On September 30, 2016, the Surface Transportation Board (“STB” or “Board”) issued a decision denying Union Pacific Railroad Company’s (“UP”) petition for declaratory order seeking to use the preemption provisions of the ICC Termination Act to frustrate a California state court action brought against UP. The Board found that the state court complaint of SFPP, L.P. (“SFPP”), a petroleum pipeline subsidiary of Kinder Morgan, Inc., seeking rescission of a subsurface easement agreement between UP and SFPP and monetary restitution, is not preempted under federal railroad law. The Board also provided further guidance to the courts and the parties on the question of preemption. Slover & Loftus LLP represented SFPP in the case as co-counsel.

In denying UP’s petition, the STB found that a contract rescission decision by the state court would not in itself unreasonably interfere with UP’s railroad operations. The Board noted that, even with rescission, any and all pre-existing railroad property rights under state and federal law would be preserved to help compel the relocation of the pipeline as necessary to accommodate any future expansion of rail operations. Additionally, while the Board noted that a state court decision granting SFPP “a right to remain permanently without UP’s consent could constitute unreasonable interference with rail transportation, depending on the facts presented,” it found that “UP has not shown that the rescission of the 1994 Agreement sought by SFPP would lead to such a result.”

The Board also rejected the intervening railroad trade associations’ and accompanying port authorities’ expressed concerns about a “patchwork of regulation stemming from various future suits” arising from SFPP’s state action, finding that the action does not and will not interfere with UP’s current or future operations as UP has possible remedies to require SFPP to relocate its pipeline if necessary for expansion, etc., and regardless of the validity of the involved agreement.

Questions on the STB’s decision or rail transportation issues generally may be directed to Peter A. Pfohl at Slover & Loftus LLP.