PPL MONTANA, LLC v. State

• Court: United States State Supreme Court of Montana
• Citation: 229 P.3d 421
• Docket Number: No. DA 08-0506.,DA 08-0506.
• Parties: 229 P.3d 421 (2010) 2010 MT 64 355 Mont. 402 PPL MONTANA, LLC, a Delaware Limited Liability Company, Plaintiff and Appellant, v. STATE of Montana, Defendant and Appellee.
• Decision Date: 30 March 2010

229 P.3d 421

PPL MONTANA, LLC, a Delaware Limited Liability Company, Plaintiff and Appellant,
v.
STATE of Montana, Defendant and Appellee.

No. DA 08-0506.

Supreme Court of Montana.

Argued September 16, 2009.

Submitted October 27, 2009.

Decided March 30, 2010.

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For Appellant: Robert L. Sterup, Kyle Ann Gray, Holland & Hart LLP, Billings, Montana, Paul J. Lawrence (argued), K & L Gates LLP, Seattle, Washington

For Appellee: Hon. Steve Bullock, Montana Attorney General, Anthony Johnstone (argued), Solicitor, Helena, Montana.

For Amici Association of Gallatin Agricultural Irrigators: David L. Weaver, Nash, Zimmer, Weaver & Grigsby, Bozeman, Montana.

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For Amici Montana Water Resources Association: Holly Jo Franz (argued), Franz & Driscoll, Helena, Montana

For Amici Montana Farm Bureau Federation: Hertha L. Lund, Arthur V. Wittich, Wittich Law Firm, P.C., Bozeman, Montana.

For Amici School Trust Representatives: Pamela D. Bucy, Harley R. Harris, Luxan & Murfitt, PLLP, Helena, Montana.

Justice PATRICIA O. COTTER delivered the Opinion of the Court.

? 1 On June 13, 2008, the First Judicial District Court entered findings of fact and conclusions of law in a cause of action between PPL Montana, LLC (PPL), and the State of Montana (State). The District Court ordered PPL to pay the State $40,956,180 for its use of state-owned riverbeds from 2000 through 2007, at PPL hydroelectric power sites on the Missouri, Madison, and Clark Fork rivers. We affirm the District Court's award of damages.

FACTUAL AND PROCEDURAL BACKGROUND

? 2 PPL is a Delaware limited liability company registered to do business in Montana. PPL is a wholesale electric generator¹ and owns and operates a number of federally-licensed hydroelectric facilities, or dams, in Montana. A number of these dams are located on the Missouri, Clark Fork, and Madison rivers. The "Thompson Falls Project" is located on the Clark Fork River and was built in 1915. This facility was initially licensed by the federal government in 1949, and was re-licensed in December 1979 by the Federal Energy Regulatory Commission (FERC), pursuant to its authority under the Federal Power Act (FPA), 16 U.S.C.A. §§ 791a-823d (West 2010). The Ryan, Cochrane, Morony, Rainbow, and Black Eagle dams are located on the Missouri River in Cascade County, Montana. The Black Eagle facility was built in 1891, the Rainbow facility in 1910, the Ryan facility in 1915, the Morony in 1930, and the Cochrane in 1958. The Holter and Hauser dams are located on the Missouri River in Lewis and Clark County, and were completed in 1918 and 1907, respectively. The Madison facility is located on the Madison River in Madison County and was completed in 1906. Additionally, the Hebgen facility, which was completed in 1915, is located on the Madison River in Gallatin County and provides storage capacity for downstream power generation.² The dams on the Madison and Missouri rivers are collectively referred to as the "Missouri-Madison Project" and were relicensed by FERC on September 27, 2000. The Thompson Falls and Missouri-Madison Projects were previously owned by the Montana Power Company (MPC), and sold to PPL on December 17, 1999.

? 3 On October 17, 2003, the parents of Montana school children sued PPL³ in the United States District Court of Montana, seeking compensation for its use of state-owned riverbeds at its hydroelectric generation facilities. The plaintiffs argued that the riverbeds occupied by PPL's dams were part of the school trust lands and that PPL was obligated to compensate the State for their use. In Montanans for the Responsible Use of the School Trust v. State, 1999 MT 263,

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296 Mont. 402, 989 P.2d 800 (Montrust), we defined "school trust lands" as state-owned public lands which the State Land Board (Land Board) is obligated to administer as a trustee for the benefit of the public schools in Montana. See Montrust, ?? 13-14. Under Article X of the Montana Constitution, the Land Board's fiduciary obligations include obtaining full market value for the use of school trust lands. Montrust, ? 17. Prior to this time, neither PPL nor its predecessor MPC had ever paid compensation to the State for the use of the riverbeds associated with its dams

? 4 Although the State had never previously sought compensation for the use of the state-owned riverbeds by MPC or PPL, the State decided to join in the federal suit against PPL and was granted leave to do so on June 18, 2004. The State filed its own complaint requesting compensation from PPL under the school trust theory argued by the original plaintiffs, and also under the Hydroelectric Resources Act (HRA), Title 77, chapter 4, part 2, MCA. Originally enacted by the Legislature in 1931, § 77-4-201, MCA, of the HRA reads as follows:

It is unlawful to sell or advertise for sale state lands constituting power sites or part of power sites capable of developing hydroelectric energy in commercial quantities. However, the Land Board may issue a lease or license to any person, corporation, or municipality for the development of power sites and the distribution, use, and disposition of the electrical energy generated on the sites as specifically provided in this chapter.

? 5 The term "power site" is specifically defined in the HRA as follows:

The words "power site" as used in this part shall mean not only the state-owned land on which the dam is constructed, but also each separate tract of such land which will become part of the reservoir and which in and of itself makes an essential contribution to the value of the power site as a whole of not less than 5% of the entire value of such power site.

Section 77-4-202, MCA.

? 6 The federal cause of action was eventually dismissed for lack of subject matter jurisdiction. Prior to the dismissal of the federal suit, PPL filed a declaratory judgment action against the State in the First Judicial District Court on November 12, 2004. In its complaint, PPL contested the State's ability to seek compensation for its use of riverbeds at its FERC-licensed dams on the Clark Fork, Missouri, and Madison Rivers. PPL sought a declaration that the State could not seek compensation for its use of the riverbeds because these claims were federally preempted by the FPA as well the "federal navigational servitude."

? 7 The "federal navigational servitude" is the power of the United States Congress to ensure that navigable rivers remain open to interstate and foreign commerce. This servitude applies to navigable rivers acquired by states upon their entrance into the Union, and extends to all state-owned lands below the high-water mark. See Mont. v. United States, 450 U.S. 544, 551, 101 S.Ct. 1245, 1251, 67 L.Ed.2d 493(1981); United States v. Chicago, Milwaukee, St. Paul & Pac. R.R. Co., 312 U.S. 592, 596-97, 61 S.Ct. 772, 775, 85 L.Ed. 1064 (1941). PPL argued that the existence of this servitude over the Clark Fork, Missouri, and Madison Rivers preempted the operation of the HRA upon its dams. Additionally, PPL sought declarations regarding several affirmative defenses, arguing that: (1) it had acquired a prescriptive easement to use the riverbeds at its facilities; (2) the State was equitably estopped from asserting a right to compensation under the HRA; (3) the State's ability to seek payments was barred by laches and the applicable statute of limitations; and (4) the State breached agreements reached with PPL in the course of licensing its hydroelectric facilities.⁴

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? 8 On November 24, 2004, the State answered, denying that the HRA was preempted by the FPA or by the federal navigational servitude. The State also counterclaimed seeking a declaration that PPL must compensate the State for its use of state lands, and seeking damages for PPL's unlawful past and ongoing use of those lands without compensation to the State. The State asserted that the Missouri, Clark Fork, and Madison Rivers were navigable rivers at the time of statehood, and that it acquired title to the beds and banks of these rivers when it became a state in 1889 under the "equal footing doctrine."⁵ The State claimed that its ownership rights in these riverbeds and the HRA gave it the right to seek compensation for PPL's use of the occupied or submerged state lands used by its facilities. Additionally, the State argued that it was entitled to an award of damages under the theories of uncompensated use of state land, unjust enrichment, trespass, and negligence.

? 9 On the same day it filed its complaint, the State moved for summary judgment on PPL's complaint. The State asserted that neither the FPA nor the federal navigational servitude prevented it from seeking compensation for PPL's use of state lands. The State claimed that both the FPA and the FERC licensing procedures contemplated that landowners should be compensated for the use of their land under state law and affirmatively permitted, rather than preempted, the compensation the State was seeking. Additionally, the State argued that it was not subject to PPL's legal and equitable defenses.

? 10 From this point in the proceedings, PPL and the State engaged in an extensive motion practice. With some exceptions, these motions sought summary judgment rulings from the District Court on various aspects of the case. Because the instant appeal stems in large measure...