Birmingham Emergency Communications District v. Level 3 Communications, LLC et al

Filing 37

MEMORANDUM OPINION AND ORDER GRANTING 27 MOTION for Leave to File Amended Complaint. Birmingham Emergency Communications District is DIRECTED to file the proposed first amended complaint as a separate docket entry. Signed by Judge Abdul K Kallon on 11/1/2017. (JLC)

FILED
2017 Nov-01 PM 05:21
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
BIRMINGHAM EMERGENCY
COMMUNICATIONS DISTRICT,
Plaintiff,

vs.
LEVEL 3 COMMUNICATIONS,
LLC AND LEVEL 3
COMMUNICATIONS, INC.,

)
)
)
)
)
)
)
)
)

Civil Action Number
2:15-cv-01088-AKK

Defendants.

MEMORANDUM OPINION AND ORDER
This case arises out of a dispute over the appropriate discharge of duties
imposed by the Alabama Emergency Telephone Services Act, Alabama Code § 1198-1 et seq. (1975) (the ETSA).1 The Birmingham Emergency Communications
District

(the

District)

raises

numerous

claims

alleging

that

Level

3

Communications, LLC and Level 3 Communications, Inc. (collectively Level 3)
violated the ETSA by failing to properly report, collect, and remit required 911
charges on thousands of active telephone lines. The court has already ruled on
Level 3’s previous motion to dismiss finding that, while most of the District’s
claims may go forward, the District’s claim for fraud failed to meet the heightened
1

The claims in this lawsuit relate only to obligations imposed by the ETSA prior to its
amendment on October 1, 2013. Docs. 25 at 4; 27-1 at 6. Accordingly, all citations to the ETSA
in this opinon reference the version of the ETSA in effect prior to that date.

pleading standard imposed by Fed. R. Civ. P. 9(b) and was due to be dismissed.
See Doc. 25 at 1–2. The District has now filed an opposed Motion for Leave to
File First Amended Complaint, doc. 27, in an attempt to cure the deficiencies
identified by the court in its prior ruling. That motion is now fully briefed, docs.
30; 34, and ripe for review. After consideration of the parties’ briefs and the
record, the court finds that the District’s motion is due to be granted.
I.

Standard of Review
Federal courts generally follow the view that “[i]f the underlying facts or

circumstances relied upon by a plaintiff may be a proper subject of relief, [she]
ought to be afforded an opportunity to test [her] claims on the merits.” Foman v.
Davis, 371 U.S. 178, 182 (1962). The Federal Rules of Civil Procedure buttress
this conclusion, and provide that the court “should freely give leave [to amend]
when justice so requires.” FED. R. CIV. P. 15(a)(2). However, “a district court may
properly deny leave to amend the complaint under Rule 15(a) when such
amendment would be futile.” Hall v. United Ins. Co. of Am., 367 F.3d 1255, 1262–
63 (11th Cir. 2004). The Eleventh Circuit has explained that an amendment is
futile if “‘the complaint as amended is still subject to dismissal.’” Id. at 1263
(quoting Burger King Corp. v. Weaver, 169 F.3d 1310, 1320 (11th Cir. 1999)).

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II.

Facts
Given the court’s prior ruling in this case and the parties undoubted

familiarity with the record, the court provides only a brief overview of the relevant
facts. The ETSA was enacted by the Alabama legislature to authorize the creation
of “communications districts for the purpose of establishing local emergency
telephone service and to provide funding for such service.” T-Mobile South, LLC
v. Bonet, 85 So. 3d 963, 967 (Ala. 2011). The District was created pursuant to this
authorization in order to provide emergency telephone services for Birmingham,
Alabama. Doc. 27-1 at 2, 5. The District receives most of its funding from
telephone service suppliers who are required to bill, collect, and remit to the
District a small service fee assessed to residential and business telephone users. Id.
at 2–6. For providers of voice over internet protocol (VoIP) services, like Level 3,
the ETSA requires the assessment of a service charge for each assigned ten-digit
access number, excluding those provided to a person or entity otherwise exempt
from taxation. See ALA. CODE §§ 11-98-18,11-98-5, 11-98-5.1.
Pursuant to its undisputed obligations under the ETSA, Level 3 provided
monthly 911 remittance forms to the District. Doc. 30-1 at 3–5. The forms
provided information to the District regarding the number of “gross units” and the
number of “exempt units” Level 3 serviced. Doc. 27-1 at 13. The parties have not
directed this court to specific reporting requirements in the ETSA, nor has the
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court located any such provision on its own. Instead, the ETSA provides only that
a form, the contents of which are agreed upon between the service supplier and the
District, is filed in connection with the service supplier’s remittance of the amount
of the 911 service charge payable to the District. See ALA. CODE § 11-98-5(e).
Likewise, the ETSA does not provide specific definitions for “gross units,”
“exempt units,” or units that are simply “excluded” from the Act. The District
asserts that it understood gross units, as reported on Level 3’s remittance form, to
mean “active telephone numbers.” Doc. 27-1 at 13.2
The District alleges that in an attempt to provide services at a lower cost and
gain a competitive edge over its competitors, Level 3 billed, collected, and remitted
only a fraction of the ten-digit access numbers provided to its VoIP customers.
Doc. Id. at 7–8. Significant here, the District alleges that Level 3 incorrectly
designated thousands of numbers as “in-bound” only, and purportedly did not
disclose the existence of those numbers on the remittance forms it submitted. Id. at
7. The District further alleges that Level 3 provided active telephone numbers
wholesale to “resellers,” who actually supplied end-user service, and similarly did
not report those numbers on its remittance forms. Id. More broadly, the District
claims that Level 3 had “tens of thousands of unreported active telephone numbers
within the district” that it failed to properly report to the District. Id. at 15.
2

Other than this allegation, neither party has presented evidence related to any agreement
regarding the proper format of the remittance form Level 3 provided to the District each month.
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III.

Discussion
Level 3 argues that the District’s proposed amendment to the complaint is

futile because the ETSA does not require Level 3 to report telephone lines
designated “in-bound” only, or lines that were sold, wholesale, to other service
suppliers, and because the complaint does not satisfy the heightened pleading
standards imposed on fraud claims by Fed. R. Civ. P. 9(b). The court addresses
each argument in turn.
A. Level 3’s Purported Compliance with the ETSA as a Matter of Law
As Level 3 identifies, the gist of the District’s fraud claim is that Level 3’s
911 service charge remittance forms failed to disclose the existence of thousands
of active telephone numbers. The District alleges that, even if Level 3 was not
obligated under the ETSA to bill, collect, or remit a service charge for those
numbers, the ETSA still required Level 3 to report those numbers as “gross” but
“exempt” on its monthly remittance form. Doc. 27-1 at 15. Level 3 counters that
these unreported numbers consist of “in-bound” only numbers and numbers it
provided wholesale to other service providers, categories of service that are simply
excluded from the duties imposed by the Act. Moreover, Level 3 argues that the
“gross units” figure it provided to the District accurately reflected the gross
number of units actually within the scope of the ETSA. Thus, Level 3 asserts that

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it could not have misrepresented anything, and that it accurately provided the
District with the gross units it had a duty to collect and remit service fees for.
As previously noted, the ETSA does not appear to create any particularized
reporting requirements for telephone service providers, and instead allows service
suppliers to work out reporting arrangements with individual Emergency
Communications Districts. See ALA. CODE § 11-98-5(e). The ETSA also does not
specifically define particular types of services as “exempt” or as “excluded.” The
Act simply provides that “each provider of VoIP or similar service [shall] collect [a
service] fee for each 10-digit access number assigned to the user.” ALA. CODE §
11-98-5.1(c). So, the 911 remittance form provided by Level 3 in connection with
its duties under the ETSA was not itself governed by the statute. Instead, the form
was simply intended to facilitate Level 3’s compliance with its required duties to
collect and remit fees for each 10-digit access number that it serviced.
As a result, at this stage of the proceeding, even if this court were to accept
Level 3’s argument that “in-bound” only lines do not have access to the 911
network and are consequently outside the scope of the ETSA’s billing
requirements, a factual question would remain concerning whether Level 3
properly classified the unreported lines as “in-bound” only. Indeed, the District’s
proposed amended complaint specifically provides, among other things, that Level
3 “billed, collected, and remitted 911 charges for only a fraction of the ten-digit
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access numbers provided to VoIP customers,” and that Level 3 “did not bill,
collect, and remit a 911 charge to the District for thousands of 10-digit access
numbers that it provided to users of VoIP technology.” Doc. 27-1 at 3, 5; see also
id. at 16. These allegations, accepted as true, suggest that Level 3 serviced active
numbers, capable of accessing 911, that were neither properly reported to the
District or assessed a service charge. This is sufficient to underpin a plausible
claim that Level 3’s remittance forms misrepresented the service fees due to the
District. Whether the District can ultimately sustain its burden and prove its claims
is a matter for another day. At this stage, Level 3 need only provide enough facts
“to raise a reasonable expectation that discovery will reveal evidence” supporting
its claims. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007).
Similarly, Level 3’s reporting method could have, and apparently did,
mislead the District by completely excluding numbers that Level 3 unilaterally
determined were not subject to ETSA service fees, whether “wholesale” or “inbound” only, from the “gross units” reported in its remittance forms. Doc. 27-1 at
13, 15. As explained, the ETSA does not appear to define the term “gross units,”
and imposes no specific reporting requirement on service providers. Instead the
Act leaves it to particular Emergency Communications Districts to establish
reporting requirements for service providers within their jurisdiction. So, even if
Level 3 believed it properly classified numbers for which it had no duty to bill,
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collect, or remit service charges, the failure to list those units as “gross units” still
could have misled the District. And, as the District alleges, it was so misled by
Level 3’s reporting because it assumed it was receiving all the service fees it was
entitled to under the ETSA and failed to take the steps it otherwise would have to
collect outstanding fees. Id. at 12, 15–16.
Of course, to succeed on a fraud claim, the District will need to prove
damages. See Fisher v. Comer Plantation, Inc., 772 So. 2d 455, 463 (Ala. 2000).
So, to the extent that Level 3 indeed only failed to report numbers that are not
subject to a fee under the ETSA, the District may fail to meet the damages
requirement for a prima facie case.

However, that factual determination is

properly made on summary judgment. At this stage of the proceeding, it is enough
that the District has alleged, that access numbers subject to a service charge were
not properly reported.
B. Level 3’s Alleged Failure to Plead Fraud with Particularity
Level 3 also argues that, even as amended, the District’s fraud claim (count
V) lacks the requisite specificity to meet the heightened pleading standard imposed
by Fed. R. Civ. P. 9(b). Under Rule 9(b), a plaintiff must allege “(1) precisely
what statements or omissions were made in which documents . . .; (2) the time and
place of each such statement and the person responsible for making . . . them; (3)
the content of such statements and the manner in which they misled the plaintiff;
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and (4) what the defendant obtained as a consequence of the fraud.” FindWhat
Investor Grp. v. FindWhat.com, 658 F.3d 1282, 1296 (11th Cir. 2011). Notably,
Level 3 does not argue that the amended complaint fails to cure the deficiencies
this court pointed out in its previous order.3 Instead, Level 3 primarily contends
that the District fails to allege with particularity how the remittance forms Level 3
submitted were false, and that the District simply claims tens of thousands of
active phone numbers were not reported without specifically identifying those
numbers or explaining why Level 3 should have included those numbers on its
remittance forms. Level 3 further argues that if it lacked the specific duty to bill,
collect, or remit service fees from particular numbers, then the District could not

3

In light of this failing, the court concludes that the deficiencies it previously indicated have
been cured by the proposed amendment to the complaint. See Doc. 25 1–2; Birmingham
Emergency Commc’ns Dist. v. TW Telecom Holdings, Inc., case no: 2:15-cv-00245-AKK, doc.
30 at 17. In its prior ruling, the court specifically identified that the District’s initial complaint
failed to allege the precise misrepresentations made and the dates of those misrepresentations.
Birmingham Emergency Commc’ns Dist., case no: 2:15-cv-00245-AKK, doc. 30 at 17. To cure
this deficiency, the amended complaint provides a list of the dates Level 3 submitted the
purportedly fraudulent remittance forms, the reporting periods covered by those forms, and the
numbers of gross and exempt units identified on the forms. Doc. 27-1 at 13–15. Further, the
District alleges the number of underreported units for two months, July and September 2013.
Doc. 27-1 at 15–16. The court notes that although Rule 9(b) requires increased particularity, this
heightened standard “‘must not abrogate the concept of notice pleading.’” Ziemba v. Cascade
Int’l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001) (quoting Durham v. Bus. Mgmt. Assocs., 847
F.2d 1505, 1511 (11th Cir. 1988)). Here the court finds that the District has provided sufficient
factual allegations to put Level 3 on notice as to the “who, where, when, how, and why” of its
fraud claim. Fla. Software Sys., Inc. v. Columbia/HCA Healthcare Corp., 46 F. Supp. 2d 1276,
1282 (M.D. Fla. 1999) (quotation omitted); see also Barys ex rel. United States v. Vitas
Healthcare Corp., 298 F. App’x 893, 897 (11th Cir. 2008) (noting that the Rule 9(b) pleading
requirements could potentially be relaxed in circumstances where the facts “relating to fraud are
‘peculiarly within the perpetrator’s knowledge.’”) (quoting United States ex rel. Doe v. Dow
Chem. Co., 343 F.3d 325, 330 (5th Cir. 2003)).
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have relied on the omission of those numbers from the remittance forms nor could
it suffer damage from those omissions. These arguments are unavailing.
This court has previously found that the District has adequately alleged how
it was misled, and damaged, by Level 3’s purported omission of all of its active
telephone numbers in the district because “the reports led the District to believe it
was receiving all the 911 charges it was entitled to under the ETSA,” and because
the District was dependent upon Level 3 to provide accurate information about its
service offerings since it lacked the means to independently verify that
information. Birmingham Emergency Commc’ns Dist. v. TW Telecom Holdings,
Inc., case no: 2:15-cv-00245-AKK, doc. 30 at 17; Doc. 27-1 at 16. While it is true
that, under Alabama law, “[r]eliance requires that the misrepresentation actually
induced the injured party to change its course of action,” Exxon Mobil Corp. v.
Alabama Dep’t of Conservation & Nat. Res., 986 So. 2d 1093, 1116 (Ala. 2007)
(quotation omitted), the District has pleaded sufficient facts to meet that
requirement here.
Among other things, the District plausibly alleges that Level 3 purportedly
failed to report all of its active units as gross units and to identify units for which
fees were not being collected as exempt, and that the District was reliant on this
information to determine the scope of Level 3’s service offerings and the amount
of fees it was entitled to receive under the ETSA. Doc. 27-1 at 15–16. This chain
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of factual allegations leads to the reasonable inference that because the District
lacked the information needed to pursue fees from improperly exempted active
telephone lines it received less money than it otherwise would have.

This

conclusion is further buttressed by the District’s allegation that it “reasonably
relied on the false information provided by the Defendants . . . in accepting the 911
Charge remittances.” Id. at 16. This statement, though brief, makes clear that, but
for the alleged misrepresentations by Level 3, the District would not have accepted
only a partial amount of the remittance it was allegedly due.
Still, if Level 3 is correct that it was not responsible for collecting or
remitting a service charge on the lines it failed to include in its remittance forms,
then it will prove difficult to discern how the District was damaged by the
omission of those lines. This argument, however, puts the cart before the horse
because it presumes that the active numbers serviced by Level 3 and omitted from
its remittance forms were properly excluded. At this stage of the proceeding, the
court must accept as true the District’s factual allegations that Level 3 improperly
classified and failed to report active numbers, owing a service charge, on its
remittance forms. Accordingly, the District has adequately alleged damages based
on its detrimental reliance theory that Level 3’s failure to disclose all the active
telephone numbers it provided in the district as gross units and then reporting as
exempt those units it believed it had no duty to collect service charges for
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prevented the District from identifying improperly exempted numbers and
collecting all the fees it was due.
Accordingly, the District’s Motion for Leave to File First Amended
Complaint, doc. 27, is GRANTED.

The District is DIRECTED to file the

proposed first amended complaint as a separate docket entry.
DONE the 1st day of November, 2017.

_________________________________
ABDUL K. KALLON
UNITED STATES DISTRICT JUDGE

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