309 F.3d 978 (7th Cir. 2002), 01-3572, Uhl v. Thoroughbred Technology And Telecommunications, Inc.

Docket Nº:01-3572.
Citation:309 F.3d 978
Party Name:Frederick A. UHL and Timothy Elzinga, on Behalf of Themselves and all others Similarly Situated, Plaintiffs-Appellees, v. THOROUGHBRED TECHNOLOGY AND TELECOMMUNICATIONS, INC., Defendant-Appellee, Cathy Mason, Intervenor/Appellant.
Case Date:October 29, 2002
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Page 978

309 F.3d 978 (7th Cir. 2002)

Frederick A. UHL and Timothy Elzinga, on Behalf of Themselves and all others Similarly Situated, Plaintiffs-Appellees,

v.

THOROUGHBRED TECHNOLOGY AND TELECOMMUNICATIONS, INC., Defendant-Appellee,

Cathy Mason, Intervenor/Appellant.

No. 01-3572.

United States Court of Appeals, Seventh Circuit

October 29, 2002

Argued April 3, 2002.

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Nels Ackerson, Kathleen Clubb Kauffman (argued), Ackerson Group Chartered, Washington, DC, for Plaintiffs-Appellees.

Jack E. McClard, Hunton & Williams, Richmond, VA, G. Ronald Heath, Hoover Hull Baker & Heath, Indianapolis, IN, for Defendant-Appellee.

Irwin B. Levin (argued), Cohen & Mald, Indianapolis, IN, for Intervenor-Appellant.

John J. Rademacher, American Farm Bureau Federation, Park Ridge, IL, for Amicus Curiae.

Before COFFEY, DIANE P. WOOD and WILLIAMS, Circuit Judges.

DIANE P. WOOD, Circuit Judge.

This litigation arose after Thoroughbred Technology & Telecommunications, Inc. (T-Cubed) announced that it had the right to install conduits for fiber optic cables along railroad right-of-way corridors. Timothy Elzinga, a property owner along a right-of-way owned by the Norfolk Southern Railway, disagreed. In his view, such a use by T-Cubed without the permission of the adjacent landowners would amount to a slander of their title and a trespass. Discussions took place between Elzinga and T-Cubed, which eventually bore fruit in the form of a proposed class-wide settlement. This proposed settlement presumed that Elzinga would be certified as the representative of the putative class. With this much accomplished, Elzinga then filed suit and simultaneously sought certification of a settlement class, consisting of all the persons who owned real estate on either side of the railroad tracks along the route T-Cubed proposed to use for its cable.

One particular complication figures significantly in this appeal. At any given point, T-Cubed will lay fiber optic cable on only one side of the tracks. Ex ante, it is impossible to know which side that will be; detailed engineering surveys and technical criteria will govern the company's final choice. The settlement agreement attempts to deal with this uncertainty by dividing the class members into two categories: the Cable Side and the Non-Cable Side. (It does not address separately the possibility that one landowner might own land on both sides of the track; presumably such a person falls within both subgroups.) Under the terms of the agreement, the two groups will receive different forms of compensation. All class members, however, will become shareholders in Class Corridor, LLC (Class Corridor), a newly created limited liability company.

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The appellant in this case, Cathy Mason, is an unnamed class member who claims that the settlement is unfair, and more formally, that it fails to satisfy the requirements of fed. R. Civ. P. 23(a) and (b). (While a dispute remains as to whether Mason will be entitled to any benefits under the settlement agreement, the fact that she is claiming that she should receive something is enough to ensure that she has standing to intervene.) The district court granted Mason's motion to intervene, but it then overruled her objections and approved both the certification of the settlement class and the settlement agreement itself. We affirm.

I

The class Elzinga represents has approximately 58,000 members. They all own property along several thousand miles of railroad track.1 Although some class members own their property in fee simple absolute, in most instances, the property immediately adjacent to the track is subject to an easement or right-of-way owned by Norfolk Southern Corporation (Norfolk Southern). Regardless, all parties admit that in many cases, title to the properties will be difficult to prove.

Norfolk Southern granted to T-Cubed, its subsidiary, the right to lay fiber optic cable in the corridors along the railway easements. T-Cubed then announced its intention to install its cables in those corridors so that it could then market network services to communications providers. Elzinga's complaint alleged slander of title (arising from T-Cubed's claim that it has a property interest along the railroad right-of-way) and actual or threatened trespass (arising from T-Cubed's surveying of the property and its planned installment of conduits). On behalf of himself and the proposed class, he requested declaratory relief proclaiming the owners' interest in the land and injunctive relief prohibiting T-Cubed from taking further unlawful action.

Before we proceed to the details of the settlement agreement, we must first address the composition of the class the district court agreed to certify. The two groups within the class, the Cable Side and the Non-Cable Side, are determined by the eventual use of the side of the track on which the class members' property resides (which is a significant issue for those who do not own the property on both sides of a given section of track). As we noted above, this distinction is important because T-Cubed will lay its cables on only one side of the railroad track. Furthermore, T-Cubed has refused to identify which properties would be Cable Side and which would be Non-Cable Side, because it claimed that there was no way it could know until after it had entered the land and surveyed it (and thus committed the trespass the complaint was in part trying to prevent). As a result, class representative Elzinga had to agree to the settlement before knowing on which side of the tracks his own property fell. This "veil of uncertainty" exists as well for Mason; although she objects that the settlement agreement

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is not fair, she does not know whether she will be in the Cable Side or Non-Cable Side group.

Under the settlement approved by the district court, all class members, Cable Side and Non-Cable Side, will abandon any claims against T-Cubed and transfer an easement to T-Cubed for the specific purpose of laying cable. In exchange for the easement, depending upon whether they turn out to be Cable Side or Non-Cable Side, the class members will receive varying compensation.

In keeping with the fact that the Cable Side class members will have given up the most, they will receive the most generous compensation. T-Cubed will pay each one $6,000 per linear mile and a percentage of its revenue from the sale, lease, and license of the conduits it installs along the corridors. They will also receive ownership interests in the new company, Class Corridor, described below. The Non-Cable Side owners will not receive direct cash payments. They too, however, will receive the same kind of ownership interests in Class Corridor, and will benefit financially in their capacity as shareholders.

The settlement agreement places Class Corridor at the heart of the overall process. All class members (Cable Side and Non-Cable Side), will transfer easements to the new company. T-Cubed, for its part, must give Class Corridor assets including dark optical fiber and an option for Class Corridor to purchase a conduit from T-Cubed. In addition, if T-Cubed leases or sells four or more conduit systems to a telecommunications company, T-Cubed will pay either $316 per fiber mile or up to 16 dark fibers to Class Corridor. T-Cubed will also transfer non-cash telecommunication assets to Class Corridor, permitting it either to own and manage a telecommunications company or to take a specified sum of money. Finally, Class Corridor will convey all Cable Side easements to T-Cubed once T-Cubed determines which side of the corridor it will use for its cables. If T-Cubed fails to install a telecommunication system along the railway, the easements will terminate four years after the effective date of the approval of the settlement.

As noted above, class members will be entitled to share in any revenues that Class Corridor may earn from the telecommunication assets. They will own 100% of the company at a rate of one membership share for each ten linear feet of real estate owned by that class member, along with apportioned voting rights. Shareholder distributions are within the discretion of the Class Corridor Board of Directors and will be made as reasonably determined.

Finally, class counsel will receive $2,000 per linear mile for the first three conduits installed in the settlement corridors, a percentage of T-Cubed's gross receipts with respect to the fourth and successive conduits, and 25% of certain revenues generated by Class Corridor or the cash payment to which Non-Cable Side class members are entitled from Class Corridor. This means that class counsel will receive compensation of the same type and at the same time as class members; as one expert testified, class counsel can never receive compensation that is more advantageous than that which goes to the class members.

Mason acknowledges that Class Corridor has an upside, in that it permits class members to participate in any successes in the telecommunications market and to have greater control over future uses of their property. She points out, however, that there is also a downside. Most importantly in her view, any future benefit the class members may receive from Class Corridor is speculative. Class Corridor may never be able to commence its intended business, it might not be able to raise

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sufficient financing to fund its operations, and it may experience difficulties achieving profitability. As readers of the business pages of the newspapers know all too well at this point, the telecommunications market has been volatile. This means that, insofar as their compensation is tied to Class Corridor, the class members might do very well or they might wind up...

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