State DNRC v. Avista Corp.

2023 MT 6, 523 P.3d 44, 411 Mont. 192

• Court: Montana Supreme Court
• Decided: January 10, 2023
• Docket: DA 21-0596
• Status: Published

Opinion

01/10/2023

DA 21-0596 Case Number: DA 21-0596

IN THE SUPREME COURT OF THE STATE OF MONTANA 2023 MT 6

STATE 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

2 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 3 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.

4 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.

5 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.

6 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

7 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

8 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.

9 ¶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.”

10 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

11 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 12 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