Seven Up Pete Venture v. State, 03-154.

Citation2005 MT 146,327 Mont. 306,114 P.3d 1009
Decision Date08 June 2005
Docket NumberNo. 03-154.,03-154.
PartiesSEVEN UP PETE VENTURE, an Arizona General Partnership, d/b/a Seven Up Pete Joint Venture; Canyon Resources Corporation, a Delaware corporation; Jean Muir; Dr. Irene Hunter; David Muir; Alice Canfield; Tony Palaoro; June E. Roth-Barneson; Amazon Mining Company, a Montana Partnership; Paul Antonioli; Stephen Antonioli, and James E. Hoskins, Plaintiffs and Appellants, v. The STATE of Montana, Defendant and Respondent, Montana Environmental Information Center, Montanans for Common Sense Mining Laws-for I-137, Big Blackfoot Chapter of Trout Unlimited, and Mineral Policy Center, Defendants, Intervenors and Respondents. Seven Up Pete Venture, Petitioner and Appellant, v. The State of Montana, acting by and through its Department of Natural Resources, Respondent and Respondent.
CourtUnited States State Supreme Court of Montana

Alan L. Joscelyn, Gough, Shanahan, Johnson & Waterman, Helena, Montana, Sean Connelly and Daniel S. Hoffman (argued), Hoffman, Reilly, Pozner & Williamson, Denver Colorado, for Appellants.

Honorable Mike McGrath, Attorney General; Brian M. Morris (argued), Solicitor, Helena, Montana, for Respondent. Tommy H. Butler, Special Assistant Attorney General, Helena, Montana, for DNRC.

Ed Hayes and John North, Special Assistant Attorneys General, Helena, Montana, for DEQ.

Karl Englund, Elizabeth Brennan and Jack R. Tuholske, Attorneys at Law, Missoula, Montana, for Intervenors.

Justice JIM RICE delivered the Opinion of the Court.

¶ 1 The Seven Up Pete Venture (the Venture) appeals from the December 9, 2002, order entered by the First Judicial District Court, Lewis and Clark County, whereby the District Court granted summary judgment in favor of the State, denied the Venture's request for judicial review, and affirmed the order of the hearing examiner dated October 26, 2000. We affirm.

¶ 2 We address the following issues on appeal:

¶ 3 Did the District Court err in concluding that the enactment of I-137 did not constitute a taking of the Venture's property rights?

¶ 4 Did the District Court err by not addressing the takings claims made by private parties in its order granting summary judgment?

¶ 5 Did the District Court err in concluding that the passage of I-137 did not substantially impair the Venture's mineral leases pursuant to the Contracts Clause?

¶ 6 Did the District Court err in concluding that the DNRC properly terminated the Venture's mineral leases prior to resolution of its legal challenge to I-137?

FACTUAL AND PROCEDURAL BACKGROUND

¶ 7 This case arises out of the November 1998 passage of Initiative 137 (I-137) by the citizens of Montana. I-137 pertains to the use of cyanide leaching1 for mining purposes, and was subsequently codified as § 82-4-390, MCA, which provides:

Cyanide heap and vat leach open-pit gold and silver mining prohibited.
(1) Open-pit mining for gold or silver using heap leaching or vat leaching with cyanide ore-processing reagents is prohibited except as described in subsection (2).
(2) A mine described in this section operating on November 3, 1998, may continue operating under its existing operating permit or any amended permit that is necessary for the continued operation of the mine.

¶ 8 In 1986, the State of Montana leased six state properties for mining purposes (the Mineral Leases) to Western Energy Company. The Mineral Leases were located near Lincoln, Montana, and covered approximately 3,000 acres. In 1991 the Venture,2 the principal plaintiff in this action, succeeded to Western Energy's interest in the Mineral Leases. The remaining eight individual plaintiffs (collectively the "individual plaintiffs"), the Amazon Mining Company and Canyon Resources Corporation have surface and mineral interests in the general vicinity of Lincoln which were also affected by I-137. The land encompassed by the Venture's Mineral Leases and private holdings, including the remaining plaintiffs' private holdings, are respectively known as the "McDonald Project," the "Keep Cool Prospect," and the "Seven Up Pete Project." The McDonald Project is the largest of the areas at issue and is where the Venture discovered roughly 9 million ounces of gold, and 20 million ounces of silver, approximately half of which could profitably be recovered and sold by means of a surface mine combined with cyanide leaching of the ore.

¶ 9 Each Mineral Lease contained a ten-year primary lease term which was to run continually thereafter, so long as "minerals... are being produced in paying quantities from said premises, the royalties and rents... are being paid, and all other obligations are fully kept and performed." In addition, paragraph 7 of the Mineral Leases stipulated that, "[t]he lessee shall fully comply with all applicable state and federal laws, rules and regulations, including but not limited to those concerning safety, environmental protection and reclamation. The lessee shall conduct and reclaim the operation in accordance with the performance and reclamation standards of applicable mine reclamation laws." The Mineral Leases also incorporated an Attachment which provided that "no activities shall occur on the tract until an Operating Plan or Amendments have been approved [by the State]."

¶ 10 In 1992, the Venture commenced discussions with the State, acting through the Department of State Lands (DSL), about the acquisition of an operating permit which was required for mining and mineral processing activities pursuant to the Montana Metal Mine Reclamation Act (MMRA). Additionally, on November 1, 1993, the Venture entered a Memorandum of Agreement (MOA) with the State regarding preparation of an environmental impact statement (EIS)3 for the McDonald Project, a large scale undertaking which consequently turned the preparation of the EIS into a colossal task. The MOA recited that, "[t]he proposed Project would utilize ... heap leaching to extract gold, silver, and other trace metals from ore," and provided guidance for preparation of the EIS.

¶ 11 Because of the Venture's growing uncertainty as to whether it had sufficient time to complete the operating permit application process and obtain the State's approval within the primary lease term of ten years, which was set to expire in 1996, the Venture entered into a Mineral Lease Amendment Agreement (the Lease Amendment) with the State on August 26, 1994, to extend the primary lease term. The Lease Amendment tolled the running of the seventeen months which then remained on the primary lease term, on the condition that the Venture "actively pursue" an operating permit. The Lease Amendment also provided that "[e]xcept as expressly amended hereby, the Mineral Leases shall remain in full force and effect according to their terms."

¶ 12 On November 21, 1994, the Venture submitted an application for an operating permit to the DSL4 with a proposal to construct and operate the McDonald Project as a surface mine combined with cyanide leaching for gold and silver. The State had sixty days to render a decision pursuant to § 82-4-337, MCA. However, the sixty-day deadline was extended by the parties by various agreements, which ultimately extended the decisional deadline to January 31, 2000. As the environmental review process progressed, the parties also executed a series of contract modifications pertaining to the McDonald Project EIS. However, none of the modifications released the Venture from its obligations set forth in the Mineral Leases.

¶ 13 On July 2, 1998, the Department of Environmental Quality (DEQ) issued a stop-work order on the McDonald Project EIS because of the Venture's failure to pay fees relating to third-party EIS services. The Venture fell further into arrears by failing to make monthly invoice payments to the DEQ from July 1998 to December 1998. As a result, the Department of Natural Resources and Conservation (DNRC) notified the Venture by letter in September 1998 that, because of the issuance of the DEQ stop-work order on the EIS, the time extension granted to the Venture for purposes of obtaining the operating permit was suspended, and the remaining unexpired primary term of seventeen months would begin to run for each of the Mineral Leases. The DNRC also informed the Venture that the Mineral Leases would terminate on their own accord on February 23, 2000, unless the Venture reactivated the permitting process, which would retoll the running of any remaining unexpired primary terms in the Mineral Leases.

¶ 14 Meanwhile, in November 1998, Montana became the first state to prohibit open-pit mining for gold and silver using cyanide heap leaching by the passage of I-137, subsequently codified as § 82-4-390, MCA. I-137 took effect immediately, but expressly exempted mines operating under an existing permit as of November 3, 1998. Although its Mineral Leases were in effect, the Venture did not have an existing operating permit and was therefore not exempted from the facial application of I-137.

¶ 15 On December 31, 1998, the Venture paid all past-due EIS invoices from the DEQ. However, on February 24, 2000, the DNRC notified the Venture by letter that the permitting process had not been reactivated because of "the [Venture's] failure to diligently pursue acquisition of a permit under Montana's Metal Mine Reclamation Act," and that such cessation of the permitting process constituted a material breach of the August 26, 1994, Lease Amendment. The DNRC explained that the permitting process was not reactivated because the Venture failed to provide a revised MOA that included an acceptable standing account balance, failed to submit a revised proposal for its operating and reclamation plan to comport with § 82-4-390, MCA, failed to produce minerals in paying quantities, and failed to remit any mineral royalties to the State. Consequently, the DNRC advised the Venture that its six Mineral Leases terminated on their own accord on February...

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