Litigation Update: Telecommunications Right-of-Way Challenges Against Electric Utilities

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1 Fall 2004 Litigation Update: Telecommunications Right-of-Way Challenges Against Electric Utilities Several ongoing state and Federal court challenges directed against utilities use of their rights-ofway have recently gained notoriety and merit consideration by pole-owning utilities that may find themselves the subject of similar challenges. As discussed in the examples below, these lawsuits challenge the scope of utility easements and the residual rights retained by underlying and adjacent landowners in a number of states, including Mississippi, Virginia, North Carolina and South Carolina. Often involving hundreds of plaintiffs, similar class action lawsuits brought in the past against railroads and fiber optic companies have generated multi-million dollar settlements. Plaintiffs now appear to be targeting electric utilities for similar treatment. Background and Recent Challenges Several very well-organized efforts have been mounted in the last several years to challenge the right of utility easement holders to install fiber optic cables for telecommunications purposes or to permit third parties to do so. Landowners have filed suits against both the communications companies laying the fiber and against the railroads or the other utilities that hold the easements upon which the communications facilities are installed. Various causes of action including trespass, conversion, ejectment, slander of title and unjust enrichment (among others) have been used as mechanisms to argue that: (1) the language of the easement does not encompass the new communications technology; and (2) the easement holder has no right to apportion the easement to provide for third party use. Many of the recent actions are large complex class action lawsuits that attempt to consolidate hundreds, if not thousands, of claims on a statewide or nationwide basis. These cases have been drawn out with intense motions practice, procedural maneuvering and extensive discovery. To date, we are unaware of any large fiber optic class action suit that has gone to trial; the suits have generally been settled, most often once class certification has been obtained. We are aware of approximately four plaintiffs' firms that have been handling the bulk of this litigation on behalf of the landowners, and they have conducted media campaigns in an effort to publicize the issue and bring additional plaintiffs into the fold. Class Certification These cases are often won or lost on the question of class certification. In the past several years, two state trial courts in Illinois certified two class actions in cases filed against Qwest and Sprint. In Becherer v. Qwest Communications International, Inc., 1 the judge certified a class consisting of landowners in the states of Illinois, Nebraska, Minnesota, Iowa, Wisconsin, Michigan, Ohio and 1 Findings of Fact, Conclusions of Law and Class Certification Order, Case No. 02-L-140 (20th Cir. Ill., filed Feb. 14, 2003) (O'Malley, J.).

2 Kentucky with land underlying or adjacent to the rights-of-way employed by Qwest to construct its fiber optic network. The judge focused on the question of the proper scope of the easement, finding that the common question of law predominated (i.e., claims were similar enough), and that as such class certification was warranted. 2 The class is estimated to encompass approximately 2,000-3,000 claimants over a span of 1,300 miles of easements. Similarly, in certifying a virtually nationwide class encompassing landowners along rights-of-way for more than 23,000 miles in 49 states, the judge in Poor v. Sprint Corporation 3 found that Sprint's course of conduct with respect to ignoring the property owners' rights and installing fiber without their consent constituted a common nucleus of operative fact which rendered the case amenable to class certification. Several lawsuits that have been filed against electric utilities and their communications affiliates touch on similar themes and issues, including suits currently pending against Mississippi Power Company, Entergy Corporation, Duke Energy, Progress Energy and Virginia Electric and Power Company (VEPCO). Most recently, as described below, class certification was granted for the rights-of-way claims against VEPCO for reasons similar to those described above. A multi-million dollar settlement was reached shortly thereafter. Reported Settlements and Potential Liability for Right-of-Way Holders Recent high-profile settlements against railroad companies and telecommunications companies illustrate the organization of the plaintiffs' bar and the magnitude of the potential liability for fiber owners or utilities with precarious easement rights. Beyond money damages, unique remedies have also been fashioned that will have lasting effects on the ability of companies to retain control over their assets and to use them effectively. In the case of Uhl v. Thoroughbred Technology Telecommunications (T-Cubed), for example, approximately 58,000 landowners in 15 states received a settlement including cash at a rate of between $6,000 per mile and $31,875 per mile, and a percentage of the future revenues from sales or dispositions of conduits held by T-Cubed. Significantly, the plaintiffs also received an interest in certain dark fiber assets held by T-Cubed, which are held by a new company that is owned and controlled by the landowners. T-Cubed was a wholly-owned communications subsidiary of Norfolk Southern Railroad. Over the past several years AT&T has also settled a number of suits over cable laid in abandoned railroad rights-of-way, including: (1) a 1999 settlement in Indiana at approximately $8.50 per foot; 4 (2) a 2001 settlement in Ohio at $5-48 per linear foot; 5 (3) a 2001 settlement in Maine at 2 Interestingly, because the plaintiffs focused on railroad easements as opposed to utility easements and rights-of-way, the judge excluded pipeline and utility rights-of-way from the scope of the certification order. 3 Order Granting Certification, Case No. 99-L-421 (3d Cir. Ill., filed Feb. 20, 2003) (Kardis, J.) 4 Hinshaw v. AT&T Corp., Case No. IP C T/G (S.D. Ind.) (settlement information available by order of the court at 5 Kale v. AT&T Corp., Case No. IP99-C-9313-H/G (S.D. Ind.) (settlement information available by order of the court at Page 2

3 approximately $1 per linear foot; 6 (4) a 2001 settlement in Connecticut at $ per linear foot; 7 (5) a 2002 settlement in Arkansas for $1.90 per linear foot; 8 and (6) a 2002 settlement in New Hampshire at $7-9 per linear foot. 9 Similarly, CSX Railroad settled a class action related to fiber optic installation and involving over 9,000 landowners in Indiana for a total of approximately $7 million, and VEPCO s recent settlement involving several thousand landowners over 536 miles totaled $20 million (approximately $7 per foot.) 10 Lawsuits Against Electric Utilities A number of electric utilities have been targeted in large, coordinated class action suits by adjacent property owners with respect to the scope of the utilities' easements and apportionment rights. Three of the larger lawsuits are profiled below to illustrate the scope of these suits and the issues arising from of them. Fisher et al. v. Virginia Elec. & Power Co. Virginia Electric & Power Co. (VEPCO) and its subsidiary Dominion Telecom were named in a class action lawsuit filed in June 2002 in the U.S. District Court in Virginia. 11 The case involved thousands of landowners in Virginia and North Carolina and sought compensation for the companies' installation of fiber optic cable on transmission towers in VEPCO's rights-of-way. Like other landowner suits, the challenge was directed to the scope of the utility easements and whether or not the easement permits the utility to use them for telecommunications. The complaint also alleged willful disregard for the landowners' rights, and requested punitive damages as well as actual damages based on the value or revenue received by the utilities as a result of the improper use of the land. One of the plaintiffs' law firms that was involved in several class action suits against the railroads also spearheaded the effort against VEPCO and Dominion Telecom. 12 VEPCO and Dominion denied the allegations in the complaint, asserted a number of affirmative procedural and equitable defenses, and argued for preemption under section 253 of the Communications Act. 13 On February 4, 2003, the judge denied VEPCO's motion to dismiss the 6 Reynolds v. AT&T Corp., Case No. IP99-C-9313-H/G (S.D. Ind.) (settlement information available by order of the court at 7 Peschell v. AT&T Corp., Case No. IP99-C-1889-H/G (S.D. Ind.) (settlement information available by order of the court at 8 Morgan v. AT&T Corp., Case No. IP C-H/B (S.D. Ind.) (settlement information available by order of the court at 9 Rattee v. AT&T Corp., Case No. IP01-C-1657-H/K (S.D. Ind.) (settlement information available by order of the court at 10 Fisher v. Virginia Power & Electric Co., Case No. 3:02cv431 (E.D. Va.) (settlement information available by order of the court at 11 Fisher v. Virginia Elec. & Power Co., Case No. 3:02cv431 (E.D. Va. filed June 20, 2002). 12 Somer Barnard Ackerson, P.C., now Ackerson Kauffman & Fex, P.C., has been involved in 50 similar lawsuits against railroad and telecommunications companies around the country. Greg Edwards, Dominion Companies Face Lawsuit, Richmond Times- Dispatch, July 2, 2002, at C Section 253 provides for general federal preemption of any state or local law that creates a barrier to entry for the provision of telecommunications services. Page 3

4 case on jurisdictional grounds, and the case has proceeded to discovery. In April 2003, the Plaintiffs moved for class certification, which was granted December 9, Plaintiffs also moved for summary judgment. A settlement conference, however, was held on January 5, 2004, and a settlement agreement was recently approved in the amount of $20 million. Warren et al. v. Mississippi Power Co. 14 Landowners filed 182 separate suits against Mississippi Power in Harrison County (MS) Circuit Court in April Alleging that Mississippi Power secretly subleased the easements to other communications companies in violation of the terms of the easement, the landowners collectively requested $5 million in compensatory damages and $50 million in punitive damages. The fiber company was named as a co-defendant. A second lawsuit was filed in July 2002 in Jones County (MS) Chancery Court by more than 100 landowners. These cases were removed from state court and consolidated in the U.S. District Court for the Southern District of Mississippi in August Plaintiffs in these suits are alleging that the utility installed fiber optic cables along existing transmission lines without permission. Like the T-Cubed settlement, plaintiffs' lawyers in both suits have also indicated that they believe landowners should share in a percentage of the fiber-owning company's profits. These cases were remanded from Federal Court to state court in September 2004, and continue forward. Corley v. Entergy Corp. This suit filed against Entergy Corp. and numerous Entergy subsidiaries 15 has been highly active and ongoing since 1998, and has been characterized by extensive jurisdictional disputes, large-scale discovery and significant motions practice. The plaintiffs allege violations of multiple state laws for trespass, conversion, breach of contract, civil conspiracy, and unjust enrichment relating construction on utility easements in excess of the rights granted by the landowners and also allege violations of the Federal Racketeer Influenced and Corrupt Organization Act (RICO), 18 U.S.C.S et seq. Four types of utility easements were at issue, and subject to inquiries as to the scope of the easements (whether the easement contemplate commercial telecommunications uses) and who may access the easement (whether access is limited to the utility or whether sub-easements may be granted.) The owners sought punitive damages on their state law claims and an injunction only until the companies paid damages. The district court, however, denied the motion for class certification in April 2004, finding that, considering the number of potential class members and the nature of their claims, calculating punitive damages was not a task that the court could accomplish on a class-wide basis. The denial of class certification has been appealed to the Fifth Circuit. 14 Case No. 2:02cv605 (S.D. Miss. removed to Federal Court Aug. 8, 2002), previously filed as Warren v. Mississippi Power Co., Case No and related cases (2d Dist. Miss. filed July 8, 2002). 15 Corley v. Entergy Corp, and consolidated cases, consolidated under Case No. 1:98cv02006 (E.D. Tex., filed Nov. 25, 1998). Page 4

5 Conclusion Electric utilities should be aware that the plaintiffs bar now appears to be targeting them for claims similar to those brought against railroads and telecommunications companies. Because these claims are often consolidated for possible treatment as class actions, utilities confronting such claims should be prepared to defend them on that basis. * * * For further information about any of these issues or other telecommunications related matters, please contact: Shirley S. Fujimoto McDermott Will & Emery LLP 600 Thirteenth Street, N.W. Washington, DC sfujimoto@mwe.com The material in this publication is intended to provide information of general interest in a summary manner, and should not be construed as individual legal advice. Readers should consult with their McDermott Will & Emery attorney or other professional counsel before acting on any of the information contained in this publication. This publication may be considered advertising under the rules regulating the legal profession. Page 5

6 ABOUT MCDERMOTT WILL & EMERY McDermott Will & Emery LLP is an international law firm with 1,000 lawyers in 15 offices in the United States and Europe. Our ability to access lawyer experience and knowledge across legal disciplines is a key asset to our clients. The firm is organized into a number of practice groups, including Trial, Antitrust, Telecommunications, Intellectual Property, Corporate Responsibility and Tax. Class Action Experience Our Class Action Practice Group has extensive experience in the defense of a wide variety of class action lawsuits in state and federal courts throughout the United States. Trial lawyers in each of our U.S. offices have defended class actions in a number of substantive areas. We have represented clients in numerous industries, including automotive, banking and financial institutions, consumer products, construction and construction materials, fine paper, food products, healthcare, household furniture, information technology training, insurance, oil and gas, pharmaceuticals, professional accounting, retail, securities, and telecommunications. Our trial lawyers have successfully obtained pre-certification dismissals and summary judgments, conducted class discovery, defeated class certification and obtained de-certification of classes in cases of both local and national scope. We have practiced before the Multi-District Panel, and have served as lead defense counsel in class action hearings in federal multi-district litigation, where we have briefed and argued important issues of first impression with respect to class action practice and procedure. Telecommunications Experience Lawyers in our Telecommunications Practice Group are intimately familiar with federal and state pole attachment and right-of-way governance. Our Telecommunications Group has conducted indepth analysis of the scope and applicability of the Pole Attachments Act, and has advised numerous utility clients on their rights and obligations with respect to current and prospective attachers. Our Firm has been highly involved in all phases of the pole attachment process, including: assessing and counseling clients on joint use issues, advocating our clients interests before the FCC and in court in pole attachment rulemaking proceedings, and representing utilities in pole attachment disputes before the FCC and in court. We have also assisted clients in accessing public rights-of-way for the installation of fiber optic cable, and have evaluated the scope and terms of utility rights-of-way and easements. Our Group also counsels utilities and other rightof way holders on the easement provisions of the Cable Communications Policy Act of Page 6