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 (the Railroad), successor to Southern Pacific Transportation Company. 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 arm's 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
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; and (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 bears 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,
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 [86 L.Ed. 836, 62 S.Ct. 529] (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 of 1862 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.
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 [47 L.Ed. 1044, 23 S.Ct. 671] (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
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 the infusion of settlers brought results, and the entire project was a success. (United States v. Union Pacific R. Co. (1957) 353 U.S. 112, 126-127 [1 L.Ed.2d 693, 77 S.Ct. 685] (Union Pacific) (dis. opn. of Frankfurter, J.).) On May 10, 1869, the Union Pacific and Central Pacific Railroads drove the last spike at Promontory Summit, Utah Territory, completing the first transcontinental railroad and connecting America's east and west coasts.
By then, the Civil War had ended. Public sentiment soon turned, and the mood of uncritical enthusiasm toward railroad enterprises began to veer. (Union Pacific, supra, 353 U.S. at pp. 126-127.) The largesse of land granted to the railroads was seen as a massive government giveaway. By the 1870's, legislators across the political spectrum had embraced a policy of reserving public lands for settlers rather than granting them to railroads. (Marvin M. Brandt Revocable Trust v. United States (2014) 572 U.S. ___ [188 L.Ed.2d 272, 134 S.Ct. 1257] (Brandt).) However, there was still a need to provide the railroads with the ability to complete the massive project, and Congress passed the General Right-of-Way Act of 1875.
Eventually, the need for rail service diminished with the advent of the internal combustion engine as cars and trucks appeared on the landscape. Railroads sold, abandoned, or discontinued much of their tracks as their need for the rights-of-way granted by Congress diminished. In response, Congress enacted laws governing the disposition of abandoned or forfeited railroad rights-of-way, which provided that any transfer would "be subject to and contain reservations in favor of the United States of all oil, gas, and other materials in the land." (43 U.S.C. § 912.) Pipelines appeared on the scene, carrying oil, gas, coal slurry and other fuels. Congress passed laws governing subsurface oil and gas pipelines through federal lands, providing for annual rental payments to the government. (See, e.g., 30 U.S.C. § 185 et seq.) Consistent with its practice of retaining the value of the subsurface to the United States, Congress passed a law providing that the government could grant leases for oil and gas deposits "in or under lands embraced in railroad or other rights of way acquired under any law of the United States, whether the same be a base fee or mere easement ...." (30 U.S.C. § 301.)
By this time, a hodgepodge patchwork of easements and ownership interests in railroad rights-of-way had spread across the West. As one might imagine, disputes over the rights of railroads, landowners, and the government arose, resulting in numerous federal and state lawsuits and appellate decisions, as well as several landmark opinions from the United States Supreme Court. Many of the cases dealt with the rights to the subsurface beneath the railroads' rights-of-way, and many dealt with ownership rights once the rights-of-way were no longer used for railroad purposes. Both issues arise in the instant case.
The Pipeline owns approximately 1,871 miles of pipeline running through California, Arizona, Nevada, New Mexico, Texas and Oregon within the Railroad's right-of-way. Another 1,400 miles or so of the pipeline veer off intermittently into public and private lands. In all, there are 1,076 pipeline
In the mid-1950's, the Railroad and the Pipeline were sister subsidiaries of Southern Pacific Corporation. The Railroad possessed a valuable transportation corridor along the rights-of-way granted to it initially by acts of Congress. The Pipeline wished to obtain a longitudinal easement through which to run its pipelines, which carried petroleum products. The two sister companies entered into master agreements in 1955 and 1956 wherein the Railroad rented portions of the subsurface under its rights-of-way to the Pipeline.
By that time, there had been considerable litigation, mostly in federal courts, regarding who owned the subsurface beneath a railroad's right-of-way. As to the 1875 Act, it had been decided by the United States Supreme Court that railroads merely had an easement over the surface of the land, and that title to the subsurface remained in the federal government (or its grantee, if any). (Great Northern, supra, 315 U.S. at p. 275.) But as to the pre-1871 Acts, the issue was unresolved. Railroads took the position that they had been given the land itself, and therefore could do what they liked with the subsurface. The federal government disagreed. It sued the Union Pacific Railroad Company, seeking to enjoin it from extracting oil and gas from the subsurface under a pre-1871 right-of-way. In 1954, a federal district court found in favor of the Railroad, holding that it had full rights to the subsurface and refusing to enjoin its use for the Railroad's benefit. (U.S. v. Union Pacific Railroad Co. (D.Wyo. 1954) 126 F.Supp. 646.) In 1956, the Tenth Circuit Court of Appeals affirmed the district court's ruling that railroads owned the subsurface and that they could extract oil and gas from it. (U.S. v. Union Pacific Railroad Co. (10th Cir. 1956) 230 F.2d 690.)
In that same year, an in-house attorney for the Railroad's predecessor sent a letter to the Pipeline explaining that the Railroad appeared to have the right to grant pipeline easements in the subsurface under rights-of-way it obtained via the pre-1871 Acts. But since the 1875 Act provided only an easement, they would have to obtain consent from the adjoining landowner in order to use the subsurface for a pipeline.
However, in 1957 the United States Supreme Court issued its seminal opinion in Union Pacific, supra, 353 U.S. 112. The court held that, while under the pre-1871 Acts a railroad was entitled to full use of the surface of the land, it could only use the subsurface "`for railroad purposes.'" (353 U.S. at p. 114, fn. 1.) Since the extraction of minerals from the subsurface was not a railroad purpose, and was expressly reserved in the statute, the pre-1871
Despite this narrowing of a railroad's rights to the subsurface underlying its rights-of-way, the sister companies went forward with their pipeline plan. Leases of pipeline easements proceeded in earnest in late 1957. Over the following years and decades, easements were granted and pipelines were built underneath the Railroad's rights-of-way — those acquired under both the pre-1871 Acts and the 1875 Act — but not without concern on the Railroad's part.
In one 1973 letter, an in-house attorney for the Railroad acknowledged that recent federal court decisions bearing on "the extent of the rights granted to Railroad under the March 3, 1871 Act now appear to be more restrictive as to use of the right-of-way for other than railroad purposes ..." than previously believed. In a similar 1974 letter, the attorney wrote regarding a proposed pipeline easement in Contra Costa County, saying, "[n]o assurance can be given Railroad is entitled to grant the pipeline easement in view of the unfavorable trend of California decisions interpreting grants to railroad companies." Another letter by the same in-house attorney written in 1976 discusses the fact that upon abandonment of rail operations the limited title properties may result in reversion of title, and that the easements are subject to loss upon abandonment for railroad purposes. It concludes that "consideration need [sic] be given as to the advisability of granting to [the Pipeline] an easement for pipelines in the property classified as limited title and easement for railroad purposes ... unless it is feasible for Railroad to take steps necessary to establish that it is the fee owner of the right of way in which [the] pipeline is located." Nevertheless, the Railroad continued to grant easements to the Pipeline.
In 1983, during discussions among the related entities regarding mergers, the Railroad and the Pipeline entered into a new master agreement addressing the easements.
The new 1983 master agreement between the two companies revised the arrangement regarding the Pipeline's perpetual, nonexclusive easements, and it set forth the amount of rent to be paid for existing pipeline easements through 1993. Also in 1983, the parent company of the Railroad and the Pipeline announced a merger with Santa Fe Railroad. The combination went
In 1991 the Railroad sued the Pipeline and related entities, alleging that the 1983 master agreement should be rescinded because it was created while the companies were still sister entities, and, because it was "not negotiated ... at arm's length," it set artificially low rent for the pipeline easements. The Railroad claimed that some of the Pipeline's facilities and tanks had been dedicated for the Railroad's continued use, "without regard to the technical title-holder of such properties, for its fuel needs." The Railroad also claimed that it should be permitted continued use of those pipeline facilities as if it had an "actual ownership interest."
As the case progressed, the parties entered into a "tolling agreement" to stay the litigation in order to attempt to reach a global settlement of all issues.
The parties settled the 1991 lawsuit in April 1994. Pursuant to the settlement agreement, the 1983 master agreement was rescinded; the master agreements of the 1950's were revitalized; the Pipeline's easement rights were confirmed and the easement locations were modified, reducing the width of the easement at many segments. The parties compromised various existing claims. The Pipeline paid over $5.5 million in return for the Railroad's dismissal of claims and causes of action, including those related to the Pipeline facilities allegedly dedicated for the Railroad's own use. The new settlement agreement contained no provision for the Railroad's use of the Pipeline's facilities for its own fuel needs.
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 could not agree, they would stipulate to an order for judicial reference pursuant to Code of Civil Procedure section 638.
In July 1994, the parties entered into an amended and restated easement agreement (AREA), which reflected that the Railroad granted easements to
On August 31, 1994, the Railroad filed an action for declaratory relief when efforts to agree on a new rental amount failed. The parties proceeded by way of a temporary judge pursuant to California Constitution, article VI, section 21, rather than by way of the referee called for in the AREA. At trial, the Pipeline argued that the Railroad did not have a fee interest in its rights-of-way, since they were largely derived from the 19th-century Congressional Acts. The Railroad brought a motion in limine to preclude any evidence regarding its title. The motion was granted and the Pipeline was prevented from proving that its easements did not, in fact, run through the "property of the railroad." Although it excluded evidence of the Railroad's property interest, the trial court nevertheless "assume[d] that the [R]ailroad own[ed] a fee interest." At the same time, it said that "the court makes no determination as to whether in fact or in law the [R]ailroad owns a fee interest or, as [the Pipeline] contends, it owns a lesser legal, and thus lesser valued, interest."
Judgment was entered in May 1997 in the approximate amount of $5 million base annual rent as of January 1994.
The next stage of this litigation commenced in 2004. Efforts to agree on the amount of the annual rent increase were made in late 2003, but again failed. In July 2004, the Railroad filed a complaint for declaratory relief. The complaint sought another 10-year increase in rent to fair market value on easements "within [the Railroad's] right-of-way property" pursuant to the AREA.
In March 2005, the parties stipulated to the appointment of the Hon. Eli Chernow, Judge (retired), to serve as a temporary judge under California Constitution, article VI, section 21. Trial commenced in February 2007. The Railroad again brought a motion in limine to exclude evidence regarding its title, on the grounds that such evidence was irrelevant to the sole issue in the case — i.e., the amount of rent due for the easements. This time, the motion was denied. Later in the trial, the Railroad brought a motion to strike evidence regarding the status of its title, which also was denied.
During trial, the Pipeline brought a cross-complaint against the Railroad regarding properties in which the Railroad had conveyed its interests to third parties but still continued to collect rent from the Pipeline. The Railroad brought its own cross-complaint regarding the Pipeline's failure to pay rent on certain properties the Pipeline had abandoned. At the close of the Railroad's case-in-chief, the Pipeline brought a motion for judgment pursuant to Code of Civil Procedure section 631.8 on the grounds that the Railroad had not introduced sufficient evidence of ownership of the land underlying its rights-of-way to prove its case. After hearing argument, the trial court suggested that the Railroad reopen in order to address ownership issues. A substantial amount of testimony was then heard and documentary evidence was received regarding the nature of the Railroad's ownership interest of the land in question. Knowledgeable persons with expertise in railroad title and the Congressional Acts testified. Ultimately, the Pipeline's motion for judgment was denied.
In April 2012, after more than 250 trial days, the trial court issued a comprehensive 105-page statement of decision. Judgment was entered on
In various motions and pleadings, the Pipeline challenged the Railroad's title to the land through which its easements ran — i.e., the "subject property."
After hearing evidence relating to the Congressional Acts and testimony about the title cards, the trial court noted that the records "most commonly showed that [the Railroad] originally acquired title through one or more land grants under certain Acts of Congress." Other parcels were acquired "by grant[s] from states or other grantors." The court also noted that "[i]t is undisputed that much of the property held by the [R]ailroad is held in less than full fee ownership" and that the Railroad "did not offer direct evidence of its title to the Subject Property." But there is little indication that the trial court considered in detail the application of the Congressional Acts, or the case law promulgated under them, in determining the nature of the Railroad's property interest.
Instead, the trial court believed it was "not dealing with a situation in which evidence has been presented that some third party is the owner of title." It stated that there was "no evidence disputing the Railroad's title to
As discussed below, there are numerous federal and state judicial opinions casting doubt on the rights of railroads to the subsurface underlying their rights-of-way based upon the Congressional Acts. Yet despite the Pipeline's repeated challenges to the Railroad's ownership under these acts, the trial court stated that "no challenge to [the Railroad's] ownership [had] been made by [the Pipeline]" and that "there [was] no evidence disputing the Railroad's title to virtually all of the subject property ...." On that basis, the trial court held that "in the absence of evidence challenging the [R]ailroad's title," the Railroad's ownership of the property had been "adequately shown" and (with minor exceptions) it was entitled to rent on the easements.
The Pipeline timely appealed from the judgment and "all orders and rulings subsumed therein" as well as various postjudgment orders. At oral argument, we asked 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. When counsel for each side did not appear fully prepared to respond to this inquiry, the court requested supplemental briefing on the subject of the Railroad's property interests.
In its supplemental briefs, the Pipeline claims the Railroad did not have sufficient title to the property to grant the subsurface easements in the first instance.
As to the other issues raised on appeal, we affirm the trial court's ruling that the judgment in the 1994 case did not collaterally estop the relitigation of
The multiple issues raised in this appeal call for various standards of review. As to questions of law, such as the construction of the Congressional Acts granting rights-of-way to the railroads, we employ a de novo standard. (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 432 [101 Cal.Rptr.2d 200, 11 P.3d 956]; Topanga and Victory Partners v. Toghia (2002) 103 Cal.App.4th 775, 780-781 [127 Cal.Rptr.2d 104].) We also employ a de novo standard of review regarding the interpretation of contracts and stipulations between the parties where there was no conflicting extrinsic evidence presented at trial. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866 [44 Cal.Rptr. 767, 402 P.2d 839].) And we apply the same standard when determining if res judicata and/or collateral estoppel principles apply, in light of the previous trial and judgment in the 1994 case. (Estate of Kampen (2011) 201 Cal.App.4th 971, 985 [135 Cal.Rptr.3d 410].)
As to rulings on the admissibility of evidence, we utilize an abuse of discretion standard. (Gordon v. Nissan Motor Co., Ltd. (2009) 170 Cal.App.4th 1103, 1111 [88 Cal.Rptr.3d 778].) And in assessing the trial court's findings of fact, we employ a substantial evidence standard. (Wilson v. County of Orange (2009) 169 Cal.App.4th 1185, 1188 [87 Cal.Rptr.3d 439].)
The AREA requires the Pipeline to pay rent to the Railroad on easements running through the property of the Railroad. Since the trial court did not make a factual determination of what the property of the railroad is, we remand the case for the court to make that determination.
This action is based on the AREA, which addresses the easements granted to the Pipeline in, upon, along and across the "property of [the] Railroad." (See, e.g., AREA, § 1.(a.), p. 2.) The Railroad's complaint alleges that the Pipeline owes rent on its easements within the "[R]ailroad's right-of-way
Thus, "`"[p]roperty" is more than just the physical thing — the land, the bricks, the mortar — it is also the sum of all the rights and powers incident to ownership of the physical thing. It is the tangible and the intangible. Property is composed of constituent elements and of these elements the right to use the physical thing to the exclusion of others is the most essential and beneficial. Without this right all other elements would be of little value ....'" (Dickman v. Commissioner (1984) 465 U.S. 330, 336 [79 L.Ed.2d 343, 104 S.Ct. 1086].) "A common idiom describes property as a `bundle of sticks' — a collection of individual rights which, in certain combinations, constitute property." (United States v. Craft (2002) 535 U.S. 274, 278 [152 L.Ed.2d 437, 122 S.Ct. 1414].)
Here, the pipelines run through the physical land below the Railroad's rights-of-way. But the "property of the railroad" refers to the rights, privileges, powers and immunities that the Railroad has in the land through which its rights-of-way run. The question here is whether, as of 2004, the Railroad had enough "sticks" to allow it to collect rent on the easements running under its rights-of-way.
The trial court concluded that the Railroad had sufficient property interests to have granted the Pipeline easements and to collect rent on them (even those that the Railroad had sold prior to 1994, when the AREA was executed). On appeal, the Railroad argues that the trial court's ruling should
The Railroad fashions this case as a "private-rights property dispute" and contends it is based upon a "private rental agreement [that does not] involve any matter of public interest or administration of justice." We reject that characterization. This case is not simply a private matter between two corporations that disagree about the amount of money one owes another in a dispute over private property. Nor is it a lawsuit involving the right of a landowner who purchased real property in the marketplace and seeks to use it as he or she sees fit. Public land was allocated to the railroads by the federal government for a specific purpose — to construct and operate a transcontinental railroad, in order to help protect the nation during civil strife, to expand its frontier, grow its economy, and develop its future. The land provided by Congress was neither purchased by the railroads nor was it given to them with no strings attached. Strings were attached.
The initial enabling statutes passed by Congress have given rise to numerous ownership questions over the years. As stated by the United States Supreme Court in Leo Sheep Co. v. United States (1979) 440 U.S. 668 [59 L.Ed.2d 677, 99 S.Ct. 1403], quoting a much earlier case, "`The solution of [ownership] questions [involving the railroad grants] depends, of course, upon the construction given to the acts making the grants; and they are to receive such a construction as will carry out the intent of Congress, however difficult it might be to give full effect to the language used if the grants were by instruments of private conveyance.'" (Id. at p. 682, quoting Winona & St. Peter RR. Co. v. Barney (1885) 113 U.S. 618, 625 [28 L.Ed. 1109, 5 S.Ct. 606] (Winona).)
In the instant case, the trial court does not explain its analysis of the Congressional Acts, nor how that analysis led to its conclusion that the Railroad had adequate ownership interests to charge rent for the Pipeline's easements. As the trial court did in the 1994 case, the trial court here essentially decided not to decide what the "property of the railroad" was. Instead, it appears to have taken a tack similar to that employed by expert witnesses at trial, who expressed their opinions based upon the assumption that the Railroad had a fee interest in the land, and thus sufficient ownership to grant and collect rent on the subsurface easements. But in the face of 150 years of federal and state jurisprudence that defines and delineates the nature of railroad rights-of-way vis-à-vis the rights of the federal government and
The Congressional Acts were passed in order to effectuate construction of a transcontinental railroad (Beres v. U.S., supra, 64 Fed.Cl. at p. 410), but they used two different mechanisms to accomplish their goal: The initial "land grant" statutes before 1871, and the subsequent "easement" statutes from 1875 and beyond. Since the nature, scope, and extent of these enactments differ significantly, we address them separately.
Much of the analysis in Brandt was based upon an earlier case, which dealt directly with the use of the subsurface underlying a railroad right-of-way. In
The Railroad here argues to the contrary, claiming that the 1875 Act granted it far more than a simple easement. It argues in its supplemental briefs that the 1875 Act authorized the Railroad "to conduct ... all activities on the surface or subsurface of the property" that derive from or further a railroad purpose. However, the Railroad has cited no case holding that the 1875 Act allowed "all activities [in the] subsurface," whether derived from or furthering a railroad purpose or not.
On the other hand, to consider the right-of-way provided by the 1875 Act as an old-fashioned common law easement is not accurate. While Brandt
State courts also contributed to the lexicon of railroad rights-of-way. The Iowa Supreme Court opined that "[t]he easement is not that spoken of in the old law books, but is peculiar to the use of a railroad, which is usually a permanent improvement, a perpetual highway of travel and commerce ...." (Smith v. Hall (1897) 103 Iowa 95 [72 N.W. 427, 428].) Thus, a railroad right-of-way, whether called an easement or not, is different than "a medieval right of way that authorized merely taking horses or wagons across a field" owned by someone else. (Home on the Range v. AT&T Corp. (S.D.Ind. 2005) 386 F.Supp.2d 999, 1014 (Home on the Range).)
Early on — before the days when subsurface pipelines were even feasible — courts also recognized there was a difference between the surface and subsurface. In Western Union, the United States Supreme Court extolled the substantiality of the railroad rights-of-way, but nevertheless opined that they were simply a "`fee in the surface and so much beneath as may be necessary for support.'" (Western Union, supra, 195 U.S. at p. 570, quoting Pennsylvania Schuylkill Valley Railroad Co. v. Reading Paper Mills (1892) 149 Pa. 18 [24 A. 205].) Thus, the land underneath the surface is not necessary for the railroad, except as a physical foundation. "`"[O]rdinarily
A railroad easement may be a "substantial thing" that is more than a traditional nonpossessory, incorporeal interest in land. After all, a "railroad company ... acquires more than the mere right of passage over [the] land[,] [i]t acquires the right to excavate drainage ditches; to construct beneath the surface supports for bridges and other structures; to erect and maintain telegraph lines and supporting poles with part of the poles beneath the surface; to construct passenger and freight depots, using portions of the land below them for foundations; to construct signals; to make fills and cuts to decrease the grades of their rail lines, and to use material from the land covered by the right of way to make such fills; and to construct a roadbed and lay its ties and the rails thereon. Hence, it has substantial surface and subsurface rights, which it is entitled to have protected." (Kansas City Southern Railway Co. v. Arkansas Louisiana Gas Co. (10th Cir. 1973) 476 F.2d 829, 834-835 (Kansas City).) The 1875 Act granted more than a "mere" easement, if that term is used to mean an old-fashioned, temporary passageway that is incorporeal in nature. To operate its trains, a railroad needs, and has, more than that.
But all of the above functions and needs of the railroad are for the purpose of constructing and running the railroad itself. As the Kansas City court pointed out, those things "cannot deprive the owner of the servient estate ... from making use of the land in strata below the surface and below substrata which are used or needed by the railroad company, and which in nowise ... interferes with the construction, maintenance and operation of the railroad." (Kansas City, supra, 476 F.2d at p. 835.) Thus, in that case, it was the owner of the servient estate — not the railroad — that had the right to build a pipeline below the railroad's right-of-way.
As to rights-of-way granted by Congress in 1875 and beyond, the Railroad has exclusive rights to the surface and, in addition, "broad and extensive rights of sub-lateral and subjacent support to prohibit interference with railroad operations and maintenance." (Energy Transportation Systems, Inc. v. Union Pacific Railroad Co. (D.Wyo. 1977) 435 F.Supp. 313, 317 (Energy Transportation I); see Home on the Range, supra, 386 F.Supp.2d at p. 1013.) However, the subsurface must be used to support the construction or operation of the railroad (i.e., for railroad purposes). Under the 1875 Act, the railroads "did not own [and] could not dedicate or grant any part ..." of their rights-of-way (Himonas v. Denver & Rio Grande Western Railroad Co. (10th
Therefore, the Railroad's right to collect rent from the Pipeline for use of its subsurface easements cannot be based solely on acquisitions obtained via the 1875 Act or its progeny.
A railroad's rights to the lands granted to them in the pre-1871 Acts raise different issues than those raised in the 1875 Act. Rather than a simple easement along the surface, railroads were actually given an estate in the land. (For example, the Pacific Railroad Act of 1862 (ch. 120, § 3, 12 Stat. 489) provides that "there be, and is hereby, granted to the said company, for the purpose of aiding in the construction of said railroad ... every alternate section of public land, designated by odd numbers ..." [all mineral lands excepted, other than timber].) Under the Act of July 2, 1864 (ch. 216, § 3, 13 Stat. 356), the railroads could condemn land "necessary in the construction of its road" and thereby "acquire full title to the same for the purposes aforesaid." However, the land grants had strings attached. The railroads were not given full fee title. The land had to be used for the "legitimate purposes of the railroad," and there was an "implied condition of reverter in the event that the company ceased to use or retain the land for the purpose for which it was granted." (Townsend, supra, 190 U.S. at p. 271.) Thus arose the term "limited fee" when referring to rights-of-way under the pre-1871 Acts. (Townsend, at p. 271.)
While the Railroad here cites Townsend's "limited fee" language frequently, that case does not stand for the proposition that the railroad could do whatever it wanted with the land, both surface and subsurface, as if it were owned in fee. As Townsend itself explained, "[t]he substantial consideration inducing the grant was the perpetual use of the land for the legitimate purposes of the railroad ...," and it belonged to the railroad only "so long as it was used for the railroad right of way." (Townsend, supra, 190 U.S. at p. 271.) Thus, even in the pre-1871 cases, Congress never conveyed to the railroads full title to the land, to do with it as they pleased.
The landmark 1957 United States Supreme Court decision in Union Pacific bears this out. Referring to the pre-1871 Acts, the court confirmed that a
Implicitly acknowledging that its rights-of-way must be used for railroad purposes, the Railroad argues in its supplemental briefs that the pipelines serve a railroad purpose after all. To support this proposition, it claims that the Railroad uses the fuel transported through the pipeline system to power its locomotives. There is nothing in the record supporting this claim, and no admissible evidence to that effect was ever proffered.
The case law does not support the Railroad's interpretation. In Great Northern, the United States sought to enjoin a railroad from drilling for or removing gas, oil and other minerals from beneath its right-of-way. As in this case, the railroad countered that it was using some of the oil residue on its locomotives and some as fuel for its trains. (Great Northern, supra, 315 U.S. at p. 270.) Nevertheless, the Supreme Court concluded that it should be enjoined. In Chicago & North Western Railway Co. v. Continental Oil Co. (10th Cir. 1958) 253 F.2d 468, a railroad claimed to be entitled to extract oil from beneath its right-of-way, in part because it used the oil itself. The court disagreed that this was a railroad purpose, stating "we do not regard the production of oil on the right of way an appropriate incident to the operation of a railroad, even though the refined product thereof might eventually be used for diesel fuel or other related uses."
Thus, the Energy Transportation I court held that as to the pre-1871 cases, a railroad did acquire more than a "mere passage over the land." (Energy Transportation I, supra, 435 F.Supp. at p. 318.) Indeed, it acquired "all rights necessarily incidental to the use of the railroad. Such rights do not preclude reasonable use of the subsurface, for support of trackage or for cuts or tunnels or similar roadbed changes." (Ibid.) But the railroad could not prevent the owner of the servient estate from using the subsurface to build a pipeline in a way that did not "interfere with the [railroad's] valid railroad operations." (Ibid.) Once again, the court separated the surface grant of the right-of-way from the servient estate underlying it, opining that "the `land forming the right of way' did not include the subsoil, servient estate." (Ibid.)
We recognize that using the subsurface for the extraction of oil and gas is not the same thing as leasing it to others for the conveyance of oil and gas. But in either case, the Railroad is seeking value from the use of the servient estate, an estate in which its property rights were limited under the Congressional Acts. To paraphrase Union Pacific, we would have to forget history and read legislation with a jaundiced eye to hold that when Congress granted only a right-of-way to the railroads, it nonetheless endowed it with the "untold riches underlying the right of way." (Union Pacific, supra, 353 U.S. at p. 116.)
The Railroad cites Mellon v. Southern Pacific Transport Co. (W.D.Tex. 1990) 750 F.Supp. 226 (Mellon) and International Paper v. MCI Worldcom Network (W.D.Ark. 2002) 202 F.Supp.2d 895 (International Paper) to support its position. However, neither case offers support. In Mellon, the railroad's easement was acquired through a grant from the State of Texas and an adjacent landowner owned the servient estate. The railroad nonetheless granted an easement to a telecommunications company to run a cable beneath
International Paper does not support the Railroad either. That case was decided under Arkansas law. Again, it involved running a telecommunications cable in the topsoil of the surface right-of-way, not a pipeline through the servient estate. The railroad had a right-of-way running through land owned in fee by the plaintiff, International Paper. Arkansas state law provided that railroad easements conveyed an interest in the ground that entitled the railroad to lease or license the surplus right-of-way to third parties for railroad purposes. (International Paper, supra, 202 F.Supp.2d at p. 901.) Nevertheless, the International Paper court noted that "an easement for railway purposes is not a fee ...." (Id. at p. 900.) In determining if the running of the defendant's fiber-optic cable served a railroad purpose, the court pointed out that "`[a] railroad purpose is one which is primarily for the benefit of the public, and not a private individual.'" (Id. at p. 902.)
As in Mellon, the easement in International Paper dealt with a fiber-optic cable buried in the topsoil and did not present a significant burden to the servient estate. (International Paper, supra, 202 F.Supp.2d at p. 903.) In the instant case, the pipelines burden the subsurface owned by others, allegedly being buried as deep as 40 to 60 feet in some places. Moreover, the Railroad makes no claim that the pipeline primarily serves a public purpose. Indeed, the Railroad argues this case simply relates to the enforcement of a "private rental agreement," which does not involve any matter of public interest. But that is precisely the point: The rental agreement between the parties is a private arrangement that serves each company's own interest, not the public interest for which the Railroad's rights-of-way were granted.
In its supplemental brief, the Railroad attaches memoranda from the Department of the Interior regarding the running of fiber-optic cables through the Railroad's rights-of-way and the application of the pre-1871 and the 1875 Acts, pursuant to title 43 United States Code sections 1761 through 1763. But telecommunications cables stand on different footing than pipelines because (1) the original congressional grants were not only for railroad transportation corridors but also telegraph communication corridors and, (2) the cables generally run through the surface topsoil and do not significantly burden the servient estate. The Railroad does not attach Department of the Interior
For example, in 1906, the Department of the Interior was asked to opine on a lease provided by the Missouri, Kansas and Texas Railway Company to an individual operating several oil-bearing wells on a portion of the railroad's right-of-way. It appears that part of the right-of-way was granted in 1866 and part was granted in 1902, both by the federal government. In its initial opinion in 1905 (Missouri, Kansas & Texas Ry. Co. (1905) 33 Pub.LandsDec. 470), the department opined that the grant under the 1866 act was similar to a grant under the 1864 act and concluded, in a later decision, that "upon authority of the case of the Northern Pacific Railway Company v. Townsend (190 U.S. 267, 271 [47 L.Ed. 1044, 23 S.Ct. 671]), ... the Missouri, Kansas and Texas Railway Company is not authorized to use or permit the use of its right of way for a purpose not contemplated by the granting act, and that although said company took a base fee under its grant of right of way, yet it did not acquire the right to take mineral oils therefrom" (Missouri, Kansas & Texas Ry. Co. (1906) 34 Pub.LandsDec. 504-505). When it came to the portion of the lease relating to the 1902 act, the department was even more emphatic, stating there was no doubt that "a right of way acquired under this statute is a mere easement — a title of even less dignity than that given by the granting act of 1866 — and therefore with better reason it follows that the company is not authorized to use it except for `depot grounds, terminals, and other railway purposes.'" (Missouri, Kansas & Texas Ry. Co., supra, 34 Pub.LandsDec., p. 505.) The lease for minerals underneath the surface "d[id] not appear to be needed for any railway purpose" and were "clearly not within the privilege granted by the act ...." (Ibid.) The department went on to state that this was a "manifest invasion of rights belonging to the owner of the fee," advised that the owner was entitled to "the protection of the United States government," and suggested that the matter might be "referred to the Department of Justice." (Ibid.)
The Railroad may use the subsurface underlying its pre-1871 rights-of-way for things that support the construction and operation of their railroad — i.e., for railroad purposes. But it cannot use the subsurface for other purposes. Renting out the subsurface to a third party from a different industry for private gain cannot reasonably be considered a railroad purpose.
Therefore, the Railroad's right to collect rent from the Pipeline for use of subsurface easements under the Railroad's "right-of-way property" cannot be based solely on acquisitions obtained via the pre-1871 Acts.
It is helpful to step back from the maze of railroad adjudication and the crosscurrent of state and federal decisional law it spawned. Taking a broader view of what the country was trying to accomplish with its railroad land grants and easements helps clarify whether the Railroad's conduct here comports with what Congress intended.
In the circumstances of a new country engaged in a great civil war for its very existence, the federal government created a new form of property — railroad rights-of-way. It had many of the indicia of common law property, but was a unique legislative creation that first granted land, and then easements, to the railroads in return for their promise to build a transcontinental railroad.
The panoply of issues and questions has gone on for a century and a half, and probably will not be fully resolved anytime soon. But a relatively narrow question is presented here: Did the federal acts give the Railroad the right to rent the subsurface under its rights-of-way in order to generate revenue for itself? Perhaps the answer is best found not in the myriad of cases and opinions interpreting differing laws and unique fact situations, but in what Congress actually did, and why.
At the time, little could be done with the subsurface other than extract minerals, if present, but Congress did not ignore it completely. The initial Pacific Railroad Act of 1862 expressly exempted "mineral lands." Indeed, the nation was aware of the potential great value and wealth in the subsurface. As noted above, in late 1862, the Secretary of the Interior issued a report extolling the value within the "Western Mineral Lands." (U.S. Dept. of Interior, Abstract from the 1862 Ann. Rep. of the Commissioner of the Gen.
Not long after, Congress made it even more explicit, passing title 30 United States Code section 21, which confirmed that "[i]n all cases lands valuable for minerals shall be reserved from sale, except as otherwise expressly directed by law." In 1922, as the need for railroads began to lessen, Congress enacted a law dealing with the disposition of abandoned or forfeited railroad grants (43 U.S.C. § 912), which addressed how the railroads could convey their rights-of-way. That section expressly reserved all oil, gas, and other minerals in the land to the United States. As stated in Great Northern when referring to the 1875 Act, "[t]he Act was designed to permit the construction of railroads through the public lands and thus enhance their value and hasten their settlement. The achievement of that purpose does not compel a construction of the right of way grant as conveying a fee title to the land and the underlying minerals; a railroad may be operated though its right of way be but an easement." (Great Northern, supra, 315 U.S. at p. 272, italics added.)
Once pipelines did become a factor, Congress acted on them as well. In 1920, it enacted title 30 United States Code section 185, which addresses rights-of-way for pipelines through federal lands. The Department of the Interior was authorized to provide leases for such pipelines in return for annual payments of fair market value. (30 U.S.C. § 185(l).) In 1930, Congress specifically addressed the land under railroad rights-of-way in terms of authorization for leases of oil and gas deposits. It expressly applied the new law to leases "in or under lands embraced in railroad or other rights of way acquired under any law of the United States, whether the same be a base fee or mere easement" (30 U.S.C. § 301, italics added), and provided for royalties to be paid to the United States. (30 U.S.C. § 305.) Thus, when it came to leases in the subsurface, Congress expressly eliminated any distinction between the pre-1871 and 1875 Acts. This hardly reflects an intent on the part of Congress that the Railroad could use the subsurface under its rights-of-way as it pleased. Quite the contrary.
And yet, that is essentially the position taken by the Railroad here. It argues that it has what is tantamount to a fee interest in the subsurface underlying its rights-of-way (both via pre-1871 and 1875 Acts), and that it may rent it out for its own private gain. It has submitted no evidence, indeed it makes no claim, that its collecting rent from the Pipeline in some way helps the Railroad itself run, as opposed to merely providing revenue to the company for the benefit of its shareholders.
It is difficult to imagine that in a time of national crisis a rational Congress would pass, and the President would sign, laws to encourage the railroads to construct a transportation corridor through public lands and across the nation, seen as critical to the safety and development of the country, and at the same time mean to give the railroads the right to rent the subsurface under that corridor to private third parties from a nonrailroad industry, in order to generate revenue for itself. Even more difficult to fathom would be an intent to have the railroad continue to collect such revenue even after it abandons, sells, transfers, conveys, or otherwise ceases using the surface rights-of-way at all — for a railroad or otherwise.
Indeed, as previously noted, the original grants expressly describe their purpose. For example, the original Pacific Railroad Act of 1862 (ch. 120, §§ 1, 3, 12 Stat. 489) was passed "to lay out, locate, construct, furnish, maintain, and enjoy a continuous railroad and telegraph, with the appurtenances" and to "aid[] in the construction of [the] railroad and telegraph line." The Act of July 2, 1864 (ch. 216, § 3, 13 Stat. 356), was meant for the "construction and working of said road." And the Act of July 25, 1866 (ch. 242, § 7, 14 Stat. 239), required the railroad companies "to operate and use the portions or parts of said railroad and telegraph ... for all purposes of transportation, travel, and communication, so far as the government and public are concerned...." There is nothing in the statutory language, nor its content or context that remotely suggests that Congress meant to give the railroads the right to use the land under their rights-of-way to generate revenue for themselves.
At oral argument, counsel for the Railroad claimed that the pipeline served a railroad purpose because the Pipeline and the Railroad were sister companies at the time the easements were first granted, citing Faus v. City of Los Angeles (1967) 67 Cal.2d 350 [62 Cal.Rptr. 193, 431 P.2d 849] (Faus). The Railroad likewise cites Faus in its supplemental letter brief. But Faus fails to support the Railroad's position. In Faus, grants to a railroad (which did not come from the federal government) provided that the right-of-way was to be used for an electric railway. When times changed and gas powered vehicles became more prevalent, electric rails diminished in use. The California Supreme Court held that changing the use from electric rails to motorcoach service complied with the original purpose of the grantors, which was to provide a means of public transport for adjacent landowners. Switching bus service for a streetcar network constituted an "adequate substitute." (Id. at
The Railroad tries to analogize by saying that conveying commodities through a pipeline is simply a "change in modality of transportation — here, from trains to pipeline — [which] does not change the railroad purpose" (citing Faus, supra, 67 Cal.2d at pp. 358-359 & fn. 6.) But the analogy fails because leasing the subsurface below the railroad's tracks in order to convey oil and gas is a far cry from simply substituting electric trolleys for buses on the land's surface to accomplish the same overall goal — transportation of passengers.
The Railroad cites City of Long Beach v. Pacific Elec. Ry. Co. (1955) 44 Cal.2d 599 [283 P.2d 1036] for the proposition that the phrase "railroad purpose" must be used broadly, to include things like lumberyards built in the right-of-way. But City of Long Beach was a condemnation action where the railroad had used part of the surface of its right-of-way for a lumberyard and related purposes. The question was whether the city's efforts to condemn an easement across the right-of-way for street purposes warranted more than nominal compensation to the railroad. The issue of whether the railroad could lease its surface right-of-way for commercial purposes if it contributes to the railroad's business was discussed in dicta, but was not part of, or necessary to, the holding. Importantly, the case had nothing to do with subsurface rights, or whether the railroad could lease the servient estate to third parties and collect rent on it. Clearly, the railroad's interest in the surface right-of-way stands on different footing than its interest, if any, in the subsurface. Moreover, City of Long Beach was decided in 1955, before the seminal Union Pacific case addressed the retained rights of the federal government to the subsurface beneath the rights-of-way. Therefore, it is not helpful to the present analysis.
Like City of Long Beach, the other cases cited by the Railroad for the proposition that the proper use of its right-of-way (whether by land grant or easement) should be broadly construed deal with uses on the surface of the land within the right-of-way. There is little doubt that as to the surface, the Railroad's rights are substantial. That makes sense. Its trains run on the surface. Its stations and terminals are above ground. No one else has a right to use the surface, or interfere with the Railroad's use of it, as long as trains run on it. The Railroad needs to control the surface in order to operate.
Finally, the Railroad argues that it can do anything with its rights-of-way that is "not inconsistent with" railroad purposes. But that is not the law. It is not enough that the activity is "not inconsistent with" railroad purposes; the activity must actually serve a railroad purpose. The right-of-way was granted to the Railroad "`"for the construction of [the] railroad and telegraph line." [Citation.] That purpose is not fulfilled when the right of way is used for other purposes.'" (Home on the Range, supra, 386 F.Supp.2d at p. 1022, quoting Union Pacific, supra, 353 U.S. 112, 114, italics added by Union Pacific.) As the Home on the Range court explained, the United States Supreme Court in Union Pacific did not say or imply that the basis for its holding was that the activity in question was inconsistent with railroad purposes. Rather, it was "simply ... not a railroad purpose." (Home on the Range, supra, at pp. 1022-1023.) The court then cited a Department of the Interior decision to that effect, stating that "`any use of a railroad right of way, or any portion thereof, for other than railroad purposes is prohibited. A right of way granted by Congress through the public domain may be used only and exclusively for railroad purposes.'" (Id. at p. 1023, quoting Use of Railroad Right of Way for Extracting Oil (Sept. 8, 1937) 56 Interior Dec. 206, 211, italics added by Home on the Range.)
If the Railroad has the right to collect rent pursuant to the AREA for the period of time between 2004 and 2014, it did not obtain that right from the
The mere fact that the Congressional Acts did not give the Railroad sufficient interest in the land to grant subsurface easements to the Pipeline and collect rent therefrom does not end the inquiry. As discussed in more detail below (pt. III.B.1., post), the Railroad may well have acquired additional rights through other means. By 2004, it may have had rights to the subsurface under some of its rights-of-way that surpassed the rights originally granted by Congress. Indeed, it appears that evidence was presented during trial suggesting that, separate and apart from the Congressional Acts, the Railroad claimed title to approximately 50 percent of the land. Since the trial court erroneously concluded that the Railroad had title to "virtually all of the subject property," there was no finding by the court as to how much of the land was actually the "property of the railroad."
Therefore, the case must be remanded to the trial court for further proceedings to determine which pipeline easements ran through the "property of the railroad" between January 1, 2004, and December 31, 2013. Rent may be charged by the Railroad only on those easements. Rent may not be charged on easements that ran through rights-of-way acquired by the Railroad solely via the Congressional Acts.
In the next two parts of our opinion, we turn away from the property rights of the Railroad and discuss the valuation methods employed by the trial court. In this part, we address the Pipeline's claim that the trial court erred in adjudicating certain valuation issues because those issues were resolved in earlier litigation between the parties. In part III, we discuss contentions relating to the specific valuation methods adopted by the trial court. There, we see how the determination of what constitutes the "property of the railroad" bears upon the calculation of the amount of rent due.
Nos. (2) through (5), above, are clearly present in this case. The question turns on whether the issues that were determined in the first proceeding were "identical" to any of the issues that were to be determined in this proceeding. The Pipeline claims that certain factors relating to the value of easements in transportation corridors were fully litigated and finally determined in the 1994 case, and that the trial court was precluded from adjudicating them a second time. The Railroad claims that these factors change over time, and therefore the facts and circumstances in 2004 are not identical to those in 1994. Therefore, according to the Railroad, issue preclusion does not apply.
The trial court utilized the "Across-the-Fence" (ATF) method to value easements through transportation corridors. The ATF method utilizes four factors to arrive at the rent: (1) the total value of the land occupied by the easement and through which it travels; (2) an "enhancement factor" reflecting the special value of a transportation corridor in that location; (3) a "use factor" representing the extent or percentage of the fee constituting the nonexclusive subterranean easement; and (4) the appropriate rental rate, or "rate of return."
On at least three separate occasions — before, during, and after trial — the Pipeline asked the trial court to find that collateral estoppel should be applied to the use and enhancement factors, and therefore the Railroad should be bound by those determinations made by the temporary judge in 1994.
It is unclear whether, in using the phrase "subject to change over time," the trial court here simply meant that the facts underlying the enhancement and use factors might have changed. If so, this would be an erroneous test. After all, virtually anything could possibly change over time. The question for issue preclusion purposes is whether the facts did change over time. However, if the trial court meant that the facts underlying the enhancement and use factors, by their nature, inherently change over time, then the conclusion that they had changed between 1994 and 2004 would be a reasonable, if not an inevitable, one. If things are known to change over time, and a significant amount of time passes, the inference that those things are no longer "identical" to the way they were is compelling. Change is implicit in the facts and implied in the conclusion.
The record reveals changes as to these issues between the 1994 case and the instant 2004 case. Evidence was presented of more recent transactions, including transactions entered into by the Railroad and by the Pipeline. Transactions that were part of the record in the 1994 case might or might not be entitled to the same weight accorded to them earlier. The evidence in the instant case included new information about land values and enhancement factors that did not exist in the earlier case. In addition, the trial court was presented with evidence that the Pipeline had recently acquired property for new construction for a Concord-to-Sacramento pipeline. In doing so, it had utilized the ATF process, and inferences could be drawn from these new facts that did not exist in the 1994 case.
In addition, there was testimony at trial from which one could reasonably infer there were changes in the facts and circumstances as they related to enhancement (or corridor) factors. As one example, an expert for the Railroad was asked about any changes in enhancement factors in the years leading up to 2004. He testified as follows:
Moreover, the Railroad's expert testified that the use factor is "market extracted from actual sales and agreements" and was in the range of 75 percent for subsurface occupancies such as the easements here. For determining both enhancement and use factors, another expert for the Railroad testified regarding, and brought documentation of, scores of transactions, many of which were after 2000 and some as late as 2003. He testified about numerous transactions between 2000 and 2003 with use rates in the range of 50 percent to 90 percent. And he compared pre-2000 transactions to post-2000 transactions, placing more weight on the recent transactions. He also opined as follows:
Based on the record, it can hardly be said that the facts from which the use factor was determined had not changed since 1994. These facts were not fixed or permanent in their nature. Rather, there was substantial evidence that the facts had changed between 1994 and 2004. As with the enhancement factor, the trial court's ruling regarding collateral estoppel relating to the use factor was correct. Precluding either party from relitigating the use factor would have been an error of law. Allowing the parties to relitigate the issue in order to update it was not.
Courts must look at the entire record to equitably apply issue preclusion, allowing a party to avoid having to revisit and relitigate an issue already fairly resolved. But in this case, there is an extra wrinkle: As part of the settlement of their 1991 litigation, the parties agreed that the Railroad could seek a rent increase in accordance with the fair market value of the easement every 10 years.
If the parties had thought the rent was something static and fixed, there would have been no need to build in a preplanned rent increase, nor to provide a mechanism to resolve their disputes every 10 years under judicial auspices. One can fairly assume that both the Railroad and the Pipeline believed the market value of the easement would change over that length of time. But perhaps more important, they appear to have contemplated that determining that market value would require a more complex and sophisticated analysis than simply looking to inflation or general property values. Otherwise, the consumer price index (CPI) or some similarly objective economic indicator of overall property values would probably have been
In this case, the "limitation on relitigation" policy that collateral estoppel seeks to promote is undermined by the AREA itself, a preexisting agreement between the parties to recalculate the rent every 10 years and seek judicial intervention when they fail to reach an accord. Under the circumstances, the application of collateral estoppel would be unlikely to prevent inconsistent results or promote finality and judicial economy. Thus, application of issue preclusion would not further the goals that the doctrine was designed to promote.
We affirm the trial court's rulings that denied the Pipeline's motions for issue preclusion.
The Pipeline argues that the trial court erred in not utilizing their "comparable value method" as evidence of the amount of rent due. The Pipeline contends the trial court did not consider its properly admitted evidence, because failing to give weight to evidence is "tantamount to exclusion." And the Pipeline asserts that this is "the flip side of [Santa Fe I], where the trial court `considered' but did not formally `admit' the ATF appraisal evidence...." Here, according to the Pipeline, the trial court "admitted" but did not "consider" the comparable transaction evidence. These arguments are without merit.
In Santa Fe I, the Court of Appeal reversed because the trial court excluded the Railroad's ATF evidence entirely, preventing it from proving its case and denying it a fair trial. Having excluded the ATF evidence, the trial court never considered its probative value. Here, to the contrary, the trial court admitted the Pipeline's evidence, but after due consideration concluded it had no persuasive effect. The Pipeline fails to recognize or accept the fundamental distinction between the admissibility of evidence and its weight.
Indeed, San Luis Obispo itself explains that once evidence is admitted on the grounds of comparability, "`the degree of comparability is a question of fact for the jury.'" (San Luis Obispo, supra, 4 Cal.3d at p. 525.) After all, when it comes to determining the weight to be given to evidence regarding the valuation of property, "[t]he trier of fact is the sole arbiter of such matters [citations]; is not required to accept the opinion testimony of any witness as to value [citation]; [and] in the exercise of judicial discretion may accept that part of such testimony he concludes worthy of belief and reject that part
Other cases cited by the Pipeline also fail to support its position. For example, in Lewis Food Co. v. Fireman's Fund Ins. Co. (1962) 207 Cal.App.2d 515 [24 Cal.Rptr. 557], the appellate court reversed a trial court that admitted evidence but did not consider it, but that was because the trial court erroneously believed the evidence could not be considered. (Id. at p. 524.) Here, in contrast, the Railroad moved to exclude the Pipeline's evidence and its motion was denied (with minor exceptions). Taking heed of the reversal of the trial court in Santa Fe I, the temporary judge not only admitted the testimony and opinions of the Pipeline's experts but considered and analyzed them extensively. In his statement of decision he explains in detail why he concluded the evidence did not assist him in reaching a conclusion. But there can be no doubt that the court both admitted and considered the Pipeline's valuation evidence before concluding it was not persuasive.
The Pipeline's reliance on Vanieken-Ryals v. Office of Personnel Management (Fed.Cir. 2007) 508 F.3d 1034 (Vanieken-Ryals) is also misplaced. There, the trial court erroneously refused to consider evidence that it was required to consider by law, resulting in error (Id. at p. 1041.) That is a far cry from what occurred here, where the trial court carefully reviewed the Pipeline's evidence and found it lacking. In Gui Cun Liu v. Ashcroft (3d Cir. 2004) 372 F.3d 529, another case cited by the Pipeline, the trial judge admitted a document in a pro forma manner, but because it was not certified he stated at the outset it would be given "`no weight.'" (Id. at p. 530.) The appellate court held this was tantamount to not admitting it at all. (Id. at pp. 531-532.) That did not happen here. The trial court not only admitted massive amounts of the Pipeline's evidence but considered it at length. Indeed, it dedicated over 30 pages of its statement of decision to an analysis of, and comparison between, the Pipeline's comparative appraisal approach and the Railroad's ATF approach. Ultimately, it concluded that the Pipeline's evidence lacked persuasive force, which was its prerogative as the trier of fact.
We review the admissibility and weighing of evidence by an abuse of discretion standard. As pointed out by one of the cases cited by the Pipeline, "[g]iving little weight to specific evidence because of its individual failings... is a factual analysis over which we have no jurisdiction to review." (Vanieken-Ryals, supra, 508 F.3d at p. 1040.) There was no error by the trial court in its considering and weighing of the evidence regarding appraisal methods.
The trial court utilized the ATF method in determining the amount of rent due under the AREA. This method is generally used in valuing transportation corridors. Indeed, in Santa Fe I both sides initially presented expert testimony using the ATF method. The trial court refused to admit or consider such evidence and the Court of Appeal for the First Appellate District found that the Railroad was denied a fair trial. The first judgment was reversed on those grounds. (Santa Fe I, supra, 74 Cal.App.4th at p. 1248.)
On appeal, we accept these findings if they are supported by substantial evidence. In applying the substantial evidence standard, this court's "`review begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the trial court's factual determinations....'" (Monks v. City of Rancho Palos Verdes (2008) 167 Cal.App.4th 263, 295 [84 Cal.Rptr.3d 75].) The test is whether it is "reasonable for a trier of fact to make the ruling in question in light of the whole record." (Buckley v. California Coastal Com. (1998) 68 Cal.App.4th 178, 192 [80 Cal.Rptr.2d 562].) In the previous incarnations of this matter reflected in Santa Fe II, the Court of Appeal pointed out that, where one of the ATF factors found by the trial court was "within the range of expert testimony provided," it was supported by substantial evidence, even when the Court of Appeal found the trial court's reasoning to be erroneous.
Evidence before the trial court "most commonly showed that [the Railroad] originally acquired title through one or more" of the Congressional Acts. The court recognized that the Railroad obtained the land "for railroad use, not outright grants of permanent full fee property rights," and that it held less than full fee title to such lands. We have taken judicial notice of the pre-1871 and 1875 Congressional Acts and the decisional law interpreting them. (Evid. Code, §§ 451, subd. (a), 459.) As explained above, pursuant to that body of law the Congressional Acts did not grant the Railroad sufficient rights to the subsurface to allow it to collect rent from the Pipeline for its use of that property.
The trial court made no specific finding as to the nature of the Railroad's property interest. Yet it concluded that title to "virtually all of the subject property" had been adequately shown. The implication was that all of the Pipeline's easements are within the "property of the railroad." In reviewing the record, we do not find substantial evidence to support this finding. It
At oral argument, counsel for the Railroad claimed the trial court had determined that for purposes of the AREA the Railroad had proven its case in terms of what was the property of the railroad. But the trial court did not make a finding that the Railroad owned any particular parcel. Indeed, the court expressly stated that the Railroad "did not offer direct evidence of its title" and that "[f]ew records, if any, reflected title in the Railroad in fee simple." As noted above, it concluded in its statement of decision that the Railroad lacked full fee title.
Because the trial court did not make a finding as to the "property of the railroad" under the test we have set forth today, it follows that there was no substantial evidence of total value. Once the "property of the railroad" has been determined on remand, then the trial court can determine the total value and apply the remaining ATF factors.
The record reveals that the trial court considered a massive amount of evidence in reaching its conclusions regarding the enhancement factor, as well as the other ATF factors. Its discussion in the statement of decision has subsets for conflicting opinions, theoretical considerations, inferences from the Pipeline's new construction of railroad rights-of-way, the opinions of experts from both sides, availability of alternatives, among numerous others. The trial court also recognized that the easements were along an existing transportation corridor, which represented a very substantial savings to an easement user compared to the cost of assembling a new corridor for its easement. All appraisers agreed that this was the highest and best use of the subject property, which is generally not more than 10 to 12 feet wide but extends lineally over 1,800 miles. The trial court considered how the market valued these types of property interests.
One of the Railroad's experts testified to enhancement factors between 1 and 1.5, depending on density of development ATF, and other factors. Another of its experts said the range was 1 to 1.25, again depending on the density of the development. When looking at market data, the first expert set the range at 1.11 to 2.09 times ATF land value. The other opined that the range was between 1 and 6.83 times ATF land value. The trial court found an enhancement factor of 1.25. This was supported by substantial evidence and was well within the range of the testimony of the expert witnesses. Unless it appears on remand that the determination of the "property of the railroad" in some way affects the calculation of the enhancement factor, the trial court's finding regarding that factor will not be disturbed on appeal.
A similar analysis applies to the trial court's determination of the use rate (or percentage of fee) factor. Here, the trial court considered, among other things, the approach of appraisers from both sides, the policies of other railroads, and other transactional data. One of the Railroad's experts opined that the market value of the subject easement was 60 percent of the corridor value of the strip of land it occupied, and that market data indicated use rates between 50 percent and 90 percent. Another expert testified that on average the market value of the easement was 65 percent of the underlying fee value. The trial court considered the opinion of the Pipeline's expert as well, who concluded that the use rate was between 33 percent and 50 percent of the fee value to subsurface rights. He relied heavily on the conclusion of the judge in Santa Fe II and arrived at 40 percent as the most appropriate use factor.
The trial court concluded that the most reasonable use factor was 60 percent of the underlying fee value of the easement, but 70 percent for those line sections that were seven feet or less. These findings are within the range of the expert testimony and supported by substantial evidence. As with the enhancement factor, unless it appears on remand that the determination of "property of the railroad" in some way affects the calculation of the use factor, the trial court's finding regarding that factor will not be disturbed on appeal.
As to the rate of return, the trial court heard expert testimony and received documentary evidence of the Railroad's policies and practices, as well as those of other railroads. The Railroad presented evidence that the rate of return should be between 10 percent and 16 percent. The Pipeline's experts opined that the range was closer to 6 percent to 8 percent. The trial court concluded that the Railroad's experts were more believable. It also considered recent transactions by the Railroad, which reflected it was able to generate a rate of return of 13 percent in those cases.
The Pipeline also contends it need not pay rent for easements under rights-of-way property that the Railroad sold to third parties. We make two preliminary observations. First, given our earlier discussion regarding the "property of the railroad," the Railroad had no right to collect rent on subsurface easements under rights-of-way acquired solely via the Congressional Acts. It follows, then, that the sale of those rights-of-way by the Railroad to third parties did not somehow confer a right to collect rent from the Pipeline for those easements. However, even if — as the Railroad claims — the Congressional Acts had conveyed sufficient property rights to the Railroad to warrant its renting out the subsurface to the Pipeline as it actively used its right-of-way for railroad purposes, new and different considerations come into play once the Railroad ceases, forfeits, or abandons its use of the right-of-way altogether. Second, we note that at trial the parties litigated the Railroad's right to charge rent as to those rights-of-way sold before and after 1994, but on appeal the Pipeline only claimed error as to the properties sold before 1994.
The Railroad claims it has the right to continue to collect rent on pipeline easements within properties it had already sold when the AREA was signed, because the AREA itself indicates that the list of existing easements included some that were "located on property previously owned by Railroad, but not owned by Railroad as of the date [of the AREA]." (AREA, § 1.(d.).) Furthermore, the Railroad contends, when it sold these parcels to third parties it included a reservation of rights to subsurface easements that contained the pipeline, and also reserved the rights to collect rent on the pipelines as "easements in gross."
In the trial court, the Railroad took the position that it did own the land through which it granted the Pipeline's easements, and thus had the right to
The trial court found that the Railroad "h[e]ld less than full fee title" to the land, but it nevertheless concluded that the Railroad had the right to continue to collect rent from the Pipeline on property it sold to third parties, if it included a reservation of that right as part of its conveyance.
Not surprisingly, railroads attempted to sell their rights-of-way to third parties when they ceased using them for railroad operations. But the alienability of railroad rights-of-way created solely by the Congressional Acts generated questions, since the railroads did not own the land in fee to begin
Under the various statutes relating to abandonment or forfeiture, court or congressional actions were often required. These were sometimes obtained, but not without controversy. For example, in 1997 a House of Representatives committee recommended approving the conveyance of certain parcels of the Southern Pacific Railroad in Tulare County, California, for local development. The rights-of-way had been originally granted to the railroad in an 1866 act. A report from the Committee on Resources accompanying House Bill No. 960 recognized that if the railroad ceased to operate on the right-of-way, the land comprising the right-of-way would revert to federal ownership. The report discussed the reasons that it recommended validating the conveyances to Tulare County, as opposed to having the land revert to the federal government. But additional views were presented, which pointed out that while Tulare wished to buy the right-of-way from the railroad, "[t]he railroad ... does not own the land (the taxpayers do), and so the title is not cleared to convey." (H.R.Rep. No. 105-171, 1st Sess., pp. 6-7 (1997).) Nevertheless, the authors said, the proposal would allow the railroad to clear title to sell these lands and profit from their disposal, and expressed concern that the "[p]assage of this legislation should not be perceived as endorsing the concept of the federal government giving away public rights without just compensation." (Ibid.)
Such plans to validate railroad rights-of-way conveyances were not uncommon. Another came before Congress in 2004, involving rights-of-way initially granted to a railroad in 1862. In the report supporting the act, the Senate Committee on Energy and Natural Resources (Sen.Rep. No. 108-305, 2d Sess., p. 2 (2004)) cited Railroad Co. v. Baldwin (1880) 103 U.S. 426, 429-430 [26 L.Ed. 578], for the proposition that the right-of-way grants were made for the companies to construct the railroad, and were made with the condition "`necessarily implied ... that the road shall be constructed and used for the purpose designed.'" The Senate Committee also cited Townsend's holding that even if called a "limited fee" there was an implied reversion to the United States in the event the company ceased to use or
Similar issues regarding the property rights of railroads have arisen as a result of the shrinking use of railroad tracks and the trend to convert them to trails for recreational use. The federal "Rails to Trails" act (16 U.S.C. § 1241 et seq.) has spawned litigation regarding the rights of owners of the servient tenement when a railroad sells rights-of-way it no longer uses for railroad purposes to third parties or municipalities. Since the railroad obtained a grant for use of the land surface for railroad purposes only, it could not grant more than that to third parties. (Geneva Rock Products, Inc. v. U.S., supra, 107 Fed.Cl. 166, 173 [railroad could not convey more than it possessed: a railroad purposes easement limited by the terms of the 1875 Act that granted it].) Thus, a railroad's grant of its right-of-way to a municipal agency for use as a recreational trail is a "taking" for which the adjacent landowners are entitled to compensation. (Geneva Rock, at p. 167; see Haggart v. U.S. (2012) 108 Fed.Cl. 70.)
The question here is whether the Railroad had the right to sell its rights-of-way to third parties and reserve the right to continue to collect rent on the subsurface easements. We have already concluded that even when the Railroad uses and occupies its right-of-way, the Congressional Acts did not give it sufficient title to justify renting the subsurface to the Pipeline. But even if the acts had provided it sufficient title, once the Railroad sells its right-of-way, thereby ceasing to occupy and use it, either the easements would be extinguished (1875 Acts) or the servient estate would revert to the federal government or its grantees (pre-1871 Acts). Therefore, unless the Railroad had an interest in the property greater than that provided by the Congressional Acts, it could not reserve rights to the subsurface for purposes of continuing to collect rent from the Pipeline as an easement in gross.
The stipulation to appoint the temporary judge here states that the judge shall, among other things, "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 act in said capacity until the conclusion of all matters herein which may be determined within the trial jurisdiction of the Superior Court." Pursuant to the parties' stipulation, the presiding judge of the Los Angeles County Superior Court appointed the temporary judge "to hear and determine the ... matter, including all post-judgment proceedings in the trial court."
Prejudgment interest falls under this category. Indeed, prejudgment interest is to be included as part of a final judgment by rule. (Cal. Rules of Court, rule 3.1802 [the clerk must include in the judgment any interest awarded by the
Viewing the prejudgment interest statutes in their statutory context, we note that the Civil Code is divided into four divisions. Civil Code section 3287
In the instant case, the trial court awarded prejudgment interest to the Railroad under both section 3287(a) and 3287(b). Therefore, we must infer the court concluded that the Railroad suffered damages. Prejudgment interest was awarded pursuant to section 3287(a) at the rate of 10 percent per annum on the amounts of rent unilaterally withheld by the Pipeline for reserved easements, for abandoned easements, and for line section 101. And prejudgment interest was also awarded under section 3287(b) at a rate of 5.25 percent per annum on the unliquidated amounts of back rent starting on January 1, 2004. The total amount of prejudgment interest at the time of entry of judgment was $19,372,195.50.
The Pipeline argues that the temporary judge erred by awarding prejudgment interest. Besides its contention that the parties' stipulation did not give him the authority to award it, it also argues that no prejudgment interest is allowed because there were no "damages" suffered by the Railroad. According to the Pipeline, the AREA did not contemplate an award of prejudgment interest. Instead, it reflected an agreement between the parties that if they could not agree on the amount of increased rent, they would have their dispute resolved in a judicial proceeding, with all its inherent delays. The parties dealt with the judicial delay in establishing new rent by having the Pipeline continue to pay the same rent as in 2003, plus a CPI adjustment every year, until judgment was entered by the court. Therefore, the Pipeline asserts, the parties reasonably expected and agreed that there would be no prejudgment interest to compensate for any litigation delays.
The Railroad, on the other hand, argues that the terms of the AREA are irrelevant to the question of prejudgment interest because the issue is one of law, and is not dependent on a contract between the parties. It also claims that "damages" is defined broadly by our courts, and applies where one party owes a money judgment to another, regardless of whether there was any wrongdoing or fault. Since the Railroad had to wait for its rent while the Pipeline held on to the money as the lawsuit proceeded, it argues that interest should run, and should be included in the judgment in order to provide it with fair and just compensation. We agree with the Pipeline.
The Railroad counters that since the term "damages" has been construed broadly, an unlawful act or omission is not required, despite the statute's plain language. It claims that "neither a breach of contract nor an `unlawful' act is required to receive damages for purposes of prejudgment interest." Thus, the Railroad contends, prejudgment interest is available whenever money is recovered by a party for loss suffered through the acts of another "whether or not unlawful," and therefore "no fault or unlawfulness is required." For this proposition, the Railroad relies in large part on AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807 [274 Cal.Rptr. 820, 799 P.2d 1253] (AIU). However, AIU says nothing of the sort. Indeed, when discussing damages in a declaratory relief action, our Supreme Court quoted section 3281 and said: "As our cases have pointed out, this provision is intended to represent the plain and ordinary meaning of the word `damages.' [Citations.] Other lay and legal definitions are similar. One dictionary, for example, defines `damages' as `the estimated reparation in money for detriment or injury sustained: compensation or satisfaction imposed by law for a wrong or injury caused by a violation of a legal right.' (Webster's New Internat. Dict. (3d ed. 1981) p. 581.) Black's Law Dictionary similarly defines `damages' as `[a] pecuniary compensation or indemnity, which may be recovered in the courts by any person who has suffered loss, detriment, or injury, whether to his person, property, or rights, through the unlawful act or omission of another.' (Black's Law Dict. (4th ed. 1951) p. 466, col. 2.)" (AIU, supra, 51 Cal.3d at pp. 825-826, italics added.) When one of the parties in AIU argued (as the Railroad does here) for a broader definition of damages, the court rejected that approach. (AIU, supra, 51 Cal.3d at p. 826, fn. 12.)
Lastly, the Railroad claims that "the amount of money recovered in any judgment may properly be described as damages" under section 3287. (Citing 23 Cal.Jur.3d (2008) Damages, § 1.)
More recent cases have upheld the definition when it comes to damages and prejudgment interest. In Estate of Kampen, supra, 201 Cal.App.4th 971, the court reiterated that "damages" refers to "monetary compensation recoverable by a person who has suffered detriment from the unlawful act or omission of another," citing section 3281. (Kampen, supra, at p. 990.) Since in Kampen there was no unlawful act or omission, there could be no damages. Thus, there could be no prejudgment interest.
The trial court ordered the Pipeline to pay prejudgment interest under section 3287(a) "on the amounts of rent unilaterally withheld" by the Pipeline for "[r]eserved [e]asements, for [a]bandoned [e]asements and for Line Section 101 ...."
Whether the Pipeline was liable for the payment of rent on the reserved easements, abandoned easements, or Line Section 101, will have to be determined on remand, after additional factfinding consistent with the opinions stated herein. If the trial court finds that the rent was due and that withholding it was wrongful, a monetary award would meet the definition of
As noted above, the Pipeline asserts its conduct was not unlawful because the agreement and expectations between the parties, as reflected by the AREA, was that no prejudgment interest would accrue. The Railroad claims that the Pipeline's reliance on circumstances surrounding the AREA's creation are irrelevant because its right to prejudgment interest is based on the law, and is not dependent on the existence of a contract in any event. But by law, the Railroad must have suffered damages, which requires that the Pipeline engaged in unlawful acts or omissions and was a "person in fault." To determine if that was the case, we must consider the context of the Pipeline's actions, which in turn requires us to inspect the contractual relationship between the parties and why the Pipeline did not pay the rent later determined to be owed as it became due after January 1, 2004.
The trial court awarded prejudgment interest under section 3287(b) on "the unliquidated amounts of back rent" in the amount of 5.25 percent per year, accruing from the date each payment came due.
Although this case arises from a written contract between the parties — i.e., the AREA and subsequent modifications — it is hardly your typical, garden-variety breach of contract case. The Railroad, after all, does not claim the Pipeline breached the terms of the AREA with regard to back rent. Rather, it claims the delay in payment as it waited for the litigation to resolve entitles it to prejudgment interest in order to be made whole. At this juncture, it is helpful to step back and revisit the history of these parties. Whatever the true nature of its property interest, the Railroad controlled the land through which the Pipeline wished to run its pipelines. There were no third parties directly involved, and no arm's-length transactions. In their master agreement, the sister companies agreed on the proposed easements, and on the rent due from one party to the other.
But when the companies were no longer siblings, litigation ensued. When the parties settled their case in 1994, the settlement agreement provided that interest was to be paid on outstanding tax and insurance payments, but it did not call for interest on back rent if there was a dispute as to the amount that was owed. The AREA was silent on whether interest would accrue during pending litigation. Subsequent to the signing of the AREA in July 1994, the parties entered into a side letter agreement dated September 9, 1994, which incorporates the AREA and its exhibits. Among other things, this agreement addresses what payments should be made if there was no agreement on the increased rent and subsequent litigation was required. However, it also states: "During the pendency of any Reference Proceeding or appeal, [Pipeline] agrees to pay to Railroad the per annum sums set forth on Exhibit E, annually in advance ..." subject to the CPI adjustments set forth in the AREA. It also anticipates entry of judgment, but says nothing about any prejudgment interest running during this time.
The settlement of the 1991 lawsuit resulted in at least three written agreements in 1994 — the settlement agreement in April, the AREA in July, and the side letter agreement in September. In a very real sense, this case is in the nature of an action to enforce a settlement agreement which calls for
The parties agreed about what was to occur while litigation was pending. They were sophisticated business entities represented by counsel, and clearly recognized that if they could not agree on a baseline rent, time would pass as they litigated the matter in court. They could have provided for interest to accrue on unpaid rent while they were waiting for a judicial determination. Or they could have been silent on the subject, assuming a "default position" that was provided by law.
In addition, this provision of the settlement agreement illuminates the issue of wrongdoing as the law uses that term in relation to damages and interest. If the Pipeline had engaged in some sort of unlawful conduct by failing to pay any rent during the pendency of the dispute, prejudgment interest could well be in order, regardless of any agreement between the parties. But that is not the case here. Instead, the Pipeline merely proceeded along the path negotiated and anticipated by each side in their mutual settlement agreement. It paid the baseline rent, plus the CPI increases, as the parties engaged in prolonged and complex litigation. This is precisely what the parties agreed to. Indeed, that is all the Pipeline could do, until the trial court ruled on the question of the baseline rent commencing on January 1, 2004. There was no breach of
It would be unjust, not only because the Pipeline acted precisely as the parties agreed while waiting for the litigation to play out, but because the circumstances are very asymmetrical here. It was obvious from the start the Railroad would be collecting rent, and that as it awaited judicial resolution "back rent" would build up. With the few exceptions discussed above, there was no question of the Pipeline's liability for rent payments; it was simply a matter of how much the rent should be. Neither side considered that the Pipeline could "win" the case and not have to pay rent at all. Under the Railroad's "heads I win, tails you lose" theory, it would receive prejudgment interest no matter what the Pipeline did or what happened at trial and no matter how fair or diligent the Pipeline was in avoiding fault or wrongdoing.
For example, at trial the Railroad could be fairly seen as the "victorious party"
In conclusion, the Legislature's wisdom in requiring that one must suffer damages due to unlawful conduct as a prerequisite to an award of prejudgment interest is apparent. Unlike most civil cases, this is not a case where one party failed to live up to its legal duties or obligations while the other party was forced to wait for compensation pending the slow progress of litigation. It is not a case where "justice delayed was justice denied." Rather (with the potential minor exceptions discussed above), the Pipeline did not breach its agreement to pay rent here. Instead, it proceeded upon a preset plan that each side had anticipated and had stipulated to, knowing full well that during the time litigation was underway no provision required one side to pay ongoing interest to the other. As to this aspect of the case, neither side suffered a "detriment from the unlawful act or omission of another." (§ 3281.)
We recognize that, while waiting for this case to resolve, the Pipeline had the use of funds that ultimately would go to the Railroad as rent, and that the Railroad would have had the benefit of those funds had the rent eventually ordered by the court been paid earlier. But prejudgment interest is a creature of statute, and its terms are defined by the Legislature. By definition, no damages were suffered by the Railroad when the Pipeline paid only the baseline rent (plus CPI increases) during the pendency of this litigation, since no unlawful act or omission occurred as the parties proceeded according to their mutual agreement. Thus, there could be no prejudgment interest under section 3287(b).
The trial court erred in awarding interest under section 3287(b), and that part of the judgment is reversed.
Over 150 years ago, the United States government began providing private companies with corridors through public lands in order to build and operate transcontinental railroads. As decades passed, these land corridors became
The Railroad brought this action for declaratory relief, asking the court to determine the amount of rent owed by the Pipeline for easements that run through the right-of-way "property of the railroad." At a minimum — especially given the history, law, circumstances, and context of how the Railroad obtained its rights-of-way in the first place — the Railroad has the burden to prove what the property of the railroad is.
The trial court concluded that the Railroad had sufficient interests in the property to grant subsurface easements and collect rent from the Pipeline. But where the Railroad acquired its property interests solely from the Congressional Acts, the trial court's judgment was in error. Since the acts alone did not provide the Railroad with sufficient property rights to rent the subsurface to the Pipeline, in some instances the Railroad may be seeking to collect rent for the use of property owned by others — either private third parties or the federal government (or its grantees).
This will come as no surprise to the Railroad, which was aware long before the 1994 AREA of potential problems with renting out the subsurface to the Pipeline. As its in-house attorney counseled in the mid-1970's, "in view of the unfavorable trend of California decisions interpreting grants to railroad companies," he believed that "consideration need [sic] be given as to the advisability of granting to [the Pipeline] an easement for pipelines in the property classified as limited title and easement for railroad purposes ... unless it is feasible for Railroad to take steps necessary to establish that it is the fee owner of the right of way in which [the] pipeline is located." Counsel had presciently anticipated the problem here: The Railroad failed in this litigation to take the steps necessary to establish its fee ownership or other interest in the property sufficient to entitle it to grant easements in the property where the pipelines are located. To the extent that the trial court awarded rent to the Railroad without determining whether it had such ownership or interest, it erred and its judgment must be reversed.
However, there was evidence presented at trial that in some sections of the rights-of-way the Railroad did have sufficient property interests in the subsurface to justify the collection of rent. As noted above, there are multiple ways in which this may have occurred. But the trial court made no specific findings in that regard. The case must be remanded in order for it to do so.
In short, the Railroad seeks rent from the Pipeline for the use of certain property. To collect that rent, the Railroad must demonstrate what interest it has in that property.
As to the judgments on the complaint and the two cross-complaints:
Each side to bear its own costs on appeal.
Rubin, Acting P. J., and Flier, J., concurred.
"In explaining why the House Public Lands Committee had inserted a clause similar to § 4 of the 1875 Act in a special right of way bill considered in 1872, Congressman Slater stated:
