State DNRC v. Avista Corp. ( 2023 )

01/10/2023
DA 21-0596
Case Number: DA 21-0596
IN THE SUPREME COURT OF THE STATE OF MONTANA
2023 MT 6STATE OF MONTANA; and MONTANA
DEPARTMENT OF NATURAL RESOURCES
AND CONSERVATION,
Plaintiffs and Appellees,
v.
AVISTA CORPORATION, a Washington corporation,
Defendant and Appellant.
APPEAL FROM: District Court of the First Judicial District,
In and For the County of Lewis and Clark, Cause No. ADV-2004-846
Honorable Michael Menahan, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Bradley J. Luck, Kathryn S. Mahe, Garlington, Lohn & Robinson, PLLP,
Missoula, Montana
William J. Schroeder, KSB Litigation, P.S., Spokane, Washington
For Appellee State of Montana:
Austin Knudsen, Montana Attorney General, Brent A. Mead, Assistant
Solicitor General, Helena, Montana
Pat Risken, Attorney at Law, Helena, Montana
Emily Jones, Jones Law Firm, PLLC, Billings, Montana
For Appellee Montana Department of Natural Resources and Conservation:
Brian C. Bramblett, Montana Department of Natural Resources and
Conservation, Helena, Montana
Submitted on Briefs: November 2, 2022
Decided: January 10, 2023
Filed:
V,„ 6A•-if
__________________________________________
Clerk
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Justice Jim Rice delivered the Opinion of the Court.
¶1 Defendant Avista Corporation (Avista) appeals from the order entered by the First
Judicial District Court granting summary judgment to the State of Montana and
Department of Natural Resources and Conservation (State) regarding interpretation of a
settlement agreement between the parties. Avista challenges the District Court’s
conclusion that the agreement’s provision governing a conditional reduction of rent, if
triggered, would not provide a retroactive credit for past rent paid by Avista. We affirm in
part and reverse in part, and address the following issues:
¶2 1. Did the District Court err by reaching the merits of a nonjusticiable issue?
¶3 2. Did the District Court err by its interpretation of the parties’ settlement
agreement?
FACTUAL AND PROCEDURAL BACKGROUND
Prior Litigation
¶4 This case arises from settled litigation between the parties involving the State’s rent
claims against utility companies for use of riverbed acreage occupied by their hydroelectric
projects. See, e.g., PPL Mont., L.L.C. v. State, 2010 MT 64, 355 Mont. 402, 229 P.3d 421(herein, PPL Mont. v. State) (rev’d in PPL Mont., LLC v. Montana, 565 U.S. 576, 132
S. Ct. 1215, 182 L. Ed. 2d 77 (2012)) (herein, PPL Mont. v. Montana). Avista is a
Washington-based regulated utility that operates hydroelectric dams in Montana. In 2004,
Avista, along with other utilities, including PPL Montana, LLC (PPL), filed a declaratory
action in state court challenging the State’s claim for rent, following dismissal of a similar
federal action. See PPL Mont. v. State, ¶ 6. A primary legal issue in the litigation was
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historic river navigability, on which the State’s claim to ownership of the riverbeds turned.
See PPL Mont. v. State, ¶¶ 22-23. The State argued the subject rivers were navigable at
statehood, and thus the riverbeds were owned by the State and subject to its rent claim,
while the utilities argued the rivers, or reaches therein, were not navigable at statehood and
therefore not owned by the State. See PPL Mont. v. Montana, 565 U.S. at 591, 132 S. Ct.
at 1227-1228 (explaining that, under the equal-footing doctrine, “[u]pon statehood, the
State gains title within its borders to the beds of waters then navigable. . .”). After lengthy
litigation, the utilities and the State filed respective motions for summary judgment, with
the utilities contending the navigability of the rivers must be determined by a “segment-by-
segment approach,” while the State argued for a “whole river approach.” The utilities also
argued material factual conflicts precluded summary judgment on some of the contested
waters. PPL Mont. v. State, ¶¶ 33-34.
¶5 On October 19, 2007, three days prior to trial, Avista and the State entered a
Memorandum of Negotiated Settlement Terms (Settlement Agreement), after which
followed the parties’ Consent Judgment and Hydropower Site Lease (Lease). These
documents referenced PPL’s continued litigation of the matter, and contained a provision,
entitled Most Favored Nations Clause (MFNC),1 under which Avista would be granted
1
“[M]ost-favored-nation clause. 1. A clause in an agreement between two nations providing that
each will treat the other as well as it treats any other nation that is given preferential treatment.
2. By extension, such a clause in any contract, but esp. an oil-and-gas contract.” Black’s Law
Dictionary, Seventh Edition (1999), p. 1031.
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partial rent relief if PPL obtained a certain favorable outcome in the litigation, as defined
by the Clause:
If co-party PPL Montana, LLC, either by litigation through judgment and
any appeals, or through settlement, receives a determination that the full
market value of its land interests at issue in the litigation is based upon factors
more favorable to it than those contained in the settlement with Avista, the
Avista rent will be adjusted by an amount necessary to reflect the more
favorable determination. For purposes of this clause, a more favorable
determination will occur if the aggregate annual rent determined by
settlement or litigation for PPL Montana (“Determined PPL Rent”) is less
than 48% of the aggregate amount of base year rent (“Claimed PPL Rent”)
claimed by the State in its case in chief at trial. If this occurs, the $4 million
base to be paid by Avista shall be reduced retroactively starting on the date
of final judgment on the PPL Montana claims or settlement by a percentage
equal to the Determined PPL Rent divided by the Claimed PPL Rent.
Settlement Agreement, ¶ 3.2
¶6 The Consent Judgment, signed by both parties and approved and entered by Hon.
District Judge Thomas Honzel, who presided over the litigation, provided the District Court
“shall retain jurisdiction of this matter for the purposes of entering such further orders,
direction, or relief as may be appropriate for the construction, implementation, or
enforcement of this Agreement.”
¶7 PPL continued the litigation and the District Court granted summary judgment to
the State, holding the record demonstrated uncontestably that, by utilization of a “whole
river approach,” the subject rivers were, as a matter of fact, navigable at statehood, and
2
This language was also included in the Hydropower Site Lease, ¶ 5, wherein it was also
designated as one of several contracted lease “reopeners.” A “Reopener for Subsequent
Governmental Action” (Government Reopener) and a “Reopener for Subsequent Judicial
Determination” (Judicial Reopener) were contained in the settlement documents as well.
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therefore, the underlying riverbeds were owned by the State under the equal-footing
doctrine. Trial was held to determine rent and damages owed, including therein a
determination of the market value of PPL’s Montana riverbed-related property and
income.3 PPL appealed to this Court, which generally affirmed the District Court’s use of
the whole river approach and attendant conclusions, including the State’s market value
methodology. PPL Mont. v. State, ¶¶ 171-72. PPL petitioned the U.S. Supreme Court,
which granted certiorari and reversed, holding that utilization of a “segment-by-segment
approach to navigability for title” was required. PPL Mont. v. Montana, 565 U.S. at 594,
132 S. Ct. at 1229. Upon remand, the case caption was amended to reflect ownership
transfer of the hydropower projects from PPL Montana to Talen Montana, LLC (Talen),
and Northwestern Corporation, and the case was removed to federal court. The U.S.
District Court subsequently ruled the U.S. Supreme Court’s opinion was a final
determination on the merits that an 8.2-mile segment of the Great Falls reach of the
Missouri River was non-navigable and, therefore, title thereto did not transfer to the State.
It dismissed the State’s claim based on that segment, but litigation has proceeded on the
remaining reaches of the subject rivers. No final judgment in that litigation is present on
the record of this case.
3
PPL contended that full market value of its interests required a rent payment of $205,000 for
2007, while the State contended under its methodology that $6,207,919 was owed for 2007. The
District Court adopted the State’s methodology and determined the full amount claimed by the
State was owed for 2007, and entered a total judgment of approximately $41 million.
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Current Litigation
¶8 Avista paid rent to the State as was required by the parties’ agreement from 2008 to
2016. However, in 2017, Avista notified the State it would begin making rent payments
under protest and depositing the payments into escrow, arguing the U.S. Supreme Court’s
decision in PPL Mont. v. Montana, or the ruling by the U.S. District Court after remand
regarding the 8.2-mile segment of the Great Falls reach, constituted a final judgment for
that river segment and triggered the MFNC, entitling it to a reduction in rent prospectively,
and a credit for past payments under the MFNC’s retroactivity language. Avista contended
its “prior payments, and future payments, made under protest into the escrow account are
authorized under the Lease, until all issues regarding navigability” in the continuing
litigation were resolved. The State commenced this litigation in 2018, arguing the MFNC
had not yet been triggered, and as such, Avista was not justified in withholding payments.
The State further argued that, even if the MFNC had been triggered, the retroactivity
provision of the MFNC would require a credit for past payments made only from the date
of the final judgment, not for all prior payments made by Avista. Both parties sought
summary judgment for a declaration regarding the applicability and interpretation of the
settlement documents and Avista’s obligations thereunder.
¶9 The District Court first determined that the MFNC had not yet been triggered
because no final judgment had been entered “through judgment and any appeals” as
provided by the settlement documents, and because neither the U.S. Supreme Court’s
opinion nor the U.S. District Court’s order had made a determination required by the
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MFNC “that the full market value of [Talen’s] land interest at issue in the litigation is based
upon factors more favorable to it than those contained in the settlement with Avista.” Thus,
the MFNC “[did] not currently provide a basis” for Avista to dispute its rent payment, and
Avista was “required to continue to pay the annual full market rental rate as set forth” in
the settlement documents. The District Court also declared that the Government Reopener
and the Judicial Reopener had not yet been triggered, which it reasoned was undisputed by
the parties. Nonetheless, the District Court proceeded to address whether Avista would be
entitled to a retroactive refund for past payments under any of these provisions “in the
event of a rental rate reduction in the future,” and held that any reduction in rent would
commence “from the date of that final judgment,” not the date Avista commenced
payments.
¶10 Avista appealed. Noting the District Court had determined that none of the
contested provisions governing reduced rent had yet been triggered, this Court ordered and
received supplemental briefing from the parties “on whether the issues Avista raises on
appeal present a justiciable controversy or call for an advisory opinion.”
STANDARD OF REVIEW
¶11 We review a District Court’s summary judgment ruling de novo. Tacke v. Energy
W., Inc., 2010 MT 39, ¶ 16, 335 Mont. 243, 227 P.3d 601. Summary judgment “should be
rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits
show that there is no genuine issue as to any material fact and that the movant is entitled
to a judgment as a matter of law.” Mont. R. Civ. P. 56(c)(3). A district court’s conclusions
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and application of the law are reviewed for correctness. Meine v. Hren Ranches, Inc., 2020
MT 284, ¶ 12, 402 Mont. 92, 475 P.3d 748. Further, “[i]ssues of justiciability, such as
standing and ripeness, also are questions of law, for which our review is de novo.” Weems
v. State, 2019 MT 98, ¶ 7, 395 Mont. 350, 44 P.3d 4 (citing Reichert v. State, 2012 MT
111, ¶ 20, 365 Mont. 92, 278 P.3d 455).
DISCUSSION
¶12 1. Did the District Court err by reaching the merits of a nonjusticiable issue?
¶13 Ripeness is a “central concept[] of justiciability” that is “concerned with whether
[a] case presents an ‘actual, present’ controversy.” Reichert, ¶ 54 (quoting Mont. Power
Co. v. Mont. PSC, 2001 MT 102, 305 Mont. 260, 26 P.3d 91, citing Portman v. County of
Santa Clara, 995 F.2d 898, 902-03 (9th Cir. 1993)). We have explained that “[t]he basic
purpose of the ripeness requirement is to prevent the courts, through avoidance of
premature adjudication, from entangling themselves in abstract disagreements.” Reichert,
¶ 54. Cases are “unripe when the parties point only to hypothetical, speculative, or illusory
disputes as opposed to actual, concrete conflicts.” Reichert, ¶ 54. There are two
components to a ripeness inquiry, a constitutional component and a prudential component.
Generally, the constitutional component of ripeness is met when the issues presented are
definite and concrete, and the prudential component is met when, on balance, the issue is
fit for judicial review, and the parties would face severe hardship if the court withholds
consideration. Reichert, ¶ 56.
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¶14 In its supplemental briefing, Avista argues the District Court’s determination that
the MFNC was not triggered has rendered the entirety of its decision an advisory opinion
that should be reversed and dismissed as unripe. At least for purposes of justiciability,
Avista does not continue to advance the position it took before the trial court that the
decisions of the U.S. Supreme Court and U.S. District Court triggered the MFNC. The
State primarily argues the District Court’s ruling that the MFNC does not now provide a
basis for Avista to withhold rental payments is concrete and justiciable, but also argues the
entirety of the dispute remains ripe, because resolving the retroactivity interpretation issue
would “resolve[] the present and all prospective disputes related to whether the Consent
Judgment provides for a refund.”
¶15 We have little trouble concluding the District Court’s decision on whether the
MFNC has been triggered and provides a current basis for Avista to withhold rental
payments satisfies constitutional and prudential ripeness requirements—even if the MFNC
has not been triggered. Avista’s justiciability argument did not include an explicit
concession to release the escrowed lease payments and to reinitiate payment to the State if
the action was dismissed.4 Its unilateral action of directing payments into escrow rather
than to the State created a definite and concrete injury—the State has been deprived, so far,
of funds approximating 24 million dollars. As explained by the State, these funds “cannot
be distributed or used to benefit the intended beneficiaries until the litigation is concluded.”
4
Before the District Court, Avista offered that “the funds will be immediately available once their
disposition is fully and finally adjudicated.”
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Prudentially, Avista’s action has caused a severe hardship for the State, and the escrowed
amount would grow if the case was entirely dismissed and Avista continued paying into
escrow. Further, this is not merely a contract dispute, but a settlement of prior litigation
for which the Consent Judgment expressly preserved in the District Court “jurisdiction of
this matter for the purposes of entering such further orders, direction, or relief as may be
appropriate for the construction, implementation, or enforcement of this Agreement.”
Thus, to the extent this dispute involves the current unilateral withholding of significant
contractual payments because of a settlement interpretational conflict, it presents a concrete
dispute that the District Court was designated by the judgment to resolve so that the
settlement would be enforced.
¶16 However, the District Court went further, reasoning that “[a]lthough the Court has
determined that Avista is not currently entitled to an adjustment of the rental rate, the Court
will address Avista’s contention that, in the event of a rental rate reduction in the future,
Avista would be entitled to a refund for past overpayments.” The District Court thus
proceeded to interpret the retroactivity provision of the MFNC, concluding it would not, if
triggered, provide a refund for Avista’s payments made prior to a final judgment that had
triggered a rent reduction, and more, broadly foreclosed any future relief by holding Avista
would not be entitled “to a credit or refund for rent paid in any previous year by any
provision of the Settlement, Consent Judgment or Lease.” (Emphasis added.) The District
Court’s ruling thus encircled provisions other than the MFNC, including the Government
Reopener and the Judicial Reopener, under which Avista had not sought payment relief in
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this proceeding. Here, no concreteness or present controversy exists, and we thus agree
with Avista’s argument that this portion of the District Court’s order must be reversed as
being unripe and constituting an advisory opinion about speculative issues that may never
arise. See Reichert, ¶ 54 (“The basic purpose of the ripeness requirement is to prevent the
courts, through avoidance of premature adjudication, from entangling themselves in
abstract disagreements.”).
¶17 2. Did the District Court err by its interpretation of the parties’ settlement
agreement?
¶18 The District Court concluded the MFNC had not been triggered under the terms of
that provision, first, because no “final judgment” had yet been entered in the PPL/Talen
litigation. The court reasoned that the U.S. Supreme Court had remanded the matter for
further proceedings, and the U.S. District Court’s dismissal of the State’s claim to one
segment of a contested river reach was not final “through judgment and any appeals,” as
stated in the MFNC. Secondly, the court reasoned that neither the U.S. Supreme Court’s
opinion nor the U.S. District Court’s order constituted “a determination that the full market
value of [Talen’s] land interest at issue in the litigation is based upon factors more favorable
to it than those contained in the settlement with Avista,” under the MFNC. Upon these
conclusions, the District Court entered a declaratory judgment that “Avista is required to
continue to pay the annual full market rental rate as set forth in the Settlement, Consent
Judgment, and Lease.”
¶19 Avista’s briefing on appeal, even prior to our request for supplemental briefing, did
not challenge the District Court’s conclusion the MFNC had not been triggered, but instead
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extensively argued the District Court’s interpretation of the retroactivity provision was
incorrect (“All Avista is asking is that the State be held to its end of the bargain and, if the
MFNC is triggered, recognize that its provisions apply retroactively and require previous
rent be recalculated.”). (Emphasis added.) This argument now appears to be subsumed
into Avista’s supplemental argument that the entire District Court holding be reversed as
nonjusticiable. In any event, we have concluded above that the District Court erred in
reaching the merits of the retroactivity issue, and therefore, we need not further address
that issue.
¶20 That leaves only the District Court’s determination the MFNC does not now provide
a basis for Avista to withhold rent payments from the State, or to pay them into escrow,
with which we concur. We thus affirm its declaration that “Avista is required to continue
to pay the annual full market rental rate as set forth in the Settlement, Consent Judgment,
and Lease.”
¶21 Affirmed in part, reversed in part, and remanded for entry of an amended judgment
consistent with this Opinion.
/S/ JIM RICE
We concur:
/S/ JAMES JEREMIAH SHEA
/S/ LAURIE McKINNON
/S/ BETH BAKER
/S/ DIRK M. SANDEFUR
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