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Supreme Court Reverses Montana High Court in Rent for Riverbeds Case

April 3, 2012

On February 22nd, a unanimous Supreme Court reversed the Montana Supreme Court’s ruling that required a hydroelectric dam operator to pay the State of Montana nearly $40 million in back rent for the use of state-owned riverbeds. In PPL Montana, LLC v. State of Montana (“PPL Montana”),[1] the Court decided that the Montana Supreme Court incorrectly applied the so-called “navigability-for-title” or “navigability-in-fact” test when it determined that the State obtained title to the riverbeds beneath petitioner PPL Montana, LLC’s (“PPL”) dams. The navigability-for-title test requires courts to determine whether a river, or section of a river, was “navigable” at the time of statehood. This test differs from the navigability concept in other areas of federal law, for instance the statutory term “navigable waters” in the Clean Water Act, which broadly includes “waters of the United States” as well as those waters that are navigable-in-fact.[2] In the decision below, the Montana Supreme Court concluded that although short segments of several rivers might not actually be navigable, the State held title to those stretches because the majority of the rivers at issue were navigable at the time of statehood. PPL sought Supreme Court review, categorizing the decision an “enormous uncompensated land grab by state court judges.” The high Court’s decision is welcome news to power companies and private land owners throughout the West as it will most likely prevent other states from following Montana’s lead in seeking to assert title over additional riverbeds.

Background and Decisions Below

PPL Montana focuses on ten federally-licensed hydroelectric dams on the Missouri, Madison, and Clark Fork rivers in the State of Montana. In 2003, parents of Montana schoolchildren sued the dams’ owner, PPL, in federal court, arguing that PPL owed the state compensation because the riverbeds underlying its dams were part of Montana’s “school trust lands.” The State of Montana joined the suit in 2004, asserting that PPL also owed the State compensation pursuant to Montana’s Hydroelectric Resources Act (“HRA”).[3] The federal district court dismissed the action for lack of diversity, and PPL filed suit in state court seeking a declaration that the Federal Power Act (“FPA”) preempted the State’s HRA claims. The State counterclaimed, arguing that it obtained title to the relevant streambeds at the time of statehood pursuant to the “equal footing doctrine.”[4]

On summary judgment, the trial court held that the State obtained title to the riverbeds at issue because those rivers were navigable at the time of statehood and concluded that the State was entitled to retroactive lease payments under the HRA. Following a bench trial to determine damages, the court imposed approximately $40 million in back lease payments, as well as future lease payments imposed by the State. On appeal, the Montana Supreme Court upheld summary judgment against PPL.

PPL appealed to the Montana Supreme Court, arguing that the State did not own the riverbeds beneath its dams. The court rejected PPL’s assertion that certain portions or segments of an otherwise navigable stretch of river could be unnaviagable due to the presence of falls or rapids. Although the court acknowledged that the U.S. Supreme Court had previously assessed navigability on a “section-by-section basis,” the court interpreted the test to evaluate whether there were “long reaches of non-navigability” and not “short interruptions” in an otherwise navigable stretch.[5] The court concluded that PPL’s evidence of “relatively short interruptions of navigability” in the rivers in question was insufficient as a matter of law to declare portions of the rivers non-navigable. The Court also concluded that evidence of the present-day usage of the rivers demonstrated that the rivers were susceptible of being used for commerce in 1889.[6] Finally, the court concluded that the FPA did not preempt the State’s claim for back rent under the HRA.[7]

The Supreme Court’s Decision

In PPL Montana, the Supreme Court reversed the Montana Supreme Court’s decision, concluding that the court incorrectly applied the test for determining whether a river was “navigable” at the time of statehood by: (1) failing to assess the navigability of the rivers at issue on a “segment-by-segment” basis; and (2) relying on evidence of present day, primarily recreational use of the rivers as evidence of navigability at the time of statehood.

Pursuant to the equal footing doctrine, the State of Montana gained title to the land beneath “navigable” rivers within its borders when it joined the Union in 1889.[8] The U.S. Supreme Court has previously explained the test for determining whether a river was navigable at the time of statehood in United States v. Utah:

The rule long since approved by this court in applying the Constitution and laws of the United States is that streams or lakes which are navigable in fact must be regarded as navigable in law; that they are navigable in fact when they are used, or are susceptible of being used, in their natural and ordinary condition, as highways for commerce, over which trade and travel are or may be conducted in the customary modes of trade and travel on water; and further that navigability does not depend on the particular mode in which such use is or may be had-whether by steamboats, sailing vessels or flatboats-nor on an absence of occasional difficulties in navigation, but on the fact, if it be a fact, that the stream in its natural and ordinary condition affords a channel for useful commerce.[9]

In its decision below, the Montana Supreme Court acknowledged that navigability was sometimes assessed on a segment-by-segment basis. However, the court concluded that the segments addressed under the navigability test were generally longer than short interruptions in an otherwise navigable stretch of river. Thus, the Montana court concluded that the State held title to the riverbeds beneath PPL’s dams, even though the dams sat on short sections of river that may have been unnavigable. The Supreme Court held that this was error.[10] The Court explained that the key justification for State ownership of navigable riverbeds is that a “contrary rule would allow private riverbed owners to erect improvements on the riverbeds that could interfere with the public’s right to use the waters as a highway for commerce.”[11] Since there is no possibility of commerce over non-navigable stretches of river, even if they are short segments, there is “no reason that these segments also should be deemed owned by the State under the equal-footing doctrine.”[12]

The Court also explained that practical considerations support the segment-by-segment approach. Since the physical conditions that affect navigability often vary significantly over the length of a river, shifts in physical conditions such as waterfalls and rapids provide “a means to determine appropriate start points and end points for the segment in question.”[13] Finally, the Court noted that the segment approach is consistent with the common-law approach for allocating title to private riparian landowners, because private landowners own the segment of riverbed equal in length to their riverbank. Relying on the evidence presented by PPL, the Court ultimately concluded that a “number of the segments at issue here are both discrete, as defined by physical features characteristic of navigability or nonnavigability, and substantial, as a matter of administrability for title purposes.”[14] Moreover, PPL’s evidence demonstrated that those segments could not be navigated in 1889. Thus, the Court held the segments at issue were not navigable at the time of statehood and were not owned by the State of Montana.[15]

The Court also examined the Montana Supreme Court’s reliance on evidence of present day recreational river use to determine navigability-for-title. Although not rejecting the use of such evidence outright, the Court cautioned that present-day evidence “must be confined to that which shows the river could sustain the kinds of commercial use that, as a realistic matter, might have occurred at the time of statehood.”[16] In other words, “present-day use may be considered to the extent it informs the historical determination whether the river segment was susceptible of use for commercial navigation at the time of statehood.”[17] To utilize present day evidence, the party seeking to use the evidence must show: (1) the watercraft are meaningfully similar to those in customary use for trade and travel at the time of statehood; and (2) the river’s poststatehood condition is not materially different from its physical condition at statehood.[18]

According to the Court, the decision below offered no indication that the Montana court considered either of these considerations. For instance, the court failed to make findings that the use of recreational fishing boats were meaningfully similar to the types of boats customarily used for trade and travel in 1889. Further, the court ignored PPL’s evidence about changes in the rivers’ flow and location since statehood. Thus, the Supreme Court concluded that the state court’s reliance on “evidence of present-day, recreational use, at least without further inquiry, was wrong as a matter of law.”[19]

Conclusion

The PPL Montana decision most likely forecloses the possibility that other states will pursue similar state court litigation seeking compensation to riverbeds within their borders. Moreover, the Court’s decision ensures that state courts entertaining such claims will need to assess the riverbeds segment-by-segment, drastically reducing the possibility of the success of those claims.

For more information regarding PPL Montana, LLC v. State of Montana, please contact Russell Prugh.

[1] PPL Montana, LLC v. State of Montana, No. 10–218, 2012 WL 555205 (Feb. 22, 2012) (“PPL Montana”). All citations in this article are to the Westlaw version of the opinion.

[2] See 33 U.S.C. § 1362(7) (defining “navigable waters” as “the waters of the United States, including the territorial seas”); Rapanos v. United States, 547 U.S. 715, 730-31 (2006) (rejecting argument that jurisdictional limit of “navigable waters” under Clean Water Act must be limited to those waters that are navigable-in-fact); see also PPL Montana, 2012 WL 555205 at *11 (discussing distinction).

[3] MCA §§ 77-4-201 to 211.

[4] The equal footing doctrine refers to the Constitutional-law theory that each new state admitted to the Union possesses the same “rights of sovereignty, jurisdiction, and eminent domain” as the original thirteen colonies. See Pollard v. Hagan, 44 U.S. (3 How.) 212, 223 (1845). One of these “rights of sovereignty” a state assumes at the time of statehood is title to the lands beneath “navigable waters” within the state boundaries. As such, on the date that each new state was admitted to the Union, the federal government passed trust ownership of the navigable waters and the underlying riverbeds to the state.

[5] PPL Montana, LLC v. State of Montana, 2010 MT 64, ¶¶ 105-09, 229 P.3d 421. 

[6] Id. ¶ 109.

[7] Id. ¶ 133.

[8] PPL Montana, 2012 WL 555205 at *4, 10.

[9] United States v. Utah, 283 U.S. 64, 76 (1931) (quoting United States v. Holt State Bank, 270 U. S. 49, 56 (1926)).

[10] PPL Montana, 2012 WL 555205 at *13,

[11] Id. at *13.

[12] Id. at *13.

[13] Id. at *13.

[14] Id. at *14.

[15] Id. at *14-16.

[16] Id. at *16.

[17] Id. at *17.

[18] Id.

[19] Id. at *18.

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