Appeals Court Throws-Out Utility Easement Damages Award – For Now

In responding to rumors of his own demise, Mark Twain quipped, “The report of my death was an exaggeration.”  While the 1897 rumors were premature, Mark Twain did eventually die on April 21, 1910.  In similar fashion, the 2015 jury verdict of more than $79 million for an electric utility’s misuse of electric transmission line easements turned out to be “premature” when on March 29, 2017, the Eighth Circuit Court of Appeals (Barfield v. Sho-Me Power Electric Cooperative, No. 15-2964) vacated the earlier damages award and remanded the case to the trial court.  And just as the great American humorist did eventually die, here the utility’s liability was affirmed and all that remains is a new determination of the amount of damages.

As discussed in this blog just over two years ago, in a class action representing the interests of more than 3,000 plaintiff-landowners, a federal district court in Missouri granted summary judgment against Sho-Me Power Electric Cooperative and its subsidiary Sho-Me Technologies, LLC (collectively “Sho-Me”) for unauthorized use of electric transmission line easements for commercial telecommunication purposes.  The trial court granted summary judgment finding Sho-Me liable for both trespass and unjust enrichment.  Thereafter, the plaintiff-landowners proceeded with a jury trial for damages on the unjust enrichment claim alone.  On February 6, 2015, the federal jury found that the compensation owed to the plaintiff-landowners totaled $79,014,140 representing the fair market rental value of Sho-Me’s unauthorized use of the utility easements for commercial telecommunication purposes.  Sho-Me appealed the liability determination, class certification, and other issues.

Applying Missouri case law and statues, the federal appellate court found that Sho-Me’s use of fiberoptic cables installed within the utility easements for utility communication purposes was permissible, however, Sho-Me’s use of excess fiberoptic capacity for commercial telecommunications exceeded the scope of the easements.  The court concluded that when Sho-Me exceeded its rights by using the fiberoptic cable for unauthorized purposes, such use became a trespass under Missouri law.

After affirming Sho-Me’s trespass liability, the court turned to the question of whether the same unauthorized use of the easements also made Sho-Me liable for unjust enrichment.  The court discussed Missouri law “applicable to the subset of trespass actions filed against utilities otherwise empowered with the right of eminent domain,” and explained that landowners may elect among a limited set of remedies: an injunction to restrain the installation, ejectment, certain statutory relief, or a common law action for damages.  The court noted that unjust enrichment is not listed among the available remedies and concluded that the Missouri Supreme Court “would not recognize an unjust enrichment action for fair market rental value against a trespassing entity with eminent domain power, at least in the absence of a prior agreement.”  The appellate court, therefore, reversed the district court’s summary judgment on unjust enrichment.  Given that this was the sole basis for the jury’s damages award, the appellate court also vacated the damages award and remanded the case for the landowners to pursue damages on their trespass claim if they chose to do so.

Lessons Learned

As is usually the case, disputes concerning the permissible use of an easement are decided under state law.  In Barfield, the federal appellate court carefully analyzed Missouri law and concluded that use of fiberoptic cables for commercial telecommunication purposes exceeded the scope of the transmission line easements, and the electric utility communications permitted thereunder, and constituted a compensable trespass.  However, as the electric utility argued and the appellate court noted, a different result was reached in another Eighth Circuit case applying Arkansas law to very similar facts.

In Int’l Paper Co. v. MCI WorldCom Network Servs., Inc., (442 F.3d 633 (8th Cir. 2006)), a telecommunications company used a railroad right-of-way for both railroad communications and commercial telecommunication purposes.  In deciding similar claims as those asserted in Barfield, the appellate court analyzed Arkansas law and stated, “If transmission of light signals cannot constitute a trespass under Arkansas law, then transmission of light signals for a particular purpose cannot constitute a trespass.  We see no reason to believe that Arkansas would recognize a claim for damages from an intangible trespass of light signals.  Thus, the [telecommunications company’s] additional use could not constitute a new or continuing trespass, even if it was beyond the scope of its easement.”

As electric utilities, telecommunication companies, and other infrastructure project developers seek to replace aging infrastructure or build new facilities, they frequently seek to optimize the use of existing land rights while simultaneously facing pressure to minimize new disruptions to landowners.  This balancing act may involve the new or expanded use of existing easements.  These cases highlight the importance of not only carefully evaluating the specific easement rights on which a planned utility or infrastructure project will rely, but also carefully analyzing the easement law in each jurisdiction in which the project will be located.  As demonstrated in Barfield and Int’l Paper, very similar facts analyzed under the laws of two different states yield very different results.

Image Courtesy of: Jim Woodward used under Creative Commons license.