No. 14366
IN THE SUPREME COURT OF THE STATE OF MONTANA
1979
ALBERT JERKE ,
Plaintiff and Appellant,
THE STATE DEPARTMENT OF LANDS,
et al.,
Defendants and Respondents.
Appeal from: District Court of the First Judicial District,
Honorable Peter G. Meloy, Judge presiding.
Counsel of Record:
For Appellant:
Scribner, Huss & Mulroney, Helena, Montana
Lawrence D. Huss argued, Helena, Montana
For Respondent:
John North argued, Helena, Montana
Charles W. Jardine argued, Miles City, Montana
For Amicus Curiae:
Carl M. Davis, Dillon, Montana
Submitted: February 6, 1979
Filed: MAR - . 199"
'
Mr. Chief Justice Frank I Haswell delivered the Opinion of
.
the Court.
Plaintiff appeals from an adverse judgment in an action
to cancel a lease following a nonjury trial in the District Court
of Lewis and Clark County.
The Prairie County State Grazing District was created
pursuant to the Grass Conservation Act, section 46-2301 et seq.
R.C.M. 1947, now section 76-16-101 et seq. MCA. In conserving
Montana's rangeland resources, the Grazing District procures
available land and allocates it to its members for use in their
individual farming or ranching businesses. It does not use the
land itself.
Under a 1965 lease, the Grazing District was the lessee
of a tract of state land lying within Prairie County. This land
was allocated to David Hess and two other individuals who used
it for their personal ranching enterprises.
In early 1975 with the termination of the lease, the
Department of State Lands, acting on behalf of the Montana Board
of Land Commissioners, requested competitive bids for the lease
of the tract. Appellant submitted the only bid. It was based
on a 26% crop share with a guaranteed minimum of $2,000 per year.
After appellant's bid was opened, an administrative hearing was
held where the Grazing District challenged it as unreasonable.
The Department determined the bid to be bona fide and the highest
bid received.
The Grazing District, as the existing lessee, was holder
of a preference right under section 81-405(1), R.C.M. 1947, now
section 77-6-205(1) MCA which provides:
"I£ other applications have been received, the
holder of the lease has the preference right to
lease the land covered by his former lease by
meeting the highest bid made by any other appli-
cant. "
The right was exercised and the new lease was awarded to the Grazing
- 2 -
District. In the summer of 1975 the land was subleased to David
Hess.
Appellant sought to have the lease and sublease set
aside and to have the District Court order the Department of
State Lands to award the lease to him. His basic argument, both
at trial and on appeal, is that the preference right unconstitu-
tionally prevents the State from obtaining full market value for
the land. We limit our decision to the facts of this case and
hold the preference statute to have been unconstitutionally applied.
The proposition that public land is held in trust for the
people is well settled. State ex rel. Thompson v. Babcock (1966),
147 Mont. 46, 54, 409 P.2d 808; Toomey v. State Board of Land
Commissioners (1938), 106 Mont. 547, 559, 81 P.2d 407. The State
Board of Land Commissioners, acting through the Department of
State Lands must adhere to a fiduciary standard somewhat higher
than that of the ordinary businessman. State ex rel. Babcock v.
Thompson, at 54. In addition, this "trust-like" standard is
constitutionally defined.
"No land or any estate or interest therein shall
ever be disposed of except in pursuance of general
laws providing for such disposition, or until the
full market value of the estate or interest disposed
of, to be ascertained in such manner as may be
provided by law, has been paid or safely secured
to the state. " 1972 Mont. Const., Art. X, 511 (2) .
See also 1889 Mont. Const., Art. XVII, 51.
(knphasis supplied.)
The legislature is thus given authority to determine the
method by which full market value is ascertained. The statutes
dealing with the leasing of state land will pass constitutional
muster as long as the concept of full market value is not abro-
gated. Rider v. Cooney (1933), 94 Mont. 295, 310, 23 P.2d 261.
In exercising its constitutional authority, the legis-
lature has provided that full market value shall encompass the
concept of sustained yield. Section 81-401, R.C.M. 1947, now
section 77-6-101 MCA. Sustained yield is the policy which favors
the long term productivity of the land over the short term return
of income. State ex rel. Thompson v, Babcock, supra.
The preference right seeks to further this policy by
inducing the State's lessees to follow good agricultural practices
and make improvements on the land. This is accomplished by
guaran,teeingthat the lessees will not lose the benefits of their
endeavors by being outbid when their leases terminate. They are
preferred and may renew their leases by meeting the highest bid
submitted.
Where the preference right does not further the policy of
sustained yield, it cannot be given effect. In such a situation,
full market value can be obtained only by pure competitive bidding,
Here, the Grazing District, the holder of the preference right,
does not even use the land; it cannot use good agricultural prac-
tices or make improvements thereon. Likewise, the actual user
of the land, who as a member of the Grazing District is prevented
from bidding on the lease, is not motivated to further the policy
of sustained yield. There is no guarantee the Grazing District
will exercise its preference right and moreover, if it does, the
actual user is not assured the land will be allocated to him.
To allow the preference right to be exercised in this
case would be to install the Grazing District as the trustee of
the land. It, rather than the Department of State Lands, would
decide who will occupy the land but it would not be bound by a
constitutional or fiduciary duty. Under such a scheme, the policy
of sustained yield would have no place.
To allow an existing lessee who does not use the land to
exercise a preference right constitutes an unconstitutional appli-
cation of the preference right statute, section 81-405(1), R.C.M.
1947, now section 77-6-205(1) MCA. The only way full market value
can be obtained in such a situation is by pure competitive bidding.
~ccordingly,the judgment of the District Court is reversed.
chief Justice
W e concur: