Ninth Circuit Finds for Railroad in Pipeline Fight

PASADENA, Calif. (CN) — The Ninth Circuit revived counterclaims Tuesday by Union Pacific Railroad, whose power to lease land under 1,800 miles of its right of way for a petroleum pipeline is being challenged in multiple class actions.

A series of class action lawsuits in the past three years claim that, though right-of-way laws allow a railroad to run a line across government land or by private landowner grant, the easements do not allow railroads to use land under the tracks except for purposes directly related to the railroad.

Disputes over railroad use of public and private lands date back to the 1850s, when Congress gave enormous tracts of land to rail companies to encourage them to build transcontinental railroads. The corruption involved created one of the nation’s first public groundswells against the power of large corporations.

President Abraham Lincoln signed the Pacific Railroad Act into law in July 1862. More congressional rail acts followed, in 1871, 1875 and thereafter. Nearly a century of lawsuits followed, between landowners, states, the federal government and the railroads.

Citing decades of court rulings and federal legislation, the current lawsuits claim that the companies granted and accepted subsurface easements they did not own when they leased land under rail lines for a pipeline carrying petroleum across six states.

But the Ninth Circuit found Tuesday that the Central District of California erred in dismissing Union Pacific’s counterclaims and denying a request to amend, to add facts supporting the contention that the pipeline served a railroad purpose.

U.S. District Judge Frederic Block, sitting on the three-person panel by designation from the Eastern District of New York, wrote the unanimous opinion. U.S. Circuit Judges Stephen Reinhardt and Jacqueline H. Nguyen concurred.

The phrase “railroad purpose” is central to both lawsuits against Union Pacific and in the rulings against the railroad at issue here. It stems from a 1903 Supreme Court ruling which found that “the substantial consideration inducing the grant was the perpetual use of the land for the legitimate purposes of the railroad, just as though the land had been conveyed in terms to have and to hold the same so long as it was used for the railroad right of way.”

But the series of acts passed from 1862 to 1871 that created charters for construction of transcontinental railways, and the General Railroad Right-of-Way Act of 1875 did not limit railroad easements to use for “railroad purposes.”

The panel found that, while a 1957 case established that railroads are not permitted to extract oil or minerals from beneath their rights-of-way, a proviso in one of original acts “prevents the grantee from extracting mineral resources, not from using the subsurface for any other purpose.”

“This is in keeping with the common law’s distinction between an ordinary easement (‘a nonpossessory right to enter and use land’) and a profit à prendre (‘an easement that confers the right to enter and remove timber, minerals, oil, gas, game, or other substances,’)” the ruling states.

Therefore, the panel ruled that a railroad easement “entitles Union Pacific to lease the subsurface as well as the surface of its right of way to SFPP as long as it continues to use the right of way to operate a railroad, regardless of whether the pipeline itself serves a ‘railroad purpose.’”

In clearing the way for amendment of the counterclaims, Block wrote: “Union Pacific’s proposed amendment alleges that the pipeline serves a railroad purpose ‘because Union Pacific uses capacity on the pipeline to transport millions of gallons of fuel a year, purchased directly by Union Pacific from third-party refineries, via dedicated facilities to private terminals on the railroad line that Union Pacific owns.’

“It alleges that it ‘uses this fuel to power its locomotives,’ and that the use of fuel from the pipeline ‘reduce[s] core railroad operating costs by millions of dollars a year,’” the ruling continues. “We hold that the district court should have granted leave to amend because that allegation, if proven, is sufficient to establish a prima facie case that the pipeline serves a railroad purpose.”

The relevant distinction, Block added, “is not between the ‘subsurface; and the ‘surface,’ but between the ‘mineral estate’ and the ‘surface estate,’ which includes all of the subsurface except mineral estate.”

“In both Union Pacific and Great Northern, the issue was whether the railroad had the right to extract resources from the mineral estate,” Block continued. “The Supreme Court’s negative answer does not foreclose any other use of the subsurface from being a railroad purpose.”

The panel reversed and remanded with instructions to grant leave to amend.

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