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Sample v. Centurylink Communications LLC

United States District Court, D. Arizona

August 21, 2018

Walter E. Sample, Sherry L. Earle Revocable Living Trust, San Simon Gin Incorporated, and Lesco Enterprises Incorporated, Plaintiffs,
v.
Centurylink Communications LLC, Level 3 Communications LLC, Sprint Communications Company LP, and WilTel Communications LLC, Defendants.

          ORDER

          NEIL V. WAKE SENIOR UNITED STATES DISTRICT JUDGE

         Before the Court is the parties' Renewed Joint Motion for Certification of Settlement Class, Preliminary Approval of Class-Action Settlement, and Approval of Form and Manner of Notice. (Doc. 50.) Both parties have submitted memoranda of law in support of the Motion (Docs. 51, 52), as well as supplemental authority (Doc. 53).

         I. PROCEDURAL BACKGROUND

         CenturyLink Communications, LLC, Level 3 Communications LLC, Sprint Communications Company L.P., and WilTel Communications, LLC, (collectively “the Cable Companies”) are telecommunications companies that have laid fiber-optic cable underneath railroad rights of way throughout Arizona. (Doc. 30 at 11-12.) Those rights of way, which cross privately owned land, were granted to railroad companies by the United States under the General Right of Way Act of 1875 (the “1875 Act”). (Id. at 17.)

         The putative plaintiff class-which, for ease, is referred to as the class-consists of landowners who own property adjacent to or beneath about 335 miles of the rights of way in question. (Id.) The class is represented by Walter E. Sample, the Sherry L. Earle Revocable Living Trust, San Simon Gin, Inc., and Lesco Enterprises, Inc. (collectively “Plaintiffs”). Plaintiffs allege the Cable Companies made deals with various railroad companies to lay fiber-optic cable on the rights of way even though the 1875 Act grants rights of way only for “railroad purposes.” (Doc. 1 at 2-3.)

         Landowners filed class actions against telecommunication companies over the legality of similar arrangements in a number of states. (Doc. 30 at 15.) Despite attempts to litigate and settle all the claims in one action, two federal courts concluded those claims could not be resolved on a nationwide class basis but needed to be litigated state by state. (Id.) As a result, landowners brought separate actions in each state. (Id.)

         In 2010, the parties in this case brought one such action in Arizona in this Court. (See Doc. 1, No. CV 10-08106-PCT-NVW.) One year later they jointly filed a motion for class certification and preliminary approval of a settlement agreement. (Doc. 57, No. CV 10-08106-PCT-NVW.) In a hearing on that motion, the Court raised several concerns about the proposed settlement and requested additional briefing on a number of issues, including “The scope of the Court's authority under Fed.R.Civ.P. 70 to enforce a judgment against an absentee class member plaintiff”; “Authority granting the Court power to convey an easement from class members, as opposed to simply extinguishing an existing claim, through a class action settlement”; and “The scope of the Court's authority under Fed.R.Civ.P. 23 to vest the claims administrator with final adjudicative responsibility over class members' claims.” Sample v. Qwest Commc'ns Co., L.L.C., No. CV 10-08106-PCT-NVW, 2012 WL 1880611, at *1 (D. Ariz. May 22, 2012). After the parties' supplemental briefing failed to adequately address these concerns, the Court set a hearing to give the parties “opportunity to present argument on why the granting of easement rights under [the proposed settlement agreement] should be given preliminary approval.” Id., at *2. On January 17, 2012, the parties agreed to dismiss the action without prejudice and entered into a tolling agreement to give them time to consider their options. Id. The Court granted the dismissal as required by Rule 41(a)(1)(A)(ii). (Doc. 90, No. CV 10-08106-PCT-NVW.)

         The parties proceeded to obtain class settlements in other states for more than four years. On September 22, 2016, the parties, seeking certification and approval of the class settlement they had withdrawn in 2012, filed the present action in the Tucson Division of this Court. (Doc. 1.) It was assigned to another judge in the Tucson Division but later transferred to the undersigned judge on February 9, 2017, as required by Local Rule LRCiv 3.7(a)(2). (Doc. 37.)

         A Joint Motion for Class Certification was pending at the time of the transfer. (Doc. 30.) The motion was denied with leave to refile. (Doc. 45.) The parties revised their settlement agreement and now present it once again for approval. (Doc. 50.)

         II. NATURE OF THE CASE AND PROPOSED SETTLEMENT

         A. Nature of the Case

         The Plaintiff landowners assert claims for trespass, unjust enrichment, and slander of title. (Doc. 1 at 10-12.) The gravamen of their Complaint is that the railroads' rights of way do not include the right to lay fiber optic cables and therefore the railroads could not convey such a right to the Cable Companies. Yet the railroads did convey that right, and the Cable Companies laid their cables under the rights of way. As a result, the Cable Companies “have committed present, permanent, and continuing trespasses” on class members' lands. (Id. at 3.) The question presented is thus whether the Cable Companies acquired a right to install and maintain their fiber-optic cables on the railroad rights of way upon grant of the railroads and without the adjacent or underlying property owners' approval.

         The answer depends on how one interprets the 1875 Act. Plaintiffs contend that the rights of way granted to the railroad companies in the 1875 Act are limited to “railroad purposes.” (Doc. 1 at 3.) They say burying and maintaining fiber-optic cable, cable not used in the railroad operation itself, exceeds that scope. (Id.) The Cable Companies should have bought the right to install their cable systems from the adjacent landowners, not the railroad companies. (Id.) The parties state that whether the 1875 Act “conveyed a fee-interest in land or merely an easement, and the scope of any such easements, have been contentious issues in right-of-way litigation and in settlement negotiations.”[1] (Doc. 30 at 17.)

         The term “railroad purpose” does not appear in the 1875 Act, see 18 Stat. 482, but it is inherent in the statutory language granting a “right of way” to “any railroad.” The phrase comes from the Supreme Court's description “of the nature of the rights acquired” under various statutes. Barahona v. Union Pac. R.R. Co., 881 F.3d 1122, 1131 (9th Cir. 2018) (citing United States v. Union Pac. R.R. Co., 353 U.S. 112 (1957)). In Barahona, the Court of Appeals concluded that railroad right-of-way statutes predating the 1875 Act did not require a “railroad purpose.” Id. at 1133. It further explained that the 1875 Act conveyed an interest different from the interest conveyed by previous statutes. Id. The defendant in Barahona conceded “that the 1875 Act conferred only an easement in the right of way, albeit a broad easement ‘for railroad purposes.'” Id. Railroad purposes have been held to be broad, from power and communication lines to fuel storage and other warehouses (id. at 1134 (collecting cases)), at least when of more than “minimal or illusory benefit to railroad operations.” Id. at 1135. “[A] railroad may license third parties to do what it could do itself, even if the third party benefits in addition to the railroad.” Id. (citing Grand Trunk R.R. Co. v. Richardson, 91 U.S. 454, 468 (1875)). These examples fall within what is known as the incidental-use doctrine. Id. at 1134-35.

         Ultimately, then, the issue in this case is whether the railroad companies' rights of way include fiber-optic cable use within this incidental-use doctrine. That devolves down to whether the railroads do use the fiber-optic cable system in their railroad operations in more than a “minimal or illusory” way, even though the Cable Companies use the system for the public in general.

         B. The Proposed Settlement

         The parties have reached a compromise. Under the terms of the Revised Arizona Class Settlement Agreement (“Proposed Settlement”), class members who own land adjacent to the Cable Companies' cable system will be paid $1.16 per linear foot of affected land. (Doc. 50-1 at 6.)

         In exchange, class members are giving up three distinct forms of legal right. First, they are giving up damages for past trespass. Second, they are permanently giving up their rights against continuation of that same trespass. The Cable Companies will get the right to continue the existing trespass-to keep and maintain their cable uses intact as they are now. Third, the Cable Companies will acquire the right to expand their intrusion beyond what it has been and now is.

         Indeed, the right the Cable Companies seek to acquire is expansive.[2] To get their compensation, participating class members must execute and tender to a Claims Administrator a release of claims form. (Id. at 18.) The release of claims appropriately applies to the Cable Companies and to all possible predecessors and successors in interest. (Doc. 50-1, Ex. H at 68.) The release defines “Settlement Claims” as

all claims for past, present, and future damages, past, present, and future equitable relief, and any other form of relief now or in the future, arising out of or relating to any Settling Defendant's ownership, installation, occupation, maintenance, or use of its Telecommunications Cable System or any component of a Telecommunications Cable System that has been installed on or in an Arizona Settlement Corridor, or any other claims addressed in or arising out of the subject matter of the Settlement Agreement or the Class Complaint or that could have been alleged in the Class Complaint, including without limitation claims for permanent trespass, continuing trespass, unlawful entry, slander of title, quiet title, breach of covenant, unjust enrichment, criminal mischief, criminal trespass, inverse condemnation, conversion, conspiracy, injunctive relief, declaratory judgment, compensatory, consequential and punitive damages, and any and all such claims, including assigned claims, offsets, and counterclaims, whether known or unknown, whether or not concealed or hidden, asserted or unasserted, regardless of the legal theory, that are or may be asserted now or in the future by any or all Class Members, or their successors, heirs, or assigns, against a Settling Defendant and/or any Released Party, provided, however, that Settlement Claims do not include (1) claims against any Released Party arising out of the ownership, occupation, maintenance, or use of any telecommunications cable system or any component of a telecommunications cable system, other than a Telecommunications Cable System, (2) claims for bodily injury or physical harm or damage to property located or situated outside the lateral boundaries of the Right of Way, (3) claims by Settling Defendants against any Right-of-Way Provider, insurer, or other third party for contribution, indemnification, or insurance benefits, which claims Settling Defendants specifically reserve, or (4) claims arising out of alleged violations of the Settlement Agreement.

(Id. at 69 (emphases added).)

The “Telecommunications Cable System” is
a telecommunications cable system (including underground and surface cables, conduits, wires, fibers, pipes, ducts, waveguides, surface testing terminals, manholes, markers, regeneration huts, hand holes, splice vaults, poles, optical or electronic equipment, signs, and related facilities necessary and appropriate for installation, use, repair, or maintenance of such components), and any components thereof that are (1) located within a Right of Way and (2) have been, are now, or are hereafter constructed, installed, owned, or operated by any Settling Defendant, by any parent, subsidiary, or affiliated entity of any Settling Defendant, or by any person or entity to whom a Settling Defendant has heretofore sold, granted, leased, or otherwise transferred, or hereafter sells, grants, leases or otherwise transfers, the right to operate any portion of a telecommunications cable system.

(Id. at 70 (emphases added).)

         In sum, class members must release the Cable Companies from virtually all claims related to the Telecommunications Cable System. (Id. at 69.) The sweeping language includes anything “that could have been alleged in the Class Complaint” and claims that could be “asserted now or in the future.” (Id.) The Settlement Agreement provides for few exceptions, one of which is claims “arising out of the ownership occupation, maintenance, or use of any telecommunications cable system . . . other than a Telecommunications Cable System.” (Id.) It is hard to imagine what such other telecommunications cable systems might be, as the Telecommunications Cable System here is the only one that is the subject of this action. The defined term Telecommunications Cable System includes all existing telecommunications cable systems and their components located within a railroad right of way. (Id. at 70.) The term also encompasses the right of the Cable Companies “hereafter” to construct or install cable system components, which include, among other things, surface testing terminals, poles, signs, and “necessary and appropriate” related facilities. (Id. at 70.) There thus appears to be no meaningful limit to the expansion of the Telecommunications Cable System as defined. The Settlement Agreement and release of claims expressly extend beyond the existing trespass. They authorize expanded trespass and use of every sort for the Telecommunications Cable System. Class members who do not opt out and do not submit a claim form and signed release forfeit their right to compensation for the past and future trespass of the same extent and character as now exists, as that is how Rule 23(b)(3) works. But they also lose their property rights against future expansion of the trespass.

         Neither the Proposed Settlement nor the release of claims limits the scope of the Cable Companies' cable use of the landowners' property. (Doc. 50-1 at 11; Doc. 50-1, Ex. H.) By contrast, the parties' proposed final order of settlement prohibits the Cable Companies from erecting “microwave towers, cell towers, or other components of a primarily aboveground statewide telecommunications cable system.” (Doc. 50-1, Ex. E at 62.) Similar limitations are found in the parallel New Mexico case of Fager v. Centurylink Communications, LLC, Civ. No. 14-cv-00870 JCH/KK, 2015 WL 13298517, at *2 (D.N.M. June 25, 2015): “The scope of the easements does not permit the installation of large structures, cell towers, or other components of a primarily above- ground telecommunications system.” The parties do not explain why the language differs. Perhaps it is an oversight.

         The parties' proposed notice to class members says any court order granting final approval will be recorded in all current property owners' chains of title, even if those owners do nothing. (Doc. 50-1, Ex. C at 49.) Class members have 45 days from the date preliminary notice is mailed to object or opt out. (Doc. 50-1 at 8.) If “in the reasonable discretion” of any Cable Company, “an excessive number” of class members opt out, each Cable Company has a right to withdraw prior to the final Fairness Hearing. (Id. at 21.)

         In short, under the current Settlement Agreement, class members who do not opt out will be forced to give up property greater than necessary to entitle the Cable Companies to continue their past and current level of trespass. The Cable Companies and their successors and assigns could build new surface and subsurface structures on class members' property. And if enough class members do not like this arrangement, any Cable Company may withdraw from the settlement.

         The other terms of the Settlement Agreement are fairly evenhanded. A class member must prove a claim for benefits by providing the Claims Administrator, a third-party agency, “with a copy of a deed or certificate of title.” (Id. at 7, 12.) The member must submit a claim form and a release of claims, and the Claims Administrator will determine whether the member is entitled to compensation. (Id. at 17-18, 23-24.) The compensation will be prorated according to the amount of time the class member owned a parcel from the date the cable was installed to the end of the compensation period. (Id. at 13-14.) The Claims Administrator must process a claim within 120 days of its submission. (Id. at 19.) The Cable Companies can contest a claim, and the Claims Administrator has ultimate authority, without review of any kind, to determine which claims are valid.[3] (Id. at 23-25.)

         The class representatives may apply for an incentive award of $1, 300, except Lesco Enterprises, Inc., which qualifies for $3, 200. (Id. at 6.) Class counsel may receive an award of attorneys' fees not to exceed $903, 000, an award to which the Cable Companies will not object. (Id. at 8, 14-15.)

         Each Cable Company has an ongoing obligation to keep the settlement account funded. (Id. at 15-16.) The Cable Companies must also pay all administrative costs and claims-processing expenses. (Id. at 16.) The parties estimate those costs will be approximately $863, 000. (Doc. 52 at 7.)

         Having crafted these terms, the parties ask the Court to: (1) certify the plaintiff class, (2) grant preliminary approval of the Settlement Agreement, and (3) approve the form and manner by which they will give notice to class members. The Court addresses each request below.

         Whether a class action is superior to other available methods for fairly and efficiently adjudicating the controversy, what other methods are available, whether a money damage class is even a lawful method to acquire the expanded property rights the Cable Companies seek, and whether discretion leads the Court to preliminarily approve the class and the settlement are bound up together. These things are ...


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