Court Opinion

ID: 903586
Source: CourtListenerOpinion
Date Created: 2013-06-19 20:52:12.426669+00
Date Added: 2024-06-11T09:51:23.184388
License: Public Domain

Filed 6/19/13 Santa Fe Pacific Pipelines v. Union Pacific Railroad CA2/8
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                 DIVISION EIGHT

SANTA FE PACIFIC PIPELINES, INC.,                                    B240842
et al.,
                                                                     (Los Angeles County
         Plaintiffs and Appellants,                                  Super. Ct. No. BS136153)

         v.

UNION PACIFIC RAILROAD
COMPANY,

         Defendant and Respondent.

         APPEAL from an order of Superior Court of Los Angeles County, James R. Dunn,
Judge. Affirmed.

         Mayer Brown, Donald Falk, Neil M. Soltman, Michael F. Kerr and Germain Labat
for Plaintiffs and Appellants.

         McKenna Long & Aldridge, Thomas F. Winfield III and Michael H. Wallenstein
for Defendant and Respondent.

                                                    ********
        After a lengthy trial, the victorious party sought prejudgment interest under Civil
Code section 3287.1 Its opponent argued the interest issue must be arbitrated rather than
decided by the temporary judge who presided over the trial. We find no arbitration
provision in the agreement, which was the subject of the trial before the temporary judge
and the basis of the temporary judge’s jurisdiction. We therefore affirm the denial of
appellants’ petition to compel arbitration.
                               FACTS AND PROCEDURE
        Appellants are Santa Fe 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 (the railroad). In Southern Pacific
Transportation Co. v. Santa Fe Pacific Pipelines, Inc. (1999) 74 Cal.App.4th 1232, 1235-
1236, the First District Court of Appeal summarized the parties’ and their predecessors’
relationship as well as their agreements as follows:
        “The relevant history begins in the mid-1950’s. At that time, the railroad and
Southern Pacific Pipelines, Inc. – the predecessor of Santa Fe – were sister subsidiaries of
Southern Pacific Corporation. The pipeline company had the right to install pipelines
along the railroad’s right-of-way pursuant to two master agreements. The agreements
provided for the creation of pipeline easements on the right-of-way property.
        “In 1983 the two companies entered into a new master agreement whereby the
railroad granted to the pipeline company perpetual nonexclusive easements and the right
to construct and operate underground hydrocarbon pipelines on its rights-of-way. The
1983 agreement set forth the amounts to be paid for existing pipeline easements through
1993.
        “Also in 1983 the parent companies of the Southern Pacific and Santa Fe railroads
announced a merger. The combination went forward but Southern Pacific – the railroad
– was held in a trust and remained separate from the other newly combined entities. The

1     All further undesignated statutory references are to the Civil Code unless
otherwise noted.

                                              2
Interstate Commerce Commission ultimately disapproved of the consolidation of the two
railroads and required Southern Pacific to be sold to a third party. Meanwhile, the
pipeline company became Santa Fe. The railroad and pipeline companies were no longer
sister subsidiaries. Rents for pipelines constructed by Santa Fe were established through
separate agreements.
       “In 1991 the railroad sued Santa Fe and related entities, alleging that the 1983
master agreement should be rescinded because it was not negotiated at arm’s length and
set artificially low rent for the pipeline easements. [Citation.] The parties settled the
lawsuit in April 1994. Pursuant to the settlement agreement, the 1983 master agreement
was rescinded; the easement agreements of the 1950’s were revitalized; the pipeline
company’s perpetual easement rights were confirmed and the easement locations were
modified, reducing the width of the easement at many segments.
       “The parties compromised the existing claims. As to future rent, the settlement
agreement provided as follows: ‘Beginning January 1, 1994, and every ten (10) years
thereafter, [the railroad] may seek an increase of rent to fair market value. . . . If the
parties hereto are unable to agree upon the amount of the rent increase, if any, for any
such ten (10) year period on or prior to the commencement date of any ten (10) year
period, then upon request of either party the parties shall within 30 days thereafter enter
into a stipulation pursuant to Rule 244.1 of the California Rules of Court for an order
directing a judicial reference proceeding pursuant to California Code of Civil Procedure
§ 638 et seq. by a single referee . . . to establish the amount of such rent increase in
accordance with the fair market value of the easement.’” (Fn. omitted.)
       “In July 1994 the parties entered into an amended and restated easement
agreement, which reiterated the procedure and mechanism for determining rent
increases. . . . The parties also entered into a side letter agreement in September
1994 . . . .” (Southern Pacific Transportation Co. v. Santa Fe Pacific Pipelines, Inc.,
supra, 74 Cal.App.4th at p. 1236.) The letter agreement referred to the settlement
agreement and provided among other things that “all Existing Easement Agreements

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shall be amended and restated pursuant to the terms of the Amended and Restated
Easement Agreement . . . .”
       On July 28, 2004, the railroad filed a complaint for declaratory relief. The
complaint alleged the parties entered into the AREA (amended and restated easement
agreement) on July 29, 1994. A copy of the AREA was attached to the complaint.
According to the complaint, “Section 2(b)(i)(A) of the AREA provides a mechanism for
the determination of the annual rent due and owing to Union Pacific for the Pipeline
Company’s easements. This provision states that beginning on January 1, 1994, and
every ten years thereafter, Union Pacific may seek an increase in rent to fair market
value. . . . If the parties are unable to agree upon a rent . . . , Union Pacific may seek an
order directing a judicial reference proceeding by a single referee to ‘establish the amount
of such rent increase in accordance with the fair market value of the easement.’” The
railroad alleged “[a]n actual controversy has arisen and now exists between Union Pacific
and the Pipeline Company concerning the parties’ rights and obligations concerning rent
under the AREA. Specifically, the parties disagree as to (i) the fair market value of the
Pipeline Company’s easements as amended and restated in the AREA (and subsequent
modifications), and (ii) the rent due in accordance therewith commencing on January 1,
2004. By this action, Union Pacific seeks a judicial determination of these issues in
controversy, as provided for in the AREA.”
       The complaint does not mention the parties’ settlement agreement.
       On March 18, 2005, the parties stipulated to the appointment of the Honorable Eli
Chernow, retired, to serve as a temporary judge (instead of following the reference
procedure). Their stipulation provided that Judge Chernow “shall hear and conduct a trial
of the above-entitled matter, and shall hear and determine all pretrial issues and motions,
and preside over the trial of the within matter until rendition of judgment, and shall hear
and determine all post-trial motions relating to the judgment filed or to be filed herein,
and to act in said capacity until the conclusion of all matters herein which may be
determined within the trial jurisdiction of the Superior Court.”

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       On December 15, 2011, after the temporary judge issued a tentative statement of
decision, the railroad moved for prejudgment interest under section 3287.2 According to
the railroad’s motion, interest totaled more than $81 million.
       The pipeline did not challenge the motion on the merits, but instead argued the
temporary judge lacked jurisdiction to consider prejudgment interest because the
arbitration clause in the settlement agreement required arbitration of the interest issue.
The pipeline identified no arbitration provision in the AREA, and none exists. The
AREA does not incorporate by reference the parties’ settlement agreement.
       On February 1, 2012, the pipeline filed a demand for arbitration with the
American Arbitration Association. The pipeline estimated 10 days would be necessary
for the hearing on this matter. It described the dispute as follows: railroad “is not
entitled to recover interest in connection with a rent-setting procedure conducted under an
April 8, 1994, settlement agreement, as amended” between the parties or their
predecessors. The pipeline sought the payment of attorney fees in connection with the
arbitration.
       On February 3, 2012, the temporary judge held a hearing on the railroad’s motion
for prejudgment interest. Counsel for the pipeline declined to appear at the hearing.
       On February 14, 2012, the pipeline filed a petition to compel arbitration. The
petition relied on the arbitration provision contained in section 16 of the parties’ 1994
settlement agreement. That section contains a broad arbitration provision.

2       Section 3287 provides: “(a) Every person who is entitled to recover damages
certain, or capable of being made certain by calculation, and the right to recover which is
vested in him upon a particular day, is entitled also to recover interest thereon from that
day, except during such time as the debtor is prevented by law, or by the act of the
creditor from paying the debt. This section is applicable to recovery of damages and
interest from any such debtor, including the state or any county, city, city and county,
municipal corporation, public district, public agency, or any political subdivision of the
state. [¶] (b) Every person who is entitled under any judgment to receive damages based
upon a cause of action in contract where the claim was unliquidated, may also recover
interest thereon from a date prior to the entry of judgment as the court may, in its
discretion, fix, but in no event earlier than the date the action was filed.”

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       On February 22, 2012, the temporary judge concluded it had jurisdiction to rule on
the railroad’s motion for prejudgment interest. The temporary judge awarded the railroad
prejudgment interest.
       On April 18, 2012, the Los Angeles Superior Court Honorable James R. Dunn
denied the pipeline’s motion to compel arbitration. The court noted the parties had
litigated for seven years, and, concluded the temporary judge had jurisdiction to decide
the motion for prejudgment interest. The court found the stipulation appointing Judge
Chernow sufficiently broad to cover the interest motion. The court further concluded
“Judge Chernow has determined that the AREA, and not a separate agreement between
the parties known as the Settlement Agreement, governs the Underlying Action, and this
Court agrees with that finding. It is undisputed that the AREA contains no arbitration
provision. Therefore, there is no agreement to arbitrate any issue involved in the
Underlying Action including the disputed issue of interest here. Thus, [the pipeline]
fail[s] to establish a condition precedent to granting the relief requested – i.e. an
arbitration agreement between the parties that covers the disputed issue.”
       This appeal is from the denial of the pipeline’s petition to compel arbitration. The
pipeline has separately appealed the attorney fees awarded to the railroad for successfully
defending the petition.3
                                       DISCUSSION
       For contractual arbitration to apply, the contract must have an arbitration
provision, and the party seeking arbitration bears the burden of proving its existence.
(Pinnacle Museum Tower, Assn. v. Pinnacle Market Development (US), LLC (2012) 55
Cal.4th 223, 236.) Both the temporary judge and the trial court found the parties’ dispute
to establish the fair market value of rent was governed by the AREA, which contains no

3      We decline the pipeline’s request to take judicial notice of an exhibit filed in the
parties’ 1994 litigation. The pipeline fails to show why this court should take judicial
notice of an exhibit not presented in the trial court. We grant the pipeline’s request and
take judicial notice of the transcript of a hearing in the present case. (Evid. Code, § 452,
subd. (d).)

                                               6
contractual arbitration provision. The pipeline disputes that conclusion, claiming the
lawsuit was instead governed by the parties’ settlement agreement, which contains an
arbitration provision.
       According to the pipeline, “[w]here the AREA applied, so does the Settlement
Agreement, including” the settlement agreement’s arbitration provision. The pipeline
argues “[t]he AREA simply could not exist and cannot operate except under the umbrella
of the Settlement Agreement. They are therefore related, not separate, and the Settlement
Agreement covers the underlying interest dispute.”
       For purposes of this appeal, we accept the pipeline’s premise that the AREA was
“born of the settlement agreement,” and constituted an effort to “effectuate” the
settlement agreement.4 But the pipeline’s conclusion that “any dispute arising from the
AREA necessarily arises from or relates to the Settlement Agreement” does not follow.
The pipeline cites section 1641 and California Ins. Guarantee Assn. v. Workers’ Comp.
Appeals Bd. (2012) 203 Cal.App.4th 1328, 1336 for the correct proposition that “the
whole of a contract is to be taken together.” (§ 1641.) Applying that proposition here, it
shows only the AREA must be considered as a whole and the settlement agreement must
be considered as a whole, not that the two documents must be considered together.
       Here, the complaint sought a declaration of the parties’ rights and obligations
under the AREA, not under the settlement agreement. Like the complaint, the stipulation
to appoint Judge Chernow indicated the relevant contract was the AREA. Specifically,
the stipulation provided: “The Temporary Judge shall determine the annual rent as of
January 1, 2004 in accordance with the terms of the [AREA] attached as Exhibit ‘A’ to
the Complaint herein.” The pipeline does not show any claim was brought or litigated

4      To support these arguments, the pipeline cites to the September 1994 letter
agreement indicating the easement agreements were amended and restated because the
parties concluded “it [was] in their mutual best interests to modify certain forms of
documents required by the Settlement Agreement.” The letter agreement further states
the “parties affirm and agree that the Settlement Agreement, as expressly amended
hereby, remains in full force and effect.”

                                             7
under the settlement agreement. The pipeline’s description of the dispute incorrectly
reports what happened: railroad “is not entitled to recover interest in connection with a
rent-setting procedure conducted under an April 8, 1994, settlement agreement, as
amended” between the parties or their predecessors. (Italics added.) The rent-setting
procedure was conducted under the AREA, not the settlement agreement. Even though
the settlement agreement may have been the genesis of the AREA, the settlement
agreement was not the subject of the rent-setting trial before Judge Chernow.
       In its reply brief, the pipeline for the first time argues the settlement agreement
and AREA were substantially one transaction and should have been considered together.
Section 1642 provides: “Several contracts relating to the same matters, between the same
parties, and made as parts of substantially one transaction, are to be taken together.” (See
Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1675 [applying that
principle].) But here, the pipeline forfeited any such claim first by failing to raise it in the
trial court, or in this court until its reply brief. (See Parker v. McCaw (2005) 125
Cal.App.4th 1494, 1508 [rejecting argument that agreements must be construed together
because § 1642 was not raised in the trial court]; see also Saville v. Sierra College (2005)
133 Cal.App.4th 857, 872-873 [issue must be raised in trial court to be preserved for
appeal].)
       The pipeline also forfeited its claim that the dispute was governed by the
settlement agreement by stipulating in 2005 Judge Chernow would “determine the annual
rent as of January 1, 2004 in accordance with the terms of the [AREA] attached as
Exhibit ‘A’ to the Complaint . . . .” The appointment of a temporary judge must be
construed narrowly, and here it could not be understood to resolve disputes under the
settlement agreement because it mentioned only the AREA, not the settlement agreement.
(Gridley v. Gridley (2008) 166 Cal.App.4th 1562, 1581.) The parties’ stipulation
provides for a determination only under the AREA, which contains no arbitration
provision.
       Whether the temporary judge properly awarded interest is not the subject of this
appeal, which is only from the order denying the pipeline’s petition to compel arbitration.

                                               8
The trial court properly denied that petition to compel arbitration because the litigation
concerned only the AREA and the AREA contains no arbitration provision. (See
Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC, supra, 55
Cal.4th at p. 236 [party seeking arbitration has the burden to show the existence of an
agreement to arbitrate].) Because we conclude the pipeline failed to demonstrate the
threshold requirement of the existence of an arbitration provision, we need not consider
the pipeline’s remaining arguments attempting to show the trial court erred in denying its
petition to compel arbitration.5
                                      DISPOSITION
       The order denying the pipeline’s petition to compel arbitration is affirmed.
Respondent is entitled to its costs on appeal.

                                                     FLIER, J.
We concur:

              BIGELOW, P. J.

              RUBIN, J.

5       The pipeline challenges the attorney fee award for opposing the petition to compel
arbitration. We decline to consider attorney fees because the current appeal is from only
the order denying the petition to compel arbitration and the attorney fees were separately
appealed. (See Silver v. Pacific American Fish Co., Inc. (2010) 190 Cal.App.4th 688,
693 [“A postjudgment order which awards or denies costs or attorney’s fees is separately
appealable.”].)

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