Pipelines v. Union Pacific Railroad
Filed 6/19/13 Santa Fe Pacific Pipelines v. Union Pacific Railroad CA2/8
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
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IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
EIGHT
SANTA FE PACIFIC PIPELINES,
INC., et al.,
Plaintiffs and Appellants,
v.
UNION PACIFIC RAILROAD COMPANY,
Defendant and Respondent.
B240842
(Los Angeles
County
Super. Ct.
No. BS136153)
APPEAL from an order of Superior
Court of
County, James R. Dunn, Judge.
Affirmed.
Mayer Brown, Donald Falk, Neil M.
Soltman, Michael F. Kerr and Germain Labat for Plaintiffs and Appellants.
McKenna Long & Aldridge, Thomas
F. Winfield III and Michael H. Wallenstein for Defendant and Respondent.
* * * * * * * *
After a lengthy trial, the
victorious party sought prejudgment interest under Civil Code section 3287.
arbitrated rather than decided by the temporary judge who presided over the
trial. We find no arbitration provision
in the agreement, which was the subject of the trial before the temporary judge
and the basis of the temporary judge’s jurisdiction. We therefore affirm the denial of appellants’
petition to compel arbitration.
Appellants
are Santa Fe Pacific Pipelines, Inc.; SFPP, L.P. Kinder Morgan Operating L.P.
“Dâ€; and Kinder Morgan G.P., Inc. (collectively the pipeline). Respondent is Union Pacific Railroad Company
(the railroad). In Southern Pacific Transportation Co. v. Santa Fe Pacific Pipelines, Inc.
(1999) 74 Cal.App.4th 1232, 1235-1236, the First District Court of Appeal
summarized the parties’ and their predecessors’ relationship as well as their
agreements as follows:
“The
relevant history begins in the mid-1950’s.
At that time, the railroad and Southern Pacific Pipelines, Inc. – the predecessor
of Santa Fe – were sister
subsidiaries of Southern Pacific Corporation.
The pipeline company had the right to install pipelines along the
railroad’s right-of-way pursuant to two master agreements. The agreements provided for the creation of
pipeline easements on the right-of-way property.
“In
1983 the two companies entered into a new master agreement whereby the railroad
granted to the pipeline company perpetual nonexclusive easements and the right
to construct and operate underground hydrocarbon pipelines on its
rights-of-way. The 1983 agreement set
forth the amounts to be paid for existing pipeline easements through 1993.
“Also
in 1983 the parent companies of the Southern Pacific and Santa
Fe railroads announced a merger. The combination went forward but Southern
Pacific – the railroad – was held in a trust and remained separate from the
other newly combined entities. The
Interstate Commerce Commission ultimately disapproved of the consolidation of the
two railroads and required Southern Pacific to be sold to a third party. Meanwhile, the pipeline company became Santa
Fe. The
railroad and pipeline companies were no longer sister subsidiaries. Rents for pipelines constructed by Santa
Fe were established through separate agreements.
“In
1991 the railroad sued Santa Fe and
related entities, alleging that the 1983 master agreement should be rescinded
because it was not negotiated at arm’s length and set artificially low rent for
the pipeline easements. [Citation.] The parties settled the lawsuit in April
1994. Pursuant to the settlement
agreement, the 1983 master agreement was rescinded; the easement agreements of
the 1950’s were revitalized; the pipeline company’s perpetual easement rights
were confirmed and the easement locations were modified, reducing the width of
the easement at many segments.
“The
parties compromised the existing claims.
As to future rent, the settlement agreement provided as follows: ‘Beginning January 1, 1994, and every ten (10) years thereafter, [the
railroad] may seek an increase of rent to fair market value. . . . If the parties hereto are unable to agree
upon the amount of the rent increase, if any, for any such ten (10) year period
on or prior to the commencement date of any ten (10) year period, then upon
request of either party the parties shall within 30 days thereafter enter into
a stipulation pursuant to Rule 244.1 of the California Rules of Court for an
order directing a judicial reference proceeding pursuant to California Code of
Civil Procedure § 638 et seq. by a single referee . . . to establish the
amount of such rent increase in accordance with the fair market value of the
easement.’†(Fn. omitted.)
“In
July 1994 the parties entered into an amended and restated easement agreement,
which reiterated the procedure and mechanism for determining rent
increases. . . . The parties also
entered into a side letter agreement in September
1994 . . . .†(
Fe Pacific Pipelines, Inc., supra, 74 Cal.App.4th at p. 1236.) The letter agreement referred to the
settlement agreement and provided among other things that “all Existing
Easement Agreements shall be amended and restated pursuant to the terms of the
Amended and Restated Easement Agreement . . . .â€
On
July 28, 2004, the railroad
filed a complaint for declaratory relief. The complaint alleged the parties entered
into the AREA (amended and restated easement agreement) on July 29, 1994.
A copy of the AREA was attached to the complaint. According to the complaint, “Section
2(b)(i)(A) of the AREA provides a mechanism for the determination of the annual
rent due and owing to Union Pacific for the Pipeline Company’s easements. This provision states that beginning on January 1, 1994, and every ten years
thereafter, Union Pacific may seek an increase in rent to fair market value. .
. . If the parties are unable to agree
upon a rent . . . , Union Pacific may seek an order directing a judicial reference
proceeding by a single referee to ‘establish the amount of such rent increase
in accordance with the fair market value of the easement.’†The railroad alleged “[a]n actual controversy
has arisen and now exists between Union Pacific and the Pipeline Company
concerning the parties’ rights and obligations concerning rent under the
AREA. Specifically, the parties disagree
as to (i) the fair market value of the Pipeline Company’s easements as amended
and restated in the AREA (and subsequent modifications), and (ii) the rent due
in accordance therewith commencing on January 1, 2004. By this action, Union Pacific seeks a
judicial determination of these issues in controversy, as provided for in the
AREA.â€
The
complaint does not mention the parties’ settlement agreement.
On
March 18, 2005, the parties stipulated to the appointment of the Honorable Eli
Chernow, retired, to serve as a temporary judge (instead of following the
reference procedure). Their stipulation
provided that Judge Chernow “shall hear and conduct a trial of the
above-entitled matter, and shall hear and determine all pretrial issues and
motions, and preside over the trial of the within matter until rendition of
judgment, and shall hear and determine all post-trial motions relating to the
judgment filed or to be filed herein, and to act in said capacity until the
conclusion of all matters herein which may be determined within the trial
jurisdiction of the Superior Court.â€
On
December 15, 2011, after the temporary judge issued a tentative statement of
decision, the railroad moved for prejudgment interest under section 3287.
totaled more than $81 million.
The
pipeline did not challenge the motion on the merits, but instead argued the
temporary judge lacked jurisdiction to consider prejudgment interest because
the arbitration clause in the settlement
agreement required arbitration of the interest issue. The pipeline identified no arbitration
provision in the AREA, and none exists.
The AREA does not incorporate by reference the parties’ settlement
agreement.
On
February 1, 2012, the pipeline filed a demand for arbitration with the American
Arbitration Association. The pipeline
estimated 10 days would be necessary for the hearing on this matter. It described the dispute as follows: railroad “is not entitled to recover interest
in connection with a rent-setting procedure conducted under an April 8, 1994,
settlement agreement, as amended†between the parties or their
predecessors. The pipeline sought the
payment of attorney fees in connection with the arbitration.
On
February 3, 2012, the temporary judge held a hearing on the railroad’s motion
for prejudgment interest. Counsel for
the pipeline declined to appear at the hearing.
On
February 14, 2012, the pipeline filed a petition to compel arbitration. The petition relied on the arbitration
provision contained in section 16 of the parties’ 1994 settlement
agreement. That section contains a broad
arbitration provision.
On
February 22, 2012, the temporary judge concluded it had jurisdiction to rule on
the railroad’s motion for prejudgment interest.
The temporary judge awarded the railroad prejudgment interest.
On
April 18, 2012, the Los Angeles Superior Court Honorable James R. Dunn denied
the pipeline’s motion to compel arbitration.
The court noted the parties had litigated for seven years, and,
concluded the temporary judge had jurisdiction to decide the motion for
prejudgment interest. The court found
the stipulation appointing Judge Chernow sufficiently broad to cover the
interest motion. The court further
concluded “Judge Chernow has determined that the AREA, and not a separate
agreement between the parties known as the Settlement Agreement, governs the
Underlying Action, and this Court agrees with that finding. It is undisputed that the AREA contains no
arbitration provision. Therefore, there
is no agreement to arbitrate any issue involved in the Underlying Action
including the disputed issue of interest here.
Thus, [the pipeline] fail[s] to establish a condition precedent to
granting the relief requested – i.e. an arbitration agreement between the
parties that covers the disputed issue.â€
This
appeal is from the denial of the pipeline’s petition to compel
arbitration. The pipeline has separately
appealed the attorney fees awarded to the railroad for successfully defending
the petition.
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DISCUSSION
For
contractual arbitration to apply, the contract must have an arbitration
provision, and the party seeking arbitration bears the burden of proving its
existence. (Pinnacle Museum Tower, Assn. v. Pinnacle Market Development (US), LLC
(2012) 55 Cal.4th 223, 236.) Both the
temporary judge and the trial court found the parties’ dispute to establish the
fair market value of rent was governed by the AREA, which contains no
contractual arbitration provision. The
pipeline disputes that conclusion, claiming the lawsuit was instead governed by
the parties’ settlement agreement, which contains an arbitration provision.
According
to the pipeline, “[w]here the AREA applied, so does the Settlement Agreement,
including†the settlement agreement’s arbitration provision. The pipeline argues “[t]he AREA simply could
not exist and cannot operate except under the umbrella of the Settlement
Agreement. They are therefore related,
not separate, and the Settlement Agreement covers the underlying interest
dispute.â€
For
purposes of this appeal, we accept the pipeline’s premise that the AREA was
“born of the settlement agreement,†and constituted an effort to “effectuateâ€
the settlement agreement.
name="_ftnref4" title="">[4]
dispute arising from the AREA necessarily arises from or relates to the
Settlement Agreement†does not follow.
The pipeline cites section 1641 and
California Ins. Guarantee Assn. v. Workers’ Comp. Appeals Bd. (2012) 203
Cal.App.4th 1328, 1336 for the correct proposition that “the whole of a
contract is to be taken together.†(§
1641.) Applying that proposition here,
it shows only the AREA must be considered as a whole and the settlement
agreement must be considered as a whole, not that the two documents must be
considered together.
Here,
the complaint sought a declaration of the parties’ rights and obligations under
the AREA, not under the settlement agreement.
Like the complaint, the stipulation to appoint Judge Chernow indicated
the relevant contract was the AREA.
Specifically, the stipulation provided:
“The Temporary Judge shall determine the annual rent as of January 1,
2004 in accordance with the terms of the [AREA] attached as Exhibit ‘A’ to the
Complaint herein.†The pipeline does not
show any claim was brought or litigated under the settlement agreement. The pipeline’s description of the dispute
incorrectly reports what happened:
railroad “is not entitled to recover interest in connection with a
rent-setting procedure conducted under an
April 8, 1994, settlement agreement, as amended†between the parties or
their predecessors. (Italics
added.) The rent-setting procedure was
conducted under the AREA, not the settlement agreement. Even though the settlement agreement may have
been the genesis of the AREA, the settlement agreement was not the subject of
the rent-setting trial before Judge Chernow.
In
its reply brief, the pipeline for the first time argues the settlement
agreement and AREA were substantially one transaction and should have been
considered together. Section 1642
provides: “Several contracts relating to
the same matters, between the same parties, and made as parts of substantially
one transaction, are to be taken together.â€
(See Brookwood v. Bank of America
(1996) 45 Cal.App.4th 1667, 1675 [applying that principle].) But here, the pipeline forfeited any such
claim first by failing to raise it in the trial court, or in this court until
its reply brief. (See
1494, 1508 [rejecting argument that agreements must be construed together
because § 1642 was not raised in the trial court]; see also
Cal.App.4th 857, 872-873 [issue must be raised in trial court to be preserved
for appeal].)
The
pipeline also forfeited its claim that the dispute was governed by the
settlement agreement by stipulating in 2005 Judge Chernow would “determine the
annual rent as of January 1, 2004 in accordance with the terms of the [AREA]
attached as Exhibit ‘A’ to the Complaint . . . .†The appointment of a temporary judge must be
construed narrowly, and here it could not be understood to resolve disputes
under the settlement agreement because it mentioned only the AREA, not the
settlement agreement. (
Cal.App.4th 1562, 1581.) The parties’
stipulation provides for a determination only under the AREA, which contains no
arbitration provision.
Whether
the temporary judge properly awarded interest is not the subject of this
appeal, which is only from the order denying the pipeline’s petition to compel
arbitration. The trial court properly
denied that petition to compel arbitration because the litigation concerned
only the AREA and the AREA contains no arbitration
provision. (See Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC,
supra, 55 Cal.4th at p. 236 [party
seeking arbitration has the burden to show the existence of an agreement to
arbitrate].) Because we conclude the pipeline failed to demonstrate
the threshold requirement of the existence of an arbitration provision, we need
not consider the pipeline’s remaining arguments attempting to show the trial
court erred in denying its petition to compel arbitration.
The
order denying the pipeline’s petition to compel arbitration is affirmed. Respondent is entitled to its
FLIER,
J.
We concur:
BIGELOW,
P. J.
RUBIN,
J.
the Civil Code unless otherwise noted.
3287 provides: “(a) Every person who is entitled to recover
damages certain, or capable of being made certain by calculation, and the right
to recover which is vested in him upon a particular day, is entitled also to
recover interest thereon from that day, except during such time as the debtor
is prevented by law, or by the act of the creditor from paying the debt. This section is applicable to recovery of
damages and interest from any such debtor, including the state or any county,
city, city and county, municipal corporation, public district, public agency,
or any political subdivision of the state.
[¶] (b) Every person who is entitled under any
judgment to receive damages based upon a cause of action in contract where the
claim was unliquidated, may also recover interest thereon from a date prior to
the entry of judgment as the court may, in its discretion, fix, but in no event
earlier than the date the action was filed.â€
