No. 86-392 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1987 

WESTERN ENERGY COMPANY, 

a corporation, 

Plaintiff and Appellant, 

-vsGENIE LAND COMPANY, a corporation, 

and MONTANA DEPARTMENT OF STATE 

LANDS, an agency of the State of 

Montana, 

Defendants and Respondents. 

APPEAL FROM: District Court of the Sixteenth Judicial District, 

In and for the County of Rosebud, 

The Honorable B. W. Thomas, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Moulton, Bellingham, Longo & Mather; W.H. Bellingham 

argued, Billings, Montana 

For Respondent: 

Goetz, Madden & Dunn; William L Madden argued, Bozeman, 

Montana 

John F. North argued, Dept. of State Lands, Helena, 

Montana 

For Amicus Curiae: 

Holland & Hart; Paul D. Miller argued for Meridian 

Minerals, Billings, Montana 

Daniel C. Murphy, Meridian Minerals, Englewood, 

Colorado 

Filed: 

Submitted: March 19, 1987 

Decided: May 22, 1987 

MAY 2 :? 1987 

Clerk 
Mr. Justice John Conway Harrison delivered the Opinion of the 

Court. 

The District Court of the Sixteenth Judicial District 

in and for Rosebud County, Montana, denied the request of 

Western Energy Company (Western) that Genie Land Company 

(Genie) and the Montana Department of State Lands (MDSL) be 

enjoined from denying it the right to obtain a coal 

strip-mining permit and the right to enter upon lands in 

order to strip-mine coal without further consent or waiver 

from Genie. The court also refused to declare 5 82-4-224, 

MCA, unconstitutional. Western appeals to this Court. We 

hold the statute unconstitutional and reverse and remand. 

By deed dated September 4, 1945, Northern Pacific 

Railway Company (NP) granted to Philbrook Land and Livestock 

Company (Philbrook) 6,768.18 acres of land in Rosebud County, 

Montana, which included: 

W+W%NE&; NW&; N$SW%; NW&SE% Section 29, 

Township 2 North, Range 42 East; M.P.M. 

By deed dated April 15, 1947, NP granted to Philbrook 

650.92 acres of land in Rosebud County, Montana, described 

as: 

Lots 1, 2, 3 and 4, E+W+; NE%; SW%SE%, 

Section 19, Township 2 North, Range 42 

East; M.P.M. 

The land described in the 1945 and 1947 deeds include 

the subject lands, comprising approximately 840 acres. 

Both the 1945 and the 1947 deeds contained pertinent 

exceptions and reservations that provided: 

[Elxcepting and reserving unto the 

grantor, its successors and assigns, 

forever, all minerals of any nature 

whatsoever, including coal, iron, natural gas and oil, upon or in said land, 

together with the use of such of the 

surface as may be necessary for exploring for and mining or otherwise 
extracting and carrying away the same; 

but the grantor, its successors and 

assigns, shall pay to the grantee, or to 

its successors or assigns, the market 

value at the time mining operations are 

commenced or such portion of the surface 

as may be used for such operations or 

injured thereby, including any improvements thereon; . . . Burlington Northern Railroad Company (BN) is the 

successor in interest to NP as to all right, title and 

interest of NP in the subject property. Genie is the 

successor in interest to Philbrook as to all right, title and 

interest in the subject property. Genie is in possession of 

the surface of the subject lands. 

On June 1, 1966, NP and the Montana Power Company (MPC) 

executed a mining lease of coal lands (coal lease) which has 

been supplemented from time to time by successors in interest 

to NP. Western has succeeded to the interest of MPC in the 

coal lease as supplemented, which covers the subject lands. 

Section 82-4-224, MCA, the Owner Consent Statute, says: 

Consent or waiver by surface owner. In 

those instances in which the surface 

owner is not the owner of the mineral 

estate proposed to be mined by stripmining operations, the application for a 

permit shall include the written consent 

or a waiver by the owner or owners of the 

surface lands involved to enter and 

commence strip-mining operations on such 

land, except that nothing in this section 

applies when the mineral estate is owned 

by the federal government in fee or in 

trust for an Indian tribe. 

The MDSL informed Western that because of the Owner 

Consent Statute and applicable administrative rules, it would 

deny Western Energy's application for a permit to strip coal 

unless Genie Land consented. Western has been unsuccessful 

in obtaining Genie's consent. 

In previous litigation between these parties, this 

Court permitted Western Energy to conduct various exploration 
and resource inventory operations on the subject lands, as 

being a necessary part of the information needed by Western 

in order to apply for a strip-mining permit. The Court 

concluded strip-mining was within the contemplation of the 

parties at the time the deeds were conveyed. Further it was 

the understanding of the parties that NP withheld the mineral 

ownership and reserved the right to do what was necessary to 

extract minerals. Western Energy Co. v. Genie Land Co. 

(1981), 195 Mont. 202, 635 P.2d 1297. 

Relying on S 82-4-224, the Owner Consent Statute, Genie 

refused Western the right to enter the land for the purpose 

of strip-mining, thus foreclosing the possibility of 

Western's obtaining a permit to mine from the MDSL. Western 

then sought a permanent injunction enjoining Genie and the 

MDSL from denying it permission to strip the coal, and 

requested a declaratory judgment that S 82-4-224, MCA, and 

the applicable regulations, are unconstitutional under 

federal and state constitutional due process and impairment 

of contract clauses. The District Court found the statute 

constitutional and refused to grant Western injunctive 

relief, however. Western appeals. 

The constitutionality of S 82-4-224, MCA, is 

dispositive of this case notwithstanding various errors 

Western claims were committed by the District Court. We find 

the statute unconstitutional. 

Both the Montana and the United States Constitutions 

prohibit taking of property without due process. Article I1 

of Montana's Constitution provides for protection of property 

in two sections: 

Section 17. Due process of law. No 

person shall be deprived of life, liberty, or property without due process of 

1-aw . 
Section 29. Eminent domain. Private 

property shall not be taken or damaged 

for public use without just compensation 

to the full extent of the loss having 

been first made to or paid into court for 

the owner . . . The Fifth Amendment to the United States Constitution says, 

No person shall . . . be deprived of 

life, liberty, or property without due 

process of law; nor shall private property be taken for public use without just 

compensation. 

It is incorrect to argue Western does not have a 

property interest in its leased mineral estate which is 

protected by the due process clauses. 

It has long been established that the 

holder of an unexpired leasehold interest 

in land is entitled, under the Fifth 

Amendment, to just compensation for the 

value of that interest when it is taken 

upon condemnation by the United States. 

[Citations omitted.] 

Alamo Land & Cattle Co. v. Arizona (1976), 424 U.S. 295, 303, 

96 S.Ct. 910, 916, 47 L.Ed.2d 1, 8-9. See also Foster v. 

United States (Ct. C1. 1979), 607 F.2d 943, 949. The ~ifth 

Amendment is applicable to the states through the Fourteenth 

Amendment. Webb's Fabulous Pharmacies, Inc. v. Beckwith 

(1980), 449 U.S. 155, 101 S.Ct. 446, 66 L.Ed.2d 358; Penn 

Central Transp. Co. v. New York City (1978), 438 U.S. 104, 98 

S.Ct. 2646, 57 L.Ed.2d 631. 

While the principles of eminent domain require just 

compensation when private property is taken for public use, 

constitutional due process requirements may be met without 

just compensation when the state exercises its inherent 

police power to regulate the health, safety and general welfare of the people. 

It is well established that a police 

power regulation must be reasonably 

adapted to its purpose and must injure or 
impair property rights only to the extent 

reasonably necessary to preserve public 

welfare. The standard of reasonableness 

is the constitutional measure of the 

proper exercise of the police power. 

Yellowstone Valley Electric Cooperative v. Ostermiller 

(1980), 187 Mont. 8, 15, 608 P.2d 491, 496. See also Charles 

v. Diamond, (N.Y. App. 1977), 360 N.E.2d 1295, 1302. 

The statute must serve a public, rather than a private 

interest and the means chosen to advance the interest must be 

reasonable. Lawton v. Steele (1894), 152 U.S. 133, 137, 14 

S.Ct. 499, 501, 38 L.Ed. 385, 388. In Mountain States 

Telephone and Telegraph Co. v. Dept. of Public Service 

Regulation (Mont. 1981), 634 P.2d 181, 187, 38 St.Rep. 1479, 

1485, we adopted the Lawton "means end test" wherein the 

state's authority on behalf of the public is balanced against 

the constitutional due process requirement in the protection 

of private property. 

A regulation which establishes an unreasonable burden 

on the landowner is unconstitutional as a violation of due 

process. If the regulation is invalid, "the proper 

remedy . . . is a declaration of unconstitutionality." 

Charles v. Diamond, supra, at 1303. 

The Montana Strip and Underground Mine Reclamation Act, 

55 82-4-201 et seq., MCA, was enacted pursuant to the authority granted in the 1972 Montana Constitution, and is 

"[dleemed to be an exercise of the general police power to 

provide for the health and welfare of the people." Section 

82-4-202 (2) (b) , MCA. 

Applying the Lawton "means end test" to 5 82-4-224, 

MCA, the Owner Consent Statute, we conclude the denial of 

just compensation places an unreasonable burden on the 

mineral owners, in violation of due process. The statute 

does not bear the requisite "substantial relation to the 

public health, safety, morals, or general welfare." Euclid 

v. Ambler Realty Co. (1926), 272 U.S. 365, 395, 47 S.Ct. 114, 
121, 71 L.Ed. 303, 314. Nor does it address reclamation, 

conservation, or any other policy goal. It does not prevent 

strip-mining operations, does not regulate the manner in 

which mining or reclamation is performed, nor does it 

conserve agricultural land. The statute merely provides that 

when the owner of the minerals does not own the surface he 

cannot apply for a permit to mine without first receiving 

permission of the surface owner to enter and commence stripmining operations on the land. The statute is inapplicable 

unless the surface rights have been severed from the mineral 

rights, or the mineral estate is owned in fee by the federal 

government or in trust for an Indian tribe. Thus, any public 

interest protected by the statute is limited. 

The case at bar is analogous to that in Pennsylvania 

Coal Co. v. Mahon (1922), 260 U.S. 393, 43 S.Ct. 158, 67 

L.Ed. 322. In Mahon the Commonwealth of Pennsylvania passed 

a statute which prohibited mining coal in such a manner as to 

cause the surface to subside. A deed of the property involved contained a reservation of the right to remove all 

coal under the land and further provided that the grantee 

(surface owner) assumed all risks and waived all damages 

which might arise from mining the coal. The Supreme Court 

struck down the statute as an unconstitutional exercise of 

the state's police power "so far as it affects the mining of 

coal . . . in places where the right to mine such coal has 

been reserved." Mahon at 414, 43 S.Ct. at 160, 67 L.Ed at 

Justice Holmes said: 

So far as private persons or communities 

have seen fit to take the risk of 

acquiring only surface rights, we cannot 

see that the fact that their risk has 

become a danger warrants the giving to 

them greater rights than they bought. 

Mahon, supra, at 416, 43 S.Ct. at 160, 67 L.Ed. at 326. 
The court reasoned it is a natural human tendency to 

extend the state's police power to protect the public 

interest until at last private property no longer exists. 

However, this "public desire to improve the public condition 

is not enough to warrant achieving the desire by a shorter 

cut than the constitutional way of paying for the change." 

Mahon, supra. 

The owner consent statute permits a similar occurrence 

by effectively depriving Western of the right to mine its 

coal. Mahon makes clear that a taking may arise from an 

inverse condemnation, where property use or value is interfered with by state regulatory or police action. 

What makes the right to mine coal valuable is that it can be exercised with 

profit. To make it commercially impracticable to mine certain coal has very 

nearly - the same effect for constitutional 

purposes as appropriating or destroying 

it. 

Mahon, supra at 414, 43 S.Ct. at 160, 67 L.Ed. at 325. The 

reasoning in Mahon applies in this case. 

Genie contends Keystone Bituminous Coal Association v. 

De Benedictis (19871, U.S. , 107 S.Ct. 1232, 94 

L.Ed.2d 472, handed down only days before oral argument in 

the case at bar, is controlling and dispositive of the 

constitutional issue here. We do not agree. 

In Keystone the Court was asked to find enactment of a 

Pennsylvania statute unconstitutional as a taking and an 

unlawful impairment of contract. The Bituminous Mine 

Subsidence and Land Conservation Act, (the Subsidence Act) 

was enacted after the Pennsylvania legislature determined the 

Cornrnonwealthls existing mine subsidence legislation had 

failed to protect the public interest in safety, land 

conservation, preservation of affected municipalities' tax 

bases and land development. A formula which generally 

required 50% of the coal beneath the protected structures to 
be left for surface support was applied when enforcing the 

Act. Petitioners were owners of the mineral estate and had 

acquired a waiver of any claims for damages which might 

result from the removal of coal. They brought suit claiming 

the 50% rule constituted a taking within the meaning of the 

Fifth and Fourteenth Amendments. They also claimed violation 

of their contractual rights pursuant to Art. I, § 10 of the 

United States Constitution. The Court distinguished Mahon, 

supra, on its facts, and found the Subsidence Act to be 

constitutional. 

We distinguish Keystone for three reasons. The Court 

in Keystone found that coal mining activity in certain instances was akin to a public nuisance. Therefore the state 

was not estopped from exercising its police power under the 

Fifth and Fourteenth Amendments to abate such activity. 

U.S. at , 107 S.Ct. at 1244, 94 L.Ed.2d at 491. We were 

not asked to, nor can we, characterize strip mining in 

Montana as a nuisance, thus placing it within the narrow 

exception which permits a taking in order to prevent "a 

misuse or illegal use." Such an exception is not intended to 

allow "the prevention of a legal and essential use, an 

attribute of its ownership. Supra at 1256, (Rehnquist, J., 

dissenting) quoting Curtin v. Benson (1911), 222 U.S. 78, 86, 

[32 S.Ct. 31, 32, 56 L.Ed. 102, 1061. We note, " [i]t is the 

declared policy of this state and its people 

to: . . . provide for the orderly development of coal 

resources through strip or underground mining to assure the 

wise use of these resources and prevent the failure to 

conserve coal." Section 82-4-202 (1) (g) , MCA. 

No less significant is the fact the Court has never 

allowed the nuisance exception to allow complete extinction 

of a parcel of property. See, for example Mugler v. Kansas 

(1887), 123 U.S. 623, 8 S.Ct. 273, 31 L.Ed. 205; Miller v. 

Schoene (1928), 276 U.S. 272, 48 S.Ct. 246, 72 L.Ed. 568. 

There is no "reciprocity of advantage" inherent in 
82-4-224, MCA. See Mahon, supra at 415, 43 S.Ct. at 162, 

67 L.Ed. at 326. Consequently, Keystone is distinguishable. 

Secondly, we distinguish Keystone because application 

of the Subsidence Act to all minerals, not merely those which 

have been severed from the surface estate, reflects a public 

interest. As noted above, there is limited public interest 

protected by § 82-4-224, MCA. 

Finally, petitioners in Keystone sought to define 

narrowly certain segments of their property and argued the 

Act effectively appropriated coal in those segments. The 

critical question then became how to define a segment of 

property for taking purposes. 

"Taking" jurisprudence does not divide a 

single parcel into discrete segments and 

attempt to determine whether rights in a 

particular segment have been entirely 

abrogated. In deciding whether a particular governmental action has effected a 

taking, this Court focuses rather both on 

the character of the action and on the 

nature of the interference with rights 

in the parcel as a whole . . . 

Penn Central, supra at 130-131, 98 S.Ct. at 2662, 57 L.Ed.2d 

at 652. 

[Wlhere an owner possess a full "bundle" 

of property rights, the destruction of 

one "strand" of the bundle is not a 

taking, because the aggregate must be 

viewed in its entirety. 

Andrus v. Allard (1979), 444 U.S. 51, 65-66, 100 S.Ct. 318, 

327, 62 L.Ed.2d 210, 223. At issue in this case is 

destruction of Western's entire bundle of rights in the 

minerals beneath the surface owned by Genie. 

The Court in Keystone rejected petitioners' argument 

that the extent of interference with their property interests 

should be determined by the amount of coal the Subsidence Act 

required to be left in place, that being 50%. The Court said 

the coal left, regardless of the amount, "do[es] not 
represent a separate segment of property for taking law 

purposes," characterizing it merely as one strand in 

petitioners' bundle of rights. Keystone, supra, at , 107 

S.Ct. at 1249, 94 L.Ed.2d at 496. 

Genie contends this rejection signals a similar refusal 

by this Court of Western's claim of total loss of its coal 

due to § 82-4-224, MCA. Under Montana law, however, 

Western's entire bundle of rights consists of its rights to 

all the minerals beneath certain sections of land. These 

rights are not defined in terms of its various holdings in 

eastern Montana, but rather in terms of its rights to mine 

coal in the specific sections in question. Consequently, the 

Court's determination in Keystone that merely one strand of 

petitioners' rights had been taken is inapplicable here. 

Genie's argument the Owner Consent Statute is not an 

impairment of contract likewise cannot stand. Both the 

Montana and United States Constitutions prohibit the impairment of contracts. Article I1 of the Montana Constitution 

says: 

Section 31. Ex post facto, obligation of 

contracts, and irrevocable privileges. 

No ex post facto law nor any law impairing the obligation of contracts, . . . shall be passed by the legislature. 

The United States Constitution says: 

Article I, Section 10. No state shall . . . pass any . . . law impairing the 

obligation of contracts, . . . 

Although the prohibition appears absolute on it face, private 

contracts must give way before a legitimate exercise of 

police power. Home Building and Loan Association v. 

Blaisdell (1934), 290 U.S. 398, 54 S.Ct. 231, 78 L.Ed. 413; 

Chicago and Alton R.R. v. Tranbarger (1915), 238 U.S. 67, 35 

S.Ct. 678, 59 L.Ed. 204; Atlantic Coastline Railway Co. v. 

City of Goldsboro (1914), 232 U.S. 548, 34 S.Ct. 364, 58, 
L.Ed. 721. Thus all business is conducted subject to the 

retained power of the state to protect public welfare. 

[A]n examination of the legislation for 

validity under the contract clause 

requires a three step analysis. The 

threshold inquiry is "whether the state 

law has, in fact, operated as a 

substantial impairment of the contractual 

relationship." [Citations omitted.] If 

there is no substantial impairment of the 

contractual relationship, the inquiry is 

ended, Second, if the legislation 

substantially impairs the contractual 

rights, "[tlhe state, in justification, 

must have a significant and legitimate 

public purpose behind the regulation." 

[Citations omitted. ] Third, the 

adjustment of rights and responsibilities 

of contracting parties must be based 

" [u] pon reasonable conditions" and be 

"[o] f a character appropriate to the 

public purpose justifying the 

legislation's adoption." 

Nee1 v. First Fed. Savings and Loan Assoc. (Mont. 1984) , 675 

P.2d 96, 104-105, 41 St.Rep. 18, 27, citing Energy Reserves 

Group, Inc., v. Kansas Power & Light Co. (19831, 459 U.S. 

"The obligations of a contract are impaired by a law 

which renders them invalid, or releases or extinguishes 

them." Blaisdell, supra, at 431, 54 S.Ct. at 237, 78 L.Ed at 

425. Section 82-4-224, MCA, impairs Western's right to mine 

the coal by subjecting it to the vagaries of the surface 

owner for consent to enter and mine. 

Legislation which impairs a contract can be justified 

only when it serves a legitimate public purpose. The state's 

police power to invade private rights is limited to 

legislation which bears a "substantial relation to the public 

health, safety, morals, or general welfare." Euclid v. 

Ambler Realty, supra. As noted above, we do not find that 

§ 82-4-224, MCA, meets this standard. 
Finally, we conclude that the adjustment of the rights 

and responsibilities of the contracting parties is not based 

on reasonable conditions and is not of a character 

appropriate to the public purpose. We concur with the 

Kentucky Court of Appeals which said, in striking as 

unconstitutional a similar statute, "the primary effect of 

[the challenged section is] to change the legal rights and 

economic bargaining position of many private parties under 

their contracts rather than achieve any public purpose." 

Dept. for Natural Resources and Environmental Protection v. 

No.8 Limited of Virginia (Ky. 1975), 528 S.W.2d 684, 687. 

The Owner Consent Statute exceeds the legitimate bounds of 

the state's police powers. 

Although we have discussed United States Constitutional 

provisions, we have decided the issues in this case based 

upon the Montana Constitution, which provides independent and 

adequate constitutional grounds. We hold 5 82-4-224, MCA, 

and any rules adopted for implementation thereof, 

unconstitutional and in violation of the Montana 

Constitution--specifically, Article 11, Section 17, as 

permitting a taking without due process; Article 11, Section 

29, as permitting the taking of private property without just 

compensation; and Article 11, Section 31, as permitting the 

impairment of the obligation of contract. 

The judgment of the District Court is reversed with 

instructions to enter judgment in accordance with this 

opinion. 
b7e concur: 

Justices - 

/ &L j7 3fi3 

The Hocrablk Russell C. , McDonough sitting in plage of 

Mr. Justice John C. Sheehy 

&/jb/-L& 

The ~ovorable M. - James Sorte, 

Judge of the District Court 

sitting for Mr. Justice 

Frank B. Morrison, Jr.