SFPP, L.P. v. Union Pacific Railroad Company et al

Filing 38

ORDER RE PLAINTIFF'S MOTION TO REMAND (DKT. 25) by Judge John A. Kronstadt. The Motion is GRANTED. This action is remanded to the Los Angeles Superior Court in its Stanley Mosk Courthouse. Case number BC573396 Case Terminated. Made JS-6 (bp)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV15-01954 JAK (PLAx)

Title

SFPP, L.P. v. Union Pacific Railroad Company, et al.

Present: The Honorable

Date

June 3, 2015

JOHN A. KRONSTADT, UNITED STATES DISTRICT JUDGE

Andrea Keifer

Not Reported

Deputy Clerk

Court Reporter / Recorder

Attorneys Present for Plaintiffs:

Attorneys Present for Defendants:

Not Present

Not Present

Proceedings:

I.

(IN CHAMBERS) ORDER RE PLAINTIFF’S MOTION TO REMAND (DKT.
25) JS-6

Introduction

SFPP, L.P. (“Plaintiff”) brought this action in the Los Angeles Superior Court against Union Pacific
Railroad Company (“Defendant”). The Complaint seeks declaratory relief in the form of the appropriate
interpretation of certain terms of the operative contract between the parties. Specifically, Plaintiff seeks a
determination that Defendant must establish its ownership rights to certain real property on which Plaintiff
has an easement for the placement of underground pipelines, before Defendant can require Plaintiff to
relocate them. Dkt. 1, Ex. 1. Defendant disputes this interpretation of the contract.
Defendant removed the action pursuant to 28 U.S.C. §§ 1331 and 1441. Although the complaint does not
present a federal cause of action, Defendant contends that there is federal jurisdiction as to Plaintiff’s
claim because its resolution will involve the interpretation of federal law about which the parties disagree.
Dkt. 1. Following removal, Defendant filed a counterclaim against Plaintiff seeking declaratory relief as to
its rights pursuant to the contract between the parties. Specifically, Defendant seeks a determination that
certain 19th Century actions by Congress granted to Defendant ownership rights to the real property at
issue and that such rights provide a sufficient basis for it to require Plaintiff to relocate its pipelines. Dkt.
10, 29.
Plaintiff filed a Motion to Remand (the “Motion”). Dkt. 25. Defendant filed an opposition (Dkt. 30) and
Plaintiff replied (Dkt. 32). A hearing on the Motion was conducted on May 18, 2015, at the conclusion of
which the matter was taken under submission. Dkt. 37. For the reasons stated in this Order, the Motion is
GRANTED.

Page 1 of 14

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV15-01954 JAK (PLAx)

Title

SFPP, L.P. v. Union Pacific Railroad Company, et al.

II.

Date

June 3, 2015

Factual Background
A.

The Allegations in the Complaint

Plaintiff is a successor entity to Santa Fe Pacific Pipeline, Inc. and Southern Pacific Pipelines, Inc.
Compl., Dkt. 1, Ex. 1 ¶ 6. Defendant is the successor entity to Southern Pacific Transportation Company
and Southern Pacific Railroad Corporation. Id. ¶ 7. On July 29, 1994, these predecessor entities entered
into a contract that is titled, “Amended and Restated Easement Agreement” (the “AREA”). Id. ¶ 2. Section
1(a) of the AREA granted to Plaintiff’s predecessors a “perpetual and non-exclusive easement and right
to construct, reconstruct, renew, maintain, and operate a pipe line and appurtenances ... in, upon, along,
and across the property of Railroad.” Id. ¶ 10; see also id., Ex. A. It is undisputed that the rights granted by
the AREA are now held by Plaintiff. Section 3 of the AREA provides that
in the event that Railroad shall at any time deem necessary, [Plaintiff] shall, upon receipt
of written notice so to do, at [Plaintiff’s] sole cost and expense, change the location of said
pipe line, its adjunct or appurtenances, on railroad property to such point or points thereon
as Railroad shall designate and reconstruct or reinforce the same.
Id. ¶ 11; see also id., Ex. A.
On August 19, 2014, Defendant provided written notice of its request that Plaintiff relocate its pipeline (the
“Alhambra Pipeline”). Defendant stated that the relocation was necessary due to Defendant’s installation
of a second main line railroad track over its Alhambra Subdivision in the Los Angeles area (the “Alhambra
Property”). Id. ¶ 18. Defendant has “threatened SFPP with costs and damages if SFPP failed to relocate
the Alhambra Pipeline.” Id. ¶ 19.
On December 3, 2014, Plaintiff responded through a letter requesting that, “in light of [a] recent court
ruling [by the California Court of Appeal in a related action[1],” Defendant demonstrate, pursuant to the
AREA, that it has sufficient ownership interest in the property on which the Alhambra Pipeline is located
to justify the requested relocation. Id. ¶ 21; see also id., Ex. D. On February 6, 2015, Defendant replied by
letter stating that Plaintiff’s “duty to relocate under the AREA or otherwise is not affected by the recent
Court of Appeal decision regarding payment of rent.” Id. ¶ 22; see also id., Ex. E. Defendant also
repeated its demand that Plaintiff relocate the Alhambra Pipeline. Id. On February 18, 2015, Plaintiff sent
another letter to Defendant in which it again requested that Defendant explain why it is entitled to require
either the relocation of the portions of the Alhambra Pipeline from property that Defendant does not own,
and/or their relocation to property that Defendant does not own. Id. ¶ 23.
When this action was filed the parties remained at an impasse. Defendant maintains that Plaintiff is
required to relocate the Alhambra Pipeline, and Plaintiff responds that, before requiring such an action by
Plaintiff, Defendant must demonstrate that it has sufficient title to the Alhambra Property. Id. ¶ 24.
1

Union Pacific Railroad Co. v. Santa Fe Pacific Pipelines, Inc. et al. (“UPRC”), 231 Cal. App. 4th 134 (2014). This
decision is discussed in Section II.B.1, infra.
Page 2 of 14

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV15-01954 JAK (PLAx)

Title

Date

June 3, 2015

SFPP, L.P. v. Union Pacific Railroad Company, et al.

Plaintiff filed this action in the Los Angeles Superior Court on February 23, 2015. Dkt. 1, Ex. 1. On March
12, 2015, Plaintiff filed a notice of related case, requesting that this action be transferred to the Superior
Court judge to whom a related action had been assigned. Request for Judicial Notice (“RJN”), Dkt. 25-9,
Ex. 6.2 On March 17, 2015, which was five days later, Defendants removed the action.3
B.

Prior Litigation

Three other cases in which Plaintiff and Defendant are adverse parties are now pending in California
courts: (i) Union Pacific Railroad Company v. Santa Fe Pacific Pipelines, Inc. et al., Los Angeles County
Superior Court, BC 319170, California Court of Appeal, B242864, California Supreme Court, S223179
(the “Rental Action”); (ii) Union Pacific Railroad Company v. SFPP, L.P., Riverside County Superior
Court, INC 055339, California Court of Appeal E062255 and E062823 (the “Beaumont Hill Action”); and
(iii) Union Pacific Railroad Company v. SFPP, L.P., Riverside County Superior Court, PSC 1402455 (the
“Pomona Action”). Dkt. 17. Because certain issues in these actions are related to certain of those
presented here, each of the actions is described.
1.

The Rental Action

In the Rental Action, Defendant sought a determination of the amount of rental payments due from
Plaintiff under the AREA for the use of its pipeline easement between 2004 and 2014. Defendant’s claim
concerned rent as to all 1800 miles of pipeline easements that Defendant purported to grant to Plaintiff
under the AREA. This includes those easements that are at issue in this action as well as others. After a
bench trial in the Los Angeles Superior Court, it was determined Defendant was entitled to annual rental
payments from Plaintiff of more than $14 million per year. UPRC, 231 Cal. App. 4th 134, 145 (2014). An
appeal followed. On November 5, 2014, the California Court of Appeal for the Second District issued its
opinion (the “COA Opinion”). Id. The COA Opinion affirmed the ruling by the trial court that collateral
estoppel did not apply, but reversed and remanded as to all other issues.
The COA Decision determined that the 1875 Congressional Act, 43 U.S.C. §§ 934–939, “did not provide
the railroad with sufficient property interests to justify its collecting rent on the pipeline's subsurface
easements.” Id. at 160. After analyzing case law regarding railroad property rights pursuant to the 1875
Congressional Act, the appellate court determined that
the 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. Otherwise, the rights to the

2

Matters of public record are properly subject to judicial notice. This includes court records. Galvan v. City of La
Habra, 2014 WL 1370747, at *12 (C.D. Cal. April 8, 2014) (citing Reyn's Pasta Bella, LLC v. Visa USA, Inc., 442
F.3d 741, 746 n.6 (9th Cir.2006)). Accordingly, the request for judicial notice of the documents filed in the RJN is
GRANTED.
3
California Rules of Court 3.300(g) provides that any opposition to a notice of related case must be filed within five
days of the filing of the initial notice.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV15-01954 JAK (PLAx)

Title

Date

June 3, 2015

SFPP, L.P. v. Union Pacific Railroad Company, et al.

subsurface remained with the owner of the servient estate.[4] Put another way, the 1875
Act granted the Railroad substantial rights to the surface of the land over which it operates
its trains, but it did not make the subsurface the “property of the railroad.” [¶] 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.
Id. at 164-65.
The COA Decision also determined that the Congressional Acts that were adopted prior to 1871 “did not
provide the railroad with sufficient property interests to justify its collecting rent on the pipeline's
subsurface easements.” Id. at 165. It concluded that
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.
Id. at 170.
The appellate court also concluded that
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.
Id. at 178. The COA Opinion then stated:
We merely hold that (1) the pre–1871 and 1875 Congressional Acts, by themselves, did
not convey a sufficient property interest to the Railroad to justify its collecting rent on the
Pipeline's subsurface easements; and (2) the Railroad has the burden to prove what
parcels were the “property of the railroad” from January 1, 2004, through December 31,
2013, before it can collect rent from the Pipeline for easements traversing those parcels
during that period of time.
Id. at 209. Defendant filed a petition for rehearing with the Court of Appeal. It was denied on December 5,
2014. RJN, Dkt. 25-3, Ex. 1. Defendant then filed a petition for review in the California Supreme Court. It
4

The servient estate was identified earlier in the opinion as “the federal government or its grantee.” Id. at 160.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV15-01954 JAK (PLAx)

Title

Date

June 3, 2015

SFPP, L.P. v. Union Pacific Railroad Company, et al.

was denied on January 21, 2015. Id. Ex. 2. Defendant did not file a Petition for Certiorari seeking review
by the United States Supreme Court.
2.

The Beaumont Hill Action

This action relates to Defendant’s request that, pursuant to the AREA, Plaintiff relocate a 9.4 mile section
of pipeline in Riverside County. Following a trial, the Superior Court entered judgment for Defendant that
required Plaintiff to pay relocations costs. This matter is currently on appeal to the California Court of
Appeal for the Fourth District. On February 4, 2015, based on the COA Opinion issued in the Rental
Action, Plaintiff filed a Petition for Writ of Error Coram Vobis in the Court of Appeal for the Fourth District
requesting that the judgment of the Riverside County Superior Court be vacated. Specifically, Plaintiff
requested a determination that Defendant’s title in the property at issue, which was obtained by a
Congressional Act, was not per se a sufficient basis to entitle Defendant to require or grant Plaintiff the
pipeline easements. Plaintiff instead argued that, under the COA Opinion, Defendant was required to
prove what parcels were the “property of the railroad” in Beaumont Hill pursuant to the AREA. RJN, Dkt.
25-7, Ex. 4. On February 19, 2015, the Court of Appeal for the Fourth District issued an order to show
cause why the requested relief should not be granted. Id., Ex. 5.
3.

The Pomona Action

This action, which is pending in the Los Angeles Superior Court at its Pomona Courthouse, arises from
Defendant’s request that, pursuant to the terms of the AREA, Plaintiff relocate a section of its pipeline in
Pomona, California. It is presently set for a jury trial this summer. No issues are presented as to land
granted to Defendant pursuant to Congressional Acts.
III.

Analysis
A.

Whether the Court Has Subject Matter Jurisdiction over this Action
1.

Legal Standard

Federal courts have limited jurisdiction. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375,
377 (1994). Therefore, a determination of subject matter jurisdiction must be made before the merits of a
case can be addressed. Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94 (1998). If at any time
before final judgment the court determines that it is without subject matter jurisdiction, a removed action
shall be remanded to the state court in which it was originally filed. 28 U.S.C. § 1447(c).
The party removing an action bears the burden of establishing federal jurisdiction. Gaus v. Miles, Inc.,
980 F.2d 564, 566 (9th Cir. 1992). “Where doubt regarding the right to removal exists, a case should be
remanded to state court,” because “it is well established that the plaintiff is master of her complaint and
can plead to avoid federal jurisdiction.” Matheson v. Progressive Specialty Ins. Co., 319 F.3d 1089, 1090
(9th Cir. 2003).
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV15-01954 JAK (PLAx)

Title

Date

June 3, 2015

SFPP, L.P. v. Union Pacific Railroad Company, et al.

Federal courts have original jurisdiction over “all civil actions arising under the Constitution, laws, or
treaties of the United States.” 28 U.S.C. § 1331. In general, a case arises under federal law when “federal
law creates a cause of action.” Wander v. Kaus, 304 F.3d 856, 858 (9th Cir. 2002).
Federal question jurisdiction may also arise when a “substantial, disputed question of federal law is a
necessary element of one of the well-pleaded state claims.” Id. (quoting Franchise Tax Bd. of State of
Cal. V. Constr. Laborers Vacation Trust for S. Cal., 463 U.S. 1, 13 (1983)). This is a “’special and small
category’ of cases in which arising under jurisdiction still lies.” Gunn v. Minton, 133 S. Ct. 1059, 1064
(2013) (citing Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 699 (2006)). Thus, “federal
jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed,
(3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance
approved by Congress.” Gunn, 547 U.S. at 1065 (citing Grable & Sons Metal Products, Inc. v. Darue
Eng'g & Mfg., 545 U.S. 308, 310 (2005)). “Where all four of these requirements are met ... jurisdiction is
proper because there is a ‘serious federal interest in claiming the advantages thought to be inherent in a
federal forum,’ which can be vindicated without disrupting Congress's intended division of labor between
state and federal courts.” Id. This doctrine “captures the commonsense notion that a federal court ought
to be able to hear claims recognized under state law that nonetheless turn on substantial questions of
federal law, and thus justify resort to the experience, solicitude, and hope of uniformity that a federal
forum offers on federal issues[.]” Grable, 545 U.S. at 312.
Determinations about “federal jurisdiction require sensitive judgments about congressional intent, judicial
power, and the federal system.” Merrell Dow Pharms. Inc. v. Thompson, 478 U.S. 804, 810 (1986). Under
the “‘well-pleaded complaint rule,’ federal jurisdiction exists only when a federal question is presented on
the face of the plaintiff’s properly pleaded complaint.” Caterpillar Inc. v. Williams, 482 U.S. 386, 392
(1987).
2.

Application

Because the Complaint does not allege a federal cause of action, Defendant relies on the second basis
for federal jurisdiction. Thus, it contends that the action raises a substantial, disputed question of federal
law that is a necessary element of Plaintiff’s declaratory relief claim.
a)

Whether a Federal Question is “Necessarily Raised”

Defendant contends that Plaintiff’s declaratory relief claim necessarily raises a question of federal law -whether property rights granted pursuant to the pre-1871 and 1875 Congressional Acts conveyed to
Defendant, or its predecessors, sufficient interest in the relevant real property to support Defendant’s
demand that Plaintiff relocate its pipelines. Accordingly, it argues that the determination of the declaratory
relief claim will require interpretation of one or more Acts of Congress.
The pre-1871 and 1875 Congressional Acts are “necessarily raised” by the Complaint. It alleges that
Defendant does not have a sufficient property interest to the Alhambra Property to warrant its demand for
relocation of the pipelines. Compl., Dkt. 1, Ex. 1 ¶¶ 13-16. The basis for these allegations is Plaintiff’s
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV15-01954 JAK (PLAx)

Title

Date

June 3, 2015

SFPP, L.P. v. Union Pacific Railroad Company, et al.

assertion about the limited interest in the Alhambra Property that was granted to Defendant pursuant to
the pre-1871 and 1875 Congressional Acts. Plaintiff contends that these Acts did not convey a sufficient
property interest to entitle Defendant to grant subsurface pipeline easements to Plaintiff. That this is a
basis for Plaintiff’s claims is confirmed by the allegations in the Complaint about the COA Opinion. Thus,
the Complaint alleges that the Court of Appeal held that the pre-1871 and 1875 Congressional Acts did
not per se convey a sufficient property interest to Defendant to justify its charging rent to Plaintiff for its
subsurface easements. Instead, the Complaint alleges that the COA Opinion held that, on remand,
Defendant would be required to prove what parcels were the “property of the railroad” before it could
collect rent from Plaintiff. Compl., Dkt. 1, Ex. 1 ¶¶ 13-16. The Complaint also alleges that because
a substantial portion of [Defendant’s] right-of-way at issue in the proposed Alhambra
relocation was obtained by [Defendant’s] predecessors via Congressional Act, including
the pre-1871 Acts and the 1875 Act. [Plaintiff] therefore alleges, on information and belief,
that [Defendant] does not have sufficient title in this property to invoke the relocation
provision under the AREA.
Id. ¶ 20.
Plaintiff argues that no federal issue is raised on the face of the Complaint. It contends that the
declaratory relief sought does not ask for a determination about the extent of the property interest granted
by the pre-1871 and 1875 Congressional Acts. Nor does the Complaint seek any particular determination
as to Defendant’s title to the Alhambra Property.5 Instead, according to Plaintiff, the Complaint seeks
only a declaration that, pursuant to the terms of the AREA, Defendant is required to prove that it has title
to the Alhambra Property before it can require Plaintiff to relocate its pipelines. That issue will turn on an
interpretation of the AREA. Plaintiff argues that issue is distinct from whether Defendant actually has title
to the property. Therefore, no analysis of the Congressional Acts is required to determine the appropriate
declaratory relief. Rather, the Complaint raises questions of contract interpretation, which is a state law
issue.
Plaintiff is correct that the Complaint raises substantial issues about the interpretation of the AREA. Thus,
a determination that the AREA does not require Defendant to prove its ownership of the Alhambra
Property as a condition to requiring Plaintiff to relocate its pipelines, would be dispositive of Plaintiff’s
request for declaratory relief and would not necessarily require an interpretation of federal law. But, the
analysis may not necessarily be cabined in this way. For example, it appears that the AREA assumed
that Defendant owned the property that was the subject to the contract. That is the basis on which
Defendant’s predecessor granted the easements through the AREA. Similarly, one or both parties could
have been mistaken about land ownership at the time that they entered the AREA. An analysis of that
issue could require a consideration of their respective understandings as to the property interests
conveyed to Defendant by the pre-1871 and 1875 Congressional Acts. That issue has been addressed in
5

As noted, Defendant’s Counterclaim (Dkt. 10), and its First Amended Counterclaim (Dkt. 29), each seeks
declaratory relief on these issues. But, “a counterclaim ... cannot serve as the basis for ‘arising under’ jurisdiction.”
Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826, 831 (2002).
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV15-01954 JAK (PLAx)

Title

Date

June 3, 2015

SFPP, L.P. v. Union Pacific Railroad Company, et al.

detail in the COA Opinion in which these statutes were interpreted.6
The letters by Plaintiff’s counsel, which preceded the filing of the Complaint, are consistent with this view.
The initial letter states:
The California Court of Appeal recently ruled that Union Pacific must prove that it has
sufficient ownership interests in its railroad right-of-way to collect rent from SFPP for
subsurface pipeline easements pursuant to the AREA. Union Pacific’s demand that SFPP
relocate its pipeline at the Alhambra Subdivision is entirely predicated on the AREA and
Union Pacific’s grant of subsurface pipeline easements to SFPP pursuant to the AREA.
Accordingly, in light of this recent court ruling, SFPP requests that Union Pacific
demonstrate, for any affected segment of pipeline, that it is the full fee owner of the
right-of-way before SFPP will go forward with any relocation plans.
Dkt. 1-1, Ex. D. The second letter from Plaintiff’s counsel adds:
Mr. Hovenac [counsel for Defendants] mischaracterizes the Court of Appeal Opinion
(“Opinion”). Importantly, the Opinion does not merely relate to the payment of rent. The
Opinion held that, with respect to the right-of-way Union Pacific acquired via the pre-1871
and 1875 Congressional Acts (“Congressional Act right-of-way”), Union Pacific does not
have sufficient ownership interests in the subsurface property to convey pipeline
easements to SFPP or require rental payments. Thus, the subsurface of Congressional
Act right-of-way is not “property of [the] Railroad,” and the AREA does not govern these
easements. Further, if Union Pacific cannot convey easements under Congressional Act
right-of-way, it certainly cannot require relocation of those pipelines.
Dkt. 1-1, Ex. F.
6

Plaintiff’s argument that Congressional Acts do not provide bases for federal question jurisdiction is unpersuasive.
Virgin v. Cnty. of San Luis Obispo, 201 F.3d 1141, 1143 (9th Cir. 2000). In Virgin, the Ninth Circuit relied on a
Supreme Court opinion which stated that:
[a] suit to enforce a right which takes its origin in the laws of the United States is not necessarily, or
for that reason alone, one arising under those laws, for a suit does not so arise unless it really and
substantially involves a dispute or controversy respecting the validity, construction or effect of such
a law, upon the determination of which the result depends. This is especially so of a suit involving
rights to land acquired under a law of the United States. If it were not, every suit to establish title to
land in the central and western states would so arise, as all titles in those states are traceable back
to those laws.
Id. (citing Shulthis v. McDougal, 225 U.S. 561, 569–70 (1912)). Virgin rejected the argument that a federal issue was
necessarily raised simply “because one of the parties to [a controversy in respect of lands] has derived his title
under an act of Congress.” Id. (quoting Shulthis, 225 U.S. at 570). That is not the case here. This action is one in
which there is a dispute regarding the “construction or effect of” a law “which takes its origin in the laws of the United
States.” Id. at 1143.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV15-01954 JAK (PLAx)

Title

Date

June 3, 2015

SFPP, L.P. v. Union Pacific Railroad Company, et al.

For these reasons, a question of federal law is raised by the Complaint. The COA Opinion was an
important predicate for Plaintiff’s request for an interpretation of the AREA. That decision relied on an
interpretation of federal law. The interpretation of the AREA may well require a consideration of these or
similar issues.
b)

Whether a Federal Question is Actually Disputed

To raise a federal issue that is “actually disputed,” a state cause of action must “really and substantially
involve[e] a dispute or controversy respecting the validity, construction or effect of [federal] law.” Grable,
545 U.S. at 313. The COA Opinion analyzed and determined the scope of the property rights granted to
Defendant by the pre-1871 and 1875 Congressional Acts. See UPRC, 231 Cal. App. 4th at 164-65 (“the
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. Otherwise, the rights to the subsurface remained with the owner
of the servient estate. Put another way, the 1875 Act granted the Railroad substantial rights to the surface
of the land over which it operates its trains, but it did not make the subsurface the “property of the
railroad.”) (“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.”).
Based on these legal conclusions, the core federal issue presented here -- the standard for determining
the scope of Defendant’s ownership of the property -- has been determined by the COA Opinion, which
applies to the parties to this action. Thus, in its opinion, the Court of Appeal determined that the
Defendant’s rights pursuant to the pre-1871 and 1875 Congressional Acts is limited to the real property
that is used for railroad purposes or is necessary to support the railroad. Under these circumstances, this
element has less force in connection with determining whether to exercise federal jurisdiction.
c)

Whether a Federal Question is Substantial

“The substantiality inquiry under Grable looks [] to the importance of the issue to the federal system as a
whole.” Gunn, 133 S. Ct. at 1066; see also Grable, 545 U.S. at 313 (“federal jurisdiction [over state action]
demands not only a contested federal issue, but a substantial one, indicating a serious federal interest in
claiming the advantages thought to be inherent in a federal forum.”). Interpretation of the pre-1871 and
1875 Congressional Acts presents an issue important to the federal system as a whole. See Nicodemus
v. Union Pac. Corp., 440 F.3d 1227, 1234 (10th Cir. 2006) (interpretation of pre-1871 Congressional Act
presented substantial federal issue under Grable because “[t]he statutes at issue granted to Union Pacific
the right to construct a railroad and telegraph line in order to “secure the safe and speedy transportation
of the mails, troops, munitions of war, and the public stores” to the West. See, e.g., Act of July 1, 1862, ch.
120, § 3, 12 Stat. 489. Under subsequently enacted statutes, the United States has a reversionary
interest in the lands when no longer used for their designated purposes. See 43 U.S.C. §§ 912, 913 and
16 U.S.C. § 1248(c). Thus, the government has a direct interest in the determination of property rights
granted to the railroad.”).
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV15-01954 JAK (PLAx)

Title

Date

June 3, 2015

SFPP, L.P. v. Union Pacific Railroad Company, et al.

Plaintiff argues that a determination of any federal issue will be tethered to the AREA. If this were a
sufficient basis for federal jurisdiction, it would be based on a “fact-bound and situation-specific” question.
Plaintiff contends that the Supreme Court has cautioned against applying the Grable exception in this
manner, and cites Empire Healthchoice Assur., Inc. v. McVeigh, 547 U.S. 677, 701 (2006). There, a
health insurance carrier that provided coverage for federal employees brought an action against the
estate of a former insured. In that action it sought reimbursement of insurance benefits that it had paid
because the insured had recovered damages for his injuries in a state court tort action. Empire
distinguished Grable, as a case that presented “a nearly pure issue of law” whose resolution would be
“both dispositive of the case and would be controlling in numerous other cases.” Id. at 700 (internal
quotation marks omitted). In contrast, the Court concluded that the claim in Empire, “[wa]s fact-bound and
situation-specific” and one that would turn on a determination of the particular charges by the health care
providers and whether services were properly attributable to specific injuries caused by a specific set of
circumstances. Id. at 701.
A resolution of the federal issue here would not be dispositive of this action. Significant factual issues
would remain as to the interpretation and application of the AREA. They would include a determination as
to what property is reasonably necessary for the Defendant’s railroad operations and how that overlaps
with the land in which the pipelines are located. That factual issue is framed by the legal analysis as to
what was conveyed to Defendant by the operative Congressional Acts.
On balance, the federal issue is substantial.
d)

Whether Resolution Would Disrupt the Federal-State Balance

The resolution of this action in this court would disrupt the federal-state balance. “[E]ven when the state
action discloses a contested and substantial federal question, the exercise of federal jurisdiction is
subject to a possible veto. For the federal issue will ultimately qualify for a federal forum only if federal
jurisdiction is consistent with congressional judgment about the sound division of labor between state and
federal courts governing the application of [28 U.S.C.] § 1331.” Grable, 545 U.S. 308 at 313-14.
As the Ninth Circuit has explained,
The exercise of federal jurisdiction must not “disturb [ ] any congressionally approved
balance of federal and state judicial responsibilities.” [Grable, 545 U.S.] at 314, 125 S.Ct.
2363. The Supreme Court has instructed federal courts to approach 28 U.S.C. § 1331
“‘with an eye to practicality and necessity.’ ” Merrell Dow, 478 U.S. at 810, 106 S.Ct. 3229
(quoting Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 20, 103 S.Ct.
2841, 77 L.Ed.2d 420 (1983)). The Court has “consistently emphasized that, in exploring
the outer reaches of § 1331, determinations about federal jurisdiction require sensitive
judgments about congressional intent, judicial power, and the federal system.” Id.
Nevada v. Bank of Am. Corp., 672 F.3d 661, 675-76 (9th Cir. 2012).
Page 10 of 14

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV15-01954 JAK (PLAx)

Date

Title

June 3, 2015

SFPP, L.P. v. Union Pacific Railroad Company, et al.

The questions of contractual interpretation presented by this action are at least as significant as the
federal issue presented. The significance of the underlying federal issue will turn on the interpretation of
the contract. Moreover, the contractual interpretation issues presented are complex. For example, if
some form of mistake were shown to have occurred at the time of the entry of the AREA, substantial
issues of appropriate remedies, which would arise under California law, would be presented. Such
matters are best left to California courts.
Further, there has been a substantial amount of litigation between these parties in California courts.
Three separate actions involving the parties are currently pending in California courts. The California
Court of Appeal for the Second District has thoroughly examined the two congressional acts at issue and
made determinations regarding their application to the AREA. That analysis will substantially inform the
present matter. Should this matter proceed in the Los Angeles Superior Court where it was originally filed,
the Superior Court would be bound to apply that interpretation. In addition, the application of the test
established in the COA Opinion will occur in the Rental Action. It makes sense to have the similar related
issues presented here, resolved by the same Superior Court.
Furthermore, the federal issue presented here, i.e., whether Defendant has sufficient property interest
from the Congressional Acts to require Plaintiff to relocate pursuant to the AREA, is currently before the
California Court of Appeal for the Fourth District. Should it reach a determination that is different from
what was decided by the Second District in the COA Opinion, the California Supreme Court could elect to
resolve the dispute. Thereafter, were substantial federal issues presented, a petition for review could be
filed with the U.S. Supreme Court.
Finally, Plaintiff and Defendant have been litigating interrelated matters in California courts for more than
two decades. California courts have already substantially analyzed the contractual relationship between
these parties, as well as the AREA that underlies this action. Given the scope of overlap in the operations
of the parties, more litigation is likely to occur in the future. Were the interpretation of the federal issues
presented here deemed sufficient to establish federal jurisdiction, it would likely lead to a migration of all
future disputes to the federal system. This would upset the appropriate federal-state balance in which
disputes as to real property rights as well as competing business needs and objectives are best left for
state courts to decide.
“Grable emphasized that it takes more than a federal element “to open the ‘arising under’ door.” Empire,
547 U.S. at 701. As in Empire, “[t]his case cannot be squeezed into the slim category Grable exemplifies.”
Id. This determination is made “with an eye to practicality and necessity.” Bank of Am. Corp., 672 F.3d at
675-76 (quoting Merrell Dow, 478 U.S. at 810).
*

*

*

For these reasons, the Motion is GRANTED. Plaintiff requests an award of costs and fees incurred as a
result of the removal of this action by Defendant. This request is DENIED.
Page 11 of 14

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV15-01954 JAK (PLAx)

Title

SFPP, L.P. v. Union Pacific Railroad Company, et al.

B.

Date

June 3, 2015

Whether the Court Should Abstain from Adjudicating this Action

Plaintiff contends that even if the Court had subject matter jurisdiction over this action, it should decline to
exercise it pursuant to the doctrine of declaratory relief abstention.
The goals for a district court to follow in deciding whether to exercise jurisdiction in a declaratory
judgment action when a parallel action7 is pending in state court are: (1) to avoid needless determination
of state law issues, (2) to discourage litigants from filing declaratory actions as a means of
forum-shopping, and (3) to avoid duplicative litigation (the “Brillhart factors”). Gov't Employees Ins. Co. v.
Dizol, 133 F.3d 1220, 1225 (9th Cir.1998); see Brillhart v. Excess Ins. Co. of America, 316 U.S. 491
(1942). In applying this test, a district court must “balance concerns of judicial administration, comity, and
fairness to the litigants.” Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1367 (9th Cir.1991). “A district
court, therefore, when deciding whether to exercise its jurisdiction under the Declaratory Judgments Act,
must balance concerns of judicial administration, comity, and fairness to the litigants.” Id.
The “Brillhart factors remain the philosophic touchstone for the district court.” Government Employees
Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998). “The district court should avoid needless
determination of state law issues; it should discourage litigants from filing declaratory actions as a means
of forum shopping; and it should avoid duplicative litigation.” Id. “If there are parallel state proceedings
involving the same issues and parties pending at the time the federal declaratory action is filed, there is a
presumption that the entire suit should be heard in state court.” Id. Although “[t]he pendency of a state
court action does not, of itself, require a district court to refuse federal declaratory relief[, it] should
generally decline to entertain reactive declaratory actions.” Id. Dizol recognizes that a district court “is in
the best position to assess how judicial economy, comity and federalism are affected in a given case.” Id.
at 1226.
The Brillhart factors are not the exclusive ones that are to be considered in making a determination as to
abstention. The Ninth Circuit has identified other considerations,
such as whether the declaratory action will settle all aspects of the controversy; whether
the declaratory action will serve a useful purpose in clarifying the legal relations at issue;
whether the declaratory action is being sought merely for the purposes of procedural
fencing or to obtain a ‘res judicata’ advantage; or whether the use of a declaratory action
will result in entanglement between the federal and state court systems. In addition, the
district court might also consider the convenience of the parties, and the availability and
relative convenience of other remedies.
Id. at n.5.
7

For actions to be considered parallel, “[i]t is enough that the state proceedings arise from the same factual
circumstances.” Golden Eagle Ins. Co. v. Travelers Companies, 103 F.3d 750, 755 (9th Cir. 1996) overturned on
other grounds by Gov't Employees Ins. Co. v. Dizol, 133 F.3d 1220 (9th Cir. 1998).
Page 12 of 14

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV15-01954 JAK (PLAx)

Title

Date

June 3, 2015

SFPP, L.P. v. Union Pacific Railroad Company, et al.

The Brillhart factors support abstention in this action even if there were subject matter jurisdiction. First,
this action would involve a needless determination of state law. It would require decisions about
California rules of contractual formation and interpretation, many of which may be complex and novel.
Second, the Beaumont Hill Action and Pomona Action each presents issues that correspond to the one
presented here -- Defendant’s request that Plaintiff re-locate certain pipelines pursuant to the AREA.
Although each of these three actions concerns different real property, each involves the same parties and
is governed by the same contract. “If there are parallel state proceedings involving the same issues and
parties pending at the time the federal declaratory action is filed, there is a presumption that the entire suit
should be heard in state court.” Gov't Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998).
“The pendency of a state court action, however, does not of itself require a district court to refuse
declaratory relief in federal court.” Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1367 (9th Cir. 1991).
Finally, having this action proceed in federal court when California courts have been analyzing the AREA
for many years would result in potential for conflicts in decision-making by the federal and state court
systems. Moreover, determining the federal issue presented would not settle all aspects of the
controversy.
C.

Reviewability of this Order by the Ninth Circuit

At the hearing on the Motion, counsel for Defendant requested that, should the Court grant the Motion, it
certify the order for appeal to the Ninth Circuit. Defendant cited no legal authority pursuant to which this
appeal would be proper.
28 U.S.C. § 1447(d) provides
An order remanding a case to the State court from which it was removed is not reviewable
on appeal or otherwise, except that an order remanding a case to the State court from
which it was removed pursuant to section 1442 or 1443 of this title shall be reviewable by
appeal or otherwise.
“Despite this broad prohibition, the Supreme Court has held that § 1447(d) must be read together with
§ 1447(c) such that § 1447(d) precludes review only of remands made pursuant to a ground enumerated
in § 1447(c).” Aguon-Schulte v. Guam Election Comm'n, 469 F.3d 1236, 1240 (9th Cir. 2006) (citing
Thermtron Prods., Inc. v. Hermansdorfer, 423 U.S. 336, 345-46 (1976)). “Section 1447(c) states that
remand may be ordered either for lack of subject matter jurisdiction or for ‘any defect’ in the removal
procedure.” Id. (citing 28 U.S.C. § 1447(c)). “Therefore, a remand order is not reviewable if (1) the district
court lacked subject matter jurisdiction, or (2) the moving party filed a timely motion raising any defect
other than a lack of subject matter jurisdiction.” In re Blatter, 241 F. App'x 371, 373 (9th Cir. 2007)
(“because we conclude that [the district court] remanded the case on the basis that it lacked subject
matter jurisdiction, we do not have jurisdiction to review the petition [for writ of mandamus].”);
Because this case is remanded due to a lack of subject matter jurisdiction, the Ninth Circuit does not have
Page 13 of 14

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV15-01954 JAK (PLAx)

Date

Title

June 3, 2015

SFPP, L.P. v. Union Pacific Railroad Company, et al.

jurisdiction to review this order. See Thermtron, 423 U.S. at 343-51 (“If a trial judge purports to remand a
case on [a] ground [covered by 1447(c)] his order is not subject to challenge in the court of appeals by
appeal, by mandamus, or otherwise.”).
IV.

Conclusion

For the reasons stated in this Order, the Motion is GRANTED. This action is remanded to the Los
Angeles Superior Court in its Stanley Mosk Courthouse.
IT IS SO ORDERED.
:
Initials of Preparer

ak

Page 14 of 14