Department of State Lands v. Pettibone

No. 83-281 I N THE SUPREME COURT OF THE STATE O F MONTANA 1985 I N THE MATTER O F THE ADJUDICATION OF THE E X I S T I N G RIGHTS TO THE USE OF ALL THE WATER, BOTH SURFACE AND UNDERGROUND, WITHIN THE POWDER R I V E R DRAINAGE AREA, INCLUDING ALL TRIBU- T A R I E S O F THE POWDER R I V E R I N CARTER, CUSTER, FALLON, P R A I R I E , and POWDER R I V E R COUNTIES, MONTANA, DEPARTMENT O F STATE LANDS, O b j e c t o r and A p p e l l a n t , -vs- WALTER P E T T I B O N E , DAVID and MELINDA B L I S S , ERNEST and PEGGY TOOKE, . GIACOMETTE RANCH, P J. RANCH, ELMER OEDEKOVEN, E . MIORY HUBBARD, CINCH BUCKLE RANCH, MALLET CATTLE COMPANY, ROBERT F . HARDY TRUST, ALVIN and HELEN I R I O N , HARDY LAND & LIVESTOCK COMPANY, and BALES RAPJCH, C l a i m a n t s and R e s p o n d e n t s . APPEAL FROM: T h e Water C o u r t s of t h e S t a t e of Montana, The Yellowstone Division-Powder River Basin, T h e H o n o r a b l e W.W. L e s s l e y , C h i e f Judge. COUlJSEL OF RECORD: For A p p e l l a n t : L y l e M a n l e y argued, D e p t . of S t a t e L a n d s , I i e l e n a , Montana; J o h n F . N o r t h , D e p t . of S t a t e L a n d s F o r Respondents: J o h n C a r r argued f o r B l i s s & B a l e s Ranch, Miles City, Montana F o r Amicus Curiae: A l b e r t W. S t o n e , U of M L a w S c h o o l , M i s s o u l a , M o n t a n a G o u g h , Shanahan, Johnson & W a t e r m a n ; R o n a l d F . W a t e r m a n argued f o r M o n t a n a S t o c k g r o w e r s A s s o c . , H e l e n a , Montana Submitted: February 21, 1985 Decided: June 1 8 , 1985 Filed: -1UM 1 : 1985 Clerk M r . J u s t i c e L. C. Gulbrandson d e l i v e r e d t h e Opinion o f the Court. The State of Montana appeals from the Powder River Final Decree holding title to certain water rights to be vested i n respondents. We reverse. The State of Montana, Department of State Lands, objected to the portion of the Powder River Preliminary Decree that awarded title of certain water rights to the above-named respondents, all lessees o f S t a t e school trust lands. A l l of the factual disputes, a s t o flow, s o u r c e and place of d i v e r s i o n and p l a c e of use w e r e resolved p r i o r t o t h e h e a r i n g on t h e S t a t e o b j e c t i o n h e l d November 24, 1982. The h e a r i n g w a s c o n f i n e d s o l e l y t o t h e f o l l o w i n g q u e s t i o n o f law: Does t i t l e t o t h e w a t e r r i g h t v e s t i n t h e l e s s e e o r t h e S t a t e o f Montana a s owner o f t h e l a n d where t h e w a t e r i s d i v e r t e d ? On A p r i l 4 , 1 9 8 3 , The W a t e r C o u r t s Judgment--The Powder R i v e r F i n a l Decree, was i s s u e d . It h e l d t h a t t h e t i t l e t o t h e w a t e r s d i v e r t e d on S t a t e s c h o o l t r u s t l a n d s v e s t s i n t h e lessee, and n o t t h e S t a t e . The S t a t e appealed t h i s portion of t h e F i n a l Decree. The a p p e a l was f i r s t h e a r d b y t h i s C o u r t on J a n u a r y 1 3 , 1 9 8 4 . Subsequently, by Order of March 26, 1984, w e d i r e c t e d the parties to rebrief the case, and to address certain questions. Because o f t h e broad significance of t h i s case, we a l s o s o l i c i t e d amicus c u r i a e p a r t i c i p a t i o n . The p a r t i e s , and several amici, submitted supplemental briefs, and the m a t t e r was a g a i n h e a r d on J a n u a r y 2 5 , 1 9 8 5 . There a r e twenty-three water rights involved in this a p p e a 1. They generally fa11 into one of the following categories: 1) G r o u n d w a t e r W e l l s : Four r i g h t s are from g r o u n d w a t e r w e l l s . Three o f the w e l l s a r e on s c h o o l t r u s t l a n d s , a n d u s e d wholly thereon. One s t r a d d l e s t h e b o r d e r between a state-owned and p r i v a t e l y - o w n e d s e c t i o n , a n d i s u s e d on b o t h . 2) Developed S p r i n g s : Three r i g h t s a r e i n developed s p r i n g s f o r s t o c k watering. The s p r i n g s , a n d t h e i r u s e s , a r e c o n f i n e d t o the school t r u s t lands. 3) Diversions o f T r i b u t a r i e s : Fifteen r i s h t s a r i s e f r o m d i v e r t i n s named o r unnamed t r i b u t a r i e s o f l a r g e r - c r e e k s . In most, t h e a p p r o p r i a t o r has c o n s t r u c t e d a s m a l l dam on t h e t r i b u t a r y c r e a t i n g a small reservoir f o r stock watering. In some i n s t a n c e s , w a t e r c o n t i n u e s t o f l o w from t h e r e s e r v o i r s t o t h e l a r g e r c r e e k . One of t h e r i g h t s i n v o l v e s a d r a w o f w a t e r f r o m t h e Powder R i v e r d e v o t e d t o i r r i g a t i o n , not stockwatering. Thirteen o f t h e s e d i v e r s i o n s occur wholly on s c h o o l trust lands with the use confined thereon. One r i g h t i s i n a r e s e r v o i r on s t a t e l a n d t h a t s e r v e s b o t h t h e s t a t e s e c t i o n and an a d j a c e n t p r i v a t e section. The l a s t o f t h e s e r i g h t s i s a n a p p r o p r i a t i o n used f o r i r r i g a t i o n . In t h a t c a s e , t h e d i v e r s i o n i s on s t a t e l a n d , a n d t h e u s e i s on b o t h s t a t e and p r i v a t e land. 4 ) Direct U s e : One right is in an undevelosed sprins and its drainaqe a d j a c e n t - t o a -creek i n t h e Powder ~ i v e r drainage. The s p r i n g , a n d i t s u s e , i s confined t o t h e school t r u s t land. This r i g h t h a s t h e o l d e s t p r i o r i t y d a t e o f any a t i s s u e h e r e , O c t o b e r 1, 1 8 8 3 . According t o t h e d e c r e e s a s s o c i a t e d w i t h t h e s e r i g h t s , each i s e x e r c i s e d year-round; a l t h o u g h i n t i m e s of d r o u g h t , t h i s may n o t b e p o s s i - b l e . The l a n d s upon w h i c h t h e s e w a t e r r i g h t s l i e a r e t h o s e that were granted to the State of Montana by the Federal Government i n t h e Montana E n a b l i n g A c t . A c t of February 22, 1889, ch. 180, 25 S t a t . 676. Originally, these lands were s e t a s i d e i n t h e Montana T e r r i t o r y O r g a n i c A c t , A c t of May 26, 1864, ch. 95, 13 S t a t . 8 5 , which provided t h a t s a i d l a n d s w e r e "reserved f o r t h e purpose of being applied t o schools" ch. 95, section 14, 13 S t a t . 9 1 i n t h e Montana Territory. The E n a b l i n g Act granted these lands to the state on the following t e r m s : " S e c t i o n 1 0 . T h a t upon t h e a d m i s s i o n o f each o f s a i d S t a t e s i n t o t h e Union s e c t i o n s numbered s i x t e e n and t h i r t y - s i x in every township of said proposed S t a t e s , and where s u c h s e c t i o n s , o r any parts thereof, have been sold or o t h e r w i s e d i s p o s e d o f by o r u n d e r t h e a u t h o r i t y o f any a c t o f C o n g r e s s , o t h e r lands equivalent thereto, in legal s u b d i v i s i o n s o f n o t less t h a n o n e - q u a r t e r s e c t i o n , and a s c o n t i g u o u s a s may b e t o t h e s e c t i o n i n l i e u o f which t h e same i s taken, a r e hereby granted t o s a i d S t a t e s f o r t h e s u p p o r t o f common s c h o o l s . " S e c t i o n 11. T h a t all lands herein granted f o r e d u c a t i o n a l purposes s h a l l be d i s p o s e d o f o n l y a t p u b l i c s a l e , and a t a p r i c e n o t less t h a n t e n d o l l a r s p e r a c r e , t h e p r o c e e d s t o c o n s t i t u t e a permanent s c h o o l f u n d , t h e i n t e r e s t o f which o n l y s h a l l b e expended i n t h e s u p p o r t o f s a i d schools. But s a i d l a n d s may, u n d e r s u c h regulations a s the legislatures shall prescribe, be leased ... " c h . 1 8 0 , 25 s t a t . 679. The 1889 Montana C o n s t i t u t i o n a c c e p t e d t h e s e l a n d s and p r o v i d e d t h a t t h e y would be h e l d i n t r u s t c o n s o n a n t w i t h t h e t e r m s o f t h e E n a b l i n g A c t , Montana C o n s t i t u t i o n o f 1 8 8 9 , a r t . XVII, sec. 1. The 1972 Montana C o n s t i t u t i o n c o n t i n u e d t h e s e t e r m s , Mont. C o n s t . a r t . X , sec. 11, c h . 1. See a l s o s e c t i o n 77-1-202, MCA (school lands held i n t r u s t f o r t h e support of education) . The d u t y o f administering t h e school trust lands is p l a c e d upon t h e Board o f Land Commissioners ( B o a r d ) . Section 77-1-202(l), MCA p r o v i d e s that "The b o a r d shall administer t h i s t r u s t t o secure the l a r g e s t measure o f l e g i t i m a t e and reasonable advantage t o t h e S t a t e . " Pursuant t o 77-1-301(1), MCA, t h e Department o f S t a t e Lands, (DSL) u n d e r t h e d i r e c t i o n of t h e B o a r d , " . . . has charge o f t h e s e l e c t i n g , exchange, classification, appraisal, leasing, management, sale, or other disposition of s t a t e lands" The Department o f State Lands has also promulgated regulations governing the management, sale or lease of school trust lands. See g e n e r a l l y T i t l e 2 6 , A.R.M. Each of the respondents is a lessee of one o r more sections of school trust lands. The DSL, by statute, sections 77-6-115 and 77-6-301 and -302, MCA, and by r e g u l a t i o n S26-3.123, A.R.M., a l l o w s lessees t o d i v e r t w a t e r s on t h e l e a s e h o l d , d e v e l o p t h e m , a n d p u t t h e m t o u s e on o r o f f that land. None o f t h e r i g h t s a t i s s u e i n t h i s case w e r e perfected pursuant to the a b o v ~ mentioned statutes or regulations. Rather, t h e l e s s e e s claim t h e s e r i g h t s a s "use rights," which have l o n g been recognized i n t h i s S t a t e , see M u r r a y v. T i n g l e y ( 1 8 9 7 ) , 20 Mont. 2 6 0 , 5 0 P. 723, and S t o n e , Montana W a t e r Law f o r t h e 1 9 8 0 1 s , p . 3, (1981 ed.) These r i g h t s a r e a t i s s u e because of t h e g e n e r a l w a t e r r i g h t s a d j u d i c a t i o n underway i n Montana. T h i s p r o c e s s began with t h e p a s s a g e o f t h e Montana W a t e r U s e A c t o f 1973, ch. 452, L. 1973. The l e g i s l a t u r e e n a c t e d t h e Water U s e A c t i n response to the chaos o f p r e v i o u s Montana water law. See Stone, - The Long Count on Dempsey: No - Final Decision i n Water R i g h t s A d j u d i c a t i o n , 3 1 Mont.L.Rev. 1 (1969); Stone, A r e T h e r e Any A d j u d i c a t e d S t r e a m s - M o n t a n a ? in 1 9 Mont.L.Rev. 19 ( 1 9 5 7 ) . I t set up a system o f g e n e r a l s t r e a m a d j u d i c a t i o n administered by the Department of Natura 1 Resources and Conservation (DNRC) and a l s o provided, from that time on, t h a t t h e s t a t u t o r y m e t h o d w a s t h e e x c l u s i v e way t o a c q u i r e a water right. Prior to 1973, there were two possible ways of perfecting a water right. F i r s t was t h e method p r o v i d e d f o r by statute; p o s t i n g a t t h e p o i n t o f d i v e r s i o n and f i l i n g a notice with the county clerk, Mont. Laws 1885, secs. 6 through 10; R.C.M. (1947), 89-810 t h r o u g h 814. Second was simply by putting the water to use, Murray v. Tingley, supra. The 1885 Act did not provide for any general adjudication of streams. Nor did it provide any mechanism by which actual uses, as opposed to claimed uses, could be ascertained. As Professor Stone, in Montana Water - - - 1980's states, Law for the the problems the legislature addressed in 1973 were many: "It [the old water rights system under the 1885 Act] merely provided for isolated lawsuits between particular water users over their individual rights in isolated parts of streams. The statute resulted only in piecemeal litigation, often repetitive and among the same neighbors, over and over again disputing one another's claims. [Citations omitted.] It did not lead to security in one's property rights nor to finality in determining the fair and legal distribution of water among neighboring claimants. "But not only were the individual water users ill-served by this failure to establish water rights; the public interest also required an inventory of the state's water needs so that future negotiations or dealings with downstream states could allocate the waters of our interstate rivers." Stone, supra at p. 4. The system of adjudication established by the 1973 Act soon encountered difficulties. First, it required the DNRC to physically inspect or discover all water rights. It soon became evident that this process would take a very long time. Six years after the 1973 Act was passed, the inspection and adjudication of the Powder River Basin, one of the smallest and relatively simplest in the State, was still in its initial stages. Second, the 1973 Act did not provide for the adjudication of federally reserved rights--presenting the spectre of concurrent, wasteful and possibly inconsistent litigation in the Federal Courts. Responding to the shortcomings of the 1973 Act, the 1979 Montana Legislature enacted Senate Bill 76, ch. 697 L. 1979. It established a system of water courts and put upon a p p r o p r i a t o r s and u s e r s t h e b u r d e n o f f i l i n g c l a i m s f o r t h e i r rights. I t a l s o p r o v i d e d f o r r e s e r v e d w a t e r r i g h t s and s e t up a Compact Commission t o n e g o t i a t e t h e f e d e r a l and I n d i a n reserved rights. Ch. 697, s e c . 27, I. , 1979. The Water Court system is charged with the final adjudication of water r i g h t s . Rased upon t h e c l a i m s f i l e d by users and appropriators, the court issues temporary preliminary decrees cataloging the various rights and p r i o r i t i e s i n the respective basin. All named o r a f f e c t e d p a r t i e s have, a t that time, an o p p o r t u n i t y t o o b j e c t t o t h e temporary p r e l i m i n a r y decree. I f no o b j e c t i o n s a r e r a i s e d , t h e t e m p o r a r y d e c r e e i s made f i n a l . O b j e c t i o n s a r e h e a r d and a d j u d g e d by t h e Water C o u r t , w i t h t h e r i g h t o f a p p e a l t o t h i s Court. T h i s i s t h e f i r s t a p p e a l we h a v e been c a l l e d on t o h e a r from a f i n a l d e c r e e o f t h e Water C o u r t . I n reviewing t h i s , and subsequent final decrees, we will apply the same s t a n d a r d s o f r e v i e w a s any o t h e r a p p e a l from a D i s t r i c t C o u r t order. The q u e s t i o n w e c o n s i d e r i s : Who i s t h e owner o f a w a t e r r i g h t d i v e r t e d o r d e v e l o p e d on s c h o o l t r u s t l a n d ; the State o r the lessee? W hold t h a t t i t l e t o t h e s e water r i g h t s v e s t s i n t h e e State. The lessee, in making appropriations on and for s c h o o l t r u s t s e c t i o n s , i s a c t i n g on b e h a l f o f t h e S t a t e . It i s o n l y t h r o u g h s t a t e a c t i o n t h a t t h e lessee i s on t h e l a n d , and Montana law e x p r e s s l y p r o v i d e s t h a t t h e lessee s h a l l b e r e i m b u r s e d f o r a l l c a p i t a l e x p e n d i t u r e s made i n p u t t i n g t h e water t o b e n e f i c i a l use. The l e s s e e , u n d e r t h e t e r m s o f t h e lease, i s simply e n t i t l e d t o t h e - o f water appurtenant t o use t h e school t r u s t land. The S t a t e i s t h e b e n e f i c i a l u s e r o f t h e w a t e r , and i t s d u t y a s t r u s t e e o f t h e s c h o o l t r u s t l a n d s p r o h i b i t s it f r o m a l i e n a t i n g a n y i n t e r e s t i n t h e l a n d , such as the appurtenant water right, without receiving full compensation t h e r e f o r . The school trust lands are endowments by the United S t a t e s t o t h e S t a t e o f Montana f o r t h e b e n e f i t of t h e common schools. A major policy of the fledgling nation was to f o s t e r p u b l i c e d u c a t i o n by g r a n t s o f l a n d t o newly a d m i t t e d s t a t e s f o r t h a t purpose. Each o f t h e t h i r t y s t a t e s c a r v e d o u t o f t h e p u b l i c domain r e c e i v e d s u c h g r a n t s , v a r y i n g i n t h e quantity granted, and t e r m s o f t h e g r a n t , a s n a t i o n a l p o l i c y and political winds dictated. See g e n e r a l l y Woodgerd and McCarthy, S t a t e School T r u s t s - - - - Royalty Rates, and O i l a n d Gas 3 Pub.Land L.Rev. 1 (1982). Montana was a d m i t t e d t o t h e Union in 1889 a l o n g w i t h Washington, North Dakota, and South Dakota. The Omnibus Enabling A c t , supra, r e f l e c t s t h e g e n e r a l p o l i c y o f Congress as s e t o u t above. Even before Montana joined the Union, genera1 principles, evolving from the judicial review of e a r l i e r enabling a c t s , governing t h e school land g r a n t t r u s t s were well settled. I n two c a s e s , t h e T r u s t e e s o f Vincennes U n i v e r s i t y v. S t a t e of Indiana ( 1 8 5 2 ) , 55 U.S. 268, 1 4 L.Ed. 2 6 7 , a n d S p r i n g f i e l d T o w n s h i p v. Q u i c k ( 1 8 5 9 ) , 63 U.S. 56, 1 6 L.Ed. 256, the United States Supreme Court set out three important p r i n c i p l e s governing school t r u s t lands: 1) t h a t the enabling acts created trusts similar to a private c h a r i t a b l e t r u s t which t h e s t a t e c o u l d n o t a b r i d g e ; 2) t h a t t h e enabling a c t s w e r e t o be s t r i c t l y construed according t o f i d u c i a r y p r i n c i p l e s , and; 3) t h a t t h e e n a b l i n g a c t s preempt s t a t e laws o r c o n s t i t u t i o n s . S e e a l s o Andrus v . Utah (1980), 446 U.S. 500, 520, 523, 100 S.Ct. 1803, 1814, 1815, 64 L.Ed.2d 458, 472, 4 7 4 , w h e r e t h e U n i t e d S t a t e s Supreme C o u r t reaffirmed those principles, holding that Congress imposed upon t h e s t a t e s a b i n d i n g a n d p e r p e t u a l o b l i g a t i o n t o u s e t h e granted lands f o r public education. The courts have been very protective of the trust c o n c e p t , and emphatic a b o u t t h e need t o p r e s e r v e t h e v a l u e o f t h e t r u s t corpus-the school lands. The s e m i n a l c a s e i n t h i s regard i s Lassen v. Arizona ( 1 9 6 7 ) , 385 U.S. 458, 87 S . C t . 584, 1 7 IJ.Ed.2d 515. In Lassen, t h e U n i t e d S t a t e s Supreme C o u r t h e l d t h a t t h e A r i z o n a Highway D e p a r t m e n t was r e q u i r e d t o f u l l y c o m p e n s a t e t h e S t a t e Land D e p a r t m e n t (administrator of t h e s c h o o l l a n d s ) f o r t h e v a l u e o f e a s e m e n t s t a k e n a c r o s s school lands. The C o u r t h e l d t h a t t h e A r i z o n a E n a b l i n g A c t , ch. 310, 36 Stat. 557 (1910) "contain[ed] 'a specific enumeration o f t h e purposes f o r which t h e l a n d s w e r e g r a n t e d and the enumeration is necessarily exclusive of any other purpose'" L a s s e n a t 4 6 7 , 87 S . C t . a t 5 8 9 , 1 7 L.Ed.2d a t 522 (quoting Ervien v. U n i t e d S t a t e s ( 1 9 2 8 ) , 2 5 1 U.S. 41, 47, 40 S.Ct. 7 5 , 7 6 , 64 L.Ed. 128, 130). I n S t a t e o f U t a h v . Andrus (D. U t a h 1 9 7 9 ) , 486 F.Supp. 9 9 5 , t h e f e d e r a l d i s t r i c t c o u r t c o n c l u d e d t h a t t h e lessees o f state school l a n d s had a n i m p l i e d r i g h t of access t o t h e i r leasehold across adjacent federal lands. The c o u r t f e l t t h a t if it h e l d o t h e r w i s e , "the very purpose of t h e school t r u s t l a n d s would f a i l . Without a c c e s s t h e s t a t e could n o t develop the trust lands in any fashion and they would become e c o n o m i c a l l y w o r t h 1 ess. T h i s Congress d i d n o t i n t e n d . I' 486 F.Supp. a t 1002. The C o u r t i n U t a h v . A n d r u s made it c l e a r t h a t a n y r e s t r i c t i o n on t h e u s e ( i . e . a c c e s s ) o f s c h o o l t r u s t land t h a t e f f e c t i v e l y devalues it cannot b e s u s t a i n e d . T h i s Court h a s l i k e w i s e been emphatic i n p r o t e c t i n g t h e school t r u s t . I n Rider v. Cooney ( 1 9 3 3 ) , 94 Mont. 295, 23 P.2d 261, we first held that a lease is an "interest" i n land. Then, a p p l y i n g t h e r u l e t h a t i n t e r e s t s i n s c h o o l t r u s t l a n d s c a n n o t b e a l i e n a t e d f o r less t h a n f u l l v a l u e , w e h e l d that the S t a t e musts also obtain full value for a lease thereof. See a l s o S t a t e e x rel. Galen v. Dist. Ct. (1910), 42 Plont. 1 0 5 , 1 1 2 P. 706; Gladden Farms, Inc. v. State (Az. 1981), 633 P.2d 325; Arizona State Land Department v. S u p e r i o r C o u r t (Az. 1 9 8 1 ) , 633 P.2d 330; C i t y o f S i e r r a V i s t a v. B a b b i t t (Az. 1 9 8 1 ) , 6 3 3 P.2d 333; S t a t e v. University of Alaska (Ak. 1 9 8 1 ) , 624 P.2d 807. I n J e r k e v. S t a t e Dept. o f Lands ( 1 9 7 9 ) , 182 Mont. 294, 597 P.2d 49, w e addressed a s i t u a t i o n analogous t o t h e one a t bar. The g e n e r a l q u e s t i o n p r e s e n t e d w a s how f a r t h e S t a t e could surrender i t s managerial prerogatives over school lands without violating the trust. Montana l a w empowers g r a z i n g districts to manage and allocate lands within their jurisdiction. This includes t h e power t o g r a n t p r e f e r e n c e r i g h t s t o members i n t h e r e - l e a s i n g of school lands t h a t a r e within the d i s t r i c t . The p l a i n t i f f i n J e r k e contended t h a t t h e preference r i g h t unconstitutionally prevented the State from r e c e i v i n g f u l l f a i r market v a l u e f o r t h e land. Since the e x i s t i n g lessee who e x e r c i s e d t h e p r e f e r e n c e r i g h t w a s not using the land (and thus not "follow[ing] good a g r i c u l t u r a l p r a c t i c e s and mak[ing] improvements on t h e l a n d " 1 8 2 Mont. a t 297, 597 P.2d a t 51), we held the preference right was unconstitutional as applied. T h i s was because: "To a l l o w t h e p r e f e r e n c e r i g h t t o b e exercised in this case would be to install the Grazing D i s t r i c t a s t h e t r u s t e e of t h e land. It, r a t h e r than t h e Department o f S t a t e Lands, would d e c i d e who w i l l o c c u p y t h e l a n d b u t it w o u l d n o t b e bound by a c o n s t i t u t i o n a l o r f i d u c i a r y duty." 1 8 2 Mont. a t 297, 597 P.2d a t 51. S e e a l s o S t a t e e x r e l . Thompson v . Babcock ( 1 9 6 6 ) , 1 4 7 Mont. 46, 409 P.2d 808 (upholding t h e Commissioner's d i s c r e t i o n a r y a u t h o r i t y t o a c c e p t l e a s e terms l e s s t h a n t h e h i g h e s t b i d i n o r d e r t o e f f e c t u a t e s u s t a i n e d y i e l d c o n c e p t s and i n s u r e t h e long-term s t r e n g t h o f t h e t r u s t c o r p u s ) ; I n R e Montana T r u s t and Legacy Fund ( 1 9 6 4 ) , 143 Mont. 218, 388 P.2d 366. The Oklahoma Supreme C o u r t i n Oklahoma E d u c a t i o n A s s o c i a t i o n v. Nigh (Ok. 1 9 8 2 ) , 642 P.2d 230 h a s a l s o a d d r e s s e d t h e same question a s t h i s Court did i n Jerke. The Oklahoma c o u r t went f u r t h e r and found s e v e r a l s t a t e s t a t u t e s l i m i t i n g t h e amount o f i n t e r e s t t h a t t h e s t a t e c o u l d receive on s c h o o l l a n d s , and c r e a t i n g p r e f e r e n c e s i n t h e r e - l e a s i n g o f s c h o o l l a n d s , t o be unconstitutional. Most r e c e n t l y , t h e Washington Supreme C o u r t u p h e l d t h e federal land grant trust i n h o l d i n g t h e Washington Forest Products Industry Recovery Act of 1982, R.C.W. 79.01.1331-.1339, unconstitutional. The A c t was p a s s e d i n response t o t h e d e c l i n e of t h e p r i c e s i n t h e f o r e s t products industry a t the t i m e . I t a l l o w e d t h e Washington Department o f S t a t e Lands t o r e l e a s e c o n t r a c t s p r e v i o u s l y e n t e r e d i n t o with loggers and other forest products users because the industry stood t o lose a g r e a t deal, due t o t h e d e c l i n e i n prices, if the contracts were enforced. The Washington Supreme C o u r t , i n Skamania County v . Washington (Wa. 1984) , 685 P.2d 576, d e a l t w i t h t h e c o n t r a c t s on s c h o o l t r u s t l a n d . Premising its argument by stating: "Every court that has considered this issue has concluded that these are real enforceable trusts that impose upon the state the same f i d u c i a r y d u t i e s a p p l i c a b l e t o p r i v a t e t r u s t e e s , " 685 P.2d a t 580, the court found the act had violated the trust by transferring t r u s t assets--the contract rights--for less t h a n their f u l l v a l u e and h e l d it u n c o n s t i t u t i o n a l . 685 P.2d at 583. See also Torve and Handy, Skamania County - v. Washington: --- A Case o f Divided L o y a l t i e s , Fall 1984, Western N a t u r a l R e s o u r c e s L i t i g a t i o n D i g e s t Commentary 7 . The above cases establish two main points that are i m p o r t a n t when c o n s i d e r i n g e i t h e r minor p r e m i s e 1-eading t o our decision. First, an i n t e r e s t i n school l a n d c a n n o t be a l i e n a t e d u n l e s s t h e t r u s t r e c e i v e s adequate compensation f o r that interest. Water t h a t i s a p p u r t e n a n t t o t h e s c h o o l l a n d s i s an i n t e r e s t f o r which t h e t r u s t must r e c e i v e c o m p e n s a t i o n . Second, any law or policy that infringes on the state's managerial prerogatives over the school lands cannot be t o l e r a t e d i f it reduces t h e value o f t h e land. In t h i s case, t h e DSL c o n t e n d s t h a t t o a l l o w l e s s e e s t o d e v e l o p p r i v a t e , personal rights on school l a n d s would impermissibly reduce the DSL's ability t o manage t h e s e lands f o r t h e i r highest value. S e c t i o n 70-15-105, MCA s t a t e s t h a t : "A t h i n g i s deemed t o b e i n c i d e n t a l o r a p p u r t e n a n t t o l a n d when i t i s by r i g h t used w i t h t h e land f o r i t s b e n e f i t , a s i n t h e c a s e o f a way o r w a t e r c o u r s e o r o f a p a s s a g e f o r l i g h t , a i r o r h e a t from o r a c r o s s t h e land of another." Further, P r o f e s s o r W e l l s A. Hutchins, i n h i s t r e a t i s e Water L - - -e N i n e t e e n Western S t a t e s R i h t s Laws i n t h Vol. I at 455 (U.S. Dept. of Agriculture, 1971) states: "Of general application i n t h e West i s t h e r u l e t h a t an a p p r o p r i a t i v e right becomes appurtenant to the land for the benefit of which t h e w a t e r i s a p p l i e d . " In Montana, the determination of whether water is a p p u r t e n a n t t o t h e l a n d i s one o f f a c t . Yellowstone Valley Co. v. A s s o c i a t e d Mortgage I n v e s t o r s , Inc. ( 1 9 3 0 ) , 8 8 Mont. 73, 290 P. 255; see a l s o H u t c h i n s , supra a t 459. Here, by s t i p u l a t e d f a c t s , it appears t h a t a l l o f t h e water r i g h t s a t issue are used either i n whole or in part on the school lands. Additionally, all of the lands in question are classified grazing lands under sections 77-1-401 to -404, MCA, and the water appropriated on them is used for stockwatering or other agricultural purposes. The water r i g h t s i n question a r e appurtenant. This conclusion is consistent with the general rule t h a t when t i t l e t o i r r i g a t e d p r o p e r t y i s p a s s e d , t h e water r i g h t s pass a s an appurtenance u n l e s s s p e c i f i c a l l y excepted. Section 85-2-403, MCA; C a s t i l l o v. Kunnemann (Mont. 1982), 642 P.2d 1019, 39 St.Rep. 460; Adams v. C h i l c o t t ( 1 9 7 9 ) , 182 Mont. 511, 597 P.2d 1140; Schwend v. Jones ( 1 9 7 3 ) , 163 Mont. 41, 515 P.2d 89. Respondents point to no authority e x p l a i n i n g why t h e r u l e i n r e g a r d t o l e a s e s o f l a n d s h o u l d b e d i f f e r e n t than with t h e s a l e of land. W e b e l i e v e it s h o u l d be the same--the parties to any such transaction may s p e c i f i c a l l y e f f e c t a severance, b u t absent such, t h e water r i g h t remains appurtenant, following t i t l e . I t d o e s n o t make s e n s e f o r e a c h s u c c e e d i n g t e n a n t t o walk o f f w i t h one w a t e r r i g h t a f t e r another. Respondents cite several cases that appear to articulate a contrary rule. The first, Smith v . Denniff ( 1 9 0 0 ) , 24 Mont. 20, 60 P. 398, is distinguishable i n the f a c t t h a t it c o n c e r n e d w a t e r a p p r o p r i a t i o n s made by s q u a t t e r s on t h e f e d e r a l l a n d s who d i v e r t e d w a t e r f o r u s e on t h e p u b l i c doma i n . The school trust lands were withdrawn from the p u b l i c domain by t h e Montana T e r r i t o r y O r g a n i c A c t , s u p r a , i n 1866, and none of the rights at issue in this case were developed before then. As discussed above, school trust lands are subject to a different set of rules than other public lands. S e c o n d l y t h e y c i t e Hayes v. Buzzard ( 1 9 0 4 ) , 3 1 Mont. 74, 77 P. 423 f o r t h e r u l e t h a t t h e q u e s t i o n o f w h e t h e r w a t e r i s a p p u r t e n a n t t o t h e u n d e r l y i n g l a n d t u r n s upon the i n t e n t i o n of t h e appropriator. A g a i n , Hayes a r o s e on p u b l i c domain land, not school t r u s t land. This Court recognized that distinction: "The l e g a l t i t l e t o t h e l a n d upon which a w a t e r r i g h t a c q u i r e d by a - - r o-p r i a t i o n pp - -on t h e p u b l i c doiain made - [emphasis added] i s u s e d o r i n t e n d e d t o b e u s e d i n no w i s e a f f e c t s t h e a p p r o p r i a t o r s t i t l e t o t h e water r i g h t , f o r t h e - - bona f i d e [ e m p h a s i s i n o r i g i n a l ] i n t e n t i o n which i s r e q u i r e d o f an a p p r o p r i a t o r t o a p p l y t h e water to some useful purpose may comprehend a use upon lands and possessions other than those of the a p p r o p r i a t o r , o r a use f o r purposes o t h e r than those f o r which t h e r i g h t was o r i g i n a l l y appropriated." 3 1 Mont. a t 8 1 7 7 P.2d a t 425, q u o t i n g Smith v . D e n i f f , supra. (See a l s o Ervien, 246 F. at 280: "Congress d i d n o t intend that the [school t r u s t ] l a n d s g r a n t e d and c o n f i r m e d should collectively constitute a genera1 resource or asset like ordinary public lands held broadly in trust for the people. .. ") Respondents' argument does not answer the state's concern with meeting its trust responsibilities. S i n c e a n a p p u r t e n a n t w a t e r r i g h t i s an i n t e r e s t i n t h e land (see a l s o section 70-1-106, MCA; Yellowstone Co. v. Asso. Mtg. Investors, s u p r a ) i t c a n n o t b e s u r r e n d e r e d by t h e S t a t e without t h e t r u s t r e c e i v i n g f a i r market value. None o f the lessees alleged payment of consideration to the State a p a r t from t h a t r e q u i r e d by t h e l e a s e , and t h u s w e c o n c l u d e t h a t t h e w a t e r r i g h t s a p p u r t e n a n t t o such l a n d s belong t o t h e State. The S t a t e a r g u e s t h a t v e s t i n g t i t l e i n lessees would v i o l a t e t h e t r u s t f o r another reason. I f a lessee l o s t h i s lease, but retained t h e water r i g h t , that lessee would in e f f e c t be a b l e t o c o n t r o l t h e use o f t h e land. I n many c a s e s in this semi-arid area, the control of water means the control of the land itself. Conceivably, the DSL, in a d e s i r e t o i n s u r e t h a t t h e l a n d had w a t e r , c o u l d f i n d i t s e l f i n t h e awkward p o s i t j - o n o f n e g o t i a t i n g w i t h a f o r m e r l e s s e e , who m i g h t b e i n c l i n e d t o r e l e a s e h i s r i g h t o n l y t o f a m i l y o r friends--thus assuring h i s re-entry. The f o r m e r l e s s e e c o u l d " c h i l l " t h e b i d d i n g p r o c e s s by l e t t i n g it b e known t h a t h e would o n l y r e l e a s e h i s r i g h t a t a n i n f l a t e d p r i c e . Finally, t h e former l e s s e e could conceivably d i c t a t e p o s s i b l e u s e s o f t h e land i n r e t u r n f o r t h e water. This s i t u a t i o n i s c l e a r l y repugnant t o school t r u s t p r i n c i p l e s . This Court, i n Jerke v. S t a t e Department o f L a n d s , supra, and o t h e r c o u r t s , see Oklahoma E d u c a t i o n Assoc. v. Nigh, s u p r a and S t a t e o f Utah v. Andrus, supra, have c o n s i s t e n t l y h e l d t h a t any i n f r i n g e m e n t on the use or management prerogatives of the State that e f f e c t i v e l y devalue school lands i s impermissible. W e agree, and f i n d t h i s t o b e a n a l t e r n a t i v e ground f o r o u r d e c i s i o n . Respondents point to section 77-6-115, MCA, which states in pertinent part that: " (1) The lessee o f s t a t e l a n d s may a t any time prior to 1 year before the e x p i r a t i o n o f h i s l e a s e make a p p l i c a t i o n t o t h e board f o r permission t o secure a water right to the land under his lease. .. If t h e proposed p l a n meets with the approval of the board, p e r m i s s i o n s h a l l b e g r a n t e d t h e lessee t o secure t h e desired water r i g h t f o r t h e land and to place the same under irrigation. " ( 2 ) I f s u c h w a t e r r i g h t becomes a permanent and v a l u a b l e improvement, t h e n i n case of t h e s a l e o r l e a s e of t h e lands t o o t h e r p a r t i e s , t h e f o r m e r lessee s h a l l be e n t i t l e d t o r e c e i v e compensation i n the amount of the reasonable value thereof, as in the case of other improvements, from t h e new l e s s e e o r t h e purchaser. " ( 3 ) These p r o v i s i o n s s h a l l n o t b e s o c o n s t r u e d a s t o make t h e s t a t e l i a b l e t o t h e l e s s e e f o r t h e payment o f t h e c o s t o r v a l u e o f s u c h i r r i g a t i o n improvements." They c o n t e n d t h a t t h i s s t a t u t e , i n e f f e c t , acknowledges t h e property interest of the lessee in the water right, and further, that in subsection (3) the State denounces any i n t e r e s t i n t h e w a t e r by r e l e a s i n g i t s e l f from l i a b i l i t y f o r t h e c o s t o f i r r i g a t i o n improvements. Respondents a l s o p o i n t to 526.3.123, A.R.M., which p r o v i d e s that the State shall r e i m b u r s e d e p a r t i n g l e s s e e s f o r t h e r e a s o n a b l e v a l u e of t h e improvements made (as per section 77-6-115(2), MCA), and that, "[alny water rights hereafter secured by the lessee s h a l l b e s e c u r e d i n t h e name o f t h e s t a t e o f Montana." They a r g u e t h a t s i n c e 526-3.123 A.R.M. was n o t a d o p t e d u n t i l 1 9 7 9 , it d o e s n o t a p p l y t o t h e w a t e r r i g h t s i n t h i s c a s e b e c a u s e a l l of them p r e d a t e it. They a l s o a r g u e t h a t t h e p r o v i s i o n lends i t s e l f t o supporting t h e position t h a t t h e S t a t e had acquiesced i n r e c o g n i z i n g pre-1979 w a t e r r i g h t s i n lessees. Both o f t h e s e arguments a r e unfounded. F i r s t , none o f the alleged r i g h t s a t issue i n t h i s case w e r e perfected pursuant to section 77-6-115, MCA or 526-3.123, A.R.M. Neither provision can be used as direct a u t h o r i t y by respondents. F o r t h a t r e a s o n w e a r e n o t c a l l e d upon t o c o n s t r u e s e c t i o n 77-6-115, MCA. We n o t e though t h a t it i s capable o f two interpretations: first, as applying to water rights as respondents argue; secondly, as applying only to improvements, such as ditches, reservoirs, headgates, and other capital projects, constructed "for" o r attached "to" t h e l a n d and n o t s u b j e c t t o b e i n g r e t a i n e d by t h e l e s s e e upon payment by a new lessee o r p u r c h a s e r , a s i s t h e case with other improvements to the leasehold, as contended by the State. The g e n e r a l r u l e i s t h a t whenever t h e r e a r e d i f f e r i n g possible interpretations of statute, a constitutional interpretation is favored over one that is not. United States v. Clark (1980), 445 U.S. 23, 100 S.Ct. 895, 63 L.Ed.2d 171; Sutherland - on Statutory Construction 545.11 (1984 e d . ) . In t h i s regard, we p o i n t t o t h e Skamania and Nigh, decisions holding statutes unconstitutional because t h e y v i o l a t e d t h e s c h o o l t r u s t p r i n c i p l e s e s t a b l i s h e d by t h a t s t a t e ' s Enabling A c t . In the alternative, respondents argue that section 77-6-115, MCA, and t h e p r i n c i p l e s o f t h e Water U s e A c t s e t f o r t h i n s e c t i o n 85-2-101, MCA, and t h e p r i o r a p p r o p r i a t i o n doctrine, give rise t o an implied severance of water from land i n t h e school t r u s t land leases, and t h a t t h e S t a t e i s now estopped to deny these rights because of the l o n g - s t a n d i n g a n d d e t r i m e n t a l r e l i a n c e b y t h e lessees. As we discussed above, the State holds these lands s u b j e c t t o t h e school t r u s t . The e s s e n c e o f a f i n d i n g t h a t property is held i n t r u s t , school, public, o r otherwise, is that a n y o n e who acquires interests in s u c h p r o p e r t y do s o " s u b j e c t t o t h e t r u s t " N a t . Audubon S o c i e t y v. S u p e r i o r C o u r t (Cal. 1 9 8 3 ) , 658 P.2d 709, 723. See a l s o I l l i n o i s C e n t r a l Railroad v. Illinois ( 1 8 9 2 ) , 146 U.S. 387, 13 S.Ct. 1 1 0 , 36 L.Ed. 1018 (a s t a t e may not abdicate its t r u s t i n public p r o p e r t y ) ; a n d Thompson v. Babcock, s u p r a a t 5 4 , 409 P.2d a t 812, ("[wlhen s t a t e land i s l e a s e d , it does n o t r e l i n q u i s h the entire interest therein"). The State has no power, absent adequate consideration, to grant the lessees the permission t o d e v e l o p non-appurtenant w a t e r r i g h t s , and e v e r y s c h o o l t r u s t l e a s e c a r r i e s w i t h it t h i s l i m i t a t i o n . Respondents' argument that they have detrimentally r e l i e d upon " r e p r e s e n t a t i o n s " by t h e S t a t e made t h r o u g h i t s laws and r e g u l a t i o n s , is not persuasive. There h a s been no detriment. S e c t i o n 77-6-302, MCA p r o v i d e s t h a t lessors w i l l receive reasonable compensation for any improvements they h a v e made on t h e l e a s e h o l d i f t h e y r e l i n q u i s h t h e p r o p e r t y t o a new lessee o r p u r c h a s e r . Further, t h e argument t h a t t h i s rule sets up d i s i n c e n t i v e s t o t h e development of our water resources, contrary to the genera1 policy set o u t i n the W a t e r U s e A c t of p r o m o t i o n g t h e b e n e f i c i a l u s e o f w a t e r , is also not persuasive. Section 77-6-302, MCA actually i n s u l a t e s t h e developer-lessee from a n y m a r k e t r i s k t h a t h e would h a v e t o b e a r i f making i m p r o v e m e n t s o n h i s own l a n d . The Montana Constitution requires this result. Art. IX, sec. 3 (1), p r o v i d e s t h a t " a l l e x i s t i n g r i g h t s t o t h e u s e o f a n y w a t e r s for a n y u s e f u l o r b e n e f i c i a l p u r p o s e a r e h e r e b y r e c o g n i z e d and confirmed." This provision prevents t h e S t a t e f r o m a f f e c t i n g r i g h t s v e s t e d a t t h e t i m e t h e C o n s t i t u t i o n was adopted o t h e r than through t h e e x e r c i s e o f C o n s t i t u t i o n a l l y p r o v i d e d p o w e r s s u c h a s e m i n e n t d o m a i n , Mont. C o n s t . A r t . 11, sec. 29, o r t h e g e n e r a l p o l i c e power, and w i t h o u t a f f o r d i n g d u e p r o c e s s o f l a w , Mont. Const. Art.m, sec. Here the State, through t h e adjudication process, is claiming, and t h i s Court i s recognizing r i g h t s "existing" a t the t i m e the 1972 C o n s t i t u t i o n was adopted-- Art. IX, sec. 3 ( l ) merely reaffirms these rights. As stated above, we h o l d that the lessee, under the t e r m s of t h e school t r u s t 'lease, is entitled t o the use of water appurtenant to the leased land. The State is the beneficial user thereof, and its duty as trustee of the school lands prohibits it from a l i e n a t i n g t h i s i n t e r e s t i n the land absent full compensation therefor. Absent such compensation, t h e t i t l e t o t h e water r i g h t s i n t h i s c a s e v e s t in the State. A p p e l l a n t s and a m i c i have urged t h i s C o u r t t o f i n d t h a t school trust lands benefit from a federally reserved water right a s o r i g i n a l l y recognized i n Winters v. United States ( 1 9 0 7 ) , 207 U.S. 564, 28 S . C t . 207, 52 L.Ed. 340, t o which t h e S t a t e has succeeded. I n our opinion, it i s p e r h a p s b e s t t o keep t h e reserved r i g h t s d o c t r i n e confined t o s i t u a t i o n s w h e r e it a r o s e a n d i s m o s t a p p r o p r i a t e ; a s a n accommodation between f e d e r a l and s t a t e i n t e r e s t s . S i n c e t h e r u l e we have s t a t e d i s s u f f i c i e n t t o settle t h e case a t bar, p r i n c i p l e s of judicial restraint counsel us to decline ruling further. This r u l e applies t o a l l the waters a t issue. Subject t o T i t l e 8 5 , C h a p t e r 2 , P a r t 5 , MCA, g r o u n d w a t e r a p p r o p r i a t e d and u s e d on S t a t e l a n d s h o u l d b e t r e a t e d n o d i f f e r e n t l y t h a n surface waters appropriated and u s e d on t h o s e lands. The Montana C o n s t i t u t i o n , A r t . IX, sec. 3 , Mont. Const. and t h e Water U s e A c t , s e c t i o n 85-2-102(14), MCA, make no d i s t i n c t i o n b e t w e e n g r o u n d w a t e r and o t h e r w a t e r r i g h t s . The O r d e r o f t h e Water C o u r t i s r e v e r s e d , and t h e c a s e remanded f o r t h e p u r p o s e o f m o d i f y i n g t h e Powder R i v e r F i n a l Decree i n c o m p l i a n c e w i t h t h i s O p i n i o n . W e concur: , / 1 Justices Mr. Justice Frank B. Morrison, Jr. specially concurring: The majority opinion recalls to mind the old Montanan who said, "A moose is a cow designed by a committee." Indeed, this moose must have been designed by a committee. The only bright light which shines through this otherwise verbose and rambling epistle is the result. In that I concur. The majority opinion contains a good deal of judicial chaff including a rather lengthy recital of irrelevant historical data surrounding passage of the Montana Water Use Act of 1973. This effort effectively obfuscates the issues while impressing the casual reader that scholarship is the cornerstone of the majority's pronouncement. The issue in this case is quite simple and straight forward. At the time the federal government granted school lands to the state in trust for educational purposes, did the federal government include within the grant the right to develop water to achieve the educational purposes of the trust? If, as an incident of ownership, the state acquired, as appurtenant to the land, the right to develop water so that the purpose of the trust could be realized, then the state cannot alienate that property right in diminution of the trust res. The majority opinion initially indicates that the educational purpose of the trust cannot be realized without an appurtenant water right. With this I agree. However, in an apparent attempt to avoid interrupting the priorities of other appropriators, the majority seems to be saying that this appurtenant right did not spring into existence until it was developed by the lessee. This approach recognizes the priority of appropriators. In order to accomplish this objective the majority has created a fictional agency whereby t h e lessee, who d e v e l o p s t h e w a t e r , d o e s s o on b e h a l f o f t h e state. T h i s n o n s e n s e i s engaged t o a c h i e v e a r e s u l t . The majority's effort to secure unto school lands a s u f f i c i e n t amount o f w a t e r t o maximize t h e i r income p o t e n t i a l for the trust, without disrupting p r i o r r i g h t s , could have been a c h i e v e d on a more l e g a l l y sound f o u n d a t i o n by s i m p l y holding that the federal government granted to the state school lands w i t h t h e appurtenant r i g h t t o develop water i n o r d e r t o maximize t h e i r income p r o d u c i n g a b i l i t y . The c o u r t then could have held that, under the prior appropriation doctrine, a p r i o r i t y d a t e d i d n o t commence u n t i l t h e r i g h t was d e v e l o p e d . I n t h i s way, at least, t h e m a j o r i t y would have recognized the property right in the state from t h e beginning which would give a basis for holding that the lessee d e v e l o p e d t h e r i g h t f o r t h e s t a t e . In truth, these school l a n d s w e r e withdrawn from the public domain prior to any appropriation. The federal government granted to the state, in trust for educational purposes, l a n d and t h e w a t e r n e c e s s a r y t o d e v e l o p t h e land f o r i t s t r u s t purposes. Later, when t h e p u b l i c domain was s e t t l e d a p p r o p r i a t i o n s w e r e made b u t t h e a p p r o p r i a t i o n s o n l y operated on those lands remaining in the public domain. S e t t l e r s who moved i n and a p p r o p r i a t e d c o u l d have o b t a i n e d no w a t e r from s c h o o l l a n d s which r e s i d e d s a f e l y i n t h e t r u s t . I find it unfortunate that reference i s made to the "Winters Doctrine" o r t o f e d e r a l reserved r i g h t s . Apparently there is some anticipation by the majority that this precedent will effect the adjudication of Indian water rights. P e r h a p s by a n a l o g y it w i l l . However, those cases a r e not before us. I concur i n t h e r e s u l t f o r t h e reason t h a t , a t the t i m e o f t h e c r e a t i o n o f t h e s c h o o l t r u s t , t h e f e d e r a l government conveyed to the state, not only the land, but the appurtenant right to develop water necessary for fulfillment of the trust purpose. I specifically disavow the remainder of the