Western Energy Co. v. Genie Land Co.

• Decision Date: 22 May 1987
• Docket Number: No. 86-392,86-392
• Citation: 227 Mont. 74,44 St.Rep. 904,737 P.2d 478
• Parties: , 55 USLW 2663 WESTERN ENERGY COMPANY, a corporation, Plaintiff and Appellant, v. GENIE LAND COMPANY, a corporation, and Montana Department of State Lands, an agency of the State of Montana, Defendants and Respondents.
• Court: Montana Supreme Court

Page 478

737 P.2d 478

227 Mont. 74, 55 USLW 2663

WESTERN ENERGY COMPANY, a corporation, Plaintiff and Appellant, v. GENIE LAND COMPANY, a corporation, and Montana Department of State Lands, an agency of the State of Montana Defendants and Respondents.

No. 86-392.

Supreme Court of Montana.

Submitted March 19, 1987.

Decided May 22, 1987.

Moulton, Bellingham, Longo & Mather, W.H. Bellingham (argued), Billings, for plaintiff and appellant.

Goetz, Madden & Dunn, William L Madden (argued), Bozeman, John F. North (argued), Dept. of State Lands, Helena, for defendants and respondents.

Holland & Hart, Paul D. Miller (argued), for Meridian Minerals, Billings, Daniel C. Murphy, Meridian Minerals, Englewood, Colo., for amicus curiae.

HARRISON, Justice.

The District Court of the Sixteenth Judicial District in and for Rosebud County, Montana, denied the request of Western Energy Company (Western) that Genie Land Company (Genie) and the Montana Department of State Lands (MDSL) be enjoined from denying it the right to obtain a coal strip-mining permit and the right to enter upon lands in order to strip-mine coal without further consent or waiver from Genie. The court also refused to declare Sec. 82-4-224, MCA, unconstitutional. Western appeals to this Court. We hold the statute unconstitutional and reverse and remand.

By deed dated September 4, 1945, Northern Pacific Railway Company (NP) granted to Philbrook Land and Livestock Company (Philbrook) 6,768.18 acres of land in Rosebud County, Montana, which included:

W 1/2W 1/2NE 1/4; NW 1/4; N 1/2SW 1/4; NW 1/4SE 1/4 Section 29, Township 2 North, Range 42 East; M.P.M.

By deed dated April 15, 1947, NP granted to Philbrook 650.92 acres of land in Rosebud County, Montana, described as:

Lots, 1, 2, 3 and 4, E 1/2W 1/2; NE 1/4; SW 1/4SE 1/4, Section 19, Township 2 North, Range 42 East; M.P.M.

The land described in the 1945 and 1947 deeds include the subject lands, comprising approximately 840 acres.

Both the 1945 and the 1947 deeds contained pertinent exceptions and reservations that provided:

[E]xcepting and reserving unto the grantor, its successors and assigns, forever, all minerals of any nature whatsoever, including coal, iron, natural gas and oil, upon or in said land, together with the use of such of the surface as may be necessary for exploring for and mining or otherwise extracting and carrying away the same; but the grantor, its successors and assigns, shall pay to the grantee, or to its successors or assigns, the market value at the time mining operations are commenced or such portion of the surface as may be used for such operations or injured thereby, including any improvements thereon; ...

Burlington Northern Railroad Company (BN) is the successor in interest to NP as to all right, title and interest of NP in the subject property. Genie is the successor in interest to Philbrook as to all right, title and interest in the subject property. Genie is in possession of the surface of the subject lands.

On June 1, 1966, NP and the Montana Power Company (MPC) executed a mining lease of coal lands (coal lease) which has been supplemented from time to time by successors in interest to NP. Western has succeeded to the interest of MPC in the coal lease as supplemented, which covers the subject lands. Section 82-4-224, MCA, the Owner Consent Statute, says:

Consent or waiver by surface owner. In those instances in which the surface owner is not the owner of the mineral estate proposed to be mined by strip-mining operations, the application for a permit shall include the written consent or a waiver by the owner or owners of the surface lands involved to enter and commence strip-mining operations on such land, except that nothing in this section applies when the mineral estate is owned by the federal government in fee or in trust for an Indian tribe.

The MDSL informed Western that because of the Owner Consent Statute and applicable administrative rules, it would deny Western Energy's application for a permit to strip coal unless Genie Land consented. Western has been unsuccessful in obtaining Genie's consent.

In previous litigation between these parties, this Court permitted Western Energy to conduct various exploration and resource inventory operations on the subject lands, as being a necessary part of the information needed by Western in order to apply for a strip-mining permit. The Court concluded strip-mining was within the contemplation of the parties at the time the deeds were conveyed. Further it was the understanding of the parties that NP withheld the mineral ownership and reserved the right to do what was necessary to extract minerals. Western Energy Co. v. Genie Land Co. (1981), 195 Mont. 202, 635 P.2d 1297.

Relying on Sec. 82-4-224, the Owner Consent Statute, Genie refused Western the right to enter the land for the purpose of strip-mining, thus foreclosing the possibility of Western's obtaining a permit to mine from the MDSL. Western then sought a permanent injunction enjoining Genie and the MDSL from denying it permission to strip the coal, and requested a declaratory judgment that Sec. 82-4-224, MCA, and the applicable regulations, are unconstitutional under federal and state constitutional due process and impairment of contract clauses. The District Court found the statute constitutional and refused to grant Western injunctive relief, however. Western appeals.

The constitutionality of Sec. 82-4-224, MCA, is dispositive of this case notwithstanding various errors Western claims were committed by the District Court. We find the statute unconstitutional.

Both the Montana and the United States Constitutions prohibit taking of property without due process. Article II of Montana's Constitution provides for protection of property in two sections:

Section 17. Due process of law. No person shall be deprived of life, liberty, or property without due process of law.

* * *

Section 29. Eminent domain. Private property shall not be taken or damaged for public use without just compensation to the full extent of the loss having been first made to or paid into court for the owner ...

The Fifth Amendment to the United States Constitution says,

No person shall ... be deprived of life, liberty, or property without due process of law; nor shall private property be taken for public use without just compensation.

It is incorrect to argue Western does not have a property interest in its leased mineral estate which is protected by the due process clauses.

It has long been established that the holder of an unexpired leasehold interest in land is entitled, under the Fifth Amendment, to just compensation for the value of that interest when it is taken upon condemnation by the United States. [Citations omitted.]

Alamo Land & Cattle Co. v. Arizona (1976), 424 U.S. 295, 303, 96 S.Ct. 910, 916, 47 L.Ed.2d 1, 8-9. See also Foster v. United States (Ct.Cl.1979), 607 F.2d 943, 949. The Fifth Amendment is applicable to the states through the Fourteenth Amendment. Webb's Fabulous Pharmacies, Inc. v. Beckwith (1980), 449 U.S. 155, 101 S.Ct. 446, 66 L.Ed.2d 358; Penn Central Transp. Co. v. New York City (1978), 438 U.S. 104, 98 S.Ct. 2646, 57 L.Ed.2d 631.

While the principles of eminent domain require just compensation when private property is taken for public use, constitutional due process requirements may be met without just compensation when the state exercises its inherent police power to regulate the health, safety and general welfare of the people.

It is well established that a police power regulation must be reasonably adapted to its purpose and must injure or impair property rights only to the extent reasonably necessary to preserve public welfare. The standard of reasonableness is the constitutional measure of the proper exercise of the police power.

Yellowstone Valley Electric Cooperative v. Ostermiller (1980), 187 Mont. 8, 15, 608 P.2d 491, 496. See also Charles v. Diamond, (N.Y.App.1977), 41 N.Y.2d 318, 392 N.Y.S.2d 594, 606, 360 N.E.2d 1295, 1302.

The statute must serve a public, rather than a private interest and the means chosen to advance the interest must be reasonable. Lawton v. Steele (1894), 152 U.S. 133, 137, 14 S.Ct. 499, 501, 38 L.Ed. 385, 388. In Mountain States Telephone and Telegraph Co. v. Dept. of Public Service Regulation (Mont.1981), 634 P.2d 181, 187, 38 St.Rep. 1479, 1485, we adopted the Lawton "means end test" wherein the state's authority on behalf of the public is balanced against the constitutional due process requirement in the protection of private property.

A regulation which establishes an unreasonable burden on the landowner is unconstitutional as a violation of due process. If the regulation is invalid, "the proper remedy ... is a declaration of unconstitutionality." Charles v. Diamond, supra, 360 N.E.2d at 1303.

The Montana Strip and Underground Mine Reclamation Act, Secs. 82-4-201 et seq., MCA, was enacted pursuant to the authority granted in the 1972 Montana Constitution, and is "[d]eemed to be an exercise of the general police power to provide for the health and welfare of the people." Section 82-4-202(2)(b), MCA.

Applying the Lawton "means end test" to Sec. 82-4-224, MCA, the Owner Consent Statute, we conclude the denial of just compensation places an unreasonable burden on the mineral owners, in violation of due process. The statute does not bear the requisite "substantial relation to the public health, safety, morals, or general welfare." Euclid v. Ambler Realty Co. (1926), 272 U.S. 365, 395, 47 S.Ct. 114, 121, 71 L.Ed. 303, 314. Nor does it address reclamation, conservation, or any other policy goal. It does not prevent strip-mining operations, does not regulate the manner in which mining or reclamation is performed, nor does it conserve agricultural land. The statute merely provides that when the owner of the minerals does not own the surface he cannot apply for a permit to mine without first receiving permission of...