In re Worldcom, Inc.

• Decision Date: 26 July 2006
• Docket Number: No. 02-13533 (AJG).,02-13533 (AJG).
• Citation: 347 B.R. 123
• Parties: In re WORLDCOM, INC., et al., Reorganized Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

347 B.R. 123

In re WORLDCOM, INC., et al., Reorganized Debtors.

No. 02-13533 (AJG).

United States Bankruptcy Court, S.D. New York.

July 26, 2006.

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Weil, Gotshal & Manges LLP (Marcia L. Goldstein, Esq., Alfredo R. Perez, Esq., Sylvia Ann Mayer, Esq., of Counsel), New York, NY, for the Reorganized Debtors.

Jenner & Block LLP (David A. Handzo, Esq., J. Alex Ward, Esq., of Counsel), Washington, D.C., Special Counsel for the Reorganized Debtors.

Talbot, Carmouche & Marcello (Victor L. Marcello, Esq., Donald T. Carmouche, Esq., John H. Carmouche, Esq., of Counsel) Gonzales, LA, Mangham & Associates, LLC (Michael R. Mangham, Esq., Donald J. Ethridge, Esq., of Counsel), Lafayette, LA, Steffes, Vingiello, & McKenzie, LLC (Willaim E. Steffes, Esq., of Counsel), Baton Rouge, LA, Patrick W. Pendley, APLC (Patrick W. Pendley, Esq., of Counsel), Plaquemine, LA, Myles & Myles (Allen J. Myles, Esq., of Counsel), Plaquemine, LA, for the Claimants.

Cadwalader, Wickersham & Taft LLP (Barry J. Dichter, Esq., of Counsel), New York, NY, Hare, Wynn, Newell and Newton (Scott A. Powell, Esq., Don McKenna, Esq., James R. Moncus, III, Esq., of Counsel), Birmingham, AL, for the McCormick Objectors.

Shipman & Goodwin LLP (Kathleen M. LaManna, Esq., Corrine L. Burnick, Esq., of Counsel), Hartford, CT, Moore, Walters, Thompson, Thomas, Papillion & Cullens (Edward J. Walters, Jr., Esq., Darrel J. Papillion, Esq., of Counsel), Baton Rouge, LA, for the Alexander Objectors.

OPINION GRANTING MOTION FOR CERTIFICATION OF A SETTLEMENT CLASS AND FOR APPROVAL OF LOUISIANA RIGHT OF WAY SETTLEMENT

ARTHUR J. GONZALEZ, Bankruptcy Judge.

Before the Court is the Motion for Certification of a Settlement Class and for Approval of a Louisiana Right of Way Settlement (the "Settlement Motion"), filed by the Reorganized Debtors, MCI, Inc. (the "Reorganized Debtors"), and the Claimants XCL, Ltd., LM Holding Assoc. LP, David Odom, Katherine McClellan Sibille, the Sibille Co., Inc., Sylvia Weil Marcuse, Kimball Jr., and Elizabeth' Kimball Lewis (the "Claimants"). See Settlement Motion, Docket No. 16422. The Reorganized Debtors and the Claimants (collectively, the "Movants") request approval of the notice of settlement ("Notice") under Fed.R.Civ.P. 23(c)(2)(B), final class certification under Fed.R.Civ.P. 23(a), (b)(3), and approval of the settlement reached between the parties (the "Settlement") under Fed.R.Civ.P.23(e) and Fed.R.Bank.P. 9019. See Settlement, Settlement Motion Exhibits, Ex. 1; Notice, Settlement Motion Exhibits, Ex. 9, 10. Two groups of proposed class members, the "McCormick Objectors" and the "Alexander Objectors" (collectively, the "Objectors"), have, through counsel, filed briefs and appeared before the Court in opposition to the Settlement. Having reviewed the parties' pleadings, the record, and the relevant case law, and a fairness hearing having been held, the Court concludes that (i) the Notice should be approved, (ii) that the class should be certified for settlement purposes, and (iii) that the Settlement should be approved. Accordingly, the Court concludes that the Settlement Motion should be granted.

Background

I. Fiber Optic Litigation and Procedural History

The Settlement arose from two class action suits filed in the 18th Judicial District, West Baton Rouge Parish, Louisiana on October 5, 1994, State of Louisiana et al v. WilTel, Inc. and WilTel Commc'n (the "MCI Suit") and State of Louisiana et al v. Sprint Commc'n Co., et al (the "Sprint Suit") (collectively with the MCI Suit, the "Louisiana Actions"), which were subsequently consolidated for pre-trial purposes on July 3, 1996. The Louisiana Actions alleged that the defendant telecommunication providers had improperly and illegally installed fiber optic cable in railroad rights-of-way crossing properties owned by the plaintiff class members.¹ In particular, the plaintiffs argued that the easements creating the railroad rights-of-way did not grant telecommunication providers the right to install fiber optic cables even though the telecommunication providers had obtained the railroad's consent.

Numerous class action suits asserting similar legal theories have been filed in federal and state courts over the last fifteen years against a range of telecommunication providers, such as the Reorganized Debtors, Qwest, and AT & T. During the 1980's and 1990's, telecommunication companies embarked on a rapid program to install tens of thousands of miles of fiber optic cable throughout the country, an effort reminiscent of the original railroad boom. See generally, Jeffrey M. Heftman, Railroad Right-of-Way Easements, Utility Apportionments, and Shifting Technological Realities, 2002 U. Ill. L.Rev. 1401 (2002); Jill K. Pearson, Balancing Private Property Rights with Public Interests: Compensating Landowners for the Use of Railroad Corridors for Fiber-Optic Technology, 84 Minn. L.Rev. 1769 (2000). For technical, economic, and efficiency reasons, much of this new fiber optic cable was laid along existing infrastructure and rights-of-way, primarily railroads, highways, pipelines, and utility lines. However, although the telecoms purchased the right to lay cable in the easements from owners of the dominant estates, in many cases they did not negotiate with the owners of the servient estates, choosing instead to rely upon the authority of the original easement.

Whatever the merits of this choice at the time, the consequence has been a proliferation of class actions, such as the Louisiana Actions, on behalf of those servient landowners. In general, plaintiffs have not established a positive record. Few suits have proceeded to trial and a decision on the merits, and of those that have, the Court is aware of only one where the plaintiffs succeeded. See Buhl v. U.S. Sprint Commc'n Co., 840 S.W.2d 904, 908-13 (Tenn.1992). Nonetheless, due to the sheer size of the potential legal exposure measured nationally, attempts have been made to craft regional and national settlements. However, relying in large part on the Supreme Court's decision in Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997), appellate courts have determined that the "commonality" requirement of Rule 23 cannot be met due to the differences in state property law. See, e.g., Smith v. Sprint Commc'n Co., L.P., 387 F.3d 612 (7th Cir. 2004) (reversing class certification for settlement purposes of national class); Isaacs v. Sprint Corp., 261 F.3d 679 (7th Cir. 2001) (reversing class certification for trial purposes of national class).

As successors-in-interest to WilTel, Inc., which was purchased by the Reorganized Debtors' predecessor-in-interest LDDS Communications in 1995, and as MCI, Inc., which had also installed a fiber optic system in Louisiana, the Reorganized Debtors were one of the two defendants in the Louisiana Actions, along with Sprint Communications ("Sprint") (collectively with the Reorganized Debtors, the "Louisiana Defendants"). Following the filing of the complaint and consolidation, the parties conducted discovery on class certification and the substantive property issues. After two years of discovery, the parties began settlement negotiations, which included the participation at times of a mediator. The Settlement was finally executed in 2001.

However, the Reorganized Debtors' bankruptcy intervened after the Louisiana trial court had conditionally certified the class and the Settlement. The two actions were separated, and while the MCI Suit was automatically stayed, the Claimants and Sprint went forward with regard to the Sprint Suit in the Louisiana courts. The trial court subsequently certified the class and approved the Settlement in an opinion dated December 5, 2002. State of Louisiana v. Sprint Commc'n Co., 94-26334 (La. 18th D.Ct.12/5/02). However, the Louisiana First Circuit Court of Appeal reversed that decision on appeal, State of Louisiana v. Sprint Commc'n Co., 897 So.2d 85 (La.App. 1 Cir.2004), and the Louisiana Supreme Court denied a petition for review of the appellate court's decision in December of 2005.²

In light of the Reorganized Debtors' bankruptcy, the Claimants filed a proof of claim, claim # 25038, with this Court for an unliquidated amount based upon the Settlement. In addition, individual class members filed approximately fifty-two proofs of claim. Following a series of discussions between counsel regarding the Settlement and the related proofs of claim, the Claimants and the Reorganized Debtors executed the Settlement Implementation Agreement (the "Implementation Agreement") on May 18, 2005. See Implementation Agreement, Settlement Motion Exhibits, Ex. 6. The Settlement Motion was thereafter filed on July 13, 2005.

On August 2, 2005, this Court issued an Order Preliminarily Certifying A Settlement Class and Approving a Louisiana Right of Way Settlement ("Preliminary Order"). Docket No. 16663. The Preliminary Order designated October 31, 2005, as the deadline for objections and scheduled a final fairness hearing for December 6, 2005. However, the devastation and dislocation wrought by Hurricanes Katrina and Rita clearly necessitated changes in the administration of the Settlement. Upon motion by the Movants, this Court issued a Supplemental Order Regarding Louisiana Right of Way Settlement on October 20, 2005 ("Supplemental Order"). Docket No. 17424. The Supplemental Order indefinitely delayed notification in those areas most affected by the hurricanes (the "Hurricane-Affected Parishes"), set December 31, 2005 as the new deadline for objections and opt-outs, and rescheduled the final fairness hearing for February 7, 2006.³

Two objections to the Settlement Motion were timely filed with this Court on behalf of the proposed class members. Both the McCormick Objectors and the Alexander ...