Barahona v. Union Pacific Railroad, 881 F.3d 1122

Background

For over 50 years Union Pacific (UP) leased land under about 1,800 miles of its railroad rights-of-way to SFPP, a petroleum pipeline operator; UP and SFPP had perpetual-easement agreements and rent disputes led to litigation.
California Court of Appeal held that rights-of-way granted by both the pre-1871 Acts and the 1875 Act did not permit the railroad to lease subsurface rights to third parties unless the use served a "railroad purpose," and concluded SFPP’s pipeline did not.
Landowners filed putative class actions asserting trespass and related claims against UP for leasing those rights-of-way; UP asserted counterclaims for declaratory relief and to quiet title.
The district court adopted the state appellate court’s reasoning, dismissed UP’s counterclaims insofar as they relied on the 19th-century congressional grants, and certified two legal questions under 28 U.S.C. § 1292(b): (1) whether UP may authorize non-railroad uses of the subsurface; and (2) whether granting a subsurface easement to a commercial petroleum pipeline can serve a "railroad purpose."
The Ninth Circuit granted interlocutory review, declined to decide collateral-estoppel based on the state-court ruling at that time, and addressed the certified legal questions.

Issues

Issue	Landowners' Argument	Union Pacific's Argument	Held
Do the pre-1871 Acts limit the grantee to uses that serve a "railroad purpose"?	Pre-1871 grants carry the same "railroad purpose" limitation as later cases; any non-railroad subsurface lease is invalid.	The pre-1871 grants conveyed a fee simple defeasible (limited fee) in the surface and subsurface (except mineral estate), so UP may lease subsurface use so long as the railroad continues to operate.	Pre-1871 Acts do NOT require uses to serve a railroad purpose; they conveyed a fee simple-defeasible in everything except the mineral estate, allowing UP to lease subsurface while it continues railroad operations.
Does the 1875 Act limit use to "railroad purposes," and if so, can SFPP’s pipeline qualify?	1875 Act grants only an easement for railroad purposes; the pipeline is a private commercial operation and not a railroad purpose.	The 1875 Act grants an easement for railroad purposes, but incidental uses that directly benefit railroad operations (e.g., supplying fuel) can qualify; UP uses pipeline capacity to buy/transport fuel for locomotives.	The 1875 Act grants an easement for railroad purposes; UP plausibly alleged that the pipeline serves a railroad purpose (it supplies fuel used by UP), so dismissal was improper and leave to amend should have been granted.
Should the Ninth Circuit give preclusive effect to the California Court of Appeal decision?	The state-court decision is binding and should preclude relitigation.	Collateral estoppel is premature; the district court expressly decided the motion "without regard to collateral estoppel."	The Ninth Circuit declined to apply collateral estoppel on interlocutory appeal and confined review to the certified legal questions.

Key Cases Cited

Leo Sheep Co. v. United States, 440 U.S. 668 (Sup. Ct.) (context on western land and transcontinental railroad history)
St. Joseph & Denver City R.R. v. Baldwin, 103 U.S. 426 (Sup. Ct.) (early characterization of railroad grants as present absolute grants subject to implied conditions)
Missouri, Kansas & Texas Ry. v. Roberts, 152 U.S. 114 (Sup. Ct.) (describing pre-1871 grants as vesting title in grantee)
New Mexico v. U.S. Trust Co., 172 U.S. 171 (Sup. Ct.) (rights acquired were more than an easement—attributes of fee)
Northern Pac. Ry. v. Townsend, 190 U.S. 267 (Sup. Ct.) (describing pre-1871 grants as a limited fee with implied condition of reverter)
Great N. Ry. v. United States, 315 U.S. 262 (Sup. Ct.) (holding the 1875 Act granted only an easement for railroad purposes)
United States v. Union Pac. R.R., 353 U.S. 112 (Sup. Ct.) (holding drilling for oil under right-of-way is not a railroad purpose and discussing limits of granted rights)