Opinion ID: 4242640
Heading Depth: 4
Heading Rank: 1

Heading: Union Pacific v. SFPP

Text: In the 1950s, Southern Pacific leased the land under some of its rights of way to a sister company, which then built 1,800 miles of pipeline to transport petroleum products. Originally affiliates, the railroad and the pipeline company came under separate ownership in the 1980s, with Union Pacific eventually succeeding to Southern Pacific’s tracks and other railroad assets, and SFPP, a subsidiary of Kinder Morgan, acquiring the pipeline. Union Pacific and SFPP entered into a series of agreements under which Union Pacific granted a perpetual easement to SFPP in exchange for fair market rent. In the event the parties could not agree on the fair market rent, the WELLS V. UNION PAC. R.R. CO. 15 agreements contemplated a judicial proceeding in California state court. In a proceeding to determine fair market rent for 2004 through 2014, SFPP argued that the fair market rent for the easement should be reduced because of questions about Union Pacific’s title to the rights of way. It did not, however, question Union Pacific’s right to grant the easement. In 2012, the state trial court held that Union Pacific had a sufficient property interest in the land beneath its rights of way to entitle it to collect rent for the pipeline. The California Court of Appeal raised sua sponte at oral argument the issue of “whether the Railroad had the right to grant the Pipeline’s easements in the first instance, given the terms of the Congressional Acts and the extensive relevant case law.” Union Pac. R.R. v. Santa Fe Pac. Pipelines, Inc., 231 Cal. App. 4th 134, 155 (2014). After soliciting supplemental briefing, it held that the grants under both the pre-1871 and the 1875 Acts did not give Union Pacific the right to lease the land under its rights of way to third parties. See id. at 177–78. With respect to the 1875 Act, it relied on Great Northern and Brandt to conclude that the railroad acquired only an easement in the surface of the right of way, albeit one that conferred more than a right of passage, and in the subsurface only “to support the construction or operation of the railroad (i.e., for railroad purposes).” Id. at 163. With respect to the pre-1871 Acts, it acknowledged Townsend’s “limited fee” language, but relied more heavily on Union Pacific’s “landmark” language that “[t]he most that the ‘limited fee’ cases decided was that the railroads received all surface rights to the right of way and all rights incident to a use for railroad purposes.” Id. at 165–66 (quoting 353 U.S. at 119). The state appellate court concluded by holding that 16 WELLS V. UNION PAC. R.R. CO. the pipeline did not serve a “railroad purpose,” even if Union Pacific used some of the pipeline’s contents to fuel its own trains. See id. at 167 (“[T]he mere fact that a railroad leases the subsurface to a third party to transport material that the railroad may ultimately use does not, by itself, make the lease a ‘railroad purpose.’”).