Smith v. Sprint Communications Co.

In the
United States Court of Appeals
For the Seventh Circuit
____________

Nos. 03-3087, 03-3140, 03-3659 & 03-3660
WAYNE SMITH, LESCO ENTERPRISES, INC.,
SAN SIMON GIN, INC., GROSS-WILKINSON
RANCH CO., REX DOLAN, EVERETT CHAMBERS,
and JOANNE CHAMBERS, on their behalf and
all others similarly situated,
Plaintiffs-Appellees,
v.

SPRINT COMMUNICATIONS COMPANY, L.P.,
QWEST COMMUNICATIONS CORPORATION,
LEVEL 3 COMMUNICATIONS, LLC, WILTEL
COMMUNICATIONS, LLC, and UNION
PACIFIC RAILROAD COMPANY,
Defendants-Appellees.

APPEALS OF:
CHEM-TRONICS, INC., DANIEL R. BUHL,
JOE C. MEIGHAN, JR., CHARLES W. HORD,
and JOY PRATT HORD,
Intervenors.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 3844—Wayne R. Andersen, Judge.
____________
ARGUED JANUARY 20, 2004—DECIDED OCTOBER 19, 2004
____________
2 Nos. 03-3087, 03-3140, 03-3659 & 03-3660

Before CUDAHY, KANNE, and EVANS, Circuit Judges.
EVANS, Circuit Judge. In this case, we are asked to
review a nationwide class certification, accompanied by an
injunction against all competing class actions. The plaintiff
class is made up of landowners whose property is subject to
railroad rights of way, along which defendant telecommuni-
cations companies have installed fiber-optic cables without
the landowners’ permission. See generally Jeffery M.
Heftman, Railroad Right-of-Way Easements, Utility
Apportionments, and Shifting Technological Realities, 2002
U. Ill. L. Rev. 1401. We reversed certification of a virtually
identical class in Isaacs v. Sprint Corp., 261 F.3d 679 (7th
Cir. 2001), observing that differences in state law concern-
ing the scope of the railroads’ easements, along with differ-
ences in the various deeds themselves, would result in “a
nightmare of a class action.” This time, though, the class
has been certified for settlement only, which the settling
parties insist eliminates the complications that made the
class uncertifiable in Isaacs. The intervening parties—who
represent statewide plaintiff classes already certified in
Tennessee and Kansas—argue that the class still fails to
meet the certification requirements of FED. R. CIV. P. 23(a)
and (b).
Before getting to the matter at hand, we note that this
case has had a troubled history. The original complaint was
filed in 1999 by certain representative plaintiffs against
Sprint Communications and the Union Pacific Railroad,
claiming damages for the wrongful installation of fiber-optics
cables across their land and seeking class-action status in
the district court for the Northern District of Illinois. In
2001 the parties announced that a nationwide settlement
was in the works in which all similar claims against Sprint
and four other companies not yet named as defendants
would be settled. Thereafter, representative class-action
plaintiffs in other cases around the country got wind of the
deal and intervened in order to object.
Nos. 03-3087, 03-3140, 03-3659 & 03-3660 3

After a half a dozen hearings in Chicago, engaging the
time of a district judge, a magistrate judge, and a Special
Master, the settling parties, apparently not pleased with
how things were going in the Windy City because the court
seemed to be disinclined to approve the settlement, migrated
to the United States district court in Oregon and submitted
it there for preliminary approval. In doing so, plaintiff’s
counsel sent a letter to the judge in Chicago informing him
that the settling parties would no longer seek approval of
the settlement agreement in the Northern District of Illinois.
After one hearing, the Oregon district judge (Judge Ann
Aiken), in a decision that hit the nail squarely on its head,
dismissed the case on the grounds of “judge shopping.”
Zografos v. Qwest Communications Corp., 225 F. Supp. 2d
1217, 1223 (July 12, 2002 U.S.D.C. D. Or.). The settling par-
ties then returned to Chicago for another stab at making
their deal stick.
The fact that a settlement has been reached is, of course,
relevant. “Confronted with a request for settlement-only
class certification, a district court need not inquire whether
the case, if tried, would present intractable management
problems, for the proposal is that there be no trial.” Amchem
Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997) (citation
omitted). But settlement is not a cure-all: “[The] other spe-
cifications of [Rule 23]—those designed to protect absentees
by blocking unwarranted or overbroad class definitions—
demand undiluted, even heightened, attention in the set-
tlement context.” Id. These include the requirement that
the class representatives’ claims be typical of those of the
class and that the representatives will adequately protect
the class’s interests. FED. R. CIV. P. 23(a)(3), (4). And not just
the class as a whole: where there are significant differences
among subgroups within the class, “the members of each
subgroup cannot be bound to a settlement except by
consents given by those who understand that their role is to
represent solely the members of their respective sub-
4 Nos. 03-3087, 03-3140, 03-3659 & 03-3660

groups.” Amchem, 521 U.S. at 627 (quoting In re Joint
Eastern and Southern Dist. Asbestos Litig., 982 F.2d 721,
743 (2nd Cir. 1992)).
The intervening parties identify several ways in which
the settling plaintiffs do not adequately represent the in-
terests of landowners in Tennessee and in Kansas. Those
two groups have already been certified as litigation classes
in their respective states, and each was on the eve of trial
when the district court in Chicago issued its injunction. Ad-
ditionally, the Tennessee class members have established
liability in state court for the taking of their property, see
Buhl v. U.S. Sprint Communications Co., 840 S.W.2d 904,
912 (Tenn. 1992), and estimate compensatory damages at
approximately ten times greater than the upper limit pro-
vided by the proposed nationwide settlement. They have also
shown that punitive damages may be available for trespass
to their property, see Meighan v. U.S. Sprint Communications
Co., 924 S.W.2d 632, 641-42 (Tenn. 1996), subject to proof
at trial.
The nationwide class, in contrast, has not been and can-
not be certified for trial—see Isaacs, 261 F.3d at 681-82. The
nationwide class plaintiffs thus entered negotiations in
what the Amchem court describes as a “disarmed” state,
unable to “use the threat of litigation to press for a better
offer,” Amchem, 521 U.S. at 621—not a good position from
which to represent the interests of parties that do wield
such a threat.
The settling parties argue that the intervenors’ interests
are nevertheless protected. Specifically, the settlement
agreement provided that adjustments will be made to the
amount of recovery available to landowners in a given state,
based on an analysis of that state’s law by independent
property-law experts. But although that may tend toward
a more equitable division of funds, it does not provide the
“structural assurance of fair and adequate representation”
Nos. 03-3087, 03-3140, 03-3659 & 03-3660 5

prior to the settlement itself that Rule 23 demands. Amchem,
521 U.S. at 627. Law professors are no substitute for proper
class representatives. Cf. Uhl v. Thoroughbred Tech. &
Telecomms., Inc., 309 F.3d 978, 987 (7th Cir. 2002); In re
Agent Orange Prod. Liab. Litig., 818 F.2d 179, 185 (2nd Cir.
1987) (disallowing the administration of class funds by
independent foundation without judicial oversight).
We agree with the intervenors that they are inadequately
represented by the settling plaintiffs.1 We therefore VACATE
the nationwide class certification and the district court’s
injunction against competing class actions and REMAND
the case to the district court for further proceedings. Costs
are awarded to the Intervenors.

CUDAHY, Circuit Judge, dissenting. It seems to me that
the majority has entirely lost sight of the benefits of the
federal court settlement that has been successfully negoti-
ated here. The development involved here is the laying of a
36,000-mile network of transcontinental fiber-optic cables
crossing many states to provide a national telecommunica-
tions grid. This installation of fiber-optic cables becomes
part of the national communications infrastructure, having

1
Our dissenting colleague, in rejecting our approach to this case,
observes that if “a similar approach had been applied to the con-
struction of the first transcontinental railroad, the Pony Express
might still be galloping along.” We doubt that his observation is
true but also note that the Pony Express might well be still
galloping along if class-action lawyers were on the prowl in the
1830’s.
6 Nos. 03-3087, 03-3140, 03-3659 & 03-3660

an important value for the national economy as well as for
national security. Obviously, to the extent uniformity in
treatment of affected landowners can be achieved, legal costs
and costs of administration (ultimately charged to telecom-
munications users) can be reduced. The state-by-state
treatment favored by the majority is likely to produce a
nightmare of complexity, the inequitable treatment of land-
owners in different states and increased charges to telephone
users everywhere. If a similar approach had been applied to
the construction of the first transcontinental railroad, the
Pony Express might still be galloping along.
The principal point made by the majority opinion is that
the interveners have not been adequately represented, for
two reasons: A) class counsel were “disarmed” because no
federal class action could be certified for litigation; and B)
having law professors make adjustments to the settlement
amount based on a state law is no substitute for proper
class representation. Both arguments are without merit.
The majority’s first argument hinges on three assumptions,
each of which must be true for the majority’s argument to
succeed. Unfortunately, each of these three assumptions is
at best, unfounded and, at worst, simply incorrect.
First, based on the Supreme Court’s holding in Amchem,
the majority assumes that if class counsel are “disarmed”
during the settlement negotiation process, the resulting set-
tlement cannot or should not be approved. Amchem, however,
does not stand for that proposition and only raises the issue
of “disarmed” counsel to explain one reason why courts must
consider commonality and the other requirements of Rule
23(a) and Rule 23(b) even in a settlement class. See Amchem
Prods. Inc. v. Windsor, 521 U.S. 591, 621 (1997) (“[I]f a fair-
ness inquiry under Rule 23(e) controlled certification, eclipsing
rule 23(a) and (b), and permitting class designation despite
the impossibility of litigation, both class counsel and the
court would be disarmed.”).
Nos. 03-3087, 03-3140, 03-3659 & 03-3660 7

Second, even if Amchem did stand for the proposition that
settlements by “disarmed” counsel should not be approved,
the majority assumes that class counsel should be consid-
ered “disarmed” whenever their class could not be certified
for litigation in federal court. In Amchem, however, class
counsel were “disarmed” not simply because the class could
not be certified for litigation in federal court, but because
the settlement “exclusively involv[ed] persons outside the
MDL Panel’s province—plaintiffs without already pending
lawsuits.” Amchem Prods., 521 U.S. at 601 (emphasis added);
see also id. at 601 n.3 (“It is basic to comprehension of this
proceeding to notice that no transferred case is included in
the settlement at issue, and no case covered by the settle-
ment existed as a civil action at the time of the MDL Panel
transfer.”). Thus, if the class in Amchem could not bring a
federal class action, it was left with nothing except mere
speculation about the possibility of filing future actions. In
stark contrast, in the present case there have been 12 years of
litigation pending in various state courts, some of which have
already decided that punitive damages may be sought. See,
e.g., Meighan v. Sprint, 924 S.W.2d 632 (Tenn. 1996).
Therefore, unlike Amchem, in this case, class counsel could
exert enormous leverage over the defendants, since the al-
ternative to settlement for the defendants is to spend years
litigating the case in many different state court venues,
which, according to appellants, might award as much as
3,000 percent more than is being offered in this settlement.
See Buhl Br. at 23 (“[T]he plaintiffs’ proof in Hord v. Quest
is that compensatory damages will be $15-19 per foot, with
punitive damages expected to multiply that figure several
times.”). Thus, defendants’ next best alternative to settle-
ment would not be the possibility of no litigation at all, as
in Amchem or as the majority opinion seems to suggest in
this case, but expensive and lengthy chaos in the various
states that the fiber-optic cable has traversed. Far from
being the classic disarmed counsel, these counsel have the
fabled weapons of mass destruction.
8 Nos. 03-3087, 03-3140, 03-3659 & 03-3660

Finally, even if the majority is correct in its first two as-
sumptions (i.e., Amchem means both that (a) settlement by
“disarmed” counsel should not be approved; and (b) counsel
must be considered “disarmed” simply because their class
could not be certified for litigation in federal court), the
majority would still need to demonstrate that the present
class action could not be certified for litigation. The major-
ity assumes this to be so; however, it provides no analysis
as to why and pays only lip service to the district court’s
findings. This is in stark contrast to Amchem, in which the
Supreme Court went through a detailed analysis of why the
class in that case failed to meet the commonality require-
ments of Rule 23(a) and (b). See Amchem Prods., 521 U.S.
at 622-31.
With respect to commonality, the problems presented in
Amchem do not apply here. In Amchem, cohesion was missing,
because the class included members who were exposed to
different asbestos-containing products, for different amounts
of time, in different ways and over different periods. Some
class members suffered no physical injury, some had only
asymptomatic pleural changes, others had lung cancer (some
of whom were smokers), others disabling asbestosis, and
still others mesothelioma—a disease with a latency period
of 15 to 40 years. Indeed, as to some class members, it was
unclear whether they were ever exposed, and whether they
would ever contract an asbestos-related disease and, if so,
which one.
In the present case, there are no disparate personal in-
juries. Plaintiffs’ and all class members’ claims arise from
defendant’s installation and maintenance of fiber-optic
cable on railroad rights of way. Any harm rising from that
installation has occurred and is capable of being ascertained.
All class members also raise the same legal claims. There-
fore, the class has sufficient unity for settlement class
certification purposes.
Nos. 03-3087, 03-3140, 03-3659 & 03-3660 9

The majority apparently believes that such rigorous analysis
is unnecessary because of this court’s one-paragraph dis-
paragement of a related class action in Isaacs v. Sprint
Corporation. See 261 F.3d 679, 682 (7th Cir. 2001). However,
in Isaacs, we merely found that the district court improp-
erly “certified the case to proceed as a class action before
making any of the determinations . . . that Rule 23 makes
prerequisite to certification.” Id. at 682 (emphasis added).
Although we suggested that it was “unlikely” that common
issues could be found to predominate, we did not rule out
this possibility nor did we rule out the possibility that a
national class action could be bifurcated or otherwise made
manageable. Id. In the present case, unlike Isaacs, the dis-
trict court made the determination that the Rule 23 pre-
requisites were met prior to certification. Therefore, the
dicta of Isaacs do not obviate the need to analyze whether
the Rule 23 prerequisites are properly met in this case or
require rejection of the district court’s conclusions.
The majority’s position has the unfortunate effect of in-
suring that no settlement can ever be entered in federal
court in this case, because any proposed class counsel will
be considered “disarmed” despite the obvious leverage counsel
may wield in practice. The majority thus forfeits the mani-
fest advantages of a national settlement for a national
undertaking.
With respect to the second argument (about adjustments
to the settlement by experts), the fact that the settlement
agreement may require that law professors make adjust-
ments in the settlement amount based on state law has prac-
tically no relevance to the issue whether class counsel is
adequate. At worst, the adjustment procedure injects some
uncertainty into the settlement agreement. If, for instance,
the settling parties had the law professors derive the
adjustments ex ante and included these adjustments in the
settlement agreement (thus eliminating the uncertainty),
there would be nothing for the majority to complain about.
10 Nos. 03-3087, 03-3140, 03-3659 & 03-3660

But the mere fact that the settlement agreement contains
some uncertainty does not make class counsel inadequate.
It cannot even be known at this point to whose benefit the
uncertainty will accrue.
It is tempting to look for holes in this settlement agree-
ment, because it appears that the intervenors may now be
significantly worse off than they might have been in state
court. However, because we are ill-equipped to determine
the ultimate fairness of any settlement from a substantive
standpoint, our job must be to insure that the process under
which it was negotiated and approved was a fair one. See
Amchem Prods., 521 U.S. at 621 (“[T]he standards set for
the protection of absent class members serve to inhibit
appraisals of the chancellor’s foot kind—class certifications
dependent upon the court’s gestalt judgment or overarching
impression of the settlement’s fairness.”). Neither the
intervenors nor the majority has presented any evidence to
challenge the conclusion that the agreement did not arise
from a fair bargaining process. To the contrary, after sig-
nificant study, the magistrate judge found no evidence of
collusive negotiations in this case. Supp. App. at A-36. And, of
course, the discretion of the district court is entitled to some-
thing more than lip service. Where, as here, the district court
has addressed fairness in depth, we should be reluctant to
disagree.
In any event, this settlement agreement is not unfair on
its face. No judgment has been awarded in any state court,
so although plaintiffs may find themselves in a strong
position, as Yogi Berra once said, the game’s not over until
its over. While the land use rights in question no doubt have
some theoretical value, the only real value comes from the
owner’s ability to sell his right to the telecommunication
companies to lay such cable. Realistically, these landowners
were not going to build a retirement cottage lying three feet
below the railroad tracks on their property—and, if they
were, it is unlikely that this settlement agreement will
Nos. 03-3087, 03-3140, 03-3659 & 03-3660 11

prevent them from doing so. The point is that it is not for
this court to second-guess the value of these rights and then
vacate a settlement agreement as unfair.
Hence, I believe that to cast aside a national settlement
agreement fairly arrived at, and not substantively unfair on
its face, is to imprudently reject the preferred treatment of
this nationwide infrastructure, where it seems class counsel
were anything but “disarmed” but could constantly wield the
threat of a disorderly recourse to state litigation. It is
crucially important that the procedures followed here be
suited to the emphatically interstate and national character
of this important infrastructure development. I therefore
respectfully dissent.

A true Copy:
Teste:

________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit

USCA-02-C-0072—10-19-04