Major Verdict in Electric Utility Easement Case

More than five years after starting in state court before later restarting in federal court, a federal court jury in Missouri has issued a major verdict in litigation concerning the use of electric utility easements for commercial telecommunication purposes.  On February 6, 2015, the jury in Chase Barfield, et al., v. Sho-Me Power Electric Cooperative, et al., (U.S.D.C. Western District of Missouri, 2:11-cv-4321NKL), found that the compensation owed to the plaintiff-landowners totaled $79,014,140 representing the fair market rental value of the defendants’ use of the utility easements for commercial telecommunication purposes.  While there have been other cases around the country alleging similar misuse of utility easements, those cases have all settled and the Sho-Me litigation appears to be the first to proceed through trial to a final jury verdict.

In 2010, a small group of Missouri landowners filed a state court lawsuit, which was subsequently dismissed and refiled in federal court the next year, alleging that certain electric utilities and affiliated entities in Missouri and Oklahoma installed and operated commercial fiber optic lines on the plaintiffs’ properties without the right to do so and without paying compensation to the landowners.  The lawsuit alleged that Sho-Me Power Electric Cooperative and its subsidiary Sho-Me Technologies, LLC, KAMO Electric Cooperative and its subsidiary K-PowerNet, LLC, and Cooperatives’ Broadband Network, collectively installed over 2,000 miles of fiber optic lines within easements that were limited to electric transmission and distribution line purposes.

While some of the fiber optic capabilities were utilized for the utilities’ own operations consistent with the underlying easements, the plaintiffs alleged that some of the fiber optic lines were used by the defendants or leased to third-parties for commercial telecommunication purposes in violation of the limited utility easements that had been granted.  The landowners asked the court to declare that the defendants had no legal rights to use the easements for commercial telecommunication purposes and also brought claims for trespass, disgorgement of profits, an injunction to prevent future commercial fiber optic uses of the easements, and punitive damages.  The defendant utilities and their subsidiaries admitted many of the facts related to their telecommunication activities, however, they denied that such activities were inconsistent with their easement rights.

In 2013, the federal court granted class status thereby allowing the named plaintiffs to represent the interests of more than 3,000 landowners who were crossed by the defendants’ fiber optic lines.  After many months of complex litigation addressing multiple issues, in March, 2014 the federal court issued its summary judgment decision on the primary claims.  The court adopted the plaintiffs’ categorization of the nearly 6,500 express easements and condemnation orders describing the property rights at issue; then proceeded to conduct a detailed analysis of whether the defendants’ fiber optic lines and the uses thereof were permitted under the terms of the easements and orders.  The court concluded that, under Missouri law, the defendants’ actions were inconsistent with the easements and court orders in three of the eight categories, totaling more than 3,000 individual easements and orders.

The jury’s recent decision sets the damages attributable to the defendants’ breach of the easements and court orders and resulting trespass, as found by the court.  In determining this amount, the jury considered the parties’ evidence that the value of the landowners’ claims was between $100,000, as argued by the defendants, and in excess of $100 million dollars, as argued by the landowners after considering the revenue the defendants received from the fiber optic lines and the associated expenses.  The jury’s award covered only the ten year period prior to the judgment and did not include prejudgment interest, attorney fees and costs, or future compensation.

Lessons Learned

As the national demand for improved and expanded electrical and telecommunication infrastructure continues to grow at an apparently ever-increasing pace, utilities and telecommunication service providers are faced with the challenge of where to locate such new and improved infrastructure.  Opportunities to site brand new infrastructure corridors are becoming more limited.  To the extent such opportunities exist, many landowners do not welcome such uses on their property and some complain of “easement fatigue” as a result of requests from multiple utility, telecommunication, pipeline, and other infrastructure companies.  As a result, local governments frequently require infrastructure companies to consider first the use of existing easements and corridors so as to minimize impacts on private property and to optimize the land uses within their jurisdictions.

Whether motivated by landowner concerns, local government requirements, or other project considerations, utilities and other infrastructure companies are trying to squeeze every permissible use out of their existing land rights.  For example, use of technologies such as fiber optic ground wires that combine an electrical ground wire with bundled fiber optic lines allow electric utilities to maximize the use of their existing easements with little or no physical intrusion on the property on which the infrastructure is located.  This technology was at issue in the Sho-Me litigation.  However, the analysis is not limited to the extent of the physical intrusion on the underlying property.  At the heart of such disputes is the landowner’s right to control and be compensated for the beneficial use of his or her property.

The Sho-Me court explained that resolution of such issues requires consideration of “how changing technologies should be harmonized with historic real property principles.”  Furthermore, “[w]hether an additional use is reasonable and necessary depends on whether the additional use represents only a change in the degree of use, of whether it represents a change in the quality of the use.  If the change is in the quality of the use, it is not permissible, because it would create a substantial new burden on the servient estate.”  As the court concluded, where the additional use exceeds that which is authorized by the easement, a trespass occurs and a landowner may be entitled to compensation.

As demonstrated by the recent decision in the Sho-Me litigation, such compensation can be substantial.  Given that most instances of this type of dispute involve lengthy linear infrastructure projects – electric transmission or distribution lines, pipelines, railroads, etc. – crossing many landowners’ properties, the risk associated with large awards for trespass or unjust enrichment cannot be ignored.

It is important to note that real property law is, for the most part, a matter of state law.  While the basic principles of real property law are generally similar among most jurisdictions, the specific law and the analysis of the facts under that law will vary from state to state.  Therefore, before proceeding with a new or additional use on an existing easement, utilities and other infrastructure companies must conduct a careful analysis of the land rights supporting a particular project  considering the laws of the specific states involved.  The decisions and jury verdict in the Sho-Me litigation should provide an instructive, cautionary tale.

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