Kinross Copper Corp. v. State

• Decision Date: 19 May 1999
• Citation: 160 Or.App. 513,981 P.2d 833
• Parties: KINROSS COPPER CORPORATION, Appellant, v. STATE of Oregon, Respondent. (960906900; CA A98316)
• Court: Oregon Court of Appeals

Page 833

981 P.2d 833

160 Or.App. 513

KINROSS COPPER CORPORATION, Appellant, v. STATE of Oregon, Respondent.

(960906900; CA A98316)

Court of Appeals of Oregon.

Argued and Submitted May 13, 1998.

Decided May 19, 1999.

Phillip D. Chadsey, Portland, argued the cause and filed the briefs for appellant.

John T. Bagg, Assistant Attorney General, argued the cause for respondent. With him on the brief were Hardy Myers, Attorney General, and Michael D. Reynolds, Solicitor General.

Laura A. Schroeder, Schroeder Law Offices, and James L. Huffman, Member, Montana State Bar, filed the brief amicus curiae for Northwest Mining Association.

Susan L. Smith filed the brief amicus curiae for North Santiam Watershed Council.

Before LANDAU, Presiding Judge, DEITS, Chief Judge, and WOLLHEIM, Judge.

LANDAU, P.J.

In this inverse condemnation case, plaintiff Kinross Copper Corporation seeks compensation for the value of its unpatented mining claims, which it contends has been reduced to zero as a result of the state's denial of a permit to discharge wastewater that would result from plaintiff's proposed mining operations. Plaintiff alleged a right to compensation under the takings clauses of both the federal and state constitutions. The trial court entered summary judgment in favor of the state on both claims. We affirm.

The parties stipulated to the relevant facts. In 1975, Amoco Minerals Company (Amoco) staked unpatented mining claims in the Cedar Creek Valley of the North Santiam River Subbasin in the Willamette National Forest. An "unpatented" mining claim refers to a possessory interest in minerals only, with the federal government retaining ownership of the land on which minerals may be located. See generally 4 American Law of Mining § 110.02(1)(b) (2d ed 1998). Individuals who hold such claims have the exclusive right to possession and enjoyment over them, "so long as they comply with the laws of the United States, and with State, territorial, and local regulations not in conflict with the laws of the United States governing their possessory title * * *." 30 USC § 26 (1994). To acquire an unpatented mining claim, it is necessary to discover a valuable mineral deposit. 30 USC § 22 (1994). To hold the claim, it is necessary to establish that the mineral deposit can be extracted, removed, and marketed at a profit. See generally Chrisman v. Miller, 197 U.S. 313, 322-23, 25 S.Ct. 468, 49 L.Ed. 770 (1905). In 1976, Amoco discovered a body of copper ore on its claims.

In 1977, the Oregon Environmental Quality Commission (EQC) promulgated OAR 340-41-470(1), commonly known as the "Three Basin Rule." That administrative rule prohibits "any new or increased waste discharges" to the Clackamas, McKenzie, or North Santiam River Subbasins.

In 1989, Amoco leased the unpatented mining claims to plaintiff. Two years later, plaintiff developed a plan of operations for a copper ore mining project. The plan required plaintiff to discharge groundwater pumped from the mine, along with other wastewater, into the North Santiam River Subbasin. The plan included obtaining applicable permits, including a National Pollutant Discharge Elimination System (NPDES) permit under the applicable state and federal clean water laws.

In 1992, plaintiff submitted to the Oregon Department of Environmental Quality (DEQ) an application for an NPDES permit. DEQ conducted various tests and concluded that, under the terms of plaintiff's proposed plan of operations, the discharge would not cause applicable water quality standards to be violated. DEQ also concluded that alternatives to discharging wastewater from the proposed mining operation were not viable and that, without an NPDES permit, plaintiff would not be able to develop and operate its proposed copper mine. In 1995, however, DEQ denied plaintiff's application for an NPDES permit on the ground that the Three Basin Rule prohibits any new waste discharges into the North Santiam River Subbasin. Plaintiff requested a contested case hearing before the EQC on the denial of the permit application. In 1996, EQC issued a final order denying plaintiff's application.

Plaintiff then initiated this action for damages. Plaintiff alleged claims for relief under the takings clauses of both the state and federal constitutions. Plaintiff moved for summary judgment on its federal takings claim on the ground that the denial of its NPDES permit rendered its unpatented mining claims entirely valueless and thus constituted a per se taking. The state moved for summary judgment on both claims on the ground that the denial of the NPDES took no property right of plaintiff's. According to the state, because unpatented mining claims are held subject to state regulation, plaintiff never had the right to develop its claim in violation of state law.

The trial court denied plaintiff's motion, granted the state's motion, and entered judgment for the state on both claims. In a letter opinion, the trial court explained that, because holding an unpatented mining claim requires proof that the claim continues to be marketable, and, because state regulations render plaintiff's claims unmarketable, plaintiff's mining claims were "extinguished," leaving plaintiff with no property right that could be taken. The extinguishment of the claim did not amount to a taking, the court held, because unpatented mining claims constitute a unique form of property right that--by definition--is subject to state and federal regulatory authority and is more appropriately regarded as analogous to a contract right that is subject to a condition subsequent. The trial court cited as authority for its conclusion a law review article, Michael Graf, Application of Takings Law to the Regulation of Unpatented Mining Claims, 24 Ecology L Q 57 (1997).

On appeal, plaintiff assigns error to both summary judgment rulings. It contends that the trial court erred in adopting the reasoning of the cited law review article because it is contrary to nearly a century of takings case law. Amicus Northwest Mining Association expands on that contention, arguing that unpatented mining claims have long been recognized as property subject to the protections of the federal and state constitutions.

The state concedes that the trial court's rationale is at odds with "traditional takings analysis." It nevertheless contends that the trial court correctly concluded that plaintiff lost no property right because, among other things, plaintiff never had the right to discharge wastewater into a state waterway. Amicus North Santiam Watershed Council (Council) expands on that alternative argument and asserts that holders of unpatented mining claims do not have a property right to discharge wastes into state rivers.

Plaintiff responds that the argument is not "preserved" and, in any event, is incorrect. According to plaintiff, it does indeed have a right to discharge water from its mining operation, first, because the federal Mining Act of 1866 recognized a miner's rights through custom and other laws to use water on federal lands and, second, because state law provides that industrial water users have the right to use up to 5,000 gallons of groundwater per day without a permit.

In reviewing the trial court's rulings, we determine whether there is a genuine issue of material fact and whether the prevailing party is entitled to judgment as a matter of law. ORCP 47 C. In this case, the facts are undisputed; the sole question before us is whether the trial court correctly concluded that the state was entitled to judgment as a matter of law, that is, that plaintiff suffered no taking of property under the state or federal constitutions.

Article I, section 18, of the Oregon Constitution provides that "[p]rivate property shall not be taken for public use, * * * without just compensation [.]" The Fifth Amendment to the United States Constitution likewise prohibits the taking of private property for public use without just compensation. US Const, Amend V.

Identifying the extent to which governmental action short of outright physical acquisition of private property may constitute a taking of property under the state or federal constitutions has proved to be extraordinarily vexing for the courts. Various--sometimes even conflicting--tests have been invoked in countless cases over the last 75 years since Justice Holmes first penned the familiar, albeit cryptic, dictum that "while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking." Penna. Coal Co. v. Mahon, 260 U.S. 393, 415, 43 S.Ct. 158, 67 L.Ed. 322 (1922).

But through the years and the cases, a few principles safely may be asserted as having been settled. Two such principles pertain to this case. The first is that, regardless of the difficulty of describing the exact point at which governmental action is transformed from constitutional regulation to unconstitutional taking, under both state and federal constitutions, government action that deprives property of all value without compensation is an unconstitutional taking. The precise formulation varies from case to case, but the gist is the same. Thus, under the Oregon Constitution, an action for inverse condemnation may be maintained to recover damages against a governmental agency that has taken action that has the effect of depriving the owner of "all economically viable use" of its property. Boise Cascade Corp. v. Board of Forestry (S42159), 325 Or. 185, 197-98, 935 P.2d 411 (1997). Similarly, under the federal constitution, an action for inverse condemnation may be maintained for damages against a government agency that has taken action that has deprived the owner of "all economically beneficial use" of the property. Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 112 S.Ct. 2886, 120 L.Ed.2d 798 (1992).

The second settled principle of takings law is that, even if government action might otherwise constitute a taking of...