Hamilton Cnty. Emergency Commc'ns Dist. v. Level 3 Commc'ns

HAMILTON COUNTY EMERGENCYCOMMUNICATIONS DISTRICT, et al., Plaintiffs-Appellants, v. LEVEL 3 COMMUNICATIONS, LLC, Defendant-Appellee.

No. 20-5304

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

February 9, 2021

NOT RECOMMENDED FOR PUBLICATION

File Name: 21a0084n.06

ON APPEAL FROM THE THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TENNESSEE

OPINION

BEFORE: DAUGHTREY, NALBANDIAN, and MURPHY, Circuit Judges.

NALBANDIAN, Circuit Judge. Like every state, Tennessee uses 911 as the phone number people call when they need emergency help. And for a long time in the Volunteer State, the municipal corporations that ran 911 call centers got their funding from charges that certain telephone companies billed certain customers. The plaintiffs here, several Emergency Communications Districts, are some of those corporations. They sued Level 3, a telecommunications company that does business in Tennessee. They claim Level 3 withheld millions of dollars in fees that the state obligated Level 3 to charge its customers and then send to the Districts.

The district court didn't buy the Districts' theory. It viewed their experts as unreliable and found that they otherwise presented no evidence that Level 3 underbilled 911 charges. So the court granted Level 3 summary judgment. We spot no errors in the district court's judgment, so we AFFIRM.

I.

A.

This diversity case is factually complex. It has its genesis in 1984, when Tennessee passed the Emergency Communications District Law (ECD Law). Tenn. Code Ann. §§ 7-86-101-151.¹ The ECD Law formally established 911 as the main emergency telephone number for Tennessee residents. And the law also established emergency communications districts—the plaintiffs here. These Districts are municipal corporations that operate 911 call centers in various counties across Tennessee. They receive and then route emergency calls.

Of course, the Districts need money to operate. So the ECD Law authorized the Districts to impose a charge on those telephone users' phone lines that can call 911. Hamilton Cnty. Emergency Commc'ns Dist. v. BellSouth Telecomms., LLC, 852 F.3d 521, 525 (6th Cir. 2017). Toward that end, the ECD Law required telephone "service suppliers" to bill and collect the 911 charge from their "service users." Tenn. Code Ann. §§ 7-86-108, 7-86-110. By way of background, a service supplier is "any person, corporation or entity providing exchange telephone service to any service user." Id. § 7-86-103(15). And a service user is "any person, corporation or entity that is provided 911 service." Id. § 7-86-103(16). So a provider of exchange telephone service would charge its customers who received 911-capable phone service an extra amount ontop of its normal charges. And after charging the user, the supplier would then send the money to the Districts. Id. § 7-86-110(a).

How does Level 3 fit within this scheme? Level 3 has been around since 1998 as a wholesale provider of Internet Protocol (IP) data, transport, and communications services. (R. 117-19, Robles Decl. ¶ 3, PageID # 3298.) Level 3 provides these services to telecoms carriers and internet service providers. And it does so over an internet fiber network it built around two decades ago.

But Level 3 differs from traditional telephone service. It uses what's called "packet-switched technology," which breaks down voice or data into digital packages that are reassembled at their destination using the same technology that sends data over the internet. (R. 117-19, Robles Decl. at ¶ 4, PageID # 3299.) Contrast this with traditional exchange telephone service, "which provides a dedicated transmission path or 'circuit' for the duration of the call." (Id.) Traditional exchange service uses different facilities and equipment than IP-enabled services, so Level 3 cannot provide traditional exchange phone service.

After building its IP fiber network, Level 3 began to provide wholesale Internet access and other data IP-based services, then later started to offer Voice over Internet Protocol (VoIP). Still, before 2008, Level 3 was known as "a carrier's carrier" because it only provided services to other telecoms, VoIP, and internet service providers. (Id. at ¶ 8, PageID # 3300.) These companies used Level 3's services to support their own network facilities or combine them with their own services to create a finished product that they then resold, either to other providers or to end users. (Id.) Level 3 shifted from this exclusively wholesale model in 2008, when it began to offer "enterprise services" to businesses. Still, even now, most of Level 3's services cannot call 911. And it offersmost of its voice-capable services to facilities-based wholesale providers, who configure or combine Level 3's services and sell them either to other telecoms companies or to end users.

B.

This case arises out of the billing scheme the ECD Law created. Over a dozen Districts sued Level 3 in federal court. They claimed Level 3 "intentionally failed to fulfill its obligation to bill, collect, report, and remit to the Districts" the 911 charge. (R. 18, First Am. Compl. ¶ 5, PageID # 174.) And they alleged several causes of action. First, they said Level 3 violated the Tennessee False Claims Act by filing false remittance reports with the Districts understating the number of lines Level 3 needed to charge. They also sued under an implied cause of action in the ECD Law itself, seeking compensation for the fees Level 3 should have but didn't charge and remit. See BellSouth, 852 F.3d at 531 (holding that a private right of action exists under the ECD Law). And along with these statutory claims, the Districts also brought some state-law claims, including breach of fiduciary duty, fraudulent misrepresentation, fraudulent concealment, and negligent misrepresentation.

Where did the Districts come up with their theory of Level 3's serial underbilling? A brief detour can help explain. The Districts first suspected Level 3 of underbilling when they compared WARs—Wireline Activity Reports—that Level 3 submitted to the state against the remittance reports Level 3 filed with the Districts. These remittance reports detailed the number of 911 charges that Level 3 billed its customers and sent to the Districts. And the WARs are voluntary reports that the Tennessee Regulatory Authority asks telecoms companies like Level 3 to send it so that it can monitor competition in the telecoms market.

The Districts' theory is that the WARs accurately represent the number of 911-billable customers a telecoms company like Level 3 has. So, in theory, the number of reported lines in aWAR should equal the number of charges that a telecoms company like Level 3 sends to the Districts. But that wasn't the case here. Instead, Level 3 reported far more lines in its WARs than it did in its remittance reports to the Districts. So, according to the Districts, if a telecoms company like Level 3 is following the law, then A (the number of lines Level 3 reported in its WARs) minus B (the number of lines Level 3 charged in its remittance reports) should be zero. But here, A minus B spits out a positive number. That means the number of lines Level 3 reported in its WARs is higher than the number of lines it charged the 911 fee. Thus, in the Districts' eyes, Level 3 underbilled—the WARs show that Level 3 serves many more lines than it billed 911 fees.

Using this theory, the Districts sued Level 3. After the Districts filed a first amended complaint, Level 3 moved to dismiss it. The district court obliged, but only in part. The court allowed the claims under the False Claims Act and ECD Law to proceed. But it dismissed all the state common law claims because "[t]he Districts' causes of action under the 911 Law are exclusive of any common-law actions to seek vindication of their rights under the 911 Law." The Districts have not appealed the claims that the trial court dismissed initially.

So all that survived Level 3's motion to dismiss were the Districts' two statutory claims. And extensive discovery followed the partial dismissal. It included interrogatories, depositions, and expert disclosures and declarations. For their part, the Districts offered two expert witnesses. The first, Joseph Gillan, opined that the WARs are an accurate representation of the number of 911-billable lines that Level 3 serves. The second, Randall Hebert, opined about damages that the Districts suffered because of Level 3's underbilling.

Level 3 moved to exclude both experts. It sought to exclude Gillan on two main grounds. First, Gillan's opinion was premised on, and included, testimony that Level 3 is in fact a "service supplier" under the ECD Law. But because Gillan reached this conclusion through statutoryinterpretation—and he's a telecoms expert rather than a lawyer—Level 3 argued it was an inappropriate legal opinion. Second, Level 3 argued that Gillan's opinion—that WARs accurately approximate the number of lines a service supplier should charge 911 fees—is not reliable because it was not based on enough investigation, and other, undisputed record evidence contradicts it.

This second basis for excluding Gillan also did much of the work in Level 3's effort to exclude Hebert. After all, Hebert's calculation of damages presupposed that the WARs reflected the number of 911 charges Level 3 should have billed. So because this assumption was ill-founded, Hebert's testimony was unreliable, as well.

Before the district court ruled on Level 3's motion to exclude, Level 3 moved for summary judgment. It argued mainly that the ECD Law didn't require it to remit charges to the Districts because it isn't a "service supplier." This motion remained pending while the district court decided Level 3's motion to exclude. But after a Daubert hearing, the district court granted Level 3's motion to exclude Gillan's opinion on the WARs and Hebert's opinion on damages. See Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993). As to Gillan, the...