Opinion ID: 4242640
Heading Depth: 3
Heading Rank: 3

Heading: Can the pipeline serve a railroad purpose?

Text: Union Pacific did not reference the pipeline’s ostensible railroad purpose in its original counterclaims. It did, however, seek leave to amend to add facts supporting the contention that it served such a purpose. The district court denied leave to amend as futile. The district court’s conclusion that Union Pacific failed to allege a necessary element of its counterclaims is reviewed de novo. See Edwards v. Marin Park, Inc., 356 F.3d 1058, 1061 (9th Cir. 2004). Its decision to deny leave to amend is reviewed for abuse of discretion, see Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1041 (9th Cir. 2011), but leave to amend should be denied as futile “only if no set of facts can be proved under the amendment to the pleadings that would constitute a valid and sufficient claim or defense,” Sweaney v. Ada County, 119 F.3d 1385, 1393 (9th Cir. 1997) (quoting Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988)). Union Pacific’s proposed amendment alleges that the pipeline serves a railroad purpose “because Union Pacific 7 Although Union Pacific acquired rights of way under both the pre1871 Acts and the 1875 Act, it does not provide any detail as to the proportion acquired under each act. WELLS V. UNION PAC. R.R. CO. 25 uses capacity on the pipeline to transport millions of gallons of fuel a year, purchased directly by Union Pacific from thirdparty refineries, via dedicated facilities to private terminals on the railroad line that Union Pacific owns.” It alleges that it “uses this fuel to power its locomotives,” and that the use of fuel from the pipeline “reduce[s] core railroad operating costs by millions of dollars a year.” We hold that the district court should have granted leave to amend because that allegation, if proven, is sufficient to establish a prima facie case that the pipeline serves a railroad purpose. It is beyond dispute that a railroad right of way confers more than a right to simply run trains over the land. See New Mexico v. U.S. Trust Co., 172 U.S. at 183. As a result, courts have approved a variety of uses incidental to railroad operations. See Illig v. United States, 58 Fed. Cl. 619, 634 (2003) (power lines); Mellon v. S. Pac. Transp. Co., 750 F. Supp. 226, 231 (W.D. Tex. 1990) (communication lines); McSweyn v. Inter-Urban Ry., 130 N.W.2d 445, 448 (Iowa 1964) (fuel storage); Miss. Invs., Inc. v. New Orleans & N.E. R.R., 188 F.2d 245, 247 (5th Cir. 1951) (freight warehouses “and other like structures”); Mitchell v. Ill. Cent. R.R., 51 N.E.2d 271, 275 (Ill. 1943) (gas station and storage tanks). The Supreme Court has embraced this so-called “incidental use doctrine,” although not specifically in connection with the pre-1871 Acts or the 1875 Act: [W]hile it must be admit[t]ed that a railroad company has the exclusive control of all the land within the lines of its roadway, and is not at liberty to alienate any part of it so as to interfere with the full exercise of the franchises granted, we are not prepared to assert that it may not license the erection of 26 WELLS V. UNION PAC. R.R. CO. buildings for its convenience, even though they may be also for the convenience of others. It is not doubted that the [railroad] might have erected similar structures on the ground on which the plaintiffs’ buildings were placed, if in its judgment the structures were convenient for the receipt and delivery of freight on its road. Such erections would not have been inconsistent with the purposes for which its charter was granted. And, if the company might have put up the buildings, why might it not license others to do the same thing for the same object; namely, the increase of its facilities for the receipt and delivery of freight? The public is not injured, and it has no right to complain, so long as a free and safe passage is left for the carriage of freight and passengers. Grand Trunk R.R. v. Richardson, 91 U.S. 454, 468–69 (1875) (construing rights of railroad chartered under Vermont statute). Even Union Pacific recognized that the 1862 Act conferred “all rights incident to a use for railroad purposes.” 353 U.S. at 119 (emphasis added). The district court reasoned that several factors took the pipeline outside the ambit of the incidental-use doctrine. First, it again drew a distinction between the railroad’s rights to the surface and its rights to the subsurface. As we explained, the relevant distinction is not between the “subsurface” and the “surface,” but between the “mineral estate” and the “surface estate,” which includes all of the subsurface except mineral estate. In both Union Pacific and Great Northern, the issue was whether the railroad had the WELLS V. UNION PAC. R.R. CO. 27 right to extract resources from the mineral estate. See Union Pac., 353 U.S. at 114; Great Northern, 315 U.S. at 270. The Supreme Court’s negative answer does not foreclose any other use of the subsurface from being a railroad purpose. We are similarly unpersuaded by the district court’s conclusion that the incidental-use doctrine does not apply because the pipeline is operated by a third-party and for private gain. Grand Trunk makes it clear that a railroad may license third parties to do what it could do itself, even if the third party benefits in addition to the railroad. See 91 U.S. at 468 (“[W]e are not prepared to assert that [the railroad] may not license the erection of buildings for its convenience, even though they may be also for the convenience of others.”). More fundamentally, Grand Trunk makes the sensible point that a railroad appurtenance has the same impact on the servient estate whether it is built by the railroad or a third party. Accord Mitchell, 51 N.E.2d at 274 (“No compelling reason is advanced by plaintiff, or in the authorities cited by him, satisfactorily explaining why, if a bulk, or wholesale, station is allowed to be operated on a railroad right of way, the owner of the bulk station, in addition to selling wholesale, cannot likewise properly include facilities for selling at retail.”). The appellees concede that a pipeline built by Union Pacific exclusively to transport fuel to its trains would serve a railroad purpose. As far as the record and pleadings currently before us reveal, such a pipeline would look and function exactly like the actual pipeline, and would have exactly the same impact on the appellees’ land. We acknowledge that an appurtenance might be of such minimal or illusory benefit to railroad operations as to make the incidental-use doctrine inapplicable. For present 28 WELLS V. UNION PAC. R.R. CO. purposes, it is sufficient to say that Union Pacific has plausibly alleged that the benefit it derives from the pipeline is sufficient for the doctrine to apply.