IN THE SUPREME COURT OF THE STATE OF MONTANA
THOMAS J. WINCHELL AND DAVID WINCHELL,
Plaintiffs and Respondents,
-vs-
STATE OF MONTANA, DEPARTMENT OF
STATE LANDS,
Defendants and Appellants.
APPEAL FROM: District Court of the Seventh Judicial District,
In and for the County of Dawson,
The Honorab1.e Dale Cox, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Lyle Manley, Dept. of State Lands, Helena, Montana
For Respondent:
Thomas E. Smith; Moulton, Rellingham, Longo & Mather,
Billings, Montana
Submitted on Briefs: Sept. 29, 1988
Decided: November 29, 1988
-
Clerk
Mr. Chief Justice J. A. Turnage delivered the Opinion of the
Court.
A writ of prohibition was filed by the Honorable Dale
Cox, Seventh Judicial District Court, Dawson County, re-
straining and prohibiting the Department of State Lands from
(1) cancelling State Lease No. 0343 for nonpayment of agri-
cultural rentals, (2) re-leasing the property to other par-
ties, and (3) taking action for trespass against the
plaintiffs. The court found that the property in dispute was
leased for grazing only and the Department of State Lands
(hereinafter Department) was in excess of its jurisdiction
for cancelling the lease for nonpayment of agricultural
rental. The Department appeals. We affirm.
The issue on appeal is whether the District Court erred
in issuing the writ prohibiting appellants from cancelling
the lease.
Thomas J. Winchell and David Winchell are both resi-
dents of Dawson County, Montana. The Department leased 477.9
acres to the Winchells in 1981 for grazing purposes. The
lease was scheduled to operate from February 28, 1981, to
February 28, 1991.
In the fall of 1980, the Winchells had written the
United States Soil and Conservation Service requesting help
in developing a water-spreading system. Roy Henderson, Chief
of the Resource Development Bureau of Land Administration of
the Department of State Lands, explored the possibility of
developing the water-spreading project.
Section 77-1-209, MCA, promulgates that the Board of
State Lands may prescribe rules relating to the leasing of
state lands which contribute to the highest attainable mea-
sure to the purpose for which they were granted to the State
of Montana. Section 77-1-102, MCA, grants to the Board the
power to classify and recl-assify state lands. Al-ong these
lines, Am 5 26.3.126 requires that anyone who wishes to
reclassify land use must apply to the Department. The De-
partment conducts a capability inventory of the tract to
determine whether reclassification is in the best interests
of the state. Development of a water-spreading project would
require the Department to consider capability and
reclassification.
The Department agreed that the project was feasible and
thirty-two acres were set aside to be converted from native
range land to irrigated hay land through installation of
water-spreading dikes. The Department invested approximately
$1,300 into the project, to be paid back by the Winchells.
In 1981, after the lease had taken effect, the Department and
the Winchells entered into a Supplemental Lease Agreement
designating thirty-two acres as agricultural land, with the
remaining 445.9 acres to continue as grazing land. The
supplemental agreement also stated that the winch ell.^, as
lessees, would:
Pay the State Land Department the great-
er of 1/4 crop share or a minimum cash
payment of $20 .OO per acre. The Lessee
agrees and understands that the above
rental is to be paid on or before Novem-
ber 1st of each year. The State agrees
to forego the $20.00 per acre stipula-
tion the year hay is seeded and require
only the standard statutory rental of
25% crop share on the developed acres.
The second growing year of the initial
seeding of developed acres, and for the
balance of the lease term, the greater
of 25% crop share or $20.00 per acre
shall be applicable.
On the original lease form appeared a handwritten note show-
ing that the thirty-two acres had been reclassified by the
Department as agricultural.
In 1983 the Winchells concluded that the water source
for the project was inadequate for producing a profitable
alfalfa crop at the higher agricultural rental rates. They
negotiated to pay back the loan for the thirty-two acre
development in a lump sum settlement of $1,920. They then
reverted the land to grazing.
In a letter dated April 10, 1984, Roy Henderson in-
formed Tom Winchell that he had received the lump sum payment
of $1,920 on March 30, 1984, and that the Supplemental Lease
Agreement was null and void. He also stated in the Letter:
Your rental on this portion of ground
will now be the current AUM
[Animal-Unit-Month] rate if in grazing
or the statutory crop-share (currently
1/4 crop-share), if used for agricultur-
al purposes. Since you indicated that
the project site was returned to pas-
ture, I have asked that this area be
reappraised this year, so a correct AUM
rate can be assigned.
The indications from this letter are that lessees were now
grazing on this land again and the Department would reclassi-
fy the land to grazing. With no other agreements supplement-
ing the original lease agreement, the thirty-two acres
reverted back to grazing land. Furthermore, Henderson's own
notes taken from telephone conversations with lessees con-
firmed the return to grazing land. Kelly Blake, Administra-
tor of the Land Administration Division of the Department,
knew and approved the arrangement.
After the lump sum had been paid, Sharon Moore, a land
specialist at the Department's Eastern Land Office in Miles
City, inspected the site for reappraisal purposes to see if
the land should remain classified as agricultural or be used
for grazing. She recommended that the thirty-two acres
retain the agriculture classification.
In 1985 the Winchells went into bankruptcy. Before the
Department sought relief in Bankruptcy Court, it sent a
letter to lessees stating that the land was over-grazed and
they owed one-fourth crop share for harvested alfalfa on the
reclassified thirty-two acres.
Following the letter, the Department obtained a stipu-
lation from the Bankruptcy Court which promulgated that there
was to be no grazing on the land at issue and that they were
to pay the one-fourth crop share owing on alfalfa cut from
the thirty-two acres. The Department cancelled the lease
pursuant to S 77-6-210, MCA, mismanagement of the lease. The
court later lifted the stay, and, as a result, the Department
held an administrative hearing regarding the cancellation of
the lease. The hearing examiner found that the agricultural
status was the proper classification and the lessees had
mismanaged the lease because they had failed to harvest the
alfalfa crop and failed to pay proper rental. The Montana
Board of Land Commissioners adopted the hearing examiner's
findings on February 25, 1988. Lessees did not harvest the
alfalfa crop or pay the crop share payments but continuefi t o
pay grazing rental.
Lessees petitioned the District Court for a writ of
prohibition against automatic cancellation of the lease
pursuant to 5 77-6-506, MCA, not in opposition to the hearing
examiner's findings of mismanagement. Section 77-6-506(2)
provides that rental for agricultural land is due on o r
before November 15th of the year in which the crop is har-
vested. If payment is not made by December 31st, the lease
is automatically cancelled.
The question brought by the appellant is whether the
District Court erred in issuing the writ of prohibition,
restraining and prohibiting the Department from cancelling
State Lease No. 0343 f o r nonpayment o f agricultural rentals,
from re-leasing the property to other parties, and from
taking action in trespass against the lessees.
Appellant stresses that the legislative intent behind
revenue collected from leased state lands is that it is
primarily "held in trust for the support of education and for
the attainment of other worthy objects helpful to the well
being of the people of this state." Section 77-1-202, MCA.
We held in Department of State Lands v. Pettibone (Mont.
1985), 702 P.2d 948, 42 St.Rep. 869, that anyone acquiring
interest in property does so subject to the trust. Moreover,
§ 77-1-402, MCA, provides that "classification or reclassifi-
cation shall be so made as to place state land in the class
which best accomplishes the powers and duties of the board as
specified in 77-1-102 and 77-1-203(1)."
We hold that the District Court was not in error in
issuing the writ of prohibition. We also hold that the
Department was overreaching in its discretion in applying
5 77-6-506, cancelling the lease solely for nonpayment of the
agricultural lease charges.
The power of the Department to classify and reclassify
a lease is not without limit. As a case of first impression,
it is important to carefully scrutinize the applicable statu-
tory language. Although 5 77-1-202, MCA, states that the
land is held in trust for the support of education, and
5 77-1-402, MCA, provides that classification is to be made
as to accomplish the powers and duties of the board, the
trust powers are limited. For example, § 77-1-402, MCA, also
states:
When state lands are classified or
reclassified in accordance with these
duties and responsibilities, special
attention shall be paid to the capabili-
ty of the land to support an actual or
proposed land use authorized by each
classification.
Section 77-1-203(1), MCA, expresses that:
(a) [The state lands] are utilized in
that combination best meeting the needs
of the people and the beneficiaries of
the trust, making the most judicious use
of the land ...
In the case on appeal, the capability of the land to support
the proposed agricultural land use was improbable as shown by
the lessees. Originally, the Department accepted that the
land was incapable of a strong alfalfa crop. The lessees
negotiated to pay back the loan to the Department and return
the land to grazing because growing of alfalfa was not
profitable.
Section 77-1-202, MCA, requires that the board adminis-
ter the tract "to secure the largest measure of legitimate
and reasonable advantage to the state." The legitimate and
reasonable advantage to the state is to charge grazing rental
rates for the thirty-two acres in question. It would be
unconscionable to charge the Winchells with agricultural
crop-share rentals when the water source is insufficient to
grow alfalfa and when the crop is not profitable for the
lessees. To do so might prevent other potential lessees from
applying for leases, fearing that the Department will charge
unaffordable rental rates. The state trust is then without
any funds.
The original lease agreement does not require payment
of agricultural rentals. The supplemental lease reclassified
thirty-two acres as agricultural. But once the investment
loan was repaid by the lessees and once the Department de-
clared the supplemental lease agreement null and void, the
original lease agreement controlled. This original lease
stated that the total 477.9 acres was classified as grazing
land. The state cannot now insist the lessees pay agricul-
tural rates simply because it is more profitable to the state
trust fund without an agreement which reclassifies the tract.
To do so would be incongruous. The Department has acted in
excess of its jurisdiction in cancelling the lease for non-
payment of agricultural rentals under 5 77-6-506, MCA, adver-
tising to re-lease the property, re-leasing the property, and
taking action in trespass against the lessees.
Appellants also claim that the District Court is in
error for not considering the hearing examiner's findings in
the MAPA hearing. The hearing, held on June 11, 1987, was
brought on the grounds that the lease had been mismanaged, in
violation of 5 77-6-210, MCA. This writ of prohibition,
however, was brought to the District Court regarding
5 77-6-506, MCA, automatic cancellation of the lease for
nonpayment of agricultural rentals.
In Nasi v. Dept. of Highways (Mont. 1988), 753 P . 2 d
327, 45 St.Rep. 710, we held that res judicata applies when
an administrative body resolves issues of fact correctly. On
appeal, the District Court must apply the hearing examiner's
findings. However, in the case at bar, the cause of action
is different. Nasi required application of res judicata if:
(1) the parties are the same, (2) the subject matter is the
same, (3) the issues are the same and (4) the relationship
among the parties, the subject matter, and the issues are the
same. Here the parties are the same as is the subject mat-
ter. The issues and the relationship of the issues and
subject matter are different. The first action before the
hearing examiner was to discuss cancellation of the lease
because of mismanagement. The action for writ of prohibition
is brought in opposition to automatic cancellation for non-
payment of agricultural rentals. This action is brought by
the lessees to prohibit automatic cancellation and the stat-
utes are different. The relationship of the issues and
subject matter are d-issimilar. Therefore, the District Court
was under no obligation to apply the findings of the hearinq
examiner as adopted by the Board of Land Commissioners.
In conclusion, the District Court acted properly in
issuing a writ of prohibition against the Department. The
original lease agreement classified the land for grazing.
Since the lessees have continued paying grazing rental, they
are entitled to use the land in the manner provided by the
lease, subject to all. other remedies available to the
Department.
Affirmed.
We concur:
Mr. Justice R. C. McDonough and Mr. Justice John C. Sheehy
did not participate in this decision.