The Supreme Court recently issued its opinion in the closely watched case of PPL Montana, LLC v. State of Montana, 565 U.S. __ (2012), unanimously reversing and remanding a controversial Montana State Supreme Court decision granting Montana ownership of riverbeds underlying ten hydroelectric facilities on three of the state’s rivers. The Supreme Court’s ruling relieved PPL of its obligation to pay the state of Montana $41 million in back rent for use of the riverbeds, and likely quelled any fears in the hydropower industry that similar ownership theories would be advanced by other states seeking to fill empty coffers with millions of dollars in back rental payments. The Supreme Court’s opinion, while providing clarity on the proper application of the federal navigability-for-title test, limits its reasoning on navigability to those instances in which property rights between the states and the federal government are in question, and is explicitly inapplicable to determinations of whether waters are “navigable” for purposes of federal regulatory programs.
The origins of PPL Montana, LLC v. State of Montana trace back to 2003, when parents of Montana school children filed suit against the state alleging the riverbeds beneath PPL facilities were state owned and part of Montana’s school trust lands. PPL disputed the state’s ownership and filed a separate suit claiming Montana was barred from seeking compensation for PPL’s riverbed use. The State counterclaimed, seeking a declaration that it owned the riverbeds used by PPL and that it could charge PPL rent. The Montana trial court granted the state summary judgment on the issue of navigability for purposes of determining title and ordered PPL to pay Montana $41 million in rent for riverbed use between 2000 and 2007. After the Montana Supreme Court affirmed, PPL sought review from the United States Supreme Court.
At the center of PPL Montana, LLC v. State of Montana were contested stretches of water on three Montana rivers: the Upper Missouri, the Madison, and the Clark Fork. Whether PPL had to pay rent to the State of Montana for its ten hydroelectric facilities depended on whether these waters were “navigable” under federal law. Navigability under federal law would decide state ownership because upon statehood each state gains title to the beds of waters within their borders that are then navigable. To be navigable under federal law for purposes of title, a river must be “navigable in fact,” which means that upon entering the Union the river was either used as a highway of commerce or was susceptible to use as such. Title to beds of non-navigable waters is retained by the federal government to be transferred or licensed to entities, such as PPL, as the federal government sees fit.
Intensely debated by the parties was whether a river’s navigability was to be decided generally or whether navigability was to be examined on a segment-by-segment basis. The Montana Supreme Court, while accepting that certain relevant stretches of the rivers were not navigable, declared that these stretches were “merely short interruptions” that were insufficient as a matter of law to defeat navigability because traffic, including the Lewis and Clark Expedition, had circumvented these stretches by overland portage. Under this expansive approach, reaches claimed by PPL to be non-navigable, (i.e., the places its hydroelectric facilities had been constructed), were simply too short to matter, and each river as a whole was “navigable” for purposes of title in 1891 when Montana entered the Union. Thus the state owned the riverbeds beneath PPL’s facilities and could collect rent for their use.
The Supreme Court, in an opinion authored by Justice Kennedy, squarely rejected the Montana Supreme Court’s “river as a whole” approach. The court clarified that for purposes of title a river must be examined segment-by-segment and the mere fact of portage will generally demonstrate that a segment was not navigable at the time of statehood. “Even if portage were to take travelers only one day, its significance is the same: it demonstrates the need to bypass the river segment, all because that part of the river is nonnavigable.” The court conceded that a de minimus exception to the segment-by-segment approach may lie for nonnavigable segments of “exceedingly small size, or worthlessness.”
The Supreme Court also found error in the Montana Supreme Court’s reliance on evidence of present-day recreational use of the Madison River, noting that modern inflatable rafts and lightweight canoes, “may be able to navigate waters much more shallow or with rockier beds than the boats customarily used for trade and travel at statehood.” Evidence of present-day use may only be considered to the extent it informs the historical determination of whether waters were “susceptible of being used” as highways of commerce at the time of statehood. At a minimum, this will require the proponent of such evidence to show that “(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.”
Although Justice Kennedy stated that “the ultimate decision” as to the navigability of the river stretches would be determined by the Montana courts upon remand, the Court’s opinion left the Montana Supreme Court with little leeway for its own analysis. The Court, after finding error in the Montana Supreme Court’s application of the title test and explaining the proper application, took the additional step of applying this test to the 17-mile Great Falls reach, concluding that the reach was not navigable at the time of statehood. The Court additionally noted that “there is a significant likelihood that some of the other river stretches in dispute also fail the federal test of navigability for the purpose of determining title.”
Ultimately, the Supreme Court’s decision in PPL Montana, LLC v. State of Montana represents a narrow application of the federal title test and a potential warning to states seeking to effect what PPL characterized as a land grab. The Court’s opinion ends with the following observation: “It is not for a State by courts or legislature, in dealing with the general subject of beds or streams, to adopt a retroactive rule for determining navigability which…would enlarge what actually passed to the State, at the time of her admission…”