Environmental

Regulatory Issues: Understanding Riverbed Issues Associated with Dams

A recent court decision in favor of PPL Montana relieved the company of a potential nearly $41 million obligation to the state and narrowed the scope of the public trust doctrine. However, other dam owners may be facing similar suits in the future.
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A recent court decision in favor of PPL Montana relieved the company of a potential nearly $41 million obligation to the state and narrowed the scope of the public trust doctrine. However, other dam owners may be facing similar suits in the future.

By Matthew F. Hanchey and Craig A. Bromby

Who owns the land under a dam? You might reasonably believe any ownership issue was resolved when the dam was built or possibly when an earlier project was planned for the site. There may even be deeds to prove this to be true.

This was the position of PPL Montana, owner of a series of hydro facilities on the Missouri, Madison and Clark Fork rivers in Montana. These are 19-MW Hauser, 48-MW Holter, 21-MW Black Eagle, 36-MW Rainbow, 64-MW Cochrane, 60-MW Ryan and 48-MW Morony on the Missouri River; 9-MW Madison on the Madison River; and 94-MW Thompson Falls on the Clark Fork. The company also owns 194-MW Kerr on the Flathead River and 12-MW Mystic Lake on West Rosebud Creek.

PPL Montana had no doubts that it owned the riverbeds under those dams, but in June 2004 the state of Montana claimed ownership and back rent for 50 years of use of these riverbeds. Montana’s claim was based on a concept known as the “public trust” doctrine. Under this doctrine, states lay claim to the beds under “navigable” waters within the state. Ownership is held in trust for the people of the state. It’s an idea that traces back to England before the American Revolution. Like many English legal concepts, it has changed over time, as lawyers have found new uses for it in litigation.

Had Montana’s claim been successful, it could have opened the door to many more such claims. However, on Feb. 22, 2012, the U.S. Supreme Court ruled against the state. The decision narrowed the scope of the public trust doctrine, making it more difficult for states to establish ownership of river and lake beds.1 Nonetheless, the Supreme Court left the door open for further litigation on the issue, and time will tell whether states look for new ways to pursue claims against dam owners.

What is the public trust doctrine?

The public trust doctrine comes out of the body of judge-made law known as the “common law.” Common law was used in England before the American Revolution and was often summarized in treatises by legal scholars. Courts in post-Revolutionary America often relied upon English common law, using it as a starting place and making changes to fit circumstances in the new country, thus creating an American common law. This was particularly true for the public trust doctrine.

One of the first places the public trust was addressed in the U.S. was in New Jersey, in an 1821 case called Arnold v. Mundy that involved a dispute over an oyster bed. The plaintiff had staked off a bed in front of his farm and seeded it with oysters. He claimed ownership of the oyster bed through a grant traceable to the King of England. Despite Arnold’s attempts to drive off everyone who attempted to take oysters, an enterprising interloper named Mundy brought a fleet of skiffs and took away all the oysters. Mundy claimed a right to take them because the oyster bed lay beneath a “navigable water” and therefore was subject to use by any member of the public.

The Supreme Court of New Jersey looked to English common law. In England, all lands under navigable waters were owned by the King, but they were held in trust for English subjects. These subjects had a right to use navigable waters for fishing, boating and other similar activities. The New Jersey court concluded that the rights of the King transferred to the states, so that the states now held those rights in trust, i.e. the public trust. Accordingly, Arnold could not exclude Mundy from the oyster bed.

Another important development in the public trust doctrine arose when the U.S. began to admit new states to the union. Unlike the original 13, those states were not necessarily in territories previously under English rule. Some of the land comprising the new states was split from other states, but some came from Mexico or France. The non-English origins raised the question as to what rights those new states had over their navigable waters. To resolve this, the courts invoked the “equal footing” doctrine. This second doctrine granted to new states the same rights enjoyed by the original 13. Thus, new states also held in trust ownership of the lands beneath their navigable waters.

Over time, the public trust concept has been developed both by the U.S. Supreme Court and in the courts of various states. The developments have primarily been found around two questions:

– What is a navigable river and lake?

– How can land held in trust be sold or otherwise conveyed to private ownership by the states?

The first question seems simple, but it is not as simple as it would appear. In England, the test for navigability was whether the waters were tidal. In England, at least as the American courts relate it, there were no significant non-tidal rivers that functioned as channels of commerce. Thus, it was logical, and safe, for the English courts to presume that only tidal waters were navigable.

The 21-MW Black Eagle project on the Missouri River is one of several PPL Montana owns that was a subject of a court case regarding ownership of riverbeds beneath dams.
The 21-MW Black Eagle project on the Missouri River is one of several PPL Montana owns that was a subject of a court case regarding ownership of riverbeds beneath dams.

In contrast, the U.S. contains many large rivers that extend beyond tidal influence but that carry boats engaging in commerce. Accordingly, American courts adapted a new test: A river is navigable under the law if it is “navigable in fact.” In an 1871 case called The Daniel Ball, the Supreme Court declared rivers are navigable in fact “when they are used, or are susceptible of being used, in their ordinary condition, as highways for commerce, over which trade and travel are or may be conducted in the customary modes.” This left open the question of what might define customary modes of commerce. Specifically, what kind of boat might be used to test navigability? Although it varies by state, many courts have adopted relatively generous tests, holding that a river is navigable if it can support a pleasure boat (e.g. canoe) or even if it can be used to transport logs floated downstream to lumber mills.

As an aside, the federal government regulates “navigable waters” under the Clean Water Act, but the test is completely different. The question of which waters are “navigable” under this act has been the subject of pitched debate and multiple Supreme Court opinions. The Environmental Protection Agency is working on a new guidance document to clarify the situation. However, given the history of the debate and the number of comments submitted while the guidance was in draft form, the guidance is almost guaranteed not to settle the question. Nonetheless, none of that body of law applies to public trust lands. The term “navigable” means something very different when courts talk about the public trust.

PPL Montana LLC v. Montana

The public trust doctrine took on new life for PPL Montana, a wholesale electricity provider based in Billings. PPL Montana owns two federally licensed hydro projects, comprising 10 dams, on the Missouri, Madison and Clark Fork rivers. Montana was admitted to statehood in 1859. Nine of these dams were built between 1891 and 1930, and the tenth was completed in 1958. PPL Montana had records of deeds and title to document ownership to the riverbeds in which the dams were located.

In 2003, PPL Montana was sued by two Montana citizens on behalf of Montana’s school trust. (In Montana, as in some other states, certain state-owned lands are held in trust on behalf of the state’s public schools, and the schools benefit from profits derived from those lands.) The suit claimed PPL Montana’s dams covered public trust land and that PPL Montana owed back rents for use of those lands, to the tune of tens of millions of dollars. That suit was dismissed on procedural grounds.

However, PPL Montana, along with two other parties, filed a new case in November 2004, PPL Montana LLC v. Montana, seeking a court declaration that it owed the state no rents or other compensation. (The two other parties later settled their claims.) PPL Montana lost and was ordered to pay the state $34.7 million in retroactive back rent, $6.2 million for rent in 2007, and whatever future rents the state decided to charge for use of the riverbeds. The case was appealed to the Montana Supreme Court, but PPL Montana lost again. This time PPL Montana appealed to the U.S. Supreme Court.

A number of issues floated around the case as it ran its course, but by the time it reached the Supreme Court, it was focused on how states, courts and land owners can identify which riverbeds fall within the public trust.

Ownership of riverbeds beneath dams in Montana was the subject of a recent court case. Although the court's decision in favor of dam owner PPL Montana narrowed the scope of the public trust doctrine, other dam owners may be facing similar suits in the future.
Ownership of riverbeds beneath dams in Montana was the subject of a recent court case. Although the court’s decision in favor of dam owner PPL Montana narrowed the scope of the public trust doctrine, other dam owners may be facing similar suits in the future.

The state of Montana marshaled several different sources of evidence in support of its claim that the PPL Montana riverbeds were public trust lands. First, it relied on a variety of historical sources about the use of the rivers at the time Montana entered the union. For the Missouri River, this included historical records of Lewis and Clark’s exploration in 1805. For the Clark Fork River, it included records of log transport in the 1880s. The state acknowledged that some portions of the Missouri River contained waterfalls over which boats could not travel. However, the state argued that commerce was conducted using canoes, and traders and trappers would simply move around the waterfalls by portage. For the Madison River, where historical records of usage were sparse, the state introduced evidence of the current use of the river by drift boats for commercial fishing. Boats of this type, the state contended, were the successors to the boats used by early explorers.

PPL Montana began its case by disputing the relevance of the state’s evidence. It pointed to the fact that its dams on the Missouri River were mainly in a 17-mile stretch known as the “Great Falls Reach,” which contains a series of waterfalls and rapids that made it impassable by boat (a fact the state conceded). PPL Montana argued the Great Falls Reach was such a significant interruption in the river that it should not be counted as navigable. The company also produced evidence that the upper Missouri River, while potentially suitable for canoeing, is not suitable for commercial boating.

For the Madison River, PPL Montana contended that evidence of current recreational use was not evidence that the river was navigable in commerce at the time of statehood. PPL Montana also offered evidence from a historian and a professor of fluvial geomorphology. The first offered an opinion on the historical record. The second offered his opinion on how flows in the river had changed over time and how the modern rivers differed from their historic conditions.

Taken together, PPL Montana argued, the evidence proved the state had failed to carry its burden to show that the riverbeds under the dams were navigable and subject to public trust rights.

The U.S. Supreme Court issued its opinion on February 22, 2012. The core of the holding was that, under the equal footing doctrine, the state had taken ownership of the beds of rivers that supported commerce at the time Montana entered the union. Thus, the appropriate inquiry was whether a particular location in the river supported commerce in 1889. In so holding, the Supreme Court made several important rulings. First, it held that a river’s navigability is determined on a segment-by-segment basis. In other words, navigability on one segment of a river does not compel the conclusion that the entire river is navigable. Any portion of the river that could not have supported navigation for trade and travel in 1889 could not later be claimed as navigable. The court held that the Great Falls Reach was never navigable and therefore was not subject to the public trust.

Additionally, the court held that present-day evidence of recreational use is of limited value in assessing navigability. Rather, courts need to look at use at the time of statehood and by boats that were customarily used for trade and travel at that time. Usage for modern recreational boating is only relevant if there is evidence that such boats are similar to those historically used in trade and travel, if the river has not changed over time.

After concluding that the Montana Supreme Court had employed the wrong test in the case, the U.S. Supreme Court sent the case back to the Montana Supreme Court for further consideration using the appropriate test.

Take-home message

The decision in PPL Montana v. Montana will not close the book on public trust claims. It does increase the burden on states for proving that riverbeds sit under waters that are navigable-in-fact. States will either need historic or modern evidence of navigability coupled with historic and scientific evidence linking modern and historic navigability. Furthermore, the evidence will have to apply to the river segment on which the dam sits. The burden may be high enough to discourage states from pursuing similar cases, but when $40 million is at stake, the potential return may overcome the risk of losing.

Nonetheless, even if there is no wave of suits seeking to collect from dam owners for their use of riverbeds, the public trust doctrine remains a tool that states, and potentially private parties, can invoke in disputes with dam owners and operators and with other private and exclusive uses of waterways. Disputes over water allocation, environmental impacts and rights of access all potentially implicate the public trust. Where does this leave a dam owner or other private party who asserts an exclusive use on a waterway?

The first step is probably to locate and secure appropriate title documents or other indicia of ownership. Deeds may contain language indicating whether the lands were considered to have been under the public trust at the time of transfer, and they may also specify what rights were transferred. Unfortunately, it can be difficult to track down title documents. Many dams were built around the turn of the century. Title documents from that era may have been lost or destroyed, and they may not address the public trust, as this may not have been a significant concern at the time.

Even when the dams are newer, they may rely on a title that dates to an earlier time, such as when a dam that impounds water for a hydro plant is built on the site of a mill dam or was built in reliance on rights acquired by another corporation. Also, as mentioned above, PPL Montana had documents showing a title to the riverbeds, but those documents were not decisive in deciding who owned the riverbeds. Nonetheless, deeds and title records can be used as evidence, even if they do not completely resolve the issue.

A potential second step is to marshal the readily available historical evidence. Hydropower projects that are licensed by the Federal Energy Regulatory Commission (FERC) may have a historical/cultural assessment that can serve as a good starting place. Another useful source of historic documents is Google Books.2 The free Google Books library includes historic surveys, travel guides and U.S. government publications that may include discussions of navigability or particular water bodies. Taking advantage of these sources will provide at least some idea of whether a dam is vulnerable to a claim that it has been built on public trust lands.

The public trust doctrine is an interesting example of a legal theory conceived in a different time and place, incorporated into the legal system, and then repurposed for modern circumstances. Although the U.S. Supreme Court opinion has discouraged a more expansive use of the doctrine, it remains alive and well, as it has important public policy implications and applications. It is useful to know about for dam owners and operators and other private users of waterways.

Notes

1www.hydroworld.com/index/display/article-display/5636693832/articles/hrhrw/regulationandpolicy/general/2012/02/u_s_-supreme_court.html
2books.google.com

Matthew Hanchey is an associate and Craig Bromby is a partner with Hunton & Williams LLC. In their practices, Hanchey and Bromby assist companies in a wide range of environmental permitting and enforcement actions, including representing energy companies in litigation regarding hydropower facilities and water use.