Seven Up Pete Venture v. State

No. 03-154

IN THE SUPREME COURT OF THE STATE OF MONTANA

2005 MT 146

SEVEN 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.

APPEAL FROM: The District Court of the First Judicial District,
In and For the County of Lewis and Clark, Cause No. BDV 2000-250,
Honorable Jeffrey M. Sherlock, Judge
COUNSEL OF RECORD:

For Appellants:

Alan L. Joscelyn, Gough, Shanahan, Johnson & Waterman,
Helena, Montana

Sean Connelly and Daniel S. Hoffman (argued), Hoffman, Reilly,
Pozner & Williamson, Denver Colorado

For Respondent:

Honorable Mike McGrath, Attorney General; Brian M. Morris (argued),
Solicitor, Helena, Montana

Tommy H. Butler, Special Assistant Attorney General, Helena,
Montana (DNRC)

Ed Hayes and John North, Special Assistant Attorneys General,
Helena, Montana (DEQ)

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

Argued and Submitted: October 28,
2003

Decided: June 8, 2005

Filed:

__________________________________________
Clerk

2
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

According to the United States Environmental Protection Agency, cyanide
1

leaching, also known as cyanidation, includes heap leaching which is a method that was
developed to efficiently “beneficiate a variety of low-grade, oxidized gold ores.”
“Cyanidation uses solutions of sodium or potassium cyanide as lixiviants (leaching
agents) to extract precious metals from ore.” OFFICE OF SOLID WASTE, U.S.

3
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

ENVIRONMENTAL PROTECTION AGENCY, NTIS ANNOUNCEMENT ISSUE:
9424, Treatment of Cyanide Heap Leaches and Tailings (1994).

The Venture is an Arizona general partnership owned between Canyon
2

Resources Corporation, the owner of a 36.125 percent interest, and CR Montana
Corporation, the owner of a 63.875 percent interest. CR Montana Corporation is a
wholly-owned subsidiary of Canyon Resources Corporation.

4
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

3
The Montana Environmental Policy Act requires environmental impact
statements for activities that, among other things, “significantly affect[] the quality of the
human environment.” Section 75-1-201(1)(b)(iv), MCA.

5
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

4
As part of an executive agency reorganization in 1996, the Department of
Environmental Quality (DEQ) assumed the DSL’s responsibilities under MMRA. Thus,
the Venture’s subsequent exchanges with the State regarding acquisition of the operating
permit were with the DEQ.

6
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 re-toll 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

7
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 23, 2000. The

Venture’s subsequent administrative appeal regarding the DNRC’s lease termination was

rejected by the DNRC’s Director.

¶16 On April 11, 2000, the Venture, individual plaintiffs, the Amazon Mining Company,

and the Canyon Resources Corporation (collectively “the Plaintiffs”) filed a complaint in the

First Judicial District Court, Lewis and Clark County, alleging twelve separate counts, and

later added two counts in an amended complaint.5 On the same day, the Plaintiffs also filed

a complaint in the United States District Court for the District of Montana. The United

5
The 14 counts included: (1) I-137 is unenforceable for failure to meet statutory
requirements; (2) substantive due process; (3) equal protection; (4) impairment of
obligation of contracts; (5) in excess of limits on state’s police powers; (6) permanent
taking - the Venture; (7) permanent taking - Canyon Resources Corporation; (8)
permanent taking - individual plaintiffs, Amazon Mining Company, and the Venture; (9)
temporary taking - McDonald Project and the Venture; (10) temporary taking -
McDonald Project and Canyon Resources Corporation; (11) breach of contract; (12)
breach of implied covenant of good faith and fair dealing; (13) petition for judicial
review; and (14) declaratory judgment - specific performance of the leases.

8
States District Court subsequently dismissed the Plaintiffs’ takings claims on ripeness

grounds, but without prejudice, and stayed the proceedings on their federal claims because

proceedings were pending in the state district court.

¶17 On November 1, 2001, the District Court issued an order granting the State’s motion

for summary judgment on counts two (substantive due process) and three (equal protection),

and granting the State’s motion to dismiss counts one (statutory requirements) and five

(police powers). The District Court granted the State’s motion for summary judgment on the

remaining counts in a separate order on December 9, 2002, which included the Venture’s

request for judicial review of the DNRC’s administrative decision upholding the termination

of its Mineral Leases. The Plaintiffs appeal only that portion of the District Court’s

December 9, 2002, order denying its takings, contract impairment, and lease termination

claims.

STANDARD OF REVIEW

¶18 When resolution of an issue involves a question of constitutional law, this Court’s

review of the district court’s interpretation of the law is plenary. State v. Price, 2002 MT

229, ¶ 27, 311 Mont. 439, ¶ 27, 57 P.3d 42, ¶ 27.

¶19 This Court’s review of a district court’s grant or denial of a motion for summary

judgment is de novo. Watkins Trust v. Lacosta, 2004 MT 144, ¶ 16, 321 Mont. 432, ¶ 16,

92 P.3d 620, ¶ 16. Thus, we apply the same Rule 56, M.R.Civ.P., criteria as applied by the

district court. Peyatt v. Moore, 2004 MT 341, ¶ 13, 324 Mont. 249, ¶ 13, 102 P.3d 535, ¶

13. Summary judgment is proper only when no genuine issues of material fact exist and the

9
moving party is entitled to judgment as a matter of law. Lacosta, ¶ 16 (citing Rule 56(c),

M.R.Civ.P.).

DISCUSSION

¶20 Did the District Court err in concluding that the enactment of I-137 did not

constitute a taking of the Venture’s property rights?

¶21 The Venture argues that I-137 effectuated a regulatory taking of its property rights

without compensation because, “while property may be regulated to a certain extent, if [the]

regulation goes too far it will be recognized as a taking.” Pennsylvania Coal Co. v. Mahon

(1922), 260 U.S. 393, 415, 43 S.Ct. 158, 160, 67 L.Ed. 322, 326. The Venture asserts that

because I-137 precludes the only economically viable use of mineral extraction for its

project, specifically the use of cyanide leaching, there has been a categorical regulatory

taking pursuant to the holding in Lucas v. South Carolina Coastal Council (1992), 505 U.S.

1003, 112 S.Ct. 2886, 120 L.Ed.2d 798. In Lucas, the United States Supreme Court

established the principle that “when the owner of real property has been called upon to

sacrifice all economically beneficial uses in the name of the common good, that is, to leave

his property economically idle, he has suffered a taking.” Lucas, 505 U.S. at 1019, 112 S.Ct.

at 2895, 120 L.Ed.2d at 815.

¶22 The Venture emphasizes that it is not contending it had a vested right to mine with

cyanide, but that it had a property right in “the opportunity for a favorable ruling on its

mining permit application” which existed prior to the passage of I-137. The Venture offers

that this “opportunity” is a constitutionally protected property right that became obsolete

10
after the passage of I-137. The Venture explains that contract rights and leases are forms of

property, and as such, when taken for a public purpose, require payment of just

compensation. The Venture notes that the United States Supreme Court in Mobil Oil

Exploration & Producing Southeast, Inc. v. United States (2000), 530 U.S. 604, 120 S.Ct.

2423, 147 L.Ed.2d 528, held that leases can provide valuable rights that may “amount[]

primarily to an opportunity to try to obtain . . . development rights.” Mobil Oil, 530 U.S.

at 620, 120 S.Ct. at 2436, 147 L.Ed.2d at 542. Therefore, the Venture claims it is entitled

to just compensation to be measured by the value of the Mineral Leases before the passage

of I-137, taking into account the possibility that a permit might have been denied.

¶23 The State responds by arguing that I-137 did not cause a taking of any property

interest held by the Venture because the Mineral Leases and Lease Amendment did not

guarantee that the Venture would be permitted to mine gold or silver using the cyanidation

process. The State explains that the Mineral Leases contain clauses that directly condition

the Venture’s mining rights on the acquisition of an operating permit, which the Venture

failed to acquire. The State notes that paragraph 7 in the Mineral Leases also conditioned

the Venture’s development of the mineral estate upon the Venture’s compliance with all

applicable state and federal laws, rules, and regulations. Consequently, the State claims that

because the Venture lacked the requisite operating permit to mine using cyanide, it did not

have an established property right. Citing to Reeves v. United States (2002), 54 Fed. Cl.

11
652,6 the State also offers that “[e]ven with respect to vested property rights, a legislature

generally has the power to impose new regulatory constraints on the way in which those

rights are used, or to condition their continued retention on performance of certain

affirmative duties.” Reeves, 54 Fed. Cl. at 672 (citing United States v. Locke (1985), 471

U.S. 84, 104, 105 S.Ct. 1785, 1797, 85 L.Ed.2d 64, 82).

¶24 The State notes that the I-137 prohibitions did not apply to existing operating permits

allowing use of cyanide leaching as of November 3, 1998; it was only because the Venture

did not have an existing permit as of that date, that it did not come within the exemption.

Further, the State argues that I-137 does not prohibit all mining techniques and thereby

eliminate all economically beneficial uses of the land, but rather only prohibits the use of the

cyanide leaching method to process ore extracted from an open-pit. We note, however, that

the State conceded in the District Court, for purposes of summary judgment, that all parties

understood that their agreement contemplated that the Venture’s permit application was

premised on use of the cyanide heap leaching as the method of extraction.

¶25 Article II, Section 17, of the Montana Constitution affords protection of property by

providing that “[n]o person shall be deprived of life, liberty, or property without due process

of law.” The Fifth Amendment to the United States Constitution provides that “[n]o person

shall . . . be deprived of life, liberty, or property without due process of law; nor shall private

6
In Reeves, the Court of Federal Claims rejected a mining company’s Fifth
Amendment takings claim that the President’s designation of land as a national monument
on which it held validly staked, unpatented mining claims, worked a regulatory taking of
its property interest. Reeves, 54 Fed. Cl. at 673-74.

12
property be taken for public use, without just compensation.”

¶26 The guarantees of the Fifth and Fourteenth Amendments “‘apply only when a

constitutionally protected . . . property interest is at stake.’” Kiely Constr. L.L.C. v. City of

Red Lodge, 2002 MT 241, ¶ 23, 312 Mont. 52, ¶ 23, 57 P.3d 836, ¶ 23 (citing Tellis v.

Godinez (9th Cir. 1993), 5 F.3d 1314, 1316). Cf. State ex rel. Riley v. District Court (1937),

103 Mont. 576, 586, 64 P.2d 115, 120 (“A public office is that of a public trust or agency

created for the benefit of the people . . . in which the incumbent has not a property right; not

being property, a deprivation of . . . his office is not the taking of property . . . .”).

Additionally, “even if government action might otherwise constitute a taking of property, it

will not if it is shown that what the government prohibits does not amount to a private

property right in the first place. Said another way, an owner cannot maintain an action for

loss of a property right that it . . . [never had].” Kinross Copper Corp. v. State of Oregon

(Or. 1999), 981 P.2d 833, 836-37. See also Kiely, ¶ 23. Property interests, while not created

by the Constitution, are created and “defined by existing rules or understandings that stem

from an independent source, such as state law.” Kiely, ¶ 24 (citing Board of Regents v. Roth

(1972), 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548, 561). Under Montana law,

“[t]he threshold question of whether one has a protected property interest must . . . be

answered in the affirmative before the question of whether one was deprived of that interest

may be submitted to” the trier of fact. Kiely, ¶ 25.

¶27 The Legislature mandated, pursuant to the MMRA, that an operating permit be

obtained before mining may be pursued:

13
 A person may not engage in mining, ore processing . . . construct or operate
a hard-rock mill, use cyanide ore-processing reagents or other metal leaching
solvents or reagents, or disturb land in anticipation of those activities in the
state without first obtaining an operating permit from the department.7

Section 82-4-335(1), MCA. Likewise, this Court has held, pursuant to § 82-4-335(1), MCA,

that a lessee of state lands has no right to engage in mining operations until an operating

permit has been obtained. Kadillak v. Anaconda Co. (1979), 184 Mont. 127, 138-40, 602

P.2d 147, 154-55.

¶28 Clearly, the right to mine is conditioned upon the acquisition of an operating permit.

In determining whether there is a property right in the “opportunity” to obtain a permit, we

find further guidance in our decision in Kiely. There, we cited to Gardner v. Baltimore

Mayor and City Council (4th Cir. 1992), 969 F.2d 63, 68, for the proposition that “a

property-holder possesses a legitimate claim of entitlement to a permit or approval . . . [if]

under state and municipal law, the local agency lacks all discretion to deny issuance of the

permit or to withhold its approval . . . . [U]nder this standard, a cognizable property interest

exists ‘only when the discretion of the issuing agency is so narrowly circumscribed that

approval of a proper application is virtually assured.’” Kiely, ¶ 28 (citing Gardner, 969

F.2d at 68). Thus, we look to the decision-maker’s degree of discretion and not to the

probability of the decision’s favorable outcome. Kiely, ¶ 29.

¶29 In analyzing whether the State had discretion in the issuance of an operating permit

to the Venture, we begin by looking to the DEQ administrative regulations governing the

7
The “department” refers to the DEQ.

14
issuance of operating permits. Rule 17.24.122, ARM (2004), provides that, “[t]he

department may approve the assignment of a permit if the requirements of . . . this rule are

met.”8 Also, Rule 17.24.404, ARM (2004),9 provides that:

(1) The [DEQ] shall review each administratively complete application . . .
and determine the acceptability of the application . . . .10
(2)(a) If the application is not acceptable, the [DEQ] shall notify the applicant
in writing, setting forth the reasons why it is not acceptable. The [DEQ] may
propose modifications, delete areas, or reject the entire application.11
....
(4) The [DEQ] shall determine the adequacy of the fish and wildlife plan
. . . .12
(5) The [DEQ] shall assure that:
....
(c) coordination of the review process for cultural resource compliance is
carried out in accordance with the provisions of the Archeological Resources
Protection Act . . . and
(d) the permit review process is coordinated with applicable requirements of
the Endangered Species Act of 1973 . . . the Fish and Wildlife Coordination

8
Rule 17.24.122, ARM, was originally enacted in 1994 as Rule 26.4.107F under
the purview of the DSL. 21 Mont. Admin. Reg. 2952 (November 10, 1994). Due to an
administrative re-organization in 1996, it was re-numbered as 17.24.122, and delegated
under the authority of the DEQ.
9
Rule 17.24.404, ARM, was originally enacted in 1980 as Rule 26.4.404 under the
purview of the DSL. 5 Mont. Admin. Reg. 725 (March 13, 1980). Due to an
administrative re-organization in 1996, it was re-numbered as 17.24.404, and delegated
under the authority of the DEQ.
10
This provision was enacted in 1980. 5 Mont. Admin. Reg. 725 (March 13,
1980). It was amended in 1988. 13 Mont. Admin. Reg. 1365 (July 14, 1988).
11
This provision was added in 1988. 13 Mont. Admin. Reg. 1365 (July 14, 1988).
In 1998, the numbering was adjusted, but the text remained unchanged. 22 Mont. Admin.
Reg. 3008 (November 19, 1998). In 1999, the numbering was adjusted, but the text
remained unchanged. 16 Mont. Admin. Reg. 1783 (August 26, 1999).
12
This provision was enacted in 1980, and was not subsequently amended since
that time. 5 Mont. Admin. Reg. 725 (March 13, 1980).

15
 Act . . . the Migratory Bird Treaty Act . . . the National Historic Preservation
Act . . . and the Bald Eagle Protection Act.13
(6) If the [DEQ] decides to approve the application it shall require that the
applicant file the performance bond or provide other equivalent guarantee
before the permit is issued.14
....
(10) The [DEQ] may not approve an application if the mining and reclamation
would be inconsistent with other such operations or proposed or anticipated
operations in areas adjacent to the proposed permit area.15

¶30 The Mineral Leases contain the following discretionary language:

The Department shall not approve the Plan until the Lessee has met reasonable
requirements to prevent soil erosion, air and water pollution, and to prevent
unacceptable impacts to vegetation, wildlife, wildlife habitat, fisheries, visual
qualities and other resources and to reclaim any land disturbed by the
activities. No work will be conducted without written approval of the
Operating Plan.

Surface activity may be denied on all or portions of any tract, if the
Commissioner determines, in writing, after an opportunity for an informal
hearing with the lessee that the proposed surface activity will be detrimental
to Trust resources . . . .

¶31 Additionally, the Mineral Leases and Lease Amendment make clear that the Venture

was obligated by contract to secure an operating permit subject to all environmental

regulations and conditioned upon the completion of certain regulatory requirements as

Subsections (c) and (d) were added in 1989, and have not been subsequently
13

amended. 17 Mont. Admin. Reg. 1328 (September 14, 1989).
14
This provision was enacted in 1980. 5 Mont. Admin. Reg. 725 (March 13,
1980). In 1988, the numbering was adjusted, but the text remained unchanged. 13 Mont.
Admin. Reg. 1366 (July 14, 1988).
15
This provision became effective on April 1, 1980. 5 Mont. Admin. Reg. 725
(March 13, 1980). In 1988, the numbering was adjusted, but the text remained
unchanged. 13 Mont. Admin. Reg. 1366 (July 14, 1988). In 1994, the numbering was
adjusted, but the text remained unchanged. 17 Mont. Admin. Reg. 2502 (September 8,
1994). This provision was repealed on October 22, 2004.

16
prescribed by the State, before it would acquire any “right” to mine gold and silver using

cyanidation or any other process of mineral extraction. The following relevant clauses

illustrate the conditional language found in both the Mineral Leases and Lease Amendment.

Paragraph 2 (Mineral Leases: Attachment “A”) - The Department shall not
approve the Plan until [the Venture] has met reasonable requirements . . . . No
work will be conducted without written approval of the Operating Plan.

Paragraph 7 (Mineral Leases) - The [Venture] 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.

Number 4 (Lease Amendment) - [P]rovided that the [Venture] has first
procured the applicable Permits under the Metal Mine Reclamation Act, any
parcel of the Leased Premises may be used by the [Venture] for any Mining
purpose . . . .

Paragraph 9 (Lease Amendment: Appendix A - Definitions) - “Permits”
means all federal, state and local licenses, permits, consents, authorizations,
orders or clearances required for Development or Production.

¶32 The discretionary language set forth in the DEQ administrative regulations, Mineral

Leases, and Lease Amendment, in addition to the absence of any language limiting the

exercise of DEQ’s discretion, demonstrates that the DEQ had substantial discretion regarding

issuance of an operating permit pursuant to § 82-4-335, MCA. Without question, the DEQ’s

discretion was not “so narrowly circumscribed that approval . . . [was] virtually assured.”

Kiely, ¶ 28. We conclude, therefore, that the Venture’s “opportunity” to seek a permit,

which required convincing the State that this cyanide leaching project was appropriate, did

not constitute a property right. The State had wide discretion to reject the Venture’s permit

application, even without the enactment of I-137.

17
¶33 Furthermore, the Venture had not secured an operating permit as required by the

Mineral Leases, Lease Amendment, and § 82-4-335(1), MCA. Thus, the passage of I-137

did not take away any existing permits or halt any on-going mine operations related to the

Venture’s projects. Because the Venture had not obtained the requisite operating permit, it

likewise had not obtained a right to mine. Moreover, it was not assured of ever obtaining

such a right. Therefore, we conclude that the enactment of I-137 did not constitute an

unconstitutional taking. Because the analysis in Lucas applies only if there is an established

property right, we conclude it is not applicable here.

¶34 The Venture relies on State ex rel. R.T.G., Inc. v. State (Ohio 2002), 780 N.E.2d 998,

to support its contention that I-137 constitutes an unconstitutional restriction upon its mining

proposal which renders its investment valueless. In R.T.G., the State of Ohio issued a mining

permit to plaintiffs and thereafter designated the land unfit for mining, following the

plaintiffs’ investment of over $100,000 in the land pursuant to the issuance of the permit.

However, that is a very different situation. Had the Venture, like the R.T.G. plaintiffs,

obtained an operating permit prior to the regulatory change, it could have continued to use

cyanide leaching because mines operating with existing permits were exempted from I-137’s

application. Thus, we conclude that R.T.G. is not inconsistent with our holding here.

¶35 Did the District Court err by not addressing the takings claims made by private

parties in its order granting summary judgment?

¶36 The Plaintiffs assert that the District Court failed to consider the takings claims made

in counts six through ten of their amended complaint which were based on private mineral

18
leases or fee ownership of minerals held by the individual plaintiffs, including the ownership

interests of plaintiff Canyon Resource Corporation. The Plaintiffs argue that the District

Court considered only the takings claims based specifically on the Venture’s Mineral Leases

with the State, but nevertheless dismissed all remaining claims, including those unrelated to

the Mineral Leases, without specifying a rationale. Plaintiffs contend that, in so doing, the

District Court violated Rule 52(a), M.R.Civ.P., which provides that “any order . . . granting

a motion under Rules 12 or 56 . . . shall specify the grounds therefor with sufficient

particularity.”

¶37 The Plaintiffs, in counts six through eight, claimed that I-137 constituted a

permanent taking of their property. Similarly, in counts nine and ten, the Plaintiffs alleged

that I-137 constituted a temporary taking of their property. Thus, the District Court’s

analysis for counts six through ten hinged on the overall question of whether I-137

constituted a taking of the Plaintiffs’ properties. After the District Court conducted a

thorough takings analysis, it concluded that I-137 did not constitute a taking “of any property

right that Plaintiffs owned in the mineral leases,” and held that the State was entitled to

summary judgment on “Counts Six, Seven, Eight, Nine, and Ten.” (Emphasis added.) While

the District Court did not specifically reference each individual plaintiff, its conclusion that

I-137 did not constitute a taking resolves the issues raised in counts six through ten in

Plaintiffs’ amended complaint. Therefore, we conclude that the District Court sufficiently

addressed the takings claims involving those plaintiffs who similarly claimed that I-137

constituted a taking, but who had no interests in the Mineral Leases.

19
¶38 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?

¶39 The District Court concluded that the Venture was “on notice” that new regulations

may pass in the future since the mining industry is heavily regulated in Montana, and

because the Venture was a “most sophisticated party, and could have negotiated some sort

of protection for itself.” The District Court concluded that the Venture agreed to be bound

by all future environmental regulations pursuant to paragraph 7 of the Mineral Leases

(hereinafter “paragraph 7”), which provided that:

The [Venture] 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.

Additionally, the District Court reasoned that none of the written documents between the

parties obligated the State to allow cyanide heap leaching in an open-pit on the land subject

to the Mineral Leases, and therefore determined “the impairment was not of the parties’

contract, but was of the Venture’s desires.” Thus, the District Court disposed of the

Venture’s Contracts Clause claims by finding no substantial impairment of the contractual

relationship since there was no contractual obligation on the part of the State to allow open-

pit mining using the cyanide heap leaching process.

¶40 The Montana Constitution provides that “[n]o ex post facto law nor any law impairing

the obligation of contracts . . . shall be passed by the legislature.” Art. II, Sec. 31, Mont.

Const. Similarly, the United States Constitution states that “[n]o state shall . . . pass any . . .

law impairing the obligation of contracts.” U.S. Const., Art. I, § 10. This Court has not

20
given an absolute interpretation of the Contracts Clause, but has instead concluded that

“private contracts must give way before a legitimate exercise of [the state’s] police power,”

and that business conducted in Montana is “subject to the retained power of the state to

protect public welfare.” Western Energy Co. v. Genie Land Co. (1987), 227 Mont. 74, 82,

737 P.2d 478, 483. Likewise, “an impairment may be constitutional if it is reasonable and

necessary to serve an important public purpose.” City of Billings v. County Water Dist.

(1997), 281 Mont. 219, 229, 935 P.2d 246, 252. However, we have also acknowledged that

“complete deference to a legislative assessment of reasonableness and necessity is not

appropriate [when] the State’s self-interest is at stake.” City of Billings, 281 Mont. at 229,

935 P.2d at 252.

¶41 These Contracts Clause principles are applied by way of a three-part test this Court

employs when analyzing a Contracts Clause challenge:

(1) Is the state law a substantial impairment to the contractual relationship;
(2) Does the state have a significant and legitimate purpose for the law; and,
(3) Does the law impose reasonable conditions which are reasonably related
to achieving the legitimate and public purpose?

Carmichael v. Workers’ Comp. Court (1988), 234 Mont. 410, 414, 763 P.2d 1122, 1125.

Under the first prong of the test, we must first determine whether there is a contractual

relationship, and if so, whether the law substantially impaired the contractual relationship.

General Motors Corp. v. Romein (1992), 503 U.S. 181, 186, 112 S.Ct. 1105, 1109, 117

L.Ed.2d 328, 337.16 In determining impairment, we will consider the extent to which the

16
In Romein, the United States Supreme Court relied upon the Contracts Clause
analysis it had employed in Energy Reserves Group, Inc. v. Kansas Power & Light Co.

21
industry has been regulated in the past. Buckman v. Montana Deaconess Hosp. (1986), 224

Mont. 318, 326-27, 730 P.2d 380, 385. It should be noted that if we conclude there is no

substantial impairment to the contractual relationship, the inquiry ends. Neel v. First Fed.

Sav. & Loan Ass’n (1984), 207 Mont. 376, 391, 675 P.2d 96, 104.

¶42 It is undisputed that a contractual relationship existed between the State and the

Venture. Regarding whether the law substantially impaired the contractual relationship, the

Venture argues that I-137 not only impaired, but “destroyed” its Mineral Leases. The

Venture takes exception to the District Court’s reliance on paragraph 7, arguing that

paragraph 7 merely acknowledged the State’s right to “regulate,” and did not authorize the

State to destroy its contract entirely via subsequent legislation. The Venture explains that

its contractual relationship with the State, “as a whole,” including all subsequent agreements

made after the Mineral Leases, indicates that the parties contemplated that the Venture would

mine using the cyanide heap leaching process. As a result, the Venture contends that these

agreements demonstrate that it never agreed to be bound to future laws which would

completely ban the use of cyanide heap leaching process, and that I-137 therefore

substantially impaired its contractual agreements. The Venture accounts its interests–for

which it invested more than $70 million and expected to reap millions in return–as now

(1983), 459 U.S. 400, 103 S.Ct. 697, 74 L.Ed.2d 569, to determine whether a state law
operated as a substantial impairment to a contractual relationship. This Court has
previously relied upon Energy Reserves for guidance regarding our Contracts Clause
analysis. See Carmichael, 234 Mont. at 414, 763 P.2d at 1125; Western Energy, 227
Mont. at 83, 737 P.2d at 484; Buckman v. Montana Deaconess Hosp. (1986), 224 Mont.
318, 326, 730 P.2d 380, 385.

22
worthless.

¶43 The State responds by arguing, as the District Court concluded, that I-137 did not

substantially impair the contractual relationship because paragraph 7 provides that the

Venture 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 State explains that one of the purposes behind I-137 is to protect the

environment, and that the Venture, through paragraph 7, expressly agreed to comply with

environmental regulations. The State also urges this Court to follow Hermosa Beach Stop

Oil Coalition v. City of Hermosa Beach (2001), 86 Cal.App.4th 534, 103 Cal.Rptr.2d 447,

which held that “[a] total prohibition of previously authorized conduct, as would occur with

application of [the law causing the alleged impairment] to the [contract at issue], is not

necessarily unconstitutional . . . [and that] a statute does not violate the Contract[s] Clause

simply because it has the effect of restricting, or even barring altogether, the performance of

duties created by contracts entered into prior to its enactment . . . .” Stop Oil, 86 Cal.App.4th

at 554, 103 Cal.Rptr.2d at 461. In Stop Oil, the voters adopted a law in 1984 which allowed

for exceptions to a complete ban on all oil exploration and production which had been in

effect since 1932. The Macpherson Oil Company (Macpherson) entered into a lease

agreement with the city in 1992 whereby Macpherson obtained the right to conduct oil and

gas operations within the city, but also agreed to “comply with all laws, rules and regulations

of the United States, of the State of California . . . and of the [city] applicable to the Lessee’s

operations . . . .” Stop Oil, 86 Cal.App.4th at 556, 103 Cal.Rptr.2d at 463. The primary

23
issue in Stop Oil was whether the November 1995 passage of Proposition E, a voter initiative

reestablishing a complete ban on oil exploration and production, unconstitutionally impaired

Macpherson’s 1992 lease agreement with the city. The Stop Oil court concluded that

Proposition E did not constitute a substantial impairment in violation of the Contracts Clause

because Macpherson lacked a vested right to continue with the project absent the necessary

permits. The State urges this Court to rely on the Stop Oil court’s reasoning and similarly

conclude that there was no substantial impairment of contract because the Venture, like

Macpherson, had not proceeded far enough with the proposed project to acquire a vested

right and did not protect itself from subsequent regulatory changes through a development

agreement. Stop Oil, 86 Cal.App.4th at 558, 103 Cal.Rptr.2d at 464.

¶44 Although the State points to paragraph 7 of the agreement, under which the Venture

agreed to “fully comply with all applicable state and federal laws, rules and regulations,” and

argues that the contract was not substantially impaired because the Venture had agreed to

comply with applicable regulations, we cannot conclude that this contract provision can

reasonably be construed to contemplate a first in the nation, statewide ban of the one mining

method admittedly contemplated by the parties. Indeed, to “fully comply” with I-137 under

these circumstances would leave little purpose for the agreement itself. Although the Stop

Oil court reasoned that the subject company was sophisticated and should have contractually

protected itself from the possibility of the ban, the contract there had been negotiated in a

regulatory environment wherein development had been banned for fifty-two years prior to

the change in the law which permitted it. In contrast, mining based upon cyanide heap

24
leaching has always been legal in Montana, and, in fact, the country at large. In the context

of Montana’s long association with mining, we cannot conclude that a party, even one

considered sophisticated, could have reasonably anticipated, at the time the agreement was

entered in 1986, that Montana would enact the first state ban of this form of mining twelve

years later.

¶45 As noted, the State did not contest, for purposes of summary judgment, the Venture’s

assertion that all parties understood that their agreement contemplated that the Venture’s

permit application would be based upon an open-pit mine utilizing cyanide heap leaching

processing of the ore. Thus, though the Venture lacked a property or contract right to use

the cyanide heap leaching method, absent the requisite operating permit, the Venture’s

contractual relationship with the State was nonetheless based on the assumption, held by all

parties, that the cyanide heap method would be used. Given that assumption, we must

conclude that a regulation that banned the future use of the very method of mining upon

which the contract itself was based, substantially impaired that contract. Thus, we conclude

that the enactment of I-137 constituted a substantial impairment of the Venture’s contractual

relationship with the State because it acted as a complete barrier to all future mining

development using the cyanide heap leaching method.

¶46 The second prong of the Contracts Clause test requires this Court to determine

whether the state law passed by the legislature is based on a significant and legitimate public

purpose. City of Billings, 281 Mont. at 227-28, 935 P.2d at 251. In this regard, the Montana

Constitution provides that “the right to a clean and healthful environment” is an inalienable

25
right of every person. Art. II, Sec. 3, Mont. Const. It further requires that a clean and

healthful environment shall be preserved for future generations. Art. IX, Sec. 1(1), Mont.

Const. This Court has previously held that environmental regulations represent a reasonable

exercise of the police power. Western Energy, 195 Mont. at 211, 635 P.2d at 1302. In

addition, the United States Supreme Court has held that a state has a “legitimate interest in

guarding against . . . environmental risks, despite the possibility that they may ultimately

prove to be negligible.” Maine v. Taylor (1986), 477 U.S. 131, 148, 106 S.Ct. 2440, 2452,

91 L.Ed.2d 110, 127. Consequently, we conclude that I-137 is based on the significant and

legitimate public purpose of protecting the environment, thus satisfying the second prong of

the test.

¶47 With respect to the third prong, we must determine whether the “application of [I-137]

to the facts at issue here is reasonably related to achieving the legitimate and public

purpose[] of [I-137].” City of Billings, 281 Mont. at 229, 935 P.2d at 252. As mentioned

herein, we will not give “complete deference to a legislative assessment” and will apply a

“heightened level of scrutiny” when the State is party to the contract or if its self-interest is

at stake. Buckman, 224 Mont. at 327, 730 P.2d at 385 (citing U.S. Trust Co. of New York

v. New Jersey (1977), 431 U.S. 1, 25-26, 97 S.Ct. 1505, 1519, 52 L.Ed.2d 92, 111-12).17

However, the record reveals that the application of I-137–created and passed by the voters

“In almost every case, the [United States Supreme Court] has held a
17

governmental unit to its contractual obligations when it enters financial or other markets.”
Energy Reserves, 459 U.S. at 412-13, n.14, 103 S.Ct. at 705, 74 L.Ed.2d at 581-82. See
U.S. Trust Co. of New York v. New Jersey (1997), 431 U.S. 1, 25-28, 97 S.Ct. at 1519-21,
53 L.Ed.2d at 111-14.

26
of Montana– did not act to benefit the State’s self-interest. The passage of I-137 caused the

State to forego the opportunity to receive royalty payments estimated at $5 million annually

over the production life of mining operation, which was expected to be twelve years. Thus,

though the State was a party to the contract, its interests as a contracting entity were actually

diminished by I-137’s passage, and thus, for purposes of a Contracts Clause analysis, it is

not necessary to apply a heightened level of scrutiny to the Initiative. However, I-137 must

nonetheless withstand the reasonableness inquiry under third prong of the test.

¶48 The Plaintiffs introduced several studies in the District Court record regarding the

safety of cyanide heap leaching method. Although cyanide heap leaching has been shown

to be safer than other methods, one study by a mineral processing and chemical engineering

consultant indicated that “there is no question that sodium cyanide is very toxic to humans

and other vertebrates.”18 Additionally, another study in the record, prepared by a

metallurgical engineer, noted that “cyanide is a highly toxic chemical, either in solution or

in its gaseous form.”19

¶49 Environmental concerns about the use of the cyanide heap leaching method of mining,

and the perceived insufficiency of the current laws to protect the environment while

employing this method of mining were stated purposes of the Initiative’s proponents. In the

18
Terry McNulty, Economic and Technical Analysis of Alternative Technologies
for Mining and Processing of Gold/Silver Ores of the McDonald and Seven-up Pete
Deposits, August 15, 2000, at 28.
19
Doug Halbe, Review and Summary of Alternative Solvents for Dissolution of
Gold and Silver from Ores: Chemistry, Application and Commercialization, May 17,
2000, at 11.

27
voter information pamphlet prepared for the election, the proponents stated:

It’s very simple: I-137 is about whether to allow future open-pit cyanide leach
mining. The opponents argue that existing laws are strong and will protect
Montanans. That is obviously not true. Just read the headlines.

MONTANA VOTER INFORMATION PAMPHLET, General Election, November 3, 1998,

at 30.

¶50 In consideration of the acknowledged risks associated with the use of cyanide heap

leaching, and the expressed concerns about the inadequacy of existing laws, we conclude that

the State could legitimately determine that this method of mining required strict regulation,

and that I-137 was reasonably related to that legitimate purpose. “It is clear that the adoption

of the regulations by the state for the protection of the environment is a reasonable exercise

of its police power.” Western Energy, 195 Mont. at 211, 635 P.2d at 1302. Therefore, the

third prong of the test establishes that the enactment of I-137 does not violate the Contracts

Clause of the Montana Constitution.

¶51 The Venture also makes several arguments about the interpretation of paragraph 7,

asserting the District Court based its order on an erroneous interpretation thereof. However,

the aforementioned conclusions in regard to the effect of paragraph 7 resolve those

arguments, and we will not address them individually.

¶52 Finally, the Venture asserts that Mobil Oil requires a different outcome because it held

that government leases must be construed in a manner rendering them non-illusory, and that

such leases should likewise be interpreted to avoid a result whereby a private party invests

millions to “buy next to nothing” from the government. Mobil Oil, 530 U.S. at 616, 120

28
S.Ct. at 2433, 147 L.Ed.2d at 539. The Venture explains that, similar to the two oil

companies in Mobil Oil, it did not agree to be bound by a subsequently passed law that

would: (1) make its mineral leases illusory; (2) require it to waive fundamental constitutional

protections; and (3) completely preclude the opportunity to try and obtain a favorable permit

decision. The Venture argues that the District Court misapplied Mobil Oil, and erroneously

construed its lease, thereby resulting in the Venture investing $70 million to buy “next to

nothing”–an outcome, it argues, is inconsistent with the holding in Mobil Oil.

¶53 In Mobil Oil, the United States entered lease agreements with rights to develop and

explore for oil off the North Carolina coast with two oil companies in return for up-front

“bonus” payments totaling approximately $158 million, plus annual rental payments. The

contracts contained conditions requiring the two oil companies to obtain exploration and

development permits in accordance with regulations promulgated pursuant to existing

statutes. The contract did not contemplate future regulations promulgated pursuant to future

statutes. After the contracts were signed and $158 million in “bonus” payments were made,

the United States Congress passed a new statute which was applied to the Mobil Oil leases.

However, the requirements of the new statute made it impossible for the oil companies to

obtain their final approvals to explore for and develop oil. The oil companies subsequently

filed a breach of contract claim against the United States and sought restitution to recover

the $158 million in up-front “bonus” payments.20 The United States Supreme Court

20
The oil companies did not seek other damages such as a refund of its annual
rental payments of $250,000, or other “soft costs” associated with the permitting process.

29
concluded that the United States had breached its contract with the oil companies and

ordered it to pay $158 million in restitution because it had broken its promise “to follow the

terms of pre-existing statutes and regulations” and instead followed a newly-passed statute

not in effect at the time of contracting. Mobil Oil, 530 U.S. at 624, 120 S.Ct. at 2438, 147

L.Ed.2d at 544. The United States Supreme Court explained that the Mobil Oil lease

contracts specified that they were “subject to then-existing regulations and to certain future

regulations21. . . . This explicit reference to future regulations makes it clear that the catchall

provision that references ‘all other applicable . . . regulations’ must include only statutes and

regulations already existing at the time of the contract.” Mobil Oil, 530 U.S. at 616, 120

S.Ct. at 2433, 147 L.Ed.2d at 539 (emphasis added). Hence, the Mobil Oil leases were not

subject to statutes or regulations passed subsequent to the formation of the contract. In

addition, the up-front bonus payment of $158 million paid for “specific temporal restrictions”

on the federal government’s power to avoid subjecting the oil companies to unknown future

requirements or regulations. Mobil Oil, 530 U.S. at 617, 120 S.Ct. at 2434, 147 L.Ed.2d at

539.

¶54 In contrast to the facts in Mobil Oil, the Venture: (1) made no extraordinary payments

in exchange for special protection or limitations; (2) made no “up-front bonus payment” for

which it could seek restitution, and instead made annual rental payments of approximately

21
The “certain future regulations” were in reference to those regulations issued
pursuant to OCSLA and §§ 302 and 303 of the Department of Energy Organization Act.
The “certain future regulations” did not contemplate or include “new” or “other”
legislation outside the aforementioned. Mobil Oil, 530 U.S. at 616, 120 S.Ct. at 2433,
147 L.Ed.2d at 539.

30
three dollars per acre; (3) did not bargain for language in the Mineral Leases that would

protect it from potentially adverse regulations based on a future statute; and (4) sought

damages for breach of contract which encompassed the “total of monies invested by it in

development,” including the total value of its mineral interests, whereas the oil companies

in Mobil Oil sought restitution only as to their up-front bonus payment, excluding annual

rental payments and other “soft costs” incurred due to the permitting process. While leases

should be interpreted to avoid a result whereby a private party invests millions to “buy next

to nothing” from the government, they should likewise not be construed to buy something

certain when the private party, in fact, bought “a risk” with the potential of gaining

something. Thus, in light of these distinguishing factors, it is clear that the Venture’s

reliance on Mobil Oil is unavailing.

¶55 In summary, we conclude that, although the District Court erred in concluding that

the parties’ agreement was not substantially impaired by the passage of I-137, it nonetheless

correctly held that the Contracts Clause was not violated because, as set forth herein, the

second and third prongs of the analysis demonstrate that I-137 was reasonably related to the

legitimate and significant purpose of protecting the environment. “[A] district court’s

decision will not be reversed or remanded when the eventual result of the case would be the

same without the error.” In re S.C. (1994), 264 Mont. 24, 30, 869 P.2d 266, 269 (citing In

re Marriage of Cannon (1985), 215 Mont. 272, 275, 697 P.2d 901, 903). Therefore, we

affirm the District Court’s holding.

¶56 Did the District Court err in concluding that the DNRC properly terminated the

31
Venture’s mineral leases prior to resolution of its legal challenge to I-137?

¶57 It is helpful here to recap certain facts pertaining to the termination of the Venture’s

Mineral Leases. On September 23, 1998, the DNRC notified the Venture by letter that its

failure to satisfy certain DEQ requirements constituted a breach of the 1994 Lease

Amendment, and if not cured, would cause the primary lease terms to run and ultimately

expire on February 23, 2000. Additionally, the DNRC informed the Venture that, in order

to re-toll the running of the last seventeen months of the primary lease term, the Venture

must: (1) pay all past-due EIS invoices; and (2) execute an acceptable MOA with the DEQ

regarding preparation of the EIS. Though the Venture subsequently paid all past-due EIS

invoices, the DNRC determined that it had failed to actively pursue the permitting process

with the DEQ. Consequently, on February 24, 2000, the DNRC notified the Venture that

the primary lease term had lapsed and the Mineral Leases were thereby terminated. Two

weeks later, the Venture administratively appealed that determination and on April 11, 2000,

the Venture commenced litigation challenging the validity of I-137. On October 26, 2000,

the DNRC’s Director rejected the Venture’s administrative appeal and affirmed the February

2000 termination of the Mineral Leases.

¶58 This Court determines whether an agency’s decision may be reversed or modified

only if the administrative findings, inferences, and conclusions are “clearly erroneous” in

light of the evidence, in violation of statutory or constitutional authority, or an abuse of the

exercise of discretion. Section 2-4-704, MCA. This Court applies a three-part test to

determine whether an agency’s findings are clearly erroneous: (1) after review of the record,

32
the findings must be supported by substantial evidence; (2) if there is substantial evidence

to support the findings, the Court will determine whether the agency misapprehended the

effect of the evidence; and (3) even assuming the first two requirements are met, the Court

may conclude that a finding is clearly erroneous when, in spite of evidence supporting it, a

review of the record “leaves the [C]ourt with the definite and firm conviction that a mistake

has been committed.” Hughes v. Mont. Bd. of Med. Examiners, 2003 MT 305, ¶ 11, 318

Mont. 181, ¶ 11, 80 P.3d 415, ¶ 11. This Court will review a state agency’s conclusions of

law to determine whether the agency’s interpretation of law is correct. Williams Insulation

Co. v. Dep’t of Labor & Indus., 2003 MT 72, ¶ 22, 314 Mont. 523, ¶ 22, 67 P.3d 262, ¶ 22.

¶59 The Venture argues that the DNRC erred when it determined that the Venture had

failed to pursue the permitting process and terminated the Mineral Leases. The Venture

asserts that the DNRC should have extended the primary terms of the Mineral Leases to

include the time necessary to seek the invalidation of I-137, since such pursuit acted as an

“authorization, order or clearance required for the Development or Production” under the

definition of “Permit”22 in the Lease Amendment. The Venture claims that, after it paid all

its past-due EIS invoices by December 31, 1998, it actively pursued the permitting process

by seeking judicial invalidation of I-137, and therefore, the conclusion reached by the DNRC

and, subsequently, by the District Court, that it had done “nothing” during the seventeen-

22
“Permits” as defined in the Lease Amendment refers to “all federal, state and
local licenses, permits, consents, authorizations, orders or clearances required for
Development or Production.”

33
month period commencing September 23, 1998, is legally and factually erroneous.

Moreover, the Venture challenges the DNRC Director’s determination that the Venture’s

interpretation of the Mineral Leases would lead to the absurd result of requiring that the

permitting window remain open indefinitely.

¶60 The State urges this Court to follow the DNRC Director’s interpretation of the

Mineral Leases, and to likewise conclude that the Venture did nothing to pursue the

permitting process during the seventeen-month period. The State claims the Venture took

no action until it requested an administrative hearing on March 9, 2000, two weeks after the

Mineral Leases expired on February 23, 2000. The State further notes that the DNRC

hearing examiner found that the Venture’s claim that it had no obligation to pursue the

permitting process, in light of I-137, “flies in the face of the public policy of the state of

Montana which is to get these mineral leases in operation,” and would lead to the absurd

result allowing the leases to run indefinitely, alleviating the Venture from taking any action

whatsoever.

¶61 The Venture admits that it had to do “something” to pursue issuance of the permits.

It is uncontested that the Venture paid its delinquent balance regarding the EIS fees, and it

is likewise uncontested that the Venture filed a lawsuit in April 2000, challenging the validity

of I-137, which the Venture claims constituted a pursuit of the permitting process. The issue

therefore becomes a question of law: whether the Venture’s challenges to I-137 constitutes

the active pursuit of the permitting process.

¶62 We are hard pressed to conclude that judicially challenging a voter initiative,

34
particularly without agreement with the agency, constitutes administrative action in pursuit

of the permitting process. According to several affidavits filed on behalf of the State, prior

to the expiration of the Mineral Lease terms on February 23, 2000, the Venture: (1) failed

to obtain a final permit; (2) did not amend its application to propose an alternate legal

method of gold recovery; (3) did not reach a MOA to further fund continued preparation of

the EIS; (4) did not legally seek to compel the DEQ to complete the preparation of the EIS;

(5) did not seek any decision to grant or deny its application; (6) did not seek any

administrative case hearings before the Division concerning its permit application; or (7) take

any other action that would facilitate the permitting process while it sought to invalidate I-

137. While pursuing all of these options may not have been necessary in order to “actively

pursue” the permitting process, it is clear that the Venture was not limited to simply bringing

a legal challenge to I-137 while doing nothing before the agency. We cannot conclude,

therefore, that the DNRC and District Court’s conclusion of law that the Venture failed to

actively pursue the permitting process before the agency was erroneous. Challenging the

validity of a voter-passed initiative under these circumstances, without more, does not

constitute an administrative act of pursuing a permit. Therefore, the DNRC was not

obligated to extend the primary terms of the Mineral Leases to include the time necessary

for the Venture to seek the invalidation of I-137. Consequently, we conclude the Mineral

Leases were properly terminated on February 23, 2000.

¶63 Alternatively, the Venture contends that the contractual doctrine of supervening

impracticability suspended its obligations as specified in the February 24, 2000, letter from

35
the DNRC. However, because we conclude the Venture failed to pursue the administrative

process and, therefore, the Mineral Leases were properly terminated on February 23, 2000,

we need not address this issue.

¶64 Finally, the Venture argues that the District Court failed to properly consider whether

the lease terms should have been extended pursuant to Rule 36.25.605, ARM, which

provides that:

The board shall extend the term of the lease if it determines that a failure to
produce in paying quantities is a result of factors beyond the control of the
lessee such as but not limited to a national emergency or a temporary decrease
in the price at which the particular metalliferous mineral or gem can be sold.

The Venture explains that, pursuant to the Restatement (Second) of Contracts and regulatory

statement, performance obligations made impracticable by I-137 should be suspended during

the time required for a final ruling on the law’s validity, which is a finite period of time.

¶65 However, it was only after the Mineral Lease terms had expired, thereby terminating

the leases entirely, that the Venture sought an extension of the lease term by invoking Rule

36.25.605, ARM. The DNRC Director concluded that the Venture’s request was untimely,

and we agree. Therefore, we conclude that the District Court correctly upheld the DNRC’s

termination of the Mineral Leases.

¶66 The judgment entered by the District Court is affirmed.

/S/ JIM RICE

We Concur:

36
/S/ KARLA M. GRAY
/S/ PATRICIA O. COTTER
/S/ W. WILLIAM LEAPHART
/S/ JOHN WARNER

37
Justice James C. Nelson concurs.

¶67 I concur in our Opinion except for certain parts of the discussion in ¶¶ 44, 45 and 48.

¶68 Basically, I agree with the State’s argument and interpretation of paragraph 7 of the

agreement, and I disagree with our conclusion that the passage of I-137 resulted in a

substantial impairment of the Venture’s contractual relationship with the State.

¶69 As noted, paragraph 7 provides that the Venture 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.” For the Venture to say that

it never agreed to be bound by laws which would completely ban the use of the cyanide heap

leaching process flies in the face of paragraph 7. Indeed, the Venture did, in fact, agree to

be bound--without limitation--by all applicable laws, rules and regulations including those

protecting the environment. If the Venture signed the agreement with qualifications,

exceptions or caveats in mind, it had the obligation to disclose those to the State and to

negotiate the contract terms accordingly.

¶70 Furthermore, I disagree with our conclusion that the Venture could not reasonably

have anticipated I-137. The mining industry is one of the most heavily regulated industries

in the State and has been for years. This regulation has, for the most part, become stricter

over the years, due in no small measure, to environmental disasters resulting from poor

mining practices, failed technology, failed economics, and taxpayers becoming increasingly

fed up with having to pick up the pieces in the form of millions upon millions of dollars in

clean up costs. The Court’s apparent adoption of the statement that “cyanide heap leaching

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has been shown to be safer than other methods” to the contrary, the people of this State have

twice exercised their collective judgment and have soundly rejected that notion. In this

frame of reference, I am hard put to join the Court’s conclusion that the passage of I-137

should have or did, in fact, come as any great surprise.

¶71 Finally, the federal Contracts Clause, Article I, Section 10--after which our own

Article II, Section 31 is modeled--was historically adopted and construed with a focus on

legislation designed to repudiate or adjust pre-existing debtor-creditor relationships that

obligors were unable to satisfy. Keystone Bituminous Coal Ass’n v. DeBenedictis (1987),

480 U.S. 470, 503, 107 S.Ct. 1232, 1251, 94 L.Ed.2d 472 (citations omitted). As we note,

notwithstanding its facially absolute language, the federal Contracts Clause has long been

interpreted so as to accommodate the inherent police power of the State “to safeguard the

vital interests of its people.” Home Bldg. & Loan Ass’n v. Blaisdell (1934), 290 U.S. 398,

434, 54 S.Ct. 231, 239, 78 L.Ed. 413. The clause is not read literally. W.B. Worthen Co. v.

Thomas (1934), 292 U.S. 426, 433, 54 S.Ct. 816, 818, 78 L.Ed. 1344. Moreover, “[o]ne

whose rights, such as they are, are subject to state restriction, cannot remove them from the

power of the State by making a contract about them.” Hudson County Water Co. v.

McCarter (1908), 209 U.S. 349, 357, 28 S.Ct. 529, 531, 52 L.Ed. 828.

¶72 Here, the State leased a mineral estate to the Venture and, with that, the opportunity

to go through the expensive, lengthy, highly regulated process to apply for and, maybe,

obtain a permit to mine. There was no guarantee that this process would be successful

anymore than there was any guarantee that the mining venture itself would succeed. The

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State did not repudiate its agreement with the Venture. Rather, and leaving aside its other

problems, it was the Venture that, in an increasingly strict regulatory environment,

determined to mine using a process that was unacceptable to the people of Montana.

¶73 The Contracts Clause must accommodate the inherent police power of the State.

Here, that power was exercised by the people pursuant to Article II, Sections 1 and 2 and

Article III, Section 4, to prohibit a mining process which they collectively determined posed

unacceptable risks to the environment and to their rights under Article II, Section 3 and

Article IX, Section 1.

¶74 While I agree with most of our Contracts Clause analysis and with the result thereof,

I do not concur with the statements in ¶¶ 44, 45 and 48, aforementioned, nor do I agree that

the Venture suffered a substantial impairment of contract as a result of the passage of I-137.

¶75 With those qualifications, I concur.

/S/ JAMES C. NELSON

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