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Sancom, Inc. v. Qwest Communications Corp.

January 4, 2010

SANCOM, INC., A SOUTH DAKOTA CORPORATION, PLAINTIFF,
v.
QWEST COMMUNICATIONS CORPORATION, A DELAWARE CORPORATION, DEFENDANT AND COUNTERCLAIMANT,
v.
SANCOM, INC., A SOUTH DAKOTA CORPORATION; AND FREE CONFERENCING CORPORATION, A NEVADA CORPORATION, COUNTERCLAIM DEFENDANTS.



The opinion of the court was delivered by: Karen E. Schreier Chief Judge

ORDER

Plaintiff, Sancom, Inc. (Sancom), moves to strike substantial portions of the expert disclosures and expert reports provided by defendant, Qwest Communications Corporation (Qwest). Specifically, Sancom moves to strike portions of Qwest's Rule 26(a)(2)(B) Disclosure, the Expert Report of Jeffrey D. Owens, the Rebuttal and First Supplemental Report of Jeffrey D. Owens, the Surrebuttal and Second Supplemental Report of Jeffrey D. Owens, and the Expert Disclosure of Derek Canfield. Qwest opposes the motion.

BACKGROUND

Qwest disclosed Jeffrey D. Owens (Owens) and Derek Canfield (Canfield) as expert witnesses that it intended to use at trial on March 27, 2009. See Docket 131-2. Qwest also disclosed the Expert Report of Jeffrey D. Owens (Owens Report), a 99-page report signed by Owens, and the Expert Disclosure of Derek Canfield (Canfield Report), a 12-page report signed by Canfield and dated March 27, 2009. See Owens Report, Docket 131-5; Canfield Report, Docket 131-9. After Sancom disclosed the report of its expert, Paul J. Calabro (Calabro), on March 27, 2009, Qwest disclosed the Rebuttal and 1st Supplemental Expert Report of Jeffrey D. Owens (Owens Rebuttal and First Supplemental Report). Owens Rebuttal and First Supplemental Report, Docket 131-6. Finally, after Sancom disclosed Calabro's rebuttal report on April 27, 2009, and Qwest deposed Calabro on June 11, 2009, Qwest disclosed the Surrebuttal and 2nd Supplemental Expert Report of Jeffrey D. Owens (Owens Surrebuttal and Second Supplemental Report) on July 28, 2009. Owens Surrebuttal and Second Supplemental Report, Docket 167-6. Sancom moves to strike portions of all four of Qwest's experts' reports.

DISCUSSION

The admissibility of expert testimony is governed by Rule 702 of the Federal Rules of Evidence. Under Rule 702, the trial judge acts as a "gatekeeper" screening evidence for relevance and reliability. Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993). Pursuant to Rule 702,

If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.

Fed. R. Evid. 702. "Rule 702 reflects an attempt to liberalize the rules governing the admission of expert testimony. The rule clearly is one of admissibility rather than exclusion." Lauzon v. Senco Prods., Inc., 270 F.3d 681, 686 (8th Cir. 2001) (internal quotations and citations omitted). "The exclusion of an expert's opinion is proper only if it is so fundamentally unsupported that it can offer no assistance to the jury." Wood v. Minn. Mining & Mfg. Co., 112 F.3d 306, 309 (8th Cir. 1997) (internal quotations and citation omitted).

The Eighth Circuit has determined that a district court should apply a three-part test when screening testimony under Rule 702.

First, evidence based on scientific, technical, or other specialized knowledge must be useful to the finder of fact in deciding the ultimate issue of fact. This is the basic rule of relevancy. Second, the proposed witness must be qualified to assist the finder of fact. Third, the proposed evidence must be reliable or trustworthy in an evidentiary sense, so that, if the finder of fact accepts it as true, it provides the assistance the finder of fact requires.

Lauzon, 270 F.3d at 686 (internal citations and quotations omitted).

District courts have discretion in determining whether to admit expert witness testimony under Rule 702. See In re Air Crash at Little Rock Arkansas, on June 1, 1999, 291 F.3d 503, 509 (8th Cir. 2002). Nonetheless, the proponent of expert testimony must prove its admissibility by a preponderance of the evidence. Daubert, 509 U.S. at 592 n.10.

I. Owens Report & Owens Rebuttal and First Supplemental Report

Sancom moves to strike the following portions of the Owens Report:

Sections D, E, F, H, I, J, K, L, and M; portions of Summary Conclusion Nos. 1, 3, 4, 5, 6, and 7; summaries of Sections D, E, F, H, I J, K, L, and M; and "Summary of Findings" numbers 1, 3, 4, 6, 7, and 8. Sancom also moves to strike Sections D(4), D(5), E, and F of the Owens Rebuttal and First Supplemental Report. Sancom argues that Owens is not qualified to render the challenged opinions because they constitute impermissible legal conclusions and Owens is not competent to render such conclusions. The court finds that Owens is qualified within the meaning of Rule 702 based on his experience in the telecommunications industry. See Defendant's Rule 26(A)(2)(B) Disclosure of Jeffrey D. Owens, Docket 131-2 at 2-3. Sancom's challenge to Owens qualifications is just a restatement of Sancom's argument that Owens' opinions constitute impermissible legal conclusions, an argument the court considers in detail below.

Under Rule 704(a), "testimony in the form of an opinion or inference otherwise admissible is not objectionable because it embraces an ultimate issue to be decided by the trier of fact." Fed. R. Evid. 704(a). "This does not, however, mean that all opinion testimony as to ultimate issues is admissible." Kostelecky v. NL Acme Tool/NL Indus., Inc., 837 F.2d 828, 830 (8th Cir. 1988). Indeed "expert testimony on legal matters is not admissible." Southern Pine Helicopters, Inc. v. Phoenix Aviation Managers, Inc., 320 F.3d 838, 841 (8th Cir. 2003). This is because opinion testimony that is couched as a legal conclusion or that merely tells the factfinder what result to reach is not helpful to the finder of fact. Hogan v. American Tel. & Tel. Co., 812 F.2d 409, 411 (8th Cir. 1987); see also Farmland Indus. v. Frazier-Parrott Commodities, Inc., 871 F.2d 1402, 1409 (8th Cir. 1989) ("The special legal knowledge of the judge makes the witness' testimony superfluous."). "Matters of law are for the trial judge, and it is the judge's job to instruct the jury on them." Southern Pine, 320 F.3d at 841.

On the other hand, "[c]courts have frequently recognized the value of expert testimony defining terms of a technical nature and testifying as to whether such terms have acquired a well-recognized meaning in the business or industry." Nucor Corp. v. Nebraska Pub. Power Dist., 891 F.2d 1343, 1350 (8th Cir. 1989); see also Southern Pine, 320 F.3d at 841 (explaining that "industry practice or standards may often be relevant . . . and expert or fact testimony on what these are is often admissible"). For example, in Nucor, which involved a claim that a power company charged unfair, unreasonable, and discriminatory rates, the Eighth Circuit found that the district court did not err in admitting expert testimony on the meaning of terms of art such as "fair," "reasonable," and "non-discriminatory," and on whether the power company's ratemaking methods were used elsewhere in the industry. Nucor, 891 F.2d at 1350. And in Cedar Hill Hardware and Constr. Supply, Inc. v. Insurance Corp. Of Hannover, 563 F.3d 329, 343 (8th Cir. 2009), a case involving a dispute over insurance coverage, the Eighth Circuit found that expert testimony on underwriting standards, the materiality of mortgage information on underwriting decisions, and proper claims handling was properly admissible as relevant to provide an industry-standard context for other case-specific testimony about these topics.

In contrast, in Police Retirement System of St. Louis v. Midwest Investment Advisory Service, Inc., 940 F.2d 351, 357 (8th Cir. 1991), a case involving breach of fiduciary duty claims and a related shelter provision under § 28(e) of the Securities Exchange Act of 1934, the Eighth Circuit found that the expert testimony went too far and should have been excluded. There, the expert "lectured the jury on what § 28 meant [and] gave extended explanations of why the defendants' conduct was completely sheltered by that provision." Id. The Eighth Circuit reasoned that the trial court erred in admitting the testimony because the expert's testimony about the reach and meaning of § 28(e) usurped the role of the judge in explaining the law. Id.

Under these cases, the line between admissible expert testimony and inadmissible testimony on legal matters is difficult to draw. The United States District Court for the District of Nebraska reconciled Nucor and Police Retirement System as follows:

In sum, expert testimony that purports to explain the legal meaning of a term is forbidden pursuant to Police Retirement System of St. Louis and Farmland Industries, but testimony defining a term of art as it is used within a given field may be allowed. In addition, testimony that a specific item or event fits within the meaning of a statutory term may be admissible under Federal Rule of Evidence 702 even if it embraces an "ultimate issue."

Ways v. City of Lincoln, 206 F. Supp. 2d 978, 991 (D. Neb. 2002) (citing Fed. R. Evid. 704, emphasis in original). The court finds that the United States District Court for the District of Nebraska has correctly formulated the standard for the admissibility of expert testimony defining and explaining terms and provisions of law, and it will apply that standard to the expert testimony offered by Qwest.

A. Owens Report

1. Section D: Communications Act of 1934 and the Telecommunications Act of 1996

In Section D of the Owens Report, Owens set out the definitions of "local exchange carrier" in the Communications Act of 1934 and the Telecommunications Act of 1996 as well as the definition of "telecommunications service" in the Communications Act. Owens Report at 30. Owens then stated the requirements for these terms in his own words and explained why he felt that the free calling service company services that Sancom provided to Free Conference and Ocean Bay Marketing, Inc. (Ocean Bay) did not qualify as telecommunications services and that Sancom did not provide Qwest with telephone exchange service or exchange access. Id. at 30-31.

The court will provide the jury with the relevant definitions and will not allow Owens to explain the definitions of "local exchange carrier" and "telecommunications service" under the applicable federal laws at trial. But Owens' analysis of why Sancom did not provide telecommunications service to Free Conference and Ocean Bay, and as a result did not provide telephone exchange service or exchange access to Qwest is permissible testimony that a specific set of facts does not fit within the meaning of the statutory terms. See Ways, 206 F. Supp. 2d at 991.

Sancom argues that the court should follow the United States District Court for the Northern District of New York's decision in TC Systems Inc. v. Town of Colonie, New York, 213 F. Supp. 2d 171 (N.D.N.Y. 2002), and strike Owens' discussion in Section D. But TC Systems is not binding on this court and, moreover, it is distinguishable. In TC Systems, the court struck portions of the expert's report because the expert's review of FCC rulings and regulations impermissibly usurped the role of the judge in determining the relevant law. 213 F. Supp. 2d at 182. As the court explained, "[w]hile portions of her report refer to FCC criteria, [the expert] fails to establish any nexus between these criteria and her ultimate opinion." Id. As a result, the court excluded a portion of the expert's report for the purposes of the anticipated summary judgment motions. But for the purposes of the expert's testimony at trial, the court did not preclude all testimony regarding FCC criteria. Rather, the court found that "[i]f a proper foundation is laid and [the expert] can establish a nexus between the FCC criteria and the facts here, her testimony may be appropriate. Any testimony as to the intent of the Telecommunications Act or FCC regulations or how the jury should ultimately decide this case, however, is inappropriate." Id. Here, unlike the expert in TC Systems, Owens has established a nexus between the statutory definitions of "local exchange carrier" and "telecommunications service" and the facts of this case. Thus, the reasoning in TC Systems does not apply,*fn1 and Sancom's motion to strike Section D of the Owens Report is denied.

2. Section E: Modified Final Judgment--The Origin and Purpose of Access Charges

In Section E, Owens explained the modified final judgment that established the switched access structure. Owens Report at 31-32. He explained that the modified final judgment expanded the definition of "exchange access" to provide for interexchange traffic originating and terminating within the exchange area. Id. at 32. Owens also opined that the conference calls generated by Free Conference did not terminate in South Dakota within the meaning of the modified final judgment. Id.

Again, while the court will not allow Owens to testify about the legal meaning of "exchange access" at trial, his analysis of whether the terminating access charges for the conference calls generated by Free Conference terminated within Sancom's exchange area and were properly charged to Qwest is permissible expert testimony. Ways, 206 F. Supp. 2d at 991. Sancom's motion to strike Section E of the Owens Report is denied.

3. Section F: The Setting of Sancom's Rate for Switched Access

In Section F, Owens explained the rules governing a competitive local exchange carrier (CLEC) operating in a rural exchange. Owens explained the general rule for rate-setting by CLECs and the special requirements for setting higher rates under the "rural exemption." Owens Report at 32-33. Owens also set out facts about Free Conference and Ocean Bay to support his opinion that Sancom did not satisfy one of the requirements for the "rural exemption." Id. at 34-35.

The court finds that Section F provides background information that would be helpful to the trier of fact. While Owens' explanation of the Federal Communications Commission (FCC)'s regulations regarding rural carriers may be inadmissible in a different context, the question of whether Sancom is a rural carrier will not be an ultimate issue before the jury at trial.*fn2 As a result, the court considers Owens' discussion in Section F to be admissible testimony regarding the industry context for his case-specific discussion of Sancom's relationships with Free Conference and Ocean Bay. An ...


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