has AT&T taken to improve its processes to protect
consumers from unauthorized charges on their wireless phone bills since
AT&T's July 2012 letter outlining wireless cramming mitigation
procedures?
92.
Enforcement actions against third-party crammers continued throughout 2013.
Some of these actions even involved third parties that had been subject to previous litigation
regarding their wireless cramming practices. For example, the FTC brought a lawsuit against
Jesta Digital, LLC d/b/a Jamster ("Jamster") on allegations that it crammed unwanted charges on
consumers' cell phone bills for ringtones and other mobile content. Jamster settled the case for
millions, including significant refunds to consumers and a $1.2 million fine.19 Jamster was
previously a named defendant alongside AT&T in the Jamster MDL which involved
substantially similar allegations. That action settled for millions of dollars in 2012 including
19
Federal Trade Commission, Jesta Digital Settles FTC Complaint It Crammed Charges on
Consumers' Mobile Bills Through "Scareware" and Misuse of Novel Billing Method (Aug. 21,
2013) available at https://www.ftc.gov/news-events/press-releases/2013/08/jesta-digital-settlesftc-complaint-it-crammed-charges-consumers (requiring Jamster provide refunds to AT&T
customers for unauthorized charges occurring in August-December 2011).
- 51 -
substantial cost to AT&T. AT&T continued to allow Jamster to bill its wireless customers even
after the Jamster MDL settlement.
93.
As revealed in the 2014 Staff Report, in November 2013, the Attorney General of
Texas filed a complaint against Mobile Messenger U.S. Inc. ("Mobile Messenger"), one of the
major wireless billing aggregators, alleging that the company had engaged in a deceptive scheme
with third-party vendors to cram wireless consumers. The allegations raised questions regarding
representations Mobile Messenger had made to the Senate Committee about the company's
commitment to consumer protection and the assurances major carriers had given the Senate
Committee that aggregators worked with carriers to promote consumer protections in the thirdparty wireless billing process.
In late November, Rockefeller wrote to Mobile Messenger
seeking additional information concerning a subset of vendors whose conduct had raised
concerns and pressing for production of previously requested information.
When Mobile
Messenger refused to provide key information requested in Rockefeller's March 2013 and
November 2013 letters, the Senate Committee on March 14, 2014, issued a subpoena to Mobile
Messenger.
94.
Documents received by the Senate Committee from Mobile Messenger indicated
instances where AT&T did not oversee or enforce its own internal policies (the "subpoena
documents"). The subpoena documents revealed that short codes that significantly exceeded
AT&T's refund threshold in one month continued billing on the AT&T's platform during the next
month. In particular, eleven Mobile Messenger short codes billing on AT&T's platform in
October 2012 had exceeded AT&T's 18% refund threshold in the previous month, and had
refund rates as high as 56.8% and total refunds over $600,000. The subpoena documents also
revealed that short codes continued billing on AT&T's platform despite exceeding AT&T's
- 52 -
refund threshold for a number of months at a time. For example, short code 67145 exceeded
AT&T's threshold in February 2012 (with a refund rate of 33.9%), March 2012 (with a refund
rate of 40.6%), and May 2012 (with a refund rate of 18.1%).
95.
In addition, an October 2013 e-mail chain between AT&T and Mobile Messenger
demonstrated control failures at AT&T that allowed Anacapa Media LLC ("Anacapa") to
continue to improperly bill on AT&T's platform until October 2013. To start, in November
2012, Anacapa "did not pass [AT&T's] internal vetting process and [AT&T] rejected them
from running PSMS campaigns." AT&T, however, allowed at least one Anacapa short code
access to its billing platform because it had "failed to reject" that short code. Worse, from
October 2012 to October 2013, Anacapa was the subject of twenty "Severity 1" audit findings,
including two "Severity 1" findings on the short code that was erroneously allowed on AT&T's
billing platform.20 In addition, AT&T had suspended that Anacapa short code twice in the first
part of 2013, and, in May 2013, "drafted" a termination notice but again "failed to deliver" it. As
a result, Anacapa was able to continue to bill wireless consumers on AT&T's platform well into
2013. AT&T had access to all the foregoing information in real time via the reports it received
from industry auditors.
The Board Failed to Implement Critical Controls and Oversee the Company in Good Faith
96.
The Individual Defendants are ultimately responsible for the Company's improper
third-party billing practices and the resulting fine. Had the Board overseen the Company in good
faith and not completely disregarded its duties, AT&T would have substantially mitigated its
unlawful cramming practices, brought its billing practices in compliance with applicable law,
20
An audit finding is designated "Severity 1" if it involves "serious consumer harm."
- 53 -
and avoided the $105 million fine. The importance of its wireless segment, the magnitude and
duration of the cramming issue at AT&T, regulatory reports and ongoing investigations,
demonstrate that the Board failed to implement controls to
monitor, detect, and report to the Board noncompliance with internal policies and applicable law,
and expose the significant control gaps in AT&T's anti-cramming program. In addition, the
Board failed to institute controls over the Company's communications with regulators as
evidenced by the Company's repeated misrepresentations to regulators
97.
On June 2, 2015, an AT&T stockholder sent the Company a demand to inspect
certain of the Company's books and records, including Board minutes and materials (the
"Inspection Demand").21 In response to the Inspection Demand, AT&T sent a letter, dated June
10, 2015, in which it agreed to make available for inspection, the "(i) non-privileged portions of
minutes of meetings of the AT&T Board and of AT&T Board committees, (ii) non-privileged
portions of materials delivered to the Board or Board committees, and (iii) policies" concerning
"the Third-Party Billing Issue, including compliance, detection and prevention efforts" from
"January 1, 2011 to the present." Pursuant to the Inspection Demand, the "Third Party Billing
Issue" entailed AT&T's inclusion of unauthorized charges in its customers' bills, as detailed
herein. A true and correct copy of the June 10, 2015 letter is attached hereto as Exhibit A.
98.
Plaintiff's counsel inspected these documents on September 17, 2015, at AT&T's
corporate headquarters located in Dallas, Texas. On September 24, 2015, Plaintiff's counsel sent
21
The demanding stockholder and Plaintiff are represented by the same counsel. AT&T agreed
that Plaintiff's counsel could share the information gathered from the Inspection Demand with
Plaintiff.
- 54 -
AT&T a follow up letter to, among other things, confirm that AT&T is not in possession of any
other Board materials concerning the cramming issue. A true and correct copy of the September
24, 2015 letter is attached hereto as Exhibit B. In a letter, dated September 28, 2015, counsel for
AT&T "confirm[ed] that it made available at the September 17, 2015 inspection all of the
materials that it agreed to make available." A true and correct copy of the September 28, 2015
letter is attached hereto as Exhibit C.
99.
Regardless, by that time, the Company had already agreed (in late 2013) to phase
- 55 -
out third-party PSMS billing (and a substantial fine was forthcoming).23
100.
The Board's attempt to stick its head in the sand is especially obvious in light of
the repeated warnings received by the Company (including previous lawsuits against the
Company) over the course of more than a decade regarding unauthorized third-party charges and
its third-party billing practices. In particular, during the relevant period, there was an abundance
of information known to AT&T establishing that: (i) the Company improperly charged its
customers billions of dollars for third-party services that those customers never authorized; (ii)
there existed significant control gaps in the Company's anti-cramming policy; and (iii) AT&T
failed to oversee and enforce its anti-cramming policy. As established above, AT&T and its
management were well aware that cramming was an industry-wide and AT&T-specific problem
throughout the relevant period.
101.
Regulatory findings are also consistent with a lack of such controls.24 Generally, regulators
23
While the Company agreed to stop PSMS cramming, it did not pledge to stop wireless
cramming altogether and additional ways beyond PSMS cramming do exist.
24
See, e.g., 2014 Staff Report.
- 56 -
uncovered that the Company did not reliably or consistently apply its anti-cramming policies.
For example, the FTC's investigation revealed that, "[AT&T] took no steps to ensure that
consumers actually authorized the services that the merchant has alleged they signed up for."25
The FTC also determined that the Company's third-party subscription monitoring policy "was
meaningless because [AT&T] did not always abide by it it continued to bill consumers for
subscriptions" with excessive refund rates (even repeat offenders). 26
Enforcement actions
against third-party billers and regulatory findings (for example, the Mobile Messenger subpoena
documents) further demonstrate that AT&T did not reliably or consistently enforce its
certification, periodic testing, and refund rate requirements for third-party subscriptions.
102
regulatory findings also revealed significant control gaps
in AT&T's anti-cramming policies. For example,
The control gaps are especially troubling given that AT&T

"acknowledged in its internal communications that third party authorizations are 'often
25
See FTC Complaint.
26
Id.
- 57 -
unreliable.'"27 The Board purposefully, knowingly, or recklessly failed to implement controls

necessary to eliminate these significant gaps.
103.
To the extent
the Board maintains it was unaware that AT&T's anti-cramming program involved significant
control gaps, the Board would have been aware had it instituted controls to monitor, detect, and
report to the Board noncompliance with internal policies and applicable law. In fact, the anticramming control gaps, the Company's failure to enforce its anti-cramming policies, the lack of
controls to monitor, detect, and report to the Board noncompliance with internal policies and
applicable law, and other control failures effectively eliminate any actual control or oversight
over third-party billing and applicable law at AT&T.
104.
In addition,
repeated
misrepresentations the Company made to regulators, establishes that the Board failed to institute
controls over the Company's communications with regulators.
27
See FTC Complaint.
- 58 -
DAMAGES TO AT&T
105.
As a result of the Individual Defendants' improprieties, the Company misled
many of its customers on their telephone bills and improperly billed their landline customers for
billions of dollars and their wireless customers for at least millions of dollars more in
unauthorized third-party charges.
To resolve the potential violations of law and improper
practices arising from this misconduct, the FTC, FCC, fifty states, and District of Columbia fined
the Company $105 million.
106.
AT&T's improper billing also damaged its reputation within the wireless market,
the Company's largest business segment. In addition to price, AT&T's current and potential
customers consider a company's ability to bill fairly and comply with the law. Customers are
less likely to award contracts to companies that bill deceptively and violate law. AT&T's ability
to maintain and/or grow its customer base is now impaired, which could lead to billions of
dollars in additional losses to the Company.
107.
Further, as a direct and proximate result of the Individual Defendants' actions,
AT&T has expended, and will continue to expend, significant sums of money.
Such
expenditures include, but are not limited to:

(a)
costs incurred from cooperating with, defending, settling regulatory and
other investigations and enforcement actions;

(b)
costs incurred from implementing and maintaining the requirements of its
settlements with regulators and enforcement agencies, including, inter alia, the training program
related to cramming and refunds that must be in place for six years, the additional compliance
reporting and record-keeping requirements, and providing notification to the AT&T customers
affected by cramming;
- 59 -
(c)
costs incurred from defending, settling, or paying any adverse judgment in
any other legal actions pertaining to cramming; and

(d)
costs incurred from compensation and benefits paid to the Individual
Defendants who have breached their duties to AT&T.

DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS
108.
Plaintiff brings this action derivatively in the right and for the benefit of AT&T to
redress injuries suffered, and to be suffered, by AT&T as a direct result of breaches of fiduciary
duty and unjust enrichment, as well as the aiding and abetting thereof, by the Individual
Defendants. AT&T is named as a nominal defendant solely in a derivative capacity. This is not
a collusive action to confer jurisdiction on this Court that it would not otherwise have.
109.
Plaintiff will adequately and fairly represent the interests of AT&T in enforcing
and prosecuting its rights.

110.
Plaintiff was a stockholder of AT&T at the time of the wrongdoing complained
of, has continuously been a stockholder since that time, and is a current AT&T stockholder.
111.
The current Board of AT&T consists of the following fourteen individuals:
defendants Stephenson, Roch, McCoy, Tyson, Madonna, Rose, Ford, McCallister, Taylor,
Mooney, and non-defendants Glenn H. Hutchins, Samuel A. Di Piazza, Jr., Richard W. Fisher,
and William E. Kennard. Plaintiff has not made any demand on the present Board to institute
this action because such a demand would be a futile, wasteful, and useless act, as set forth below.
112.
Each of the current Director Defendants is disqualified from fairly evaluating the
derivative claims, let alone vigorously prosecuting them, because they are each responsible for
damages suffered by AT&T as a result of the Company's improper billing practices. The Board
failed to implement internal controls designed to detect or prevent the improper billing practices.
- 60 -
The Board also failed to create or implement controls over Board-level reporting and monitoring
of AT&T's compliance with applicable law. Instead, as detailed herein,
FIRST CAUSE OF ACTION

Against the Individual Defendants for Breach of Fiduciary Duty
113.
Plaintiff incorporates by reference and realleges each and every allegation
contained above, as though fully set forth herein.

114.
The Individual Defendants owed and owe AT&T fiduciary obligations.
By
reason of their fiduciary relationships, the Individual Defendants owed and owe AT&T the
highest obligation of good faith, fair dealing, loyalty, and due care.
115.
The Individual Defendants, and each of them, violated and breached their
fiduciary duties of candor, good faith, and loyalty. More specifically, the Individual Defendants
violated their duty of good faith by creating a culture of lawlessness within AT&T, and/or
consciously failing to prevent the Company from engaging in the unlawful acts complained of
herein.
116.
The Officer Defendants either knew or were reckless in disregarding the illegal
activity of such substantial magnitude and duration. The Officer Defendants either knew or were
reckless in not knowing that: (i) the Company included unlawful, unauthorized third-party
charges in its customers' wireless bills and did not provide compliant billing statements; and (ii)
the Company failed to implement and maintain necessary internal controls. Accordingly, the
Officer Defendants breached their duty of loyalty to the Company.
117.
The Director Defendants either knew or were reckless in disregarding the illegal
activity of such substantial magnitude and duration. The Director Defendants either knew or
- 61 -
were reckless in not knowing that: (i) the Company included unlawful, unauthorized third-party
charges in its customers' wireless bills and did not provide compliant billing statements; and (ii)
the Company failed to maintain adequate internal controls.
Accordingly, the Director
Defendants breached their duty of loyalty to the Company.

118.
As a direct and proximate result of the Individual Defendants' breaches of their
fiduciary obligations, AT&T has sustained significant damages, as alleged herein. As a result of
the misconduct alleged herein, these defendants are liable to the Company.
119.
Plaintiff, on behalf of AT&T, has no adequate remedy at law.

SECOND CAUSE OF ACTION
Against the Individual Defendants for Unjust Enrichment
120.
Plaintiff incorporates by reference and realleges each and every allegation
contained above, as though fully set forth herein.

121.
By their wrongful acts and omissions, the Individual Defendants were unjustly
enriched at the expense of and to the detriment of AT&T. The Individual Defendants were
unjustly enriched as a result of the compensation and director remuneration they received while
breaching fiduciary duties owed to AT&T.
122.
Plaintiff, as a stockholder and representative of AT&T, seeks restitution from
these defendants, and each of them, and seeks an order of this Court disgorging all profits,
benefits, and other compensation obtained by these defendants, and each of them, from their
wrongful conduct and fiduciary breaches.
123.
Plaintiff, on behalf of AT&T, has no adequate remedy at law.

PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on behalf of AT&T, demands judgment as follows:
- 62 -
A.
Against all of the defendants and in favor of the Company for the amount of
damages sustained by the Company as a result of the defendants' breaches of fiduciary duties and
unjust enrichment;
B.
Directing AT&T to take all necessary actions to reform and improve its corporate
governance and internal procedures to comply with applicable laws and to protect AT&T and its
stockholders from a repeat of the damaging events described herein, including, but not limited to,
putting forward for stockholder vote, resolutions for amendments to the Company's By-Laws or
Articles of Incorporation and taking such other action as may be necessary to place before
stockholders for a vote of the following Corporate Governance Policies:
1.
a proposal to strengthen the Company's controls over its billing practices;
2.
a proposal to strengthen the Company's controls over its refund practices;
3.
a proposal to strengthen the Company's controls over Board-level
4.
a proposal to strengthen the Company's controls over monitoring and
reporting;
detecting noncompliance with applicable law;

5.
a proposal to strengthen the Company's controls over monitoring and
detecting noncompliance with or inconsistent application of AT&T's own internal policies;

6.
a proposal to strengthen the Company's controls over its communications
with regulators and other state and federal authorities;

7.
a proposal to strengthen the Board's supervision of operations and
develop and implement procedures for greater stockholder input into the policies and guidelines
of the Board;
- 63 -
8.
a provision to institute a Board committee responsible for compliance
issues and elect three Board members to that committee; and

9.
a provision to permit the stockholders of AT&T to nominate at least three
candidates for election to the Board;

C.
Extraordinary equitable and/or injunctive relief as permitted by law, equity, and
state statutory provisions sued hereunder, including attaching, impounding, imposing a

constructive trust on, or otherwise restricting the proceeds of defendants' trading activities or
their other assets so as to assure that Plaintiff on behalf of AT&T has an effective remedy;
D.
Awarding to AT&T restitution from defendants, and each of them, and ordering
disgorgement of all profits, benefits, and other compensation obtained by the defendants;
E.
Awarding to Plaintiff the costs and disbursements of the action, including
reasonable attorneys' fees, accountants' and experts' fees, costs, and expenses; and
F.
Granting such other and further relief as the Court deems just and proper.
JURY DEMAND
Plaintiff demands a trial by jury.

Dated: March 11, 2016
KENDALL LAW GROUP, PLLC
JOE KENDALL
State Bar No. 11260700
JAMIE J. MCKEY
State Bar No. 24045262
3232 McKinney Avenue, Suite 700
Dallas, TX 75204
Telephone: (214) 744-3000
Facsimile: (214) 744-3015
E-mail: jkendall@kendalllawgroup.com
jmckey@kendalllawgroup.com
ROBBINS ARROYO LLP
BRIAN J. ROBBINS
KEVIN A. SEELY
ASHLEY R. RIFKIN
LEONID KANDINOV
600 B Street, Suite 1900
San Diego, CA 92101
- 64 -
Telephone: (619) 525-3990

Facsimile: (619) 525-3991
E-Mail: brobbins@robbinsarroyo.com
gaguilar@robbinsarroyo.com
arifkin@robbinsarroyo.com
lkandinov@robbinsarroyo.com
KAUFMAN, COREN & RESS, P.C.
DEBORAH R. GROSS
Two Commerce Square
2001 Market Street, Suite 3900
Philadelphia, PA 19103
Telephone: (215) 735-8700
Facsimile: (215) 735-5170
E-mail: dgross@kcr-law.com
Attorneys for Plaintiff
1058178
- 65 -
Exhibit A
EXHIBIT A
CONFIDENTIALITY AGREEMENT
agrees to be bound by the terms

(Name of person)
of the Confidentiality Stipulation dated June , 2015 between AT&T Inc. and Allan Finer.
(Signature of person)
Exhibit B
Exhibit C
SULLIVAN & CROMWELL LLP

TELEPHONE: 1-212-558-4000
FACSIMILE: 1-212-558-3588
www.suLLCROM.COM
125 A,octi Jheeet

,}11
e,eu Wo4A P Y10004-24,98
LOS ANGELES PALO ALTO WASHINGTON, D.C.
FRANKFURT LONDON PARIS
BEIJING HONG KONG TOKYO
MELBOURNE SYDNEY
September 28, 2015

Via Federal Express
Gregory E. Del Gaizo, Esq.,
Robbins Arroyo LLP,
600 B Street, Suite 1900,
San Diego, California 92101.
Deborah R. Gross, Esq.,
Law Offices Bernard M. Gross, P.C.,
100 Penn Square East, Suite 450,
Philadelphia, Pennsylvania 19107.
Re: Allan Finer Books and Records Demand
Dear Greg and Debbie:
I write on behalf of AT&T Inc. ("AT&T") in response to your September
24, 2015 letter.
AT&T confirms that it made available at the September 17, 2015
inspection conducted by Ryan Civiello all of the materials that it agreed to make
available in my June 10, 2015 letter. The documents consisted of, among other things,
109 pages of AT&T Board minutes and materials from seven meetings of the AT&T
Board, as well as 60 separate responsive policies. We reject your assertion of the
"scarcity" of documents made available for inspection.
As requested, enclosed are copies of (i) the documents made available at
the inspection that were bates-stamped ATT-FINER220-0000110 to ATT-FINER2200000163, ATT-FINER220-0000196 to ATT-FINER220-0000205, and ATT-FINER2200000242 to ATT-FINER220-0000304, and (ii) the privilege log that was also made
available at that inspection.' Unless otherwise indicated in the enclosed privilege log, all
Pursuant to Paragraph 5 of the Confidentiality Stipulation, please provide us with a
signed "Exhibit A" from any Qualified Person (other than you and Mr. Civiello, from
whom we have already received a signed Exhibit A) with whom you intend to share these
materials.
I
Gregory E. Del Gaizo, Esq.

Deborah R. Gross, Esq.
-2-
of the redactions in the documents made available for inspection were for
nonresponsiveness, not privilege.
The other documents identified in your September 24 letter were marked
as "Highly Confidential," and therefore your client is not entitled to copies under the
terms of the Confidentiality Stipulation. AT&T would be willing to make those
documents available for a second inspection at a mutually convenient time.
Sincerely,
William B(11?nahan
(Enclosures)

ATT Lawsuit

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FILED

RANDALL L. STEPHENSON, RAFAEL

ROSE, SCOTT T. FORD, MICHAEL B.

MCCALLISTER, CYNTHIA B. TAYLOR,

BLANCHARD, GILBERT F. AMELIO,

PATRICIA P. UPTON, LYNN M.

MARTIN, REUBEN V. ANDERSON,

JAIME CHICO PARDO, and JAMES P.

AT&T INC., a Delaware corporation,

STOCKHOLDER DERIVATIVE PETITION FOR BREACH OF FIDUCIARY DUTY

This is a stockholder derivative action brought by Plaintiff on behalf of nominal

Persistent consumer complaints drove ongoing investigations into wireless

JURISDICTION AND VENUE

This Court has jurisdiction over each defendant named herein.

Plaintiff was a stockholder of AT&T at the time of the wrongdoing complained

Nominal defendant AT&T is a Delaware corporation AT&T is a leading provider

wireless communications, local exchange services, long-distance services, data/broadband and

As of December 31, 2014, AT&T served more than 120 million

Defendant Stephenson is AT&T's CEO, President, and Chairman of the Board

AT&T paid defendant Stephenson the following

Defendant Roch breached her fiduciary duty of loyalty by knowingly or

Fees Paid in Cash

Fees Paid in Cash

AT&T paid defendant Madonna the following

Fees Paid in Cash

defendant Rose the following compensation as a director:

Fees Paid in Cash

Fees Paid in Cash

Defendant Michael B. McCallister ("McCallister") is an AT&T director and has

been since February 2013.

Defendant McCallister is also a member of AT&T's Audit

Fees Paid in Cash

Fees Paid in Cash

defendant Mooney the following compensation as a director:

Fees Paid in Cash

Defendant James H. Blanchard ("Blanchard") was AT&T's Lead Director from

Fees Paid in Cash

Defendant Gilbert F. Amelio ("Amelio") was AT&T's Lead Director from

Fees Paid in Cash

Defendant Upton breached her fiduciary duty of loyalty by

Fees Paid in Cash

Defendant Martin breached her fiduciary duty of loyalty by knowingly or

Fees Paid in Cash

Defendant Reuben V. Anderson ("Anderson") was AT&T's Lead Director from

Fees Paid in Cash

Fees Paid in Cash

Defendant Kelly breached his fiduciary duty of loyalty by

Fees Paid in Cash

The defendants identified in 12-13 are referred to herein as the "Officer

DUTIES OF THE INDIVIDUAL DEFENDANTS

conduct the affairs of the Company in an efficient, business-like manner in

compliance with all applicable laws, rules, and regulations; and

remain informed as to how AT&T conducted its operations, and, upon

receipt of notice or information of imprudent or unsound conditions or practices, make

The Audit Committee Charter imparts heightened duties on its members. In

The conduct of the Individual Defendants complained of herein involves a

The Individual Defendants, because of their positions of control and authority as

affecting commerce." Misrepresentations or deceptive omissions of material fact constitute

Section 201(b) of the Communications Act outlaws communication service

Various state laws also prohibit or strictly regulate unauthorized charges on

In addition, California's anti-cramming statute, Public Utility Code section 2890

California's ant-cramming regime also requires quarterly reporting to the

This requirement is not applicable to billing agents.