U.S. Court of Appeals Orders the Enforcement of a Contract with an Easement, Without Application of the Rule Against Perpetuities

In 1952, the owner of a parcel of land in Illinois granted a pipeline operator an easement for two pipelines to cross his land. The first pipeline was built immediately.

The easements specified that the second pipeline, if constructed, was required to be built within ten feet of the first pipeline. The pipeline operator promised the landowner that the land would remain farmable.

In 2012, the current pipeline operator notified the landowner that it planned to build the second pipeline. The owner responded with a lawsuit to quiet title. The pipeline operator removed the case to the federal district court under diversity jurisdiction.

The landowner claimed that the operator lacked the right to build the second pipeline either because the right to so had expired or doing so would violate the farmability condition of the original agreement.

The pipeline operator answered that claim by stating that its right to build a pipeline had no time limit and that federal law had preempted enforcement of the farmability condition. The district court agreed with the operator and dismissed the quiet of title lawsuit.

Since the dismissal, the second pipeline was constructed, located 50 feet from the first pipeline. The operator used eminent domain to obtain the right to construct the second pipeline.

The appeals panel noted that the controversy in the case was not moot because the owner anticipated the construction of a third pipeline within ten feet of the first. Because the landowner denied that the operator had the right to construct the third pipeline and that there were competing claims to the real estate, the panel held that the controversy was alive.

The court of appeals held that the district court judge acted prematurely in resolving the operator’s defense under federal law. The panel stated that the owner’s assertion that a third pipeline would be incompatible with farming the surface was mere speculation. If the operator was not able to keep the farmability promise, that failure could be addressed through the laws of contract. That would mean a later lawsuit to be filed.

The courts cited Susan B. Anthony List v. Driehaus, where the court of appeals found that the potential loss to the owner due to construction of a third pipeline was too remote and improbable to create a justiciable controversy.

Lastly, the panel responded to the owner’s contention that the operator’s right to build a new pipeline within ten feet of the first had expired. The owner argued that the right to build another pipeline was an “option” and that the option’s unlimited duration violated the rule against perpetuities. The court of appeals disagreed.

The panel found that the contract’s language indicated that it was an easement with an immediate grant rather than that of an option promising to grant something in the future if a condition is satisfied. The panel then noted that counsel for the owner was unable to provide any Illinois cases where a court had characterized a contract similar to the one at issue in the present case as an option subject to the rule against perpetuities.

The court held that the contract was an easement with an immediate grant and not an option. Therefore, the district court’s order dismissing the quiet title lawsuit was affirmed but the court reversed the district court on the farmability question with instructions to dismiss the case for lack of justiciable controversy.

Michelle Knight and Jeffrey Barth v. Enbridge Pipelines (FSP), LLC, et al., No. 13-3481, U.S. Court of Appeals, 7th Cir., July 16, 2014.

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