Global Naps, Inc. v. Verizon New England Inc.

• Citation: 603 F.3d 71
• Decision Date: 29 April 2010
• Docket Number: No. 09-1308,09-1309.,09-1308
• Parties: GLOBAL NAPS, INC., Plaintiff/Counterclaim Defendant, Appellant, v. VERIZON NEW ENGLAND INC. d/b/a Verizon Massachusetts, Defendant/Counterclaim Plaintiff, Appellee, Massachusetts Department of Telecommunications and Energy; Paul B. Vasington, in his capacity as Commissioner; James Connelly, in his capacity as Commissioner; W. Robert Keating, in his capacity as Commissioner; Deirdre K. Manning, in her capacity as Commissioner; and Eugene J. Sullivan, Jr., in his capacity as Commissioner., Defendants, v. Global Naps New Hampshire, Inc.; Global Naps Realty, Inc.; Global Naps Networks, Inc.; Ferrous Miner Holdings, Ltd.; and Frank Gangi, Counterclaim Defendants, Appellants, Chesapeake Investment Services, Inc.; 1120 Hancock Street, Inc., 321 Heath Street Realty Trust; CJ3, Inc.; and RJ Equipment, Inc., Counterclaim Defendants.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

603 F.3d 71

GLOBAL NAPS, INC., Plaintiff/Counterclaim Defendant, Appellant, v. VERIZON NEW ENGLAND INC. d/b/a Verizon Massachusetts, Defendant/Counterclaim Plaintiff, Appellee,

Massachusetts Department of Telecommunications and Energy; Paul B. Vasington, in his capacity as Commissioner; James Connelly, in his capacity as Commissioner; W. Robert Keating, in his capacity as Commissioner;

Deirdre K. Manning, in her capacity as Commissioner; and Eugene J. Sullivan, Jr., in his capacity as Commissioner., Defendants, v. Global Naps New Hampshire, Inc.; Global Naps Realty, Inc.; Global Naps Networks, Inc.; Ferrous Miner Holdings, Ltd.; and Frank Gangi, Counterclaim Defendants, Appellants, Chesapeake Investment Services, Inc.; 1120 Hancock Street, Inc., 321 Heath Street Realty Trust; CJ3, Inc.; and RJ Equipment, Inc., Counterclaim Defendants.

Nos. 09-1308, 09-1309.

United States Court of Appeals, First Circuit.

Heard February 4, 2010.

Decided April 29, 2010.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Andrew Good with whom Philip Cormier, Good & Cormier, Joel Davidow, Kile Goekjian Reed & McManus PLLC, Eric Osterberg, and Fox Rothschild LLP were on brief for appellants/counterclaim defendants.

Scott H. Angstreich with whom Gregory G. Rapawy, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Robert L. Weigel, Jason W. Myatt, Gibson, Dunn & Crutcher LLP, Richard P. Owens, Verizon New England Inc., Paul J. Larkin, Jr., and Verizon Communications Inc. were on brief for appellee/counterclaim plaintiff.

James C. Schroeder, Christian F. Binnig, Hans J. Germann, Stephen Sanders, and Mayer Brown LLP were on brief for amici curiae AT&T ILEC Companies in support of appellee/counterclaim plaintiff.

Before LYNCH, Chief Judge, BOUDIN and HOWARD, Circuit Judges.

LYNCH, Chief Judge.

Global NAPs, Inc. (GNAPs) appeals from entry against it of a judgment for $57,716,714 for access charges that GNAPs owed but failed to pay Verizon New England Inc. (Verizon) for services Verizon provided between 2003 and 2006. Concerned that GNAPs could not pay a judgment, Verizon also successfully brought counterclaims alleging alter ego liability and disregard of the corporate form against GNAPs; its owner, Frank Gangi; and several GNAPs affiliates. These defendants appeal from the district court's assertion of federal jurisdiction and grant of default judgment, which holds Gangi and the affiliates jointly liable for the sum GNAPs owes. We affirm.

In an issue of first impression for this court, we hold that 28 U.S.C. § 1367, enacted in 1990, gives federal courts supplemental jurisdiction over both compulsory and at least some permissive counterclaims. This alters this circuit's former rule, adopted before the enactment of § 1367, that required permissive counterclaims to have an independent basis for jurisdiction. See McCaffrey v. Rex Motor Transp., Inc., 672 F.2d 246, 248 (1st Cir. 1982). Our ruling brings us into line with the Second and Seventh Circuits, as we describe below. Jones v. Ford Motor Credit Co., 358 F.3d 205, 210-14 (2d Cir. 2004); Channell v. Citicorp Nat'l Servs., Inc., 89 F.3d 379, 384-87 (7th Cir.1996).

In 2002 the Massachusetts Department of Telecommunications and Energy (DTE) ruled that GNAPs must pay long-distance access charges to Verizon whenever ISP traffic is actually routed outside the caller's local area, regardless of the phone number the internet user dialed. GNAPs fought that ruling and did not pay any of those charges. Verizon terminated its service to GNAPs in 2006.

This is GNAPs' fourth appeal in a series of disputes between GNAPs and Verizon, which arose from GNAPs' efforts to avoid the DTE's ruling. See Global NAPs, Inc. v. Verizon New England, Inc. (GNAPs IV), 489 F.3d 13, 21-25 (1st Cir.2007) (affirming release of security GNAPs posted to obtain an injunction pending appeal after the injunction was vacated); Global NAPs, Inc. v. Verizon New England, Inc. (GNAPs III), 444 F.3d 59, 71-75 (1st Cir. 2006) (holding a 2001 FCC order did not preempt the state DTE's authority); Global NAPs, Inc. v. Mass. Dep't of Telecomm. & Energy, (GNAPs II), 427 F.3d 34, 43-49 (1st Cir.2005) (holding the Massachusetts DTE was not bound under the Full Faith and Credit Clause to a Rhode Island agency's interpretation of the effect of an FCC order on GNAPs' and Verizon's Rhode Island agreement); Global NAPs, Inc. v. Verizon New England, Inc. (GNAPs I), 396 F.3d 16, 18-19 (1st Cir. 2005) (holding GNAPs could not opt to use an agreement it had with Verizon in a different state after undergoing arbitration before the DTE).

GNAPs has appealed here again on a number of arguments, which challenge federal jurisdiction, the liability finding, and the amount of the damages assessed. We reject GNAPs' first argument, that it cannot be liable for any charges imposed pursuant to the DTE order because a 2008 Federal Communications Commission (FCC) order preempts the DTE's 2002 decision. The 2008 order is not materially different on this preemption issue from an earlier order, which we held did not preempt the DTE. GNAPs III, 444 F.3d at 69-75.

We also reject GNAPs' challenges to judgments against it on two of Verizon's counterclaims, one to enforce the DTE's order and recover long-distance access charges and the other to pierce GNAPs' corporate veil and hold Gangi and GNAPs' affiliates jointly liable. We reject the argument of all defendants that the district court lacked jurisdiction over these counterclaims. There is subject matter jurisdiction over both claims because 28 U.S.C. § 1367(a) gives courts supplemental jurisdiction over compulsory and at least some permissive counterclaims. Verizon's counterclaims are sufficiently related to the underlying litigation within the test set forth in § 1367(a) to fall under federal courts' supplemental jurisdiction. We also reject GNAPs' argument that Verizon first had to ask the DTE to enforce its order before suing in federal court because GNAPs waived this exhaustion argument.

Finally, we affirm judgment on both counterclaims. We affirm the district court's calculation of damages GNAPs owes Verizon for failing to pay access charges under the DTE's order. We hold the district court did not abuse its discretion by granting default judgment on the claim to pierce GNAPs' corporate veil as a discovery sanction against GNAPs, Gangi, and three GNAPs affiliates: Global NAPs Networks, Inc. (GNAPs Networks), Global NAPs Realty (GNAPs Realty), and Global NAPs New Hampshire (GNAPs New Hampshire) (collectively, the GNAPs companies). Evidence these defendants committed misconduct and spoliation was compelling. And we affirm that collateral estoppel barred GNAPs' holding company, Ferrous Miner Holdings, Ltd. (Ferrous), from challenging these discovery-misconduct findings.

I.

Some pertinent background information, setting up the issues in this appeal, may be helpful. Our prior decisions give further background, and we assume familiarity with them.

A. The Telecommunications Act and Interconnection Agreements

The Telecommunications Act of 1996 (TCA), now over a decade old, has promoted greater competition in the telecommunications industry. See GNAPs II, 427 F.3d at 36. It requires local carriers to "interconnect" with each other's networks, pursuant to interconnection agreements (ICAs). Id. at 36-37; see also 47 U.S.C. §§ 251(a), 252. Carriers can voluntarily negotiate terms and, after an impasse, can ask state commissions to set terms in binding arbitration. 47 U.S.C. § 252(a)-(b).

Those ICAs must specify how the carriers will share fees from local calls. Id. § 252(a)(1). Section 251(b)(5) requires carriers to pay "reciprocal compensation" for local calls, in which the carrier for the customer making the call shares fees with the carrier that terminates the call. For long-distance calls (known as "interexchange" traffic), in contrast, the long-distance carrier pays "access charges" to the carriers that originated and terminated the call. See In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 (Local Competition Order), 11 F.C.C.R. 15499, 16012-14, 1996 WL 452885 (1996) (distinguishing local and interexchange fees).¹

The TCA sets some federal requirements for all ICAs, 47 U.S.C. § 251(b)-(c), but leaves some room for state regulation. For example, carriers must submit all ICAs — even those negotiated privately — to state commissions, which can require that ICAs meet local regulations. See id. § 252(e). If parties undergo arbitration, the TCA somewhat limits state commissions' discretion to set terms. See id. § 252(b)-(d). Carriers may ask a federal court to review whether a state commission's decision under § 252 conforms to the TCA. Id. § 252(e)(6).

B. Factual Background

At issue in this case is what charges Verizon and GNAPs owe each other from dial-up internet traffic between some of their customers. For our purposes, Verizon's customers were dial-up internet users; GNAPs' customers were the ISPs that connected Verizon's customers to the internet. Because dial-up service uses telephone lines, these calls were networked like a phone call. A Verizon customer's modem dialed a phone number belonging to GNAPs' ISP customer. The ISP's server equipment "answered" that call and connected the user to websites. In early 2002, GNAPs and Verizon began renegotiating a new ICA for calls from Verizon's Massachusetts customers to these ISPs.

ISP calls do not fit the traditional reciprocal-compensation scheme and can produce windfall profits for ISPs' carriers, like GNAPs. ISPs receive many, long calls, entitling their providers to large reciprocal-compensation fees from the internet customer's carrier (here, Verizon). But ISPs do not make calls, defeating the reciprocal arrangement. The FCC has long sought a solution to this problem. See Core Commc'ns, Inc. v. FCC, 592 F.3d 139, 141-43 (D.C.Cir.2010) (describing...