Union Pac. R.R. Co. v. Santa Fe Pac. Pipelines, Inc.
| Decision Date | 05 November 2014 |
| Docket Number | B242864 |
| Citation | 231 Cal.App.4th 134,180 Cal.Rptr.3d 173 |
| Court | California Court of Appeals Court of Appeals |
| Parties | UNION PACIFIC RAILROAD COMPANY, Plaintiff and Respondent, v. SANTA FE PACIFIC PIPELINES, INC., et al., Defendants and Appellants. |
OPINION TEXT STARTS HERE
No error in part; reversed and remanded in part.
See also 88 Cal.Rptr.2d 777.
See 12 Witkin, Summary of Cal. Law (10th ed. 2005) Real Property, § 382 et seq.
APPEAL from judgments of the Superior Court of Los Angeles County, Eli Chernow, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Affirmed in part; reversed in part and remanded. (Los Angeles County Super. Ct. No. BC319170)
Mayer Brown, Donald Falk, Palo Alto, Neil M. Soltman, Michael F. Kerr, Germain D. Labat, Los Angeles, Matthew Marmolejo; Cooley, Steven M. Strauss, M. Ray Hartman III and Summer J. Wynn, San Diego, for Defendants and Appellants.
McKenna Long & Aldridge, Thomas F. Winfield III and Michael H. Wallenstein, Los Angeles, for Plaintiff and Respondent.
This is the latest of multiple appeals in a case in which courts have been called upon to determine the amount of rent a pipeline company must pay to a railroad for the use of land underneath its rights-of-way, most of which were initially granted to it by the federal government beginning in the mid–19th century in order to build and operate transcontinental railroads. The rent is to be determined by the terms of a settlement agreement entered into in 1994 arising out of previous litigation between the parties—former sister companies that separated, and have been involved in lawsuits ever since.
Appellants are Santa Fe Pacific Pipelines, Inc., previously known as Southern Pacific Pipelines, Inc.; SFPP, L.P., Kinder Morgan Operating L.P. “D”; and Kinder Morgan G.P., Inc. (collectively the Pipeline). Respondent is Union Pacific Railroad Company, successor to Southern Pacific Transportation Company (the Railroad). The two companies previously existed under the same corporate umbrella. In that context, they entered into master agreements in the mid–1950's under which the Railroad granted easements to the Pipeline in the subsurface underlying the Railroad's rights-of-way in order to convey its oil, gas and other petroleum products across the western United States. In 1983, the parties revised and revamped their master agreement, maintaining the essential element that the Pipeline continue to use the subsurface to move its commodities. But in the late 1980's—30 years after the initial easements were granted—their parent company merged with another company. The Railroad was divested, and the companies were no longer sisters. Soon thereafter, disputes arose between the Railroad and the Pipeline companies. Litigation began in 1991 when the Railroad sued the Pipeline, complaining that the master agreement under which they were operating was not negotiated at arms-length, and that the Railroad was not receiving a fair deal. Three years later, this case resolved. In 1994, the parties executed a settlement agreement that set the parameters for how rent would be determined on the Pipeline's easements.
Since then, there have been three court trials and five appellate decisions relating to the enforcement of this settlement agreement. The first case was brought in 1994. We are now called upon to review the most recent court trial, which generated over 42,000 pages of testimony and concomitant volumes of exhibits and appendices and other documents. The judgment under review arose out of a declaratory relief action where the Railroad sought a determination of the rent due from the Pipeline for the continued use of its easements from 2004 to 2014.1 The Railroad obtained a declaration that the rent due was in excess of $14 million per year. The trial court entered a judgment reflecting that the total back rent due was $81,589,584, plus interest in the amount of $19,372,195.50, up to the date of entry of the judgment. The Pipeline appealed.
On appeal, the Pipeline makes the following claims: (1) The trial court erred in finding that the prior judgment did not collaterally estop the relitigation of several issues and deciding them anew in the instant case; (2) the trial court made errors in applying the formula to calculate the rent due; (3) it was error to include rent for easements on land that had been sold by the Railroad before the 1994 settlement agreement was executed; (4) the trial court lacked authority to issue a money judgment, as opposed to a mere declaration of the amount of rent due, and therefore lacked the authority to award prejudgment interest. As to the trial court's ruling declining to apply collateral estoppel to this action, we affirm. As to the remaining issues, we reverse and remand for the reasons discussed below.
A recurrent, yet heretofore unresolved, theme permeating this and prior cases between the parties is the nature of the Railroad's interest in the property through which the pipelines run. This issue— whether the Railroad had sufficient interest in the land beneath its rights-of-way to grant the subsurface easements and collect rent for their use—was raised by the Pipeline in the 1994 case and raised again in the instant case. It was extensively litigated. In the 1994 case, the court assumed (but did not find) that the Railroad held the land in fee. In this case, the court concluded the Railroad had sufficient interest in the land to collect rent from the Pipeline, without determining the actual nature of that interest.
There is a large body of law—reflected by federal statutes, judicial opinions, and regulatory decisions—that bear on the nature of a railroad's property rights, whether it can grant easements to third parties and collect rent from them, and the interests of adjacent landowners and the federal government. The trial court appears to have reached its conclusions and entered its judgment without fully analyzing this body of law, or applying it to these facts. The absence of a determination on this issue undermines the judgment.
We address the law relating to railroad rights-of-way in an effort to resolve the legal issues that apply to property interests in this land and, by extension, the Railroad's right to grant and lease subsurface easements to the Pipeline. To this end, we begin with a brief summary of the historical context within which this dispute arises.
As America spread west in the first half of the 19th century, its frontier expanded from the Mississippi River to the coast of California and the Oregon Territory. Access to the great expanses of the prairies and mountains, as well as to the states and territories on the Pacific Coast, was necessary. The country was young and did not have a lot of money. But it had lots of land. Beginning in approximately 1850, Congress embarked upon a policy of subsidizing railroad construction by paying for it with “lavish grants from the public domain.” ( Great Northern Ry. Co. v. U.S. (1942) 315 U.S. 262, 273, 62 S.Ct. 529, 86 L.Ed. 836 ( Great Northern ).) With the onset of the Civil War, the need for a transcontinental railroad took on particular urgency, and the ability to reach the west coast over land was considered a military necessity. President Abraham Lincoln signed the Pacific Railroad Act on July 1, 1862 (ch. 120, §§ 1–20, 12 Stat. 489), and subsequent acts were signed by him and his successors. These initial “Congressional Acts” granted vast areas of land to several transcontinental railroads, encouraging them to build tracks across the nation. Some of the land was transferred to the railroads as their own property, to sell and finance their progress in constructing and running the railroad. Other parts were granted as rights-of-way over the surface upon which to build tracks and related structures.2
While the early grants were “lavish”—after all, vast areas of land owned by the federal government were given to private companies—they did have strings attached. For example, if a railroad ceased to use the land for railroad purposes, it would revert to the government (or to its grantees, if any). ( Northern Pacific Ry. v. Townsend (1903) 190 U.S. 267, 271, 23 S.Ct. 671, 47 L.Ed. 1044 ( Townsend ).) The government was also concerned about losing potential wealth below the surface upon which the rails would be built. In the initial act of 1862, there was an express exception for “all mineral lands” (other than timber, which was granted to the railroad company). (Pacific Railroad Act of 1862, ch. 120, § 3, 12 Stat. 489.) In late 1862, a report from the Secretary of the Interior out of the General Land Office extolled the great potential wealth expected to be found in the western mineral lands. (U.S. Dept. of Interior, Abstract from the 1862 Annual Report of the Commissioner of the General Land Office (Nov. 29, 1862).) It is clear from this report that the Secretary considered this subsurface wealth in the public lands to be the property of the United States. In 1864, the second major railroad act was enacted. (Act of July 2, 1864, ch. 216, § 1–22, 13 Stat. 356.) It amended the Pacific Railroad Act of 1862, providing land grants to the railroads, reiterating that the government retained rights to the “mineral lands,” with the exception of coal and iron (which obviously, along with timber, were major components of railroad construction). In 1866, Congress passed a law providing that “[i]n all cases lands valuable for minerals shall be reserved from sale, except as otherwise expressly directed by law.” (30 U.S.C. § 21.)
In the same year that he signed the Pacific Railroad Act of 1862, President Lincoln signed the Homestead Act (Ch. 75, §§ 1–8, 12 Stat. 392), which granted large swaths of land to settlers, who owned and developed the land near, and with the help of, the railroads. The laws to encourage construction of the railroads and foster...
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