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Todt v. Ameritech Corp.

January 15, 2002

DEBORAH TODT, DANIEL MCKAY, ELLA MONROE, BONNIE MCMINN, AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS-APPELLEES,
v.
AMERITECH CORPORATION, AMERITECH SERVICES, INC., THE OHIO BELL TELEPHONE COMPANY, MICHIGAN BELL TELEPHONE COMPANY, INDIANA BELL TELEPHONE COMPANY, AND WISCONSIN BELL, INC., DEFENDANTS-APPELLEES
(SHEILA KENNEDY AND JUDY BRUNETTI, INTERVENING PLAINTIFFS-APPELLANTS).



Appeal from the Circuit Court of Madison County. No. 97-L-1020 Honorable Randall A. Bono, Judge, presiding.

The opinion of the court was delivered by: Presiding Justice Maag

UNPUBLISHED

The plaintiffs, Deborah Todt, Ella Monroe, Bonnie McMinn, and Daniel McKay, individually and on behalf of all others similarly situated, filed a class action suit and settlement on November 10, 1997, in order to settle a suit against the defendants, Ameritech Corp. (Ameritech) and Ameritech Services, Inc. (ASI), The Ohio Bell Telephone Company (Ohio Bell), Indiana Bell Telephone Company (Indiana Bell), Wisconsin Bell, Inc. (Wisconsin Bell), and Michigan Bell Telephone Company (Michigan Bell). When this class action suit (the Todt case) was filed, putative class action suits were already pending against Ameritech in Indiana, Michigan, and Ohio. See Monroe v. Indiana Bell Telephone Co., No. 2:95-CV-376 JM (S.D. Ind. October 23, 1995); Seavers v. Ameritech Corp., No. 95-CV-500 (Ohio Cir. Ct., Erie Co. November 14, 1995); Hankins v. Ameritech Corp., No. 96-623978-NP (Mich. Cir. Ct., Wayne Co. May 21, 1996). These cases concerned Ameritech's marketing and billing practices with respect to inside wire maintenance service (IWMS) plans. Ameritech also provides telephone service in Illinois. On that same date, an "Agreement of Class Action Settlement" was achieved in Folkerts v. Ameritech Corp., No. 95-L-912 (Ill. Cir. Ct., Madison Co. March 10, 1995) (Folkerts). Class counsel in the present case were also class counsel in the Folkerts case. The Folkerts case was composed of Illinois plaintiffs and alleged violations of Illinois law, and the Todt case claimed violations of the consumer-fraud statutes in Indiana, Michigan, Ohio, and Wisconsin.

On November 12, 1997, the circuit court issued an order granting preliminary approval of the Todt case. On April 6, 1998, and April 20, 1998, a fairness hearing was held. On October 30, 1998, the circuit court created two subclasses. One subclass was composed of the residents of Michigan, Ohio, and Wisconsin (Tri-state subclass). The other subclass was composed of only the residents of Indiana (Indiana subclass). That same day, the circuit court approved the settlement agreement as to the Tri-state subclass. After renotice, the circuit court held supplemental fairness hearings pertaining to the Indiana subclass. The circuit court entered its final judgment on June 28, 1999. Sheila Kennedy and Judy Brunetti (Kennedy intervenors) moved for a reconsideration. On February 8, 2000, the circuit court issued its final order approving the settlement agreement as to the Indiana subclass. The Kennedy intervenors filed this appeal on March 7, 2000, claiming that the circuit court erred when it approved the class action settlement as to the Indiana subclass.

The relevant facts are as follows. Ohio Bell, Indiana Bell, Wisconsin Bell, and Michigan Bell (collectively, the State Bell Companies) are wholly owned subsidiaries of Ameritech and are engaged in the telecommunications business in their respective states. ASI is a corporation that is owned and controlled by the State Bell Companies. Both Ameritech companies are Illinois corporations. The State Bell Companies offered for sale certain products and services, including IWMS. The dispute in the instant case centered around Ameritech's, ASI's, and the State Bell Companies' marketing and billing practices with regard to the IWMS plan. The circuit court entered an order on November 12, 1997, certifying a class for settlement purposes only, authorizing notice to be mailed to individual class members and by publication of notice in the USA Today newspaper, and preliminarily enjoining all class members from prosecuting any actions asserting any of the settled claims. Various objectors claimed that the settlement agreement was negotiated without notice to the counsel involved in the same litigation pending in other states.

The circuit court then held fairness hearings on April 6, 1998, and April 20, 1998. Some intervenors (Michigan intervenors) were counsel for the plaintiffs in the case of Converse v. Ameritech Corp., 179 F.R.D. 533, 539 (W.D. Mich. 1997). Counsel in the Converse case were never able to certify a class. The Michigan intervenors focused their efforts on obtaining an award of attorney fees. The Madison County circuit court determined that the Michigan intervenors had done nothing of benefit to the class. The Michigan intervenors filed an appeal but later withdrew it.

Some intervenors (Ohio intervenors) were co-counsel in Seavers v. Ameritech, No. 95-CV-500 (Ohio Cir. Ct., Erie Co. November 14, 1995). The record shows that prior to the settlement in the Todt case, counsel in Seavers had not done any discovery for 2½ years. As soon as the settlement in the Todt case was announced, the Ohio intervenors attempted to resurrect their lawsuit despite the Madison County circuit court's injunction precluding them from doing so. Although the Ohio intervenors ceased efforts to pursue the Ohio litigation, they did not appeal the Madison County circuit court's October 30, 1998, order.

A few weeks after the class notice was mailed in the Todt case, counsel for some intervenors (Wisconsin intervenors) filed a copycat lawsuit in Wisconsin circuit court. Mertz v. Ameritech Corp., No. 97-CV-3335 (Wis. Cir. Ct., Dane Co. December 18, 1997). These parties and their counsel had never filed an IWMS action against the defendants. They proceeded with this action in violation of the Madison County circuit court's injunction precluding parallel actions. Counsel took the position that they were not bound by the circuit court's orders. Wisconsin counsel agreed that they were parties to the litigation as of April 6, 1998, and they agreed to stop the litigation in Wisconsin. Wisconsin counsel then participated in the fairness hearing on that date. After the circuit court approved the settlement, the same counsel disobeyed the circuit court's order by continuing the litigation in Wisconsin. After Wisconsin counsel refused to comply with the circuit court's order, class counsel and Ameritech's counsel jointly initiated contempt proceedings. After a hearing, the circuit court found the seven individuals and their counsel in contempt. The circuit court allowed them to purge themselves of the contempt by complying with the injunction and dismissing the lawsuit by 5 p.m. on the Monday following the Friday afternoon hearing. On July 27, 1999, the Madison County circuit court entered an order purging Wisconsin counsel and the seven individual class members from contempt due to the fact that counsel filed a motion to voluntarily dismiss the Wisconsin case. The Wisconsin intervenors did not appeal the October 30, 1998, order.

Counsel for some intervenors (Indiana intervenors) had been co-counsel with class counsel in the Monroe case in Indiana. They had never attained class certification. The Indiana intervenors filed a motion for disqualification or recusal and a motion for leave to take the depositions of the Honorable Randall A. Bono and counsel. These motions were denied, as well as other motions. In fact, the circuit court stated that the settlement was achieved "in spite of" Indiana counsel and the Indiana intervenors. The Indiana intervenors eventually withdrew.

The objectors claimed that there had been a simultaneous negotiation of the Folkerts and Todt settlements. However, Stephen Tillery, class counsel, testified that there was no evidence to support the allegation of the simultaneous negotiation of the Folkerts and Todt settlements. Seven witnesses testified regarding the value, fairness, and adequacy of the settlement. Additionally, seven experts provided affidavits on this same issue. The intervenors' experts challenged the value of the settlement benefits, and the appellees presented evidence that the settlement was fair and adequate.

Leroy Grossman, professor of economics and chair of the economics department at St. Louis University, gave the most conservative economic analysis of the settlement that was presented by the appellees, in the form of an affidavit. Grossman stated that the settlement divided the class members into two different groups-(1) persons who were still enrolled in Linebacker agreements and (2) persons who were not still enrolled in Linebacker agreements but who had been enrolled between January 1, 1987, and November 7, 1997. Based on Ameritech's estimates, there were approximately 4.63 million IWMS subscribers in Michigan, Indiana, Ohio, and Wisconsin. There were 11.58 million former subscribers in those same states. According to Grossman's analysis, a summary of the benefits to the class is as follows.

1. Pay-Per-Use Services. Each class member who is a Linebacker subscriber will receive one activation of a pay-per-use (PPU) service (three-way calling, automatic call-back, or repeat dialing) for nine consecutive months. Ameritech values this service at $7.02 per class member. However, because it costs Ameritech consumers $0.75 for each PPU service, Grossman computed the actual value to be $6.75 per class member who is a Linebacker subscriber, for a total value of $31,252,500. This assumes that 100% of the class members who are Linebacker subscribers will benefit. To the extent that some class members currently subscribe to all three services, those class members would receive no benefit. Ameritech estimated that less than 5% of the customers subscribe to all three services. Grossman opined that assuming that 5% of the class members who are Linebacker subscribers are enrolled in all three services, the actual value to the class is 95% of $31,252,500, or $29,689,875.

2. Prepaid Calling Cards. Ameritech valued the prepaid calling cards at $5 per card. Grossman estimated that since each class member who is a Linebacker subscriber will receive two cards, the value of this benefit is $46.3 million to subscribers. Because each class member who is a former Linebacker subscriber is eligible to receive one card, the value of this benefit is $57.9 million to former subscribers. Grossman opined that if 10% of the former subscribers who are class members choose to receive the free card, the redemption value of the cards to former subscribers is $5,790,000. Therefore, Grossman estimated that the total benefit to the class, when considering redemption value, is $52,090,000. We note parenthetically that this part of the settlement was later amended to provide three cards to Indiana class members.

3. Wire Replacement Services. Ameritech agreed to give an automatic 50% off the cost of rewiring nonstandard telephone wiring for 60 months for class members who are Linebacker subscribers. Based on Ameritech's data, the average current charge for rewiring nonstandard wire is $400, and that charge would be reduced to $200. Ameritech estimated that 15% to 25% of the class members who are Linebacker subscribers have nonstandard wiring. Grossman assumed that 15% of the class members who are Linebacker subscribers have nonstandard wiring and that, based on data provided by Ameritech, 10% of those class members would request or require rewiring each year for the next five years. Grossman assumed an attrition rate of 8.5%. Ameritech documents establish that the attrition or churn rate ranges between 7% and 10%. Grossman assumed an interest rate of 6.5% based upon the current yield of five-year corporation bonds and a projected 3%-per-year increase in the price of such services as a result of inflation. Considering all of these factors, Grossman determined that the net real discount rate to be applied to the annual savings by the class as a result of the 50% reduction in the cost of telephone wire replacement was 12%. Grossman opined that the present value to class members of the $69,450,000 benefit to be associated with rewiring provisions of the settlement is $50,070,341.

Ameritech also agreed to eliminate the nonstandard-wire exclusion of the Linebacker plan and repair nonstandard wiring under the Linebacker plan. The average charge for repairs in connection with nonstandard wiring is $250. Based upon the aforementioned attrition rate, interest rate, and rate of inflation, Grossman determined that the net real discount rate to be applied to the annual savings by the class as a result of the elimination of the nonstandard-wire exclusion in the Linebacker plan was 12%. Grossman opined that the present value to the class of the $86,812,500 benefit over a five-year period is $62,587,927.

4. Customer Service. Ameritech also agreed to improve the quality of its services to its customers by training and supervising its employees regarding the sale and marketing of IWMS and enhancing information and services provided to customers. Grossman stated in detail the lengths to which Ameritech would go to disseminate information to its consumers. Grossman claimed that it was impossible to accurately determine the value of this benefit, and then he opined that the value to the class is $4 million.

5. Attorney Fees and Legal Expenses. Ameritech also agreed to pay the attorney fees and legal expenses for the class. Although Grossman noted that he had not placed a value on the notice that had been published in USA Today, the notice that Ameritech had sent to its customers, and the additional notice that Ameritech will send to the class when the settlement is approved, he stated that the costs associated with notice have been and will continue to be "substantial." Grossman opined ...


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