Southern Pacific Transportation Co. v. Santa Fe Pacific Pipelines, Inc.

This is a valuation case, coming by way of a complaint for order of general reference of dispute. The dispute concerns the amount of rent payable to plaintiff railroad by defendant pipeline company for a series of noncontiguous pipeline easements spanning approximately 1,863 miles and running beneath the railroad’s right-of-way.

By stipulation the parties charged the referee with determining “the amount of the rent increase payable, if any, in accordance with the ‘fair market value of the easement[s]’ as of January 1, 1994.”

The parties prepared for the reference proceeding with expert opinions using a valuation method known as the “across-the-fence” (ATF) method. Yet, in a rare usurpation of the parties’ role in molding the issues, the trial court orchestrated the displacement of this method with one relying on “comparable” rents. In the end, it was a shutout victory for the pipeline company. The trial court rejected virtually all the railroad’s exhibits. So, too, it refused to engage in any interpretation of the agreements to determine the formula for establishing rent, let alone consider extrinsic evidence pertinent to the question. The judgment—for less than…