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Valenzuela v. Union Pacific Railroad Co.

United States District Court, D. Arizona

July 11, 2016

Alonzo Valenzuela, et al., Plaintiffs,
v.
Union Pacific Railroad Company, et al., Defendants.

          ORDER

          DAVID G. CAMPBELL UNITED STATES DISTRICT JUDGE

         The question to be decided is whether Defendant Union Pacific Railroad Company is foreclosed from arguing that Congress granted it certain rights with respect to more than 500 miles of railroad rights-of-way in Arizona because a California Court of Appeal, addressing a question that had not been ruled on by the trial court or presented by the parties, decided that Congress had not granted Union Pacific these rights. The Court concludes that the appellate court's decision does not have collateral estoppel effect.

         I. Background.

         The Court of Appeal's decision is found at Union Pacific Railroad Co. v. Santa Fe Pacific Pipelines, Inc., 231 Cal.App.4th 134 (2014). It arose out of a long-running California lawsuit between Union Pacific and Defendant Kinder Morgan, which the parties refer to as the "Rent Action."

         A. The Rent Action.

         Kinder Morgan operates pipelines located within Union Pacific rights-of-way. The pipelines carry fuel, coal slurry, and other products. In 1994, Union Pacific and Kinder Morgan entered into an amended and restated easement agreement ("AREA") which granted Kinder Morgan an easement to operate the pipelines "in, upon, along[, ] and across the property of [the] Railroad" in exchange for annual rent. Doc. 141-2 at 13-21.[1] The AREA set forth a procedure for determining rent increases. Id. at 15-17. In 2004, a dispute arose as to the amount of the rent increase, and Union Pacific brought the Rent Action in the Superior Court for Los Angeles County. See Id. at 7-11.

         The Rent Action lasted almost eight years and included more than 250 days of trial. See Union Pacific, 231 Cal.App.4th at 153 (describing trial court proceedings). The trial court eventually issued a comprehensive, 105-page statement of decision, setting the base annual rent $14, 080, 487 and awarding back rent of $81, 589, 584 and prejudgment interest of $19, 372, 195.50 to Union Pacific. Id. at 153-54.

         Kinder Morgan appealed, raising four issues. Doc. 141-3 at 107-08. One issue was whether the trial judge erred by awarding rent for a stretch of land known as the Iron Horse Trail that Union Pacific sold nearly a decade before executing the AREA. Doc. 143-2 at 61-66, 147-50. None of the other issues questioned Union Pacific's ownership of the property burdened by the easement. Docs. 143-2 at 2-78 (Kinder Morgan's opening brief), 100-79 (Kinder Morgan's reply brief); see also Union Pacific, 231 Cal.App.4th at 145 (describing issues raised on appeal).

         On June 27, 2014, the California Court of Appeal held oral argument. Following discussion of the Iron Horse Trail issue, Justice Rubin stated: "Let me take that subject and go a little bit broader. I don't mean to be opening up a hornet's nest . . . Did the railroad ever own the right to grant these pipelines, ever, under the 1862 or 1875 act?" Doc. 141-3 at 121. Justice Rubin's question was referring to congressional land grants enacted prior to 1871 (the "pre-1871 Acts") and the General Railroad Right-of-Way Act of 1875 (the "1875 Act"), which the Court will refer to collectively in this order as the "Congressional Acts." Kinder Morgan's counsel stated that he would defer to Union Pacific's counsel on this issue, but then went on to say that there was no issue on appeal as to whether the pipeline easements were properly granted. Id. Justice Kussman responded: "I know. That is the problem: You didn't raise it on appeal." Id. at 122. The Justices continued to question Union Pacific's title under the Congressional Acts. Union Pacific's counsel objected that this issue was not before the Court. Id. at 124. Justice Rubin replied:

Obviously, we feel it's before this Court. . . . And we have this concern - and I realize this is not briefed and everything. But we have this concern based on our review of the '75 and '62 acts as to whether the railroad ever had the right to grant any easements to this. . . . And we may need to have further briefing on this. . . . It would be terribly wrong for us to decide this issue given the state of the argument.

Id.

         After the hearing, the Court of Appeal requested additional briefing on Union Pacific's right to grant pipeline easements under the Congressional Acts. Doc. 128-3 at 2-3. The parties were allowed two weeks to submit opening briefs limited to 15 double-spaced pages, and 12 more days to submit reply briefs of ten pages. Id. at 3. The court specifically asked the parties to address whether there was "evidence in the record to support a finding that the railroad had sufficient ownership interests in the subject property to grant subsurface easements to the pipeline." Id. at 2 (emphasis added).

         Following the supplemental briefing, the Court of Appeal held that (1) "a railroad's rights to the land underneath its rights-of-way granted by the 1875 Act were limited to what was necessary to support the railroad itself" and "[o]therwise . . . remained with the owner of the servient estate, " (2) a railroad's rights under the pre-1871 Acts were similarly limited, and (3) because using the subsurface for a pipeline was not a "railroad purpose, " Union Pacific had no right to lease the subsurface for that use. 231 Cal.App.4th at 160-78. Union Pacific sought rehearing (Doc. 128-4 at 2-62), but its request was denied. Union Pacific then sought review before the California Supreme Court (Doc. 128-4 at 106-49), but its petition was denied. The case was remanded to the trial court because issues remained regarding rights-of-way acquired by means other than the Congressional Acts. Doc. 130-1 (trial court order on scope of remand).

         B. This Case.

         Following the Court of Appeal's decision, Plaintiffs brought this case on behalf of a class of property owners whose land lies adjacent to Union Pacific's rights-of-way in Arizona. Doc. 75. Plaintiffs contend that Union Pacific possesses only a surface easement, and that they own the subsurface where the pipelines are located. Id., ¶ 114. Plaintiffs have sued Union Pacific and Kinder Morgan, asserting claims for declaratory relief, trespass, and quiet title, among others. Id., ¶¶ 81-121.

         Union Pacific has asserted counterclaims for quiet title and declaratory relief. Doc. 115 at 26-36, ¶¶ 17-55. Union Pacific maintains that it acquired rights in the property below its rights-of-way from the Congressional Acts or private conveyances. Id., ¶ 5.

         Plaintiffs have moved to dismiss the counterclaims, arguing, among other things, that Union Pacific is collaterally estopped from pursuing the counterclaims by the Court of Appeal's decision. Doc. 117. Kinder Morgan has filed a brief in support of Plaintiffs' collateral estoppel argument. Doc. 128. The Court discussed this issue with the parties at the May 25, 2016 status conference and entered an order requesting additional briefing. Doc. 135. The parties have provided the additional briefing, and the Court heard oral argument on July 5, 2016.

         II. Legal Standard.

         The Full Faith and Credit Act provides that a state's judicial proceedings "shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken." 28 U.S.C. § 1738. Thus, in determining the collateral estoppel consequences of a state court judgment, federal courts apply the collateral estoppel doctrine of the state where the judgment was rendered. See Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81 (1984). The parties agreed during oral argument that the Court should look to the collateral estoppel law of California.

         In California, the party asserting collateral estoppel must show five elements: (1) "the issue sought to be precluded from relitigation [is] identical to that decided in a former proceeding, " (2) "this issue must have been actually litigated in the former proceeding, " (3) "it must have been necessarily decided in the former proceeding, " (4) "the decision in the former proceeding must be final and on the merits, " and (5) "the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding." Lucido v. Superior Court, 51 Cal.3d 335, 341-42 (1990). Significantly, for purposes of this order, "[t]he party asserting collateral estoppel bears the burden of establishing these requirements." Id.

         Four of the elements of collateral estoppel are not in serious dispute. The parties focus their attention only on the second element: whether Union Pacific's property rights under the Congressional Acts were "actually litigated" in the Rent Action.

         III. Analysis.

         The parties briefed Plaintiffs' motion to dismiss, including a memorandum filed by Kinder Morgan and several notices of supplemental authority. See Docs. 117, 121, 126, 127, 128, 130, 131, 138. Finding that the parties had not provided enough factual detail to determine whether the effect of the Congressional Acts was actually litigated in the Rent Action, the Court entered an order asking the parties to respond to several specific questions:

A. Did Kinder Morgan ask the California trial court to hold that Union Pacific lacked title under the pre-1871 Acts or the 1875 Act to grant the easements at issue in the litigation? If yes, Plaintiffs or Kinder Morgan should provide the Court with the specific trial court pleadings in which that request was made.
B. Did the trial court decide whether Union Pacific had title under the pre-1871 Acts or the 1875 Act to grant the easements at issue in that litigation? If yes, Plaintiffs or Kinder Morgan should provide the court with the transcript, minute entry, or order in which the trial court decided that issue. If no, why did the trial court not decide that issue if it was raised by Kinder Morgan?
C. Was this assertion - that Union Pacific did not have title under the pre-1871 Acts or the 1875 Act to grant the easements - raised by Kinder Morgan on appeal to the California Court of Appeal[], either in its notice of appeal or its pre-hearing briefs? If yes, Plaintiffs or Kinder Morgan should provide the Court with the notice of appeal or pre-oral- argument appellate briefs in which it was raised. If no, why was it not raised by Kinder Morgan on appeal if, in fact, it was raised and decided in the trial court?
D. According to Kinder Morgan's brief, an issue is sufficiently litigated for collateral estoppel purposes "when it is properly raised, by the pleadings or otherwise, and is submitted for determination, and is determined." Doc. 128 at 6 (emphasis in original; citation omitted). If Kinder Morgan did not ask the trial court to hold that Union Pacific lacked title under the ...

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