RIVERBEDS: MSC ruling that Montana owns and may charge for use of riverbeds underlying dams is based on infirm legal understanding of USSC’s rules of navigability for title under equal-footing doctrine under which separate segments must be examined for navigability at time of statehood, some clearly not navigable due to portage… Honzel/MSC reversed.

PPL owns hydroelectric facilities on riverbeds underlying segments of the Missouri, Madison, and Clark Fork Rivers. Parents of school children sued PPL in 2003 in Federal Court seeking compensation for use of riverbeds alleged to be part of school trust lands. The State joined in the suit and filed its own complaint seeking compensation under the school trust theory and HRA. The federal case was dismissed for lack of subject jurisdiction. PPL filed a declaratory action in 2004 contesting the State’s ability to seek compensation as to its FERC-licensed dams under FPA preemption and “federal navigational servitude.” Judge Honzel concluded following trial that the riverbeds are trust lands, the State has a duty to obtain full market value for their use, rental for power sites under §77-4-208 of the HRA “shall not be less than full market value,” the FPA did not preclude compensation for use of state lands, the State was entitled to compensation based on the “shared net benefits” methodology and acreage computation of its expert, and granted $40,956,180 judgment against PPL for 2000-07. PPL appealed. The Montana Supreme Court (Cotter, Krueger, Leaphart, Nelson, and McLean; Rice and Salvagni dissenting) held that Honzel correctly granted summary judgment that the rivers were “navigable in fact” at the time of statehood in 1989, erred in concluding that the riverbeds are school trust lands, correctly concluded that PPL’s appropriation of water does not include an incidental right to free use of state land and that it is required to pay for use of the riverbeds, correctly determined that the HRA was not preempted by the FPA and that it could be applied by the State to seek compensation for use of state riverbeds at hydro facilities, and correctly calculated damages. (MLW 4/3/10). PPL appeals.

The rule that the States, in their capacity as sovereigns, hold “title in the soil of rivers really navigable,” Shively, has federal constitutional significance under the equal-footing doctrine. Upon statehood, a state gains title to the beds of rivers then navigable. It may allocate and govern them according to state law subject only to the US’ power “to control such waters for purposes of navigation in interstate and foreign commerce.” Oregon. The US retains title vested in it before statehood to land beneath waters not then navigable. To be navigable for purposes of title, rivers must be “navigable in fact” — used or susceptible of being used as highways for commerce over which trade and travel are or may be conducted in the customary modes. The Daniel Ball.

MSC erred in its treatment of river segments and portage. To determine riverbed title under the equal-footing doctrine, this Court looks segment-by-segment to assess whether the segment is navigable. MSC erred in discounting this well-settled approach. A key justification for sovereign ownership of navigable riverbeds is that a contrary rule would allow private riverbed owners to erect improvements that could interfere with the public’s right to use the waters as a highway for commerce. Because commerce could not have occurred on segments nonnavigable at the time of statehood, there is no reason to deem them owned by the State under the equal-footing doctrine. Physical conditions affecting navigability vary over the length of a river and provide a means to determine start and end points for disputed segments. A segment approach is also consistent with the manner in which private parties seek to establish riverbed title. Montana cannot suggest that segmentation is inadministrable when its courts managed to apportion the riverbeds for determining value and rents. MSC’s view that the segment-by-segment approach does not apply to short interruptions of navigability is not supported by Utah. Even if the law might find some nonnavigable segments so minimal that they merit treatment as part of a longer, navigable reach, it is doubtful that the segments in this case would meet that standard. Applying its “short interruptions” approach, MSC found the Great Falls reach navigable because it could be managed by land route portage, as done by Lewis & Clark. But a portage of even 1 day would demonstrate the need to bypass a nonnavigable segment. Thus MSC was wrong to conclude, as to the Great Falls reach and other disputed stretches, that portages were insufficient to defeat a navigability finding. MSC misapplied The Montello, in which portage was considered in determining whether a river was part of a channel of interstate commerce for federal regulatory purposes. The Montello does not control where the quite different concerns of the riverbed title context apply. Portages may defeat navigability for title purposes, and do so as to the Great Falls reach. Montana does not dispute that portage was necessary to traverse that reach, and Honzel noted that the waterfalls had never been navigated. The Great Falls reach, at least from the head of the first waterfall to the foot of the last, is not navigable for purposes of riverbed title under the equal-footing doctrine. There is also significant likelihood that some of the other stretches fail this test. The ultimate decision as to these other stretches is to be determined in the first instance by the Montana courts, which should assess the evidence in light of the principles discussed here.

MSC erred in relying on evidence of present-day, primarily recreational use of the Madison. Navigability must be assessed as of statehood, and it concerns a river’s usefulness for “trade and travel.” Utah. Segments are navigable if they were used and susceptible of being used as highways of commerce at the time of statehood. Id. For present-day use to have a bearing on navigability at statehood, the watercraft must be meaningfully similar to those in customary use for trade & travel at the time of statehood and the river’s post-statehood condition may not be materially different from that at statehood. MSC offered no indication that it made these findings.

Because this analysis is sufficient to require reversal, the Court declines to decide whether MSC also erred as to the burden of proof as to navigability.

Montana’s suggestion that denying the State title to the disputed riverbeds will undermine the public trust doctrine — which concerns public access to the waters for navigation, fishing, and other recreation — underscores its misapprehension of the equal-footing and public trust doctrines. Unlike the equal-footing doctrine, which is the constitutional foundation for the navigability rule of riverbed title, public trust over waters is a matter of state law, subject to federal regulatory power.

This Court does not reach the question of whether, by virtue of Montana’s sovereignty, neither laches nor estoppel could bar the State’s claim. Still, the reliance by PPL and its predecessors on the State’s long failure to assert title to the riverbeds is some evidence supporting the conclusion that the segments over those beds were nonnavigable for purposes of the equal-footing doctrine.

Kennedy for the full Court.

PPL Montana v. Montana, 10-218, argued 12/7/11, decided 2/22/12.

Paul Clement & Erin Murphy (Bancroft Law Firm), DC, Ashley Parrish & Paul Mezzina (King & Spaulding), DC, Robert Sterup & Kyle Gray (Holland & Hart), Billings, and Elizabeth Thomas (K&L Gates), Seattle, for PPL; Gregory Garre, Lori McGill, and Katya Georgieva (Latham & Watkins), DC, and AG Bullock & Special Asst. AG Anthony Johnstone for the State; Dep. Solicitor General Edwin Kneedler.