Level 3 Communications v. Floyd, 2011 WL 11000078 (M.D. Tenn.)(March 22, 2011)
While excavating a residential subdivision, a general contractor severed a traffic-bearing cable belonging to the plaintiff, a telecommunications provider. Fortunately, the plaintiff had invested in spare, emergency capacity on which it could “roll” customer call traffic until repairs could restore the damaged cable.
Nevertheless, the plaintiff sued the defendant to recover “loss of use” damages, claiming it would have cost approximately $300,000 to rent substitute cable capacity during the repairs period. Prior to trial, the defendant presented a CPA expert to rebut the plaintiff’s theory and calculations of damages, and the plaintiff filed a Daubert motion to preclude his testimony.
Rebuttal expert opines on theory of damages. The federal district court first reviewed the plaintiff’s method for calculating its loss of use damages, which were based on “the reasonable rental cost of procuring comparable capacity form another carrier to replace the circuits that were actually carrying traffic” when the defendant severed the plaintiff’s cable. To determine this cost, the plaintiff took the price-per-unit of circuit capacity (known as a DS-3) charged by its competitors (BellSouth and Verizon) and then multiplied that by the number of active DS-3s (4,032) and the number of hours (2.9) it took to complete repairs on the cable.
The defendant’s rebuttal expert claimed the loss of use calculus was flawed. The plaintiff had not been consistent regarding the number of affected DS-3s, he said, or the number of customers affected by the outage. In fact, the plaintiff first submitted a loss of use damages claim for only $170,000, which it later increased to $300,000. There was no apparent reason for this upward revision, the defendant’s expert said, “besides litigation.”
He also maintained that the plaintiff relied on rates and fees that were not supported by its prior usage or contract experience. He noted that AT&T sustained damages from the cable-cutting incident, but submitted a loss of use claim amounting to only $29,000, using a rate-per-damaged circuit that was significantly less than the amounts sought by the plaintiff. In his report, the defendant’s expert provided a detailed series of proposed revised loss of use calculations, based on a combination of AT&T’s rates and the plaintiff’s previously submitted lower rates, to conclude an amount substantially lower than the plaintiff’s asserted claims. (The court’s opinion does not say by how much.)
Finally, the expert argued that the appropriate measure for damages in this case was not loss of use but lost profits—of which there were none, because the plaintiff was able to divert the affected traffic to its spare capacity. In his opinion, litigants such as the plaintiff could only recover compensation in an amount necessary “to make them whole.” This is the “typical approach” to seeking financial damages for a suspension of business operations,” the defendant’s expert said, and anything more than this amount would afford the plaintiff an “improper windfall.”
Expert has ‘minuscule’ industry experience. In its Daubert motion, the plaintiff argued that the defendant’s expert was not qualified to offer “any” opinion regarding its loss of use damages. His opinion regarding appropriate remedies and compensation in this case amounted to improper legal conclusions. Further, his deposition revealed he was a CPA with a “minuscule” understanding of the telecommunications industry; he did not understand the “nuances” of how providers handle and price traffic, the types of circuits used, or how long it would actually take to roll service from the damaged cable to a back-up.
In particular, although the defendant’s expert submitted his revised loss of use calculations based on AT&T’s rates, he conceded that he “made no attempt to analyze the DS-3 prices from BellSouth and Verizon,” which the plaintiff used in its calculus. His deposition also revealed that he had “no understanding as to how AT&T sets its rates or whether those rates are consistent with any sort of industry standard,” the plaintiff claimed. In sum, in his calculations, the defendant’s rebuttal expert was relying on “rates he cannot describe.”
The court agreed that the expert’s proposed opinion regarding the correct remedy in this case (loss of use damages versus lost profits) amounted to inappropriate conclusions of law, and precluded his testimony in this regard.