No. 86-392
IN THE SUPREME COURT OF THE STATE OF MONTANA
1987
WESTERN ENERGY COMPANY,
a corporation,
Plaintiff and Appellant,
-vs-
GENIE LAND COMPANY, a corporation,
and MONTANA DEPARTMENT OF STATE
LANDS, an agency of the State of
Montana,
Defendants and Respondents.
APPEAL FROM: District Court of the Sixteenth Judicial District,
In and for the County of Rosebud,
The Honorable B. W. Thomas, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Moulton, Bellingham, Longo & Mather; W.H. Bellingham
argued, Billings, Montana
For Respondent:
Goetz, Madden & Dunn; William L Madden argued, Bozeman,
Montana
John F. North argued, Dept. of State Lands, Helena,
Montana
For Amicus Curiae:
Holland & Hart; Paul D. Miller argued for Meridian
Minerals, Billings, Montana
Daniel C. Murphy, Meridian Minerals, Englewood,
Colorado
Submitted: March 19, 1987
Decided: May 22, 1987
Filed: MAY 2 :? 1987
Clerk
Mr. Justice John Conway Harrison delivered the Opinion of the
Court.
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 5 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+W%NE&; NW&; N$SW%; NW&SE% 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+W+; NE%; SW%SE%,
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:
[Elxcepting and reserving unto the
grantor, its successors and assigns,
forever, all minerals of any nature
whatsoever, including coal, iron, natu-
ral gas and oil, upon or in said land,
together with the use of such of the
surface as may be necessary for explor-
ing 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 improve-
ments 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 S 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 S 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 S 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 I1
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, liber-
ty, or property without due process of
.
1-aw
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 proper-
ty 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. C1. 1979), 607 F.2d 943, 949. The ~ i f t h
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 wel-
fare 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), 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, at 1303.
The Montana Strip and Underground Mine Reclamation Act,
55 82-4-201 et seq., MCA, was enacted pursuant to the author-
ity granted in the 1972 Montana Constitution, and is
"[dleemed 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 5 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 the surface owner to enter and commence strip-
mining operations on the land. The statute is inapplicable
unless the surface rights have been severed from the mineral
rights, or the mineral estate is owned in fee by the federal
government or in trust for an Indian tribe. Thus, any public
interest protected by the statute is limited.
The case at bar is analogous to that in Pennsylvania
Coal Co. v. Mahon (1922), 260 U.S. 393, 43 S.Ct. 158, 67
L.Ed. 322. In Mahon the Commonwealth of Pennsylvania passed
a statute which prohibited mining coal in such a manner as to
cause the surface to subside. A deed of the property in-
volved contained a reservation of the right to remove all
coal under the land and further provided that the grantee
(surface owner) assumed all risks and waived all damages
which might arise from mining the coal. The Supreme Court
struck down the statute as an unconstitutional exercise of
the state's police power "so far as it affects the mining of
coal ... in places where the right to mine such coal has
been reserved." Mahon at 414, 43 S.Ct. at 160, 67 L.Ed at
Justice Holmes said:
So far as private persons or communities
have seen fit to take the risk of
acquiring only surface rights, we cannot
see that the fact that their risk has
become a danger warrants the giving to
them greater rights than they bought.
Mahon, supra, at 416, 43 S.Ct. at 160, 67 L.Ed. at 326.
The court reasoned it is a natural human tendency to
extend the state's police power to protect the public
interest until at last private property no longer exists.
However, this "public desire to improve the public condition
is not enough to warrant achieving the desire by a shorter
cut than the constitutional way of paying for the change."
Mahon, supra.
The owner consent statute permits a similar occurrence
by effectively depriving Western of the right to mine its
coal. Mahon makes clear that a taking may arise from an
inverse condemnation, where property use or value is inter-
fered with by state regulatory or police action.
What makes the right to mine coal valu-
able is that it can be exercised with
profit. To make it commercially imprac-
ticable to mine certain coal has very
nearly the same effect for constitutional
-
purposes as appropriating or destroying
it.
Mahon, supra at 414, 43 S.Ct. at 160, 67 L.Ed. at 325. The
reasoning in Mahon applies in this case.
Genie contends Keystone Bituminous Coal Association v.
De Benedictis (19871, U.S. , 107 S.Ct. 1232, 94
L.Ed.2d 472, handed down only days before oral argument in
the case at bar, is controlling and dispositive of the
constitutional issue here. We do not agree.
In Keystone the Court was asked to find enactment of a
Pennsylvania statute unconstitutional as a taking and an
unlawful impairment of contract. The Bituminous Mine
Subsidence and Land Conservation Act, (the Subsidence Act)
was enacted after the Pennsylvania legislature determined the
Cornrnonwealthls existing mine subsidence legislation had
failed to protect the public interest in safety, land
conservation, preservation of affected municipalities' tax
bases and land development. A formula which generally
required 50% of the coal beneath the protected structures to
be left for surface support was applied when enforcing the
Act. Petitioners were owners of the mineral estate and had
acquired a waiver of any claims for damages which might
result from the removal of coal. They brought suit claiming
the 50% rule constituted a taking within the meaning of the
Fifth and Fourteenth Amendments. They also claimed violation
of their contractual rights pursuant to Art. I, § 10 of the
United States Constitution. The Court distinguished Mahon,
supra, on its facts, and found the Subsidence Act to be
constitutional.
We distinguish Keystone for three reasons. The Court
in Keystone found that coal mining activity in certain in-
stances was akin to a public nuisance. Therefore the state
was not estopped from exercising its police power under the
Fifth and Fourteenth Amendments to abate such activity.
U.S. at , 107 S.Ct. at 1244, 94 L.Ed.2d at 491. We were
not asked to, nor can we, characterize strip mining in
Montana as a nuisance, thus placing it within the narrow
exception which permits a taking in order to prevent "a
misuse or illegal use." Such an exception is not intended to
allow "the prevention of a legal and essential use, an
attribute of its ownership. Supra at 1256, (Rehnquist, J.,
dissenting) quoting Curtin v. Benson (1911), 222 U.S. 78, 86,
[32 S.Ct. 31, 32, 56 L.Ed. 102, 1061. We note, " [i]t is the
declared policy of this state and its people
to: ... provide for the orderly development of coal
resources through strip or underground mining to assure the
wise use of these resources and prevent the failure to
conserve coal." Section 82-4-202 (1) (g), MCA.
No less significant is the fact the Court has never
allowed the nuisance exception to allow complete extinction
of a parcel of property. See, for example Mugler v. Kansas
(1887), 123 U.S. 623, 8 S.Ct. 273, 31 L.Ed. 205; Miller v.
Schoene (1928), 276 U.S. 272, 48 S.Ct. 246, 72 L.Ed. 568.
There is no "reciprocity of advantage" inherent in
82-4-224, MCA. See Mahon, supra at 415, 43 S.Ct. at 162,
67 L.Ed. at 326. Consequently, Keystone is distinguishable.
Secondly, we distinguish Keystone because application
of the Subsidence Act to all minerals, not merely those which
have been severed from the surface estate, reflects a public
interest. As noted above, there is limited public interest
protected by § 82-4-224, MCA.
Finally, petitioners in Keystone sought to define
narrowly certain segments of their property and argued the
Act effectively appropriated coal in those segments. The
critical question then became how to define a segment of
property for taking purposes.
"Taking" jurisprudence does not divide a
single parcel into discrete segments and
attempt to determine whether rights in a
particular segment have been entirely
abrogated. In deciding whether a partic-
ular governmental action has effected a
taking, this Court focuses rather both on
the character of the action and on the
nature of the interference with rights
in the parcel as a whole . . .
Penn Central, supra at 130-131, 98 S.Ct. at 2662, 57 L.Ed.2d
at 652.
[Wlhere an owner possess a full "bundle"
of property rights, the destruction of
one "strand" of the bundle is not a
taking, because the aggregate must be
viewed in its entirety.
Andrus v. Allard (1979), 444 U.S. 51, 65-66, 100 S.Ct. 318,
327, 62 L.Ed.2d 210, 223. At issue in this case is
destruction of Western's entire bundle of rights in the
minerals beneath the surface owned by Genie.
The Court in Keystone rejected petitioners' argument
that the extent of interference with their property interests
should be determined by the amount of coal the Subsidence Act
required to be left in place, that being 50%. The Court said
the coal left, regardless of the amount, "do[es] not
represent a separate segment of property for taking law
purposes," characterizing it merely as one strand in
petitioners' bundle of rights. Keystone, supra, at , 107
S.Ct. at 1249, 94 L.Ed.2d at 496.
Genie contends this rejection signals a similar refusal
by this Court of Western's claim of total loss of its coal
due to § 82-4-224, MCA. Under Montana law, however,
Western's entire bundle of rights consists of its rights to
all the minerals beneath certain sections of land. These
rights are not defined in terms of its various holdings in
eastern Montana, but rather in terms of its rights to mine
coal in the specific sections in question. Consequently, the
Court's determination in Keystone that merely one strand of
petitioners' rights had been taken is inapplicable here.
Genie's argument the Owner Consent Statute is not an
impairment of contract likewise cannot stand. Both the
Montana and United States Constitutions prohibit the impair-
ment of contracts. Article I1 of the Montana Constitution
says:
Section 31. Ex post facto, obligation of
contracts, and irrevocable privileges.
No ex post facto law nor any law impair-
ing the obligation of contracts, . . .
shall be passed by the legislature.
The United States Constitution says:
Article I, Section 10. No state shall
... pass any . . . law impairing the
obligation of contracts, ...
Although the prohibition appears absolute on it face, private
contracts must give way before a legitimate exercise of
police power. Home Building and Loan Association v.
Blaisdell (1934), 290 U.S. 398, 54 S.Ct. 231, 78 L.Ed. 413;
Chicago and Alton R.R. v. Tranbarger (1915), 238 U.S. 67, 35
S.Ct. 678, 59 L.Ed. 204; Atlantic Coastline Railway Co. v.
City of Goldsboro (1914), 232 U.S. 548, 34 S.Ct. 364, 58,
L.Ed. 721. Thus all business is conducted subject to the
retained power of the state to protect public welfare.
[A]n examination of the legislation for
validity under the contract clause
requires a three step analysis. The
threshold inquiry is "whether the state
law has, in fact, operated as a
substantial impairment of the contractual
relationship." [Citations omitted.] If
there is no substantial impairment of the
contractual relationship, the inquiry is
ended, Second, if the legislation
substantially impairs the contractual
rights, "[tlhe state, in justification,
must have a significant and legitimate
public purpose behind the regulation."
[Citations omitted. ] Third, the
adjustment of rights and responsibilities
of contracting parties must be based
" [u]pon reasonable conditions" and be
"[o] f a character appropriate to the
public purpose justifying the
legislation's adoption."
Nee1 v. First Fed. Savings and Loan Assoc. (Mont. 1984) , 675
P.2d 96, 104-105, 41 St.Rep. 18, 27, citing Energy Reserves
Group, Inc., v. Kansas Power & Light Co. (19831, 459 U.S.
"The obligations of a contract are impaired by a law
which renders them invalid, or releases or extinguishes
them." Blaisdell, supra, at 431, 54 S.Ct. at 237, 78 L.Ed at
425. Section 82-4-224, MCA, impairs Western's right to mine
the coal by subjecting it to the vagaries of the surface
owner for consent to enter and mine.
Legislation which impairs a contract can be justified
only when it serves a legitimate public purpose. The state's
police power to invade private rights is limited to
legislation which bears a "substantial relation to the public
health, safety, morals, or general welfare." Euclid v.
Ambler Realty, supra. As noted above, we do not find that
§ 82-4-224, MCA, meets this standard.
Finally, we conclude that the adjustment of the rights
and responsibilities of the contracting parties is not based
on reasonable conditions and is not of a character
appropriate to the public purpose. We concur with the
Kentucky Court of Appeals which said, in striking as
unconstitutional a similar statute, "the primary effect of
[the challenged section is] to change the legal rights and
economic bargaining position of many private parties under
their contracts rather than achieve any public purpose."
Dept. for Natural Resources and Environmental Protection v.
No.8 Limited of Virginia (Ky. 1975), 528 S.W.2d 684, 687.
The Owner Consent Statute exceeds the legitimate bounds of
the state's police powers.
Although we have discussed United States Constitutional
provisions, we have decided the issues in this case based
upon the Montana Constitution, which provides independent and
adequate constitutional grounds. We hold 5 82-4-224, MCA,
and any rules adopted for implementation thereof,
unconstitutional and in violation of the Montana
Constitution--specifically, Article 11, Section 17, as
permitting a taking without due process; Article 11, Section
29, as permitting the taking of private property without just
compensation; and Article 11, Section 31, as permitting the
impairment of the obligation of contract.
The judgment of the District Court is reversed with
instructions to enter judgment in accordance with this
opinion.
b e concur:
7
Justices -
& L j 7 3i f3
C.
The H o c r a b l k Russell ,
/
McDonough sitting in plage of
Mr. Justice John C. Sheehy
&j / L
/b- &
The ~ o v o r a b l eM. - James Sorte,
Judge of the District Court
sitting for Mr. Justice
Frank B. Morrison, Jr.