Opposition Brief — Seven Up Pete Venture v. Montana

7

Contrary to the district court's finding, the supreme court

found a substantial impairment of contract because “the

Venture’s contractual relationship with the State was

nonetheless based on the assumption, held by all parties,

that the cyanide heap method would be used.” Pet. App.

25a, 445. However, citing the Montana Constitution's

guarantee of “the right to a clean and healthful environ-

ment,” Mont. Const. Art. II, § 3, the court concluded that I-

137 “is based on the significant and legitimate public

purpose of protecting the environment.” Pet. App. 26a,

{ 46. The court also held 1-137 to be reasonably related to

that purpose “|i]n consideration of the acknowledged risks

associated with the use of cyanide heap leaching, and the

expressed concerns about the inadequacy of existing laws.”

Pet. App. 28a, 4 50. Although petitioners urged the court

to apply heightened scrutiny to 1-137 based on their

assertion that it benefited the State's self-interest, the

court refused because Montana's financial contractual

interests were actually diminished by 1-137, as it “caused

the State to forego the opportunity to receive royalty

payments estimated at $5 million annually over the

production life of the mining operation, which was ex-

pected to be twelve years.” Pet. App. 27a, { 47.

+

ARGUMENT

The decision of the Montana Supreme Court is a

sound application of this Court’s Contracts Clause and

Takings Clause analysis to contract and property rights

rooted in Montana law. As such, the decision does not

conflict with any decision of this Court, any court of

appeals, or any other state court of last resort. Further

review is not warranted.

8

1. Petitioners first ask this Court to “decide whether

realty and leases, which provided an opportunity for

mining permits, are ‘property’ protected from uncompen-

sated takings.” Pet. 7. By their terms, the agreements at

issue show that petitioners never had a vested right to

mine using the cyanide heap-leach process.

a. As the principal case upon which petitioners rely

explains, this Court’s takings jurisprudence “has tradi-

tionally been guided by the understandings of our citizens

regarding the content of, and the State’s power over, the

‘bundle of rights’ that they acquire when they obtain title

to property.” Lucas v. South Carolina Coastal Council, 505

U.S. 1003, 1027 (1992). The dimensions of property inter-

ests “are defined by existing rules or understandings that

stem from an independent source such as state law.”

Board of Regents v. Roth, 408 U.S. 564, 577 (1972). There

can be no compensable taking “if the logically antecedent

inquiry into the nature of the owner’s estate shows that

the proscribed use interests were not part of his title to

begin with.” Lucas, 505 U.S. at 1027.

Petitioners acknowledge that the property at issue is

neither land nor leases, but “an opportunity for mining

permits” on the land under the leases. This Court has

recognized that mineral estates are a “unique form of

property” over which the government, “as owner of the

underlying fee title to the public domain, maintains broad

powers.” United States v. Locke, 471 U.S. 84, 104 (1985).

Therefore, “[e)ven with respect to vested property rights, a

legislature generally has the power to impose new regula-

tory constraints on the way in which those rights are used,

or to condition their continued retention on performance of

certain affirmative duties.” Jd. at 104.

9

Here, the “bundle of rights” at issue includes the

Montana mining laws, mineral leases, and subsequent

agreements pertaining to the regulatory process and the

lease terms. Montana law prohibits mining without an

operating permit, something petitioners failed to obtain.

Mont. Code Ann. § 82-4-335(1). The mineral leases them-

selves recited the broad discretion enjoyed by the State of

Montana to impose “reasonable requirements to prevent

soil erosion, air and water pollution, and to prevent

unacceptable impacts to” natural resources. All other

material agreements conditioned any mining activity upon

general compliance with environmental protection laws

and regulations as well as specific regulatory approvals,

including an EIS and an operating plan. As the Montana

Supreme Court found in its “essentially ad hoc, factual

inquiries” into the interests involved, Penn Cent. Transp.

Co. v. New York City, 438 U.S. 104, 124 (1978), not one of

the agreements, regulations, or laws applicable to peti-

tioners since the inception of their mineral leases guaran-

teed them a right to mine, let alone a right to mine using

the single mining process banned by I-137. In light of

these express limitations on petitioners’ rights under the

mineral leases, the passage of I-137 by the people of

Montana “did not interfere with interests that were

sufficiently bound up with the reasonable expectations of

the claimant to constitute ‘property’ for Fifth Amendment

purposes.” Jd. at 125.

Petitioners’ “opportunity for mining permits” also

depended on their active pursuit of those permits, a

pursuit the petitioners abandoned beginning in September

1998 (when the DNRC ended the tolling of the primary

lease term), two months before the passage of I-137.

“[T}]his Court has never required the State to compensate

10

the owner for the consequences of his own neglect.” Texaco,

Inc. v. Short, 454 U.S. 516, 530 (1982) (holding lapse of

mining interest “upon the failure of its owner to take

reasonable actions imposed by law” is not a taking).

b. Petitioners allege the existence of a conflict both

among federal appeals courts and between those courts

and the Montana Supreme Court “regarding the constitu-

tional standard governing landowner challenges to permit

denials.” Pet. App. 11. The purported circuit split involves

the Montana Supreme Court’s use of an analogy to sub-

stantive due process property interests it analyzed in Kiely

Constr. L.L.C. v. City of Red Lodge, 2002 MT 241, 57 P.3d

836. Pet. App. 12a-13a, 9 26. According to petitioners,

“(t]he cases cited in Kiely reveal conflicts among federal

appeals courts,” conflicts described in another substantive

due process case, George Washington Univ. v. District of

Columbia, 318 F.3d 203 (D.C. Cir.), cert. denied, 540 U.S.

824 (2003). Regardless of whether the question presented

by George Washington Univ. may or may not newly merit

review by this Court, however, neither Kiely nor a sub-

stantive due process claim is the subject of the instant

petition.

The second conflict petitioners allege is between the

Montana Supreme Court's decision and that of the Court

of Appeals for the Federal Circuit in United Nuclear Corp.

v. United States, 912 F.2d 1442 (Fed. Cir. 1990). That case

involved the federal government's subjection of plaintiff's

completed mining plan, which met all then-existing

regulatory requirements, to the arbitrary veto of an

entirely separate (and never before officially involved)

sovereign entity, the Navajo Tribe, for the sole purpose of

“enablling) the Tribe to exact additional money from a

company with whom it had a valid contract.” Jd. at 1438.

ll

Indeed, the Federal Circuit distinguished United Nuclear

from two cases in which it found no taking because in

those cases, as in this case, the government action formed

part of the background of reasonable regulation to which

all property rights are subject. Jd. at 1437-38. The first

involved a Presidential order barring the operation of

nuclear reprocessing plants that threatened the prolifera-

tion of nuclear weapons. Allied-General Nuclear Services v.

United States, 839 F.2d 1572 (Fed. Cir.), cert. denied, 488

U.S. 819 (1988). The second involved a federal law requir-

ing a mine owner to spend large amounts of money to

stabilize its uranium tailings. Atlas Corp. v. United States,

895 F.2d 745 (Fed. Cir.), cert. denied, 498 U.S. 811 (1990).

These cases, like this case and unlike the pure financial

exaction at issue in United Nuclear, rested upon an

ancient takings principle:

The power which the States have of prohibiting

such use by individuals of their property as will

be prejudicial to the health ... or the safety of

the public, is not —- and, consistently with the ex-

istence and safety of organized society, cannot be

-~ burdened with the condition that the State

must compensate such individual owners for pe-

cuniary losses they may sustain.

Mugler v. Kansas, 123 U.S. 623, 669 (1887), cited in Allied

General, 839 F.2d at 1576; see also M & J Coal Co. v.

United States, 47 F.3d 1148 (Fed. Cir.), cert. denied, 516

U.S. 808 (1995) (holding that, despite state’s grant of

mining permit to plaintiff, federal government's subse-

quent restriction on mining was not a taking.) The Federal

Circuit's decisions support, rather than conflict with, the

Montana Supreme Court’s decision.

12

c. Petitioners’ final argument for review of its tak-

ings claims is a request for this Court to “police state

courts that may have a fiscal incentive to protect state

coffers at the expense of private property.” Pet. 14. Even

setting aside the Montana Supreme Court’s finding that I-

137 deprived state coffers of millions of dollars of royalty

income, this argument amounts to little more than a

request for this Court to reconsider its opinion last term in

San Remo Hotel, L.P. v. City & County of San Francisco,

125 S. Ct. 2491 (2005). As the Cou rt then observed, “[i]t is

hardly a radical notion to recognize that, as a practical

matter, a significant number of plaintiffs will necessarily

litigate their federal takings claims in state courts.” Jd. at

2506. Particularly in the complex state administrative

context of this case, “State courts are fully competent to

adjudicate constitutional challenges to local land-use

decisions. Indeed, state courts undoubtedly have more

experience than federal courts do in resolving the complex

factual, technical, and legal questions relatea to zoning

and land-use regulations.” Jd. at 2507.

While petitioners may find that the federal district

court will be unavailable to reconsider the federal claims

decided by the Montana Supreme Court, the issues ad-

dressed and authorities relied upon show that the state

court did, in fact, consider and decide petitioners’ federal

claims. Pet. App. 3a, {{ 2-5. In any event, as petitioners

concede, the federal district court already has granted

them their desired federal forum to determine the preclu-

sive effect of the Montana Supreme Court's decision under

San Remo Hotel. Pet. 14 n.2. This Court need not inter-

vene.

13

2. In seeking review of their Contracts Clause claim,

petitioners invite this Court to expand the limited applica-

tion of heightened scrutiny under the Contract Clause

beyond financial contracts to include “all impairments by a

state of its own contracts,” even where, as here, the im-

pairment works to the state’s financial disadvantage. Pet.

15. Relying mainly on commentary with scant reference to

the contracts and alleged impairment at issue, petitioners

would abstract beyond its rationale the state financial self-

interest rule of United States Trust Co. v. New Jersey, 431

U.S. 1 (1977). Neither United States Trust nor this Court’s

subsequent application of the Contracts Clause leads to

petitioners’ conclusion. Absent any asserted conflict among

lower courts or between the Montana Supreme Court and

this Court, petitioners’ Contracts Clause claim does not

merit review.

a. United States Trust involved New Jersey's and

New York's direct impairment of a debt obligation, a

“purely financial” contract “the Court has regularly held

that the States are bound by.” 431 U.S. at 24-25. Rather

than according its usual deference to the legislature, the

Court carefully scrutinized the impairment to determine

whether it “was both reasonable and necessary to serve

the admittedly important purposes claimed by the state”

because “a State cannot refuse to meet its legitimate

financial obligations simply because it would prefer to

spend the money to promote the public good rather than

the private welfare of its creditors.” Jd. at 29. Deference to

a state’s justification of financial self-interest would be

misplaced, for “lif a State could reduce its financial

obligations whenever it wanted to spend the money for

what it regarded as an important public purpose, the

Contract Clause would provide no protection at all.” Jd. at

14

26. But the rule applies only in cases of financial benefit to

the state; impairment even of a financial obligation would

fall outside the reasoning of United States Trust if the

impaired provision protected nonpecuniary interests

similar to those served by I-137: “the State’s promise to

continue operating the [financed] facility ... surely could

not validly be construed to bind the State never to close

the facility for health or safety reasons.” Jd. at 25.

Based upon the record at summary judgment, the

Montana Supreme Court found that “(t]he passage of 1-137

caused the State to forego the opportunity to receive

royalty payments estimated at $5 million annually over

the production life of mining operation which was expected

to be twelve years.” Pet. App. 27a, | 47. Thus, the Court

declined to apply the heightened financial self-interest

standard of United States Trust because “though the State

was a party to the contract, its interests as a contracting

entity were actually diminished by I-137's passage.” /d.

Petitioners deride this finding as “simplistic” because “I-

137 allowed it to regain — without paying any compensa-

tion — Petitioners’ valuable and improved lease properties

containing mineral deposits worth hundreds of millions of

dollars.” Pet. 18-19. Yet simply put, the mineral leases

reverted to the State of Montana (by their terms) subject

to the same regulations that petitioners claim rendered

them valueless; whatever possible diminution in value the

1-137 cyanide heap-leach process ban caused to the mineral

estate, the public owner suffered the same as the private

lessee. The fact that the State of Montana might have

incurred losses to its own mineral wealth as a result of I-

137, if true, would argue against heightened scrutiny, not

for it. Petitioners therefore offer no plausible explanation

of how I-137, a ballot measure enacted not by a legislature

15

to protect its appropriation capacity, but by the people

themselves to protect their health and safety, serves the

state of Montana’s self-interest in such a way to subject it

to heightened scrutiny under United States Trust.

b. A second important distinction between this case

and those cases where a state’s self-interest draws careful

scrutiny is the general applicability of a police power

exercise such as 1-137, as opposed to the repeal of a spe-

cific financial covenant such as that involved in United

States Trust. The ban on cyanide heap-leach processing

“did not proscribe a rule limited in effect to contractual

obligations or remedies, but instead imposed a generally

applicable rule of conduct designed to advance a broad

societal interest.” Exxon Corp. v. Eagerton, 462 U.S. 176,

191 (1983) (quotation and citation omitted). The severance

tax pass-through prohibition at issue in Exxon did not

contravene the Contracts Clause because its effect on

existing contracts “was incidental to its main effect” of

protecting consumers. /d. at 192. Similarly, the “substan-

tial sums of money” petitioners claim to have lost, Pet.

App. 69a, were not due them by the terms of any contract

they held with the state of Montana, but, like any invest-

ment involving a regulated matter, were subject to the

incidental effect of a generally applicable law. Energy

Reserves Group, Inc. v. Kansas Power & Light Co., 459

U.S. 400, 416 (1983) (rejecting Contracts Clause challenge

to law where “the contracts expressly recognize the exis-

tence of extensive regulation by providing that any con-

tractual terms are subject to relevant present and future

state and federal law.”).

In addition to the “generally applicable rule” inquiry,

“(t]he requirement of a legitimate public purpose guaran-

tees that the State is exercising its police power, rather

16

than providing a benefit to special interests.” Jd. at 412.

The environmental protection measure enacted by I-137

serves more than a legitimate public purpose; it serves

purpose of constitutional dimension under Montana's

Constitutional guarantee of a “clean and healthful envi-

ronment.” Mont. Const. Art. [X, § 1(1); Montana Environ.

Info. Ctr. v. Department of Envir Quality, 1999 MT 248,

77 63-64, 988 P.2d 1236, 1246 (recognizing as fundamental

the right to “clean and healthful environment,” and

imposing strict scrutiny to state action implicating that

right).

c. Petitioners’ moral and policy arguments to extend

heightened scrutiny to all impairments of state contracts,

Pet. 17-19, should fail. It is rather late in the day to read

the terms of the Contracts Clause as imbued with absolute

“notions of fairness” requiring that “government must keep

its word,” Pet. 17 (citing Laurence H. Tribe, American

Constitutional Law, §§ 9-10 at 619 (2d ed. 1988)), its police

power notwithstanding, or to insist that an “imperative

that government accommodate private expectations by

acting only pursuant to rules fixed and announced before-

hand,” Pet. 18 (citing Note, Rediscovering the Contract

Clause, 97 Harv. L. Rev. 1414, 1427 (1984)), overrides the

expressed health and safety demands of its citizens. This

Court long ago determined that the Contracts Clause “is

not to be read with literal exactness like a mathematical

formula.” Home Bidg. & Loan Assoc. v. Blaisdell, 290 U.S.

398, 428 (1934). “Not only are existing laws read into

contracts in order to fix obligations as between the parties,

but the reservation of essential attributes of sovereign

power is also read into contracts as a postulate of the legal

order.” Id. at 435.

17

In this light, and contrary to petitioners’ complaint

that “it will often be difficult to identify whether the State

is acting in whole or in part to further its financial inter-

ests distinct from some other form of self-interest,” Pet. 18,

any rule beyond the financial self-interest rule of United

States Trust would prove unworkable: by definition,

anything within a state’s police power “authority to safe-

guard the vital interests of its people,” Blaisdell, 290 U.S.

at 434, could be considered “some other form of self-

interest.” Petitioners offer no principled limit to their

proposed rule invalidating the application of any law that

impairs any contract with the state regardless of financial

benefit, for there is none. Instead, attempted enforcement

of such a sweeping and unwarranted intrusion into state

action would soon evince the wisdom of Justice Holmes in

his observation that “[o]ne whose rights, such as they are,

are subject to state restriction, cannot remove them from

the power of the State by making a contract about them.”

Hudson Water Co. v. McCarter, 209 U.S. 349, 357 (1908).

>

18

CONCLUSION

The petition for a writ of certiorari should be denied

Respectfully submitted,

MIKE MCGRATH

Attorney General of Montana

CHRISTIAN D. TWEETEN

Chief Civil Counsel

Counsel of Record

ANTHONY JOHNSTONE

Assistant Attorney General

215 N. Sanders Street

Helena, MT 59620-1401

Tel.: 406-444-2026

Counsel for Respondent

State of Montana

x . yy -etht es ieee

i supreme Court U.S

} } FILE

’

— | JAN 9 - 2006

No. 05-588

—< <<

LETICE OF INE CLERK

IN THE

Supreme Court of the United States

SEVEN UP PETE VENTURE, ETAL..

Petitioners,

Vv.

THE STATE OF MONTANA, ET AL..

Respondents.

On Petition for a Writ of Certiorari

to the Supreme Court of Montana

BRIEF IN OPPOSITION OF RESPONDENTS

MONTANA ENVIRONMENTAL INFORMATION

CENTER, MONTANANS FOR COMMON SENSE

MINING LAWS-FOR-I-137, BIG BLACKFOOT

CHAPTER OF TROUT UNLIMITED, AND MINERAL

POLICY CENTER

JACK R. TUHOLSKE SCOTT L. NELSON

TUHOLSKE LAW OFFICE P.C. Counsel of Record

234 E. Pine PUBLIC CITIZEN LITIGATION

Missoula, MT 59802 GROUP

(406) 721-6986 1600 20th Street, N.W.

Washington, D.C. 20009

(202) 588-7724

Attorneys for Non-Governmental Respondents

January 2006

QUESTION PRESENTED

Whether this Court should review the Montana Supreme

Court's rejection of petitioners’ fact-bound claims that a pro-

hibition on environmentally destructive mining techniques

constituted a taking or a Contract Clause violation under

Montana law.

il

TABLE OF CONTENTS

FRE CRdES SF CUT BOOP vivietnccbicnsrunvebatisdecéenuinneunmaeiaatas i

TABLE OF AUTHORITIES ...<ccccccoccecovsorsenseees stcibidelampdillcelain ili

Pee a Se ievacirciipavasigerdovantipiictphinniannsiainisiaiiiinnapinaesliligin l

DR SUITE cncstppintcenncdnncinnptintnontatidiepeamslensionns Jeielenipideniencioatiig 2

REASONS FOR DENYING THE WRIT...........0...ccccceeeeeees 7

I. The Montana Supreme Court’s Takings and

Contract Clause Rulings Are Not Outcome

i ticprisintiestrctovinmictnincioigisieinnliciiansnipahipaiaiies 7

I]. Petitioners Present No Compelling Basis for

Review of the Montana Supreme Court’s Takings

Fe vhciattticcaskesinietiniantaatcsabiaesccpesiiintataieinamittabainididatiains 10

Ill. Petitioners’ Contract Clause Claim Does Not Merit

ill

TABLE OF AUTHORITIES

Page(s)

Cases:

Adams v. Robertson, 520 U.S. 83 (1997) ......cccccccccceeceeeereeess 1]

California v. Freeman, 488 U.S. 1311 (1989)

(O’Connor, Circuit Justice, in chambers).................0c00008 8

Coleman v. Thompson, 501 U.S. 722 (1991) ....ccccccccceeeeceeeeees 9

DeBlasio v. Zoning Board, 53 F.3d 592

REE SE aay Sc ree eRe oa a 12

Energy Reserves Group, Inc. v. Kansas Power

& Light Co., 459 U.S. 400 (1983).......cceccccccccrecccroreeereres 16

George Washington University v. District of Co-

lumbia, 318 F.3d 203 (D.C. Cir. 2003) ........0.....:ceeeeeeeee 12

Gros Ventre Tribe v. United States, 2004 Lexis

26865 (D. Mont. June 29, 2004) .........ccccccccccccccvercccererceees 2

Herb v. Pitcairn, 324 U.S. 117 (1945S) ....ccccarcoccccccoccoscococccssess 9

Kiely Construction, L.L.C. v. City of Red Lodge,

SF a Es HITE ieceintbeitaieldniach deine nabedeisisdcheidplachesvoatindan 12

Linton v. Commissioner, 65 F.3d 508

re at Ere acincceasteetiladinenee inicio lydoriaethindaidansdacednnaliniouhe 17

Mercado-Boneta v. Administracion del Fondo

de Compensacion, 125 F.3d 9

RR ED NA RR a ed Eee 17

Michigan v. Long, 463 U.S. 1032 (1983)............. 8, 10, 15, 16

Murdock v. Memphis, 87 U.S. 590 (1874) .0....cccccccceeeeeeeeeeees 15

National R.R. Passenger Corp. v. Atchison,

Topeka & Santa Fe Ry. Co., 470 U.S. 451

CED enidileclpbalesinhabiieesininenladdiichadeiiiviapelibasopieetibtansaciedipdeieiartia 17

New York v. Class, 475 U.S. 106 (1986).......0....c0cccceceees 10, 15

iV

San Remo Hotel v. City & County of San Fran-

CMD, BZD SH. CR. BOG1 CHATS) cccrscoiserovevicsessarsercsstesnstjents 14

Seven Up Pete Venture v. State, 114 P.3d 1009

es Goa iiehncvnisecissejpememappinsaidtgereslestinaniaminnnciitnen passim

United Nuclear Corp. v. United States,

942 F.2d 1432 (Fed. Cir. 1990).....cccccocsrcseovssesssseseees 13,14

United States v. Winstar Corp., 518 U.S. 839

SPIED cinshinenehsooidaeigisnsaiviastbectdiabiigehedenivascacdnipesedabeneias 18

United States Trust Co. v. New Jersey,

PD Ais 0 CBWE F) cosiccwicerssoticisaicedesimmpeaciaannnd 1, 16, 17, 18

Statutes & Rules:

Sey Bk PP Pc cahhdbsekdinivbnkeitiapiaticbbiidicsaniapeaintiieianteecyviied 12-13

D.C Abe: BAAD scrconiislacchiicsciiaccidatenvendaveiaetinpsiaghedeibanionjaaplonibetian 4

Mont. Code Ann. § 82-4-335(1) .........cccsescccessesssersrecseceseseeeees 3

DOGTE AGE: Bh. FTG OO orcicictcsachcssedereisctsideiasebacdiabishiandann 3

Misc.:

GF FOG. Oe, FIFE HOO. BD, BOE) wiicketescsctovscrseicentiasiacvncttiones 2

Maclean, A River Runs Through It (1976) .......cccccccccceeeeeeeeeees 3

Stern, Gressman, Shapiro & Geller, Supreme

Cay Priced (Ue GG, TUE? scstessetesssdarvistoctasisobemsbeveian 10

www .lawlibrary.state.mt.us/dscgi/ds.py/View/

Collection-11541 (last visited January 4,

Pert iiniaiscisassnbisiscatitaientatoneminioniisidaatiadatatieiata 5

INTRODUCTION

Petitioners in this case seek review of the Montana Su-

preme Court's rejection of their state-law challenges to the

loss of state mineral leases on which they hoped to conduct

environmentally destructive cyanide heap-leach gold mining

on the banks of a pristine trout stream. Although petitioners

contend that the Montana Supreme Court decided federal tak-

ings and Contract Clause questions in the course of deciding

their stnctly state-law claims, they fail to mention that the

Montana Supreme Court also affirmed the termination of

their mineral leases on the purely state-law ground that a

State agency had correctly determined that they had violated

a term of the leases by failing to take active steps to pursue

the permitting process over a seventeen-month period. That

purely state-law ruling constitutes an independent and ade-

quate state-law ground for the judgment below.

In any event, petitioners’ takings and Contract Clause

claims do not warrant review. Even assuming that the state

court decided a federal takings claim, petitioners’ principal

criticism of the state court is that it analyzed their takings

claim in the way they asked it to (as a claim that they had

been deprived of the opportunity to apply for a permit). Peti-

tioners’ additional assertion that the Montana court's takings

analysis presents a conflict with federal appellate decisions is

groundless, amounting to litthe more than a claim that the

Montana court cited a decision that cited other decisions that

reflected different approaches to an issuc not presented here.

As for petitioners’ Contract Clause claim, the Montana

court decided only a state Contract Clause claim over which

this Court has no jurisdiction. In any event, petitioners’ ar-

gument that the court should have applied heightened scru-

tiny even though the alleged contractual impairment did not

advance the state’s pecuniary interest is contrary to this

Court's decision in United States Trust Co. v. New Jersey,

431 U.S. 1 (1977), and is not supported by any judicial au-

thority. Petitioners concede that the only other decisions they

tv

know of that address the issue support the Montana court's

approach. Under such circumstances, there would be no rea-

son to review the Montana court’s analysis even if it con-

cermed a federal Contract Clause issue.

STATEMENT

In November 1998, Montana voters enacted Initiative 137

(I-137) to ban new cyanide heap-leach mines. Cyanide heap-

leach mining is a relatively recent invention. Mine operators

pour a cyanide solution over tremendous piles of low-grade

ore extracted from open-pit mines, leaching minuscule

amounts of gold and silver from each ton of ore. The inevita-

ble by-products are residual cyanide and huge quantities of

waste rock, which are prone to further leaching of acidic

compounds from exposure to air and precipitation. Waste

water from heap-leach piles produces acid mine drainage that

can persist for decades, degrading surface and subsurface wa-

ters. All parties agree that cyanide heap-leach mines can

Cause serious environmental damage.

Bankrupt open-pit cyanide heap-leach mines have caused

serious environmental problems in Montana. See, ¢.g., 67

Fed. Reg. 7191 (Feb. 15, 2002) (final environmental impact

Statement addressing reclamation/treatment alternatives for

acid mine drainage at Zortman mince). See also Gros Ventre

Tribe v. United States, 2004 Lexis 26865 (D. Mont. June 29,

2004) (“It is undisputed that the Zortman-Landusky mines

have devastated portions of the Little Rockies, and will have

effects on the surrounding arca, including the Fort Belknap

Reservation, for generations. That devastation, and the result-

ing impact on tribal culture, cannot be overstated.””). Montana

taxpayers have been left to bear the cost of reclaiming and

treating abandoned cyanide heap-leach mines. See 67 Fed.

Reg. 7191 (discussing the preferred reclamation alternative at

Zortman, which exceeded bonding by $22.5 million, and not-

ing the need for an additional $11 million for permanent wa-

ter treatment regardless of the alternative selected).

Twelve years before I-137, Montana issued mining leases

on several sections of state land to Western Energy Com-

pany. The properties, which contained large quantities of

low-grade gold and silver ore, were close to the Blackfoot

River, the stunning trout stream immortalized in Norman

Maclean’s A River Runs Through It. Petitioner Seven-Up

Pete Joint Venture (the Venture) purchased the leases from

Western Energy, and, along with several other of the peti-

tioners, acquired additional private mineral leases on adjacent

land and began planning a massive cyanide heap-leach mine

on the banks of the Blackfoot.

The leases themselves granted the Venture no right to

mine on state lands; Montana law required the operator to

obtain a Metal Mine Reclamation Act operating permit, as

well as all other permits required by state and federal agen-

cies. Mont. Code Ann. § 82-4-335(1). Montana retained full

authority to require the Venture to provide reclamation plans,

environmental studies and other permits, to reject any part of

the Venture’s application as inadequate, and to deny an oper-

ating permit. See Mont. Admin. R. 17.24.404. Moreover,

Paragraph 7 of the leases specifically stated that the lessee

“shall fully comply with all applicable state and federal laws,

rules and regulations, including but not limited to those con-

cerning safety, environmental protection and reclamation.”

In 1993, the Venture formally proposed its cyanide heap-

leach mine adjacent to the Blackfoot, where it hoped to ex-

tract up to 9 million ounces of gold and 20 million ounces of

silver on a portion of the leases known as the McDonald Pro-

ject. Because of the necessity of completing an environ-

mental impact statement (EIS) and the then-imminent expira-

tion of the ten-year lease terms, Montana and the Venture

entered into an amendment to the leases that tolled the re-

maining seventeen months of their terms, on the express con-

dition that the Venture would actively pursue an operating

permit. All other lease terms, including Paragraph 7, re-

mained in full force and effect.

Aware of the environmental damage and taxpayer liabil-

ity occasioned by the Zortman cyanide heap-leach mine and

other failed cyanide mines in Montana, the respondent or-

ganizations that join in this bref formed a ballot-initiative

committee, began a state-wide campaign to ban future open-

pit cyanide heap-leach mining, and obtained the requisite

Signatures to put I-137 on the November 1998 ballot.’ On

July 2, 1998, while the campaign for I-137 was in full swing,

the Montana Department of Environmental Quality (DEQ)

issued a stop-work order on the McDonald Project EIS be-

cause of the Venture’s failure to pay fees for third-party EIS

services. The Venture missed later payments as well, and

Montana notified the Venture in September 1998 that, be-

cause of the stop-work order on the EIS, the lease extensions

granted to the Venture in 1993 were suspended, and the re-

maining unexpired primary lcase term of seventeen months

would begin to run for each of the mineral leases. Montana

informed the Venture that the mineral leases would therefore

terminate on their own accord on February 23, 2000, unless

the Venture reactivated the permitting process.

1-137 was passed by a majority of Montana voters and

became effective on November 3, 1998. The Venture did not

possess an operating permit for a cyanide heap-leach mine

when I-137 became law, but it still held its leases, which

were actively running. The Venture, however, failed to com-

plete the EIS and did not actively pursue completion of the

operating permit application process. On February 24, 2000,

Montana informed the Venture that its mineral leases for the

McDonald Project had expired because of its failure to com-

plete the application process, commence mining, return any

royalties to the state, or otherwise comply with lease terms.

' As intervenors in the courts below (see Pet. ii), the organizations

are respondents in this Court under S. Ct. R. 12.6

The Venture administratively appealed the termination of

the leases, and on October 26, 2000, the Director of Mon-

tana’s Department of Natural Resources and Conservation

(DNRC) rejected the appeal on the ground that petitioners

had done nothing to pursuc the permitting process during the

seventeen months between September 1998, when they were

notified that the remaining terms of the leases would resume

running, and February 2000, when the leases terminated.

Meanwhile, in April 2000, petitioners initiated this law-

suit in Montana state court, asserting a laundry list of state-

law challenges to the cyanide heap-leach mining ban. Peti-

tioners specifically refrained from presenting federal consti-

tutional challenges in the state-court action, reserving them

for a federal lawsuit that was filed simultaneously with the

state case and stayed to allow exhaustion of state-law issues.

After the final DNRC ruling upholding the termination of the

mineral leases, petitioners expanded the state-law action to

include a request for judicial review of that ruling as well.

When the trial court rejected all their state-law claims,

petitioners appealed to the Supreme Court of Montana. The

appeal presented only petitioners’ (state) constitutional tak-

ings and impairment-of-contracts claims, as well as the claim

that the trial court ad erred in upholding the DNRC’s lease

termination decision. Petitioners’ takings claim centered on

the alleged taking of rights conferred by the state mineral

leases (see Appellants’ Initial Br. 11-30; Appellants’ Reply

Br. 3-13).* Specifically, petitioners contended that the leases

gave them a property interest in “the opportunity for a favor-

able ruling on [the Venture’s] application to conduct [cyanide

heap-leach] mining,” which they claimed had been taken by

the state. Appellants’ Reply Br. 3. Petitioners’ only claim

with respect to the alleged taking of property interests other

* Petitioners’ briefs in the Montana Supreme Court are available on-

line at www.lawlibrary.state.mt.us/dscgi/ds.py/View/Collection- 11541

(last visited January 4, 200€ }.

6

than the state mincral leases (i.e., private mineral leases or

fee ownership of land and minerals) was their briefly stated

contention that a remand was required under state law be-

cause the trial court had completely failed to articulate a rea-

son for rejecting claims based on such property interests. See

Appellants’ Initial Br. 42-43; Appellants’ Reply Br. 18-19.

The Montana Supreme Court rejected the takings and im-

pairment-of-contract claims as well as the challenge to the

DNRC’s termination of the leases. Seven Up Pete Venture v.

State, 114 P.3d 1009 (Mt. 2005). With respect to the takings

claim, the court held that the interest petitioners claimed was

taken—the opportunity to obtain a permit that they contended

the mineral leases embodied—did not rise to the level of a

constitutionally protected property interest because of the

state’s extremely broad discretion (entirely apart from the

newly enacted ban on cyanide heap-leach mining) to deny or

condition a permit. /d. at 1018-19. As for petitioners’ fall-

back claim that the case should be remanded because the trial

court had not articulated a reason for rejecting takings claims

based on interests other than the state mineral leases, the

court pointed out that the district court had indeed stated rea-

sons for its decision in that respect. Because the petitioners’

only claim was that the court had failed altogether to state

reasons, the court did not evaluate any claims with respect to

the correctness of the reasons stated. Jd. at 1020.

The court went on to reject the contract-impairment claim

on the ground that the mining ban was “reasonably related to

the legitimate and significant purpose of protecting the envi-

ronment.” /d. at 1025. The court declined to apply a “height-

ened level of scrutiny” in evaluating the reasonableness of

the ban because any impairment of the mineral leases was

actually contrary to the state's pecuniary sclf-intercst as a

party to the contracts. /d. at 1023.

Finally, the cou:t held that the DNRC had properly ter-

minated the state mineral Icases because petitioners had

failed to take active steps to pursue the permitting process (a

failure that began before the passage of the cyanide heap-

leach mining ban). Jd. at 1025-27. Applying principles of

Montana law, the court found that the DNRC’s decision was

not clearly erroneous because it was supported by substantial

evidence in the record. The court canvassed a number of

steps petitioners could have taken (notwithstanding tiie pas-

sage of the ban) to pursue the permit process. and it noted

that petitioners themselves conceded that they “had to do

‘something’ to pursue issuance of the permits.” /d. at 1026.

The court concluded that petitioners’ filing of a challenge to

the ban (after the leases had already terminated) while doing

nothing else to advance the permitting process was not

enough. /d. Thus, for reasons that in no way rested on either

the passage of the mining ban or its constitutionality, the

court upheld the state’s termination of the mineral leases.

REASONS FOR DENYING THE WRIT

I. The Montana Supreme Court’s Takings and

Contract Clause Rulings Are Not Outcome

Determinative.

Even while asserting their takings and Contract Clause

claims concerning initiative I-137, petitioners nowhere ad-

dress the actual basis on which their leases were termiriated:

the Montana DNRC’s determination that they had failed ac-

tively to take available steps to pursuc the permitting process.

The Supreme Court of Montana affirmed the agency’s de-

termination, holding that:

[I}t is clear that the Venture was not limited to simply

bringing a legal challenge to I-137 while doing nothing

before the agency. We cannot conclude, therefore, that

the DNRC and District Court’s conclusion of law that

the Venture fuiled to actively pursue the permitting

process before the agency was erroneous.

114 P.3d at 1027.

The Montana Supreme Court's ruling in this respect was

based entirely on its analysis of the administrative record and