No. 88-516
IN THE SUPREME COURT OF THE STATE OF MONTANA
1989
NORTH FORK PRESERVATION ASSOCIATION,
Plaintiff and Respondent,
-vs-
DEPARTMENT OF STATE LANDS, a Department
of the State of Montana,
Defendant and Appellant
and
FARMERS UNION CENTRAL EXCHANGE (CENEX),
Intervenor and Appellant.
APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flathead,
The Honorable Michael Keedy, presiding Judge.
COUNSEL OF RECORD:
For Appellant:
Tommy H. Butler argued, Dept. of State Lands, Helena,
Montana
Doug James argued; Moulton, Belligham, Longo & Mather,
Billings, Montana
Dana L. Christensen; Murphy, Robinson, Heckathorn &
Phillips, Kalispell, Montana
For Respondent:
Jon L. Heberling argued; McGarvey, Heberling, Sullivan &
McGarvey, Kalispell, Montana
, -
Andrew Bittker argued, Kalispell, Montana
Submitted: June 15, 1989
Mr. Justice R. C. McDonough delivered the Opinion of the
Court.
This appeal involves an oil and gas lease on school
trust land within the Coal Creek State Forest, which was
acquired from the State by the Farmers Union Central Exchange
.
(Cenex) School trust lands are administered by the Depart-
ment of State Lands (Department), which issued the lease to
Cenex. Pursuant to an Annual Operating Plan approved by the
Department, Cenex proposes to drill an exploratory well on
its leased tract. North Fork Preservation Association (North
Fork) has challenged the Department's approval of Cenex's
operating plan, alleging that the Department failed to pre-
pare an environmental impact statement on the proposed well
as required by law. North Fork filed its complaint in the
District Court of the Eleventh Judicial District, Flathead
County, and obtained a summary judgment in its favor. The
judgment set aside the Department's approval of Cenex's
operating plan; issued a writ of mandate directing the De-
partment to prepare an environmental impact statement; and
awarded costs, fees and a small money judgment. We reverse,
and remand the case to the District Court for entry of judg-
ment in favor of the Department. We hold that the District
Court incorrectly applied the "clearly erroneous" standard
for reviewing the Department's decision and misinterpreted
applicable statutory and case law. We further hold that the
Department's decision was proper under the correct, "arbi-
trary, capricious or unlawful" standard of review, and that
mandamus was not a proper remedy in this case, as mandamus is
not available to compel a discretionary act.
The parties have stated a number of issues, some of
which overlap:
As Stated by the Department:
1. Whether the Department must prepare an environmental
impact statement on the drilling of a single exploratory well
on school trust land which had been previously clear-cut of
timber and is managed under the multiple use concept.
2. Whether the Department is required to prepare a
site-specific environmental impact statement concerning
full-field oil and gas development.
3. Whether mandamus is an inappropriate remedy to en-
force the provisions of the Montana Environmental Policy Act.
4. Whether North Fork Preservation Association sustained
its burden of proof.
As Stated by Cenex:
1. Did the District Court apply the wrong standard of
review in reviewing the State Lands' decision that approval
of Cenexls plan to drill one exploratory well was not a major
action of state government significantly affecting the quali-
ty of the human environment?
2. Whether State Lands' decision that an environmental
impact statement was not required was arbitrary and
capricious.
3. Whether the 1984 preliminary environmental review was
sufficient, as a matter of law, without considering the
"cumulative impacts" of oil and gas development and
production.
4. Whether a writ of mandamus will lie to compel the
preparation of an environmental impact statement.
As Stated by North Fork:
1. Did the District Court apply the wrong standard of
review to State Lands1 procedural decision to forego an
environmental impact statement?
2. Whether the Cenex operating plan "may significantly
affect environmental attributes recognized as being
endangered, fragile, or in severely short supply." ARM
.
26.2.603 (3)(a)
3. Piecemealing: At what stage in the oil and gas lease
process is an environmental impact statement on development
legally required?
4. Is there a separate ground supporting the District
Court's decision, which State Lands and Cenex did not raise
on appeal?
5. Whether the 1984 preliminary environmental review was
legally sufficient, particularly in its evaluation of cumula-
tive impacts.
6. Whether a writ of mandate will lie to compel prepara-
tion of an environmental impact statement.
In April of 1975, the Department received applications
for oil and gas leases on 14 tracts of school trust land in
the Coal Creek State Forest. The Department deferred action
on possible leases until an environmental impact statement
(EIS) could be prepared. Coal Creek State Forest is bordered
on three sides by National Forest Service land, and on the
fourth side by the North Fork of the Flathead River. The
river is part of the National Wild and Scenic Rivers System,
as well as the western boundary of Glacier National Park.
The surrounding National Forest Service land was also
the subject of oil and gas development proposals at about the
same time. In 1976, the National Forest Service issued a
draft EIS concerning proposed leases on land in its charge.
The Department also issued an EIS in 1976. The introduction
to the Department's EIS stated that the National Forest
Service EIS dealt with the impacts of oil and gas leasing in
the larger area surrounding Coal Creek, and the Department's
EIS would therefore focus only on the state lands involved
and should be considered "an extension of that made by the
federal government." The Department's EIS permitted leasing
of all 14 Coal Creek tracts. However, at a meeting of the
State Board of Land Commissioners held in March of 1976, all
of the bids received were rejected. The National Forest
Service subsequently undertook a new environmental analysis
of the area, and abandoned its 1976 draft EIS.
In 1982, the Department received new applications for
oil and gas leases covering a larger portion of the Coal
Creek area. The Department prepared a preliminary environ-
mental review (PER) for the purpose of determining whether
issuance of oil and gas leases would be an action by state
government "significantly affecting the quality of the human
environment," therefore requiring an EIS under S 75-1-201,
MCA. The PER was issued in 1983, and concluded that no such
significant effect would result if certain protective stipu-
lations were included in any leases granted.
The Department then offered leases in Coal Creek State
Forest at public auction. Cenex purchased leases to 17
tracts. Each lease contained 16 environmentally protective
stipulations. Under these stipulations, Cenex was required
to submit an annual operating plan to the Department detail-
ing all activities to be carried out on the leased acreage
during the coming year. No activity could be undertaken
until written approval of each year's plan was received from
the Department.
Cenex's first annual operating plan was submitted in
1984. The plan proposed drilling an exploratory well on one
of the leased tracts located approximately three miles south
of the town of Polebridge and one mile west of Glacier Park.
The proposed well site was a clear-cut left from previous
logging under lease from the Department. Cenex planned to
make improvements to an existing logging road in order to
transport necessary drilling equipment and supplies. The
Department delayed approval of the plan while it completed a
site-specific PER, held two public hearings and received
comments on the PER during a 30-day review period. After
reviewing the comments, the Department issued a supplement to
the PER. The Department then approved the plan, subject to
31 additional protective stipulations.
In February of 1985, North Fork filed this action. The
complaint sought an order setting aside the Department's
approval of the Cenex operating plan and the Cenex lease, and
a writ of mandate directing the Department to prepare an EIS
on the cumulative effects of oil and gas development in the
Coal Creek area. Cenex successfully petitioned to intervene
as a defendant in the case. The Department and Cenex filed a
motion for summary judgment, as did North Fork. In 1988, the
District Court issued a Memorandum and Order granting North
Fork's motion, and subsequently entered judgment in North
Fork's favor. This appeal followed.
The many issues taken up by the parties have rendered
their arguments difficult to follow. North Fork has gone so
far as to attempt a "chart of corresponding issue numbers" in
its brief to this Court. A careful reading of the issues and
arguments offered, as well as the record from below, shows
that the parties are posing three core questions:
1. Did the District Court apply the proper standard of
review?
2. Did the Department proceed properly in approving
Cenex's annual operating plan?
3. Is mandamus an appropriate remedy to enforce provi-
sions of the Montana Environmental Policy Act?
We will proceed with our review by addressing these three
questions.
The District Court looked to the Montana Administrative
Procedure Act (MAPA) for its standard of review. The court
applied the standard of review found in S 2-4-704 (2)(e), MCA:
(2) ...
The court may reverse or modify the deci-
sion if substantial rights of the appellant have
been prejudiced because the administrative find-
ings, inferences, conclusions, or decisions are:
...
(el clearly erroneous in view of the reliable,
probative, and substantial evidence on the whole
record.
On appeal, the Department and Cenex argue that the "clearly
erroneous" standard was improper in this case. Cenex specif-
ically argues that 5 2-4-704, MCA, was inapplicable, because
the section deals with judicial review of "contested cases",
and this was not a contested case. A "contested case" is
defined at 5 2-4-102(4), MCA, as a proceeding before an
agency where a "determination of legal rights, duties, or
privileges" of a party is required to be made after an oppor-
tunity for hearing. In contrast to cases such as State ex
rel. Montana Wilderness Association v. Board of Natural
Resources and Conservation (1982), 200 Mont. 11, 648 P.2d
734, no hearing was requested or held before the Department
in this case. North Fork did not initiate this action until
after the Department had approved Cenex's operating plan.
There was no "evidentiary record" against which to measure
the Department's decision and determine whether it was clear-
ly erroneous. Cenex is therefore correct in asserting that §
2-4-704, MCA, does not apply in this case.
Both Cenex and the Department argue that the District
Court should have employed an "arbitrary and capricious"
standard. The Department asserts that decisions by adminis-
trative agencies are given deference by reviewing courts due
to the agencies' access to superior expertise, and are not
overturned unless arbitrary or capricious. The Department
notes that in Wilderness Association, 648 P.2d at 740, this
Court cited deference to agency expertise as one of three
important factors in selecting a standard of review in a
contested case. Cenex notes that the arbitrary and capri-
cious standard was used prior to the enactment of MAPA, and
would logically apply in this case. Our decision in Langen
v. Badlands Cooperative State Grazing District (1951), 125
Mont. 302, 308, 234 P.2d 467, 470, which is cited by Cenex,
is relevant to both points:
The review by the district court is only for
the purpose of determining the legal rights of the
parties involved. This is so because of the divi-
sion of governmental powers under the Constitution,
neither the district court nor the Supreme Court
may substitute their discretion for the discretion
reposed in boards and commissions by the legisla-
tive acts. [citations]
...
The appeal from the commission to the district
court is for the purpose merely of determining
whether upon the evidence and the law the action of
the commission is based upon an error of law, or is
wholly unsupported by the evidence, or clearly
arbitrary or capricious. On such review courts
will only inquire insofar as to ascertain if the
board or commission has stayed within the statutory
bounds and has not acted arbitrarily, capriciously
or unlawfully. [citations]
Both sides agree that because the Montana Environmental
Policy Act (MEPA) is modeled after its federal counterpart
(NEPA), this Court can look to federal decisions under NEPA
as an aid to addressing cases under MEPA. See Kadillak v.
Anaconda Co. (1979), 184 Mont. 127, 602 P.2d 147. In fact,
North Fork argues that we should adopt the "reasonableness"
standard utilized by the U.S. Court of Appeals for the Ninth
Circuit in cases cited in North Fork's brief. While looking
to federal decisions is not always conclusive, cases decided
on analogous facts can shed light on a given issue.
The United States Supreme Court recently took up two
companion cases involving the issues at bar. In one of those
cases, Marsh v. Oregon Natural Resources Council (No.
87-1704, May 1, 1989), 57 LW 4504, the Supreme Court ad-
dressed the issue of the proper standard for review of an
agency decision not to amend a previously-issued EIS. The
argument before the Court was that newly-discovered informa-
tion cast doubt on the agency's previous conclusion that the
proposed project would not significantly affect the environ-
ment. The agency involved had decided that the information
did not raise questions sufficient to require amendment of
the EIS.
This case presents an analogous question. North Fork
alleged several specific shortcomings in the procedure fol-
lowed by the Department in approving Cenex's annual operating
plan. The thrust of these contentions, when taken together,
is that the information gathered by the Department indicated
that Cenex's proposed well would generate a significant
impact on the human environment, and an EIS should have been
prepared.
As in any comparison between federal and Montana law,
there is a distinction between Marsh and this case. In
Marsh, the federal Administrative Procedure Act was applica-
ble where in this case MAPA judicial review provisions do not
apply However, the federal act offers several possible
standards of review. In choosing a standard, the Supreme
Court in Marsh specifically rejected the "reasonableness"
standard used by the Ninth Circuit Court of Appeals and
adopted the "arbitrary and capricious" standard. In
explaining its choice, the Court stated:
The question presented for review in this case
is a classic example of a factual dispute the
resolution of which implicates substantial agency
expertise. ... Because analysis of the relevant
documents "requires a high level of technical
expertise," we must defer to ''the informed discre-
tion of the responsible federal agencies.
[citations]
The Department in this case was carrying out its
statutorily-imposed fiduciary duty to "secure the largest
measure of legitimate and reasonable advantage to the state"
in managing school trust lands. Section 77-1-202, MCA. The
Department also had to carry out duties imposed by MEPA,
pursuant to which it prepared a PER in order to gather infor-
mation for its decision on whether to prepare an EIS for
Cenex's proposed action. This decision necessarily involved
expertise not possessed by courts and is part of a duty
assigned to the Department, not the courts. In light of
this, and the cases cited above, we hold that the standard of
review to be applied by the trial court and this Court is
whether the record establishes that the agency acted arbi-
trarily, capriciously, or unlawfully.
11.
When applying the above standard of review to this case,
it is important to keep in mind which Department action is
challenged by North Fork: the approval of Cenex' Annual
Operating Plan, which calls for the drilling of an explor-
atory well. North Fork has contended, and the District Court
has held, that this action should not have been undertaken
without prior preparation of an EIS. It is apparent from our
review of the record, however, that the arguments of counsel
and the District Court's Memorandum and Order have strayed
from the issue of the operating plan to consider policies and
activities that are not at issue here. This is a primary
reason for our reversal of the District Court's judgment.
A. The Department's Decision Was Not Unlawful.
While the standard of review we have adopted utilizes
three terms, it breaks down into two basic parts. One part
concerns whether the agency action could be held unlawful,
and the other concerns whether it could be held arbitrary or
capricious. See Langen, 234 P.2d at 471. We will first
address the "unlawful" portion. The Department is both
empowered and constrained by a set of statutes and regula-
tions relevant to its actions challenged in this case. One
such statute is S 77-1-202, MCA, cited above, which imposes a
fiduciary duty on the Department to manage the land at issue
to the advantage of the State. The procedures followed by
the Department in its dealings with Cenex were governed in
part by MEPA ( S S 75-1-101, et seq., MCA) and administrative
rules enacted pursuant to MEPA (ARM 26.2.602, et seq. re-
pealed 11/1/89; recodified at ARM 26.2.642, et seq.).
North Fork's complaint in the District Court alleged in
large part that the Department failed to carry out its ap-
pointed duties under these provisions. In the brief filed in
support of its motion for summary judgment, North Fork made
three arguments:
1. [The Department's] decision to forego an EIS at
the stage of drilling an oil well was clearly
unreasonable and wrong. Conner v. Burford, 605
F.Supp. 107 (D. Mont. 1985) and Kadillak v.
Anaconda Co. (1979), 184 Mont. 127, 602 P.2d 147.
2. The case is clearly one where the decision "may
significantly affect" endangered species and a
fragile environment, requiring an EIS under ARM
26.2.603 (3)(a).
3. [The Department] omitted to perform an evalua-
tion of cumulative impacts, in violation of ARM
26.2.604 (1)(b) and (c).
Two of these arguments, the first and third, are directly
relevant to the "unlawful" portion of our standard of review.
The District Court's Reliance on Conner v. Burford. The
District Court agreed with North Fork's first argument, and
relied on Conner v. Burford, supra, to hold the Department's
1976 EIS, 1983 PER and 1984 PER to be insufficient. At the
outset, the court adopted North Fork's broad view of the
development of oil and gas in the Coal Creek area, and con-
cluded that full-field development required the preparation
of an EIS. The Department had argued that its 1976 EIS was
sufficient for this purpose. The court found, however, that
the 1976 EIS was insufficient because it focused only on Coal
Creek lease tracts and did not address the overall impacts of
such development. Without a valid EIS, the two PER'S became
"falling dominos," their environmentally protective stipula-
tions mere examples of the kind of "piecemeal" approach to
environmental review held improper in Conner. We disagree.
First, the Department's 1976 EIS has no relevance to
this case. The overall impacts of full-field oil and gas
development in the Coal Creek State Forest are not at issue.
Section 75-1-201, MCA , (entitled "General
Directions--Environmental-Impact Statements") sets out guide-
lines for "every recommendation or report on proposals for
projects." ARM 26.2.603 ("Determination of Necessity for
Environmental Impact Statement") governs consideration of a
"proposed action". The proposed project/action under consid-
eration in this case is the drilling of one exploratory well
on one lease tract. In considering this proposed action, the
Department prepared a site-specific PER in 1984, which sup-
plemented a more general PER prepared in 1983. The conclu-
sion reached by the Department was that an EIS was not
required for the single Cenex test well. This is the deci-
sion under review.
Second, while the District Court was correct in assert-
ing that "[ilf found rich in oil and gas the acreage in
question would be under tremendous pressure for further
exploration and development," it was premature in concluding
that an EIS was required. The court's conclusion apparently
resulted from a misreading of the Conner case. The decision
of the U.S. District Court for the District of Montana in
Conner, cited by North Fork in its brief below, dealt with
the question of when an agency action would "significantly
affect" the environment, thus requiring preparation of an
EIS. This is the same standard employed in § 75-1-201, MCA,
and its attendant regulations. The Federal District Court
held that issuance of a lease permitting oil and gas develop-
ment was "the first stage of a number of successive steps"
leading to development, and therefore met the "significantly
affect" standard. The court feared that proceeding with a
piecemeal environmental review by considering only one step
at a time would ignore the cumulative effects of development
and risk unforeseen, irreversible impacts.
When reviewing the decision, however, the Ninth Circuit
Court of Appeals made an important distinction. The appel-
late court reviewed case law determining that under the
"significantly affect" standard, an EIS was always required
at the "go/no go" point of oil and gas development. The test
derived to pinpoint when the "go/no go" point is reached
looks for the proposed action that will entail an "irretriev-
able commitment of resources". Some of the leases at issue
in Conner had "no surface occupancy" (NSO) clauses. Under
these clauses, no activity which would disturb the ground in
any way could be undertaken without prior approval from the
agency involved. The Ninth Circuit Court held that leases
with NSO clauses were not an irretrievable commitment of
resources. Nothing could happen under the leases without
government approval. The point had not been reached where
preparation of an EIS was "automatic." The court also noted,
"We cannot assume that government agencies will not comply
with their NEPA obligations in later stages of development."
Conner, 836 F.2d at 1528.
Cenex will operate under essentially the same type of
strictures found in the Conner NSO leases. The lease at
issue in this case was executed on a printed "Montana Oil and
Gas Lease" form supplemented in blank spaces with information
specific to the lease arrangement between the Department and
Cenex for this well site. North Fork has made much of the
printed language in the initial portion of the lease indicat-
ing that Cenex thereby acquires the right to do the
following:
... mining and operating for oil and gas, and of
laying pipelines, building tanks, power stations,
and other structures thereon necessary in order to
produce, save, care for, dispose of and remove the
oil and gas ...
According to North Fork, it is hard to imagine these activi-
ties not significantly affecting the human environment of the
Coal Creek area.
North Fork is correct in that the lease could ultimately
empower Cenex to conduct all of the listed activities, and it
is easy to imagine these activities having a significant
effect on the environment. However, the lease also contains
specific environmental stipulations typed into to the lease
form under paragraph 26, entitled "Special Provisions". One
of these typed stipulations reads:
If the lessee [Cenex] intends to conduct any activ-
ities on the leased premises, it shall submit to
the Department of State Lands two copies of an
Annual Operating Plan or Amendment to an existing
Operating Plan, describing its proposed activities
for the coming year. No activities shall occur on
the tract until an Annual O~eratinaPlan or
Amendments have been aDDr0ved in writina bv the
(Emphasis supplied.) It is a fundamental principle of con-
tract law that written or typewritten provisions in a con-
tract take precedence over printed provisions. Hoerner
Waldorf Corp. v. Bumstead-Woolford Co. (1972), 158 Mont. 472,
494 P.2d 293. The typed "special provision" therefore takes
precedence over the printed authorization in this lease.
Cenex can carry out the listed activities only with prior
written approval of the Department. The issuance of this
lease was thus not an "irretrievable commitment of resources"
as the term was used in Conner. The District Court was
incorrect in concluding that full development of oil and gas
in the Coal Creek State Forest was a matter of successive
steps set into irreversible motion by the issuance of the
lease. Like the Ninth Circuit in Conner, this Court cannot
assume that the Department will not comply with its MEPA
obligations if development proceeds beyond this stage.
The 1983 PER. The District Court's misapplication of
the Conner decision also tainted its holdings that the 1983
and 1984 PER'S were insufficient. Because the 1984 PER is a
"supplement" to the 1983 PER, the court's holdings on both
documents are relevant. The court held the 1983 PER inade-
quate because it relied on the inclusion of environmentally
protective stipulations to support its finding that issuing
leases would not significantly affect the human environment.
The District Court held this approach insufficient for two
reasons: (1) it represented piecemealing prohibited by Conner
and (2) it should have been a "programatic" review as re-
quired by ARM 26.2.614.
Our discussion of Conner has shown that a lease issued.
pursuant to the 1983 PER need not be violative of the ruling
in Conner, and the lease involved here in fact was not. As
to ARM 26.2.614, the court engaged in selective reading of
this rule, which has resulted in misinterpretation. The
court and North Fork have at several points focused on por-
tions of relevant provisions utilizing the words "shall" or
"must" to conclude that the Department failed to carry out
mandatory procedures. However, a cursory examination of ARM
26.2.614 reveals that the procedures listed are subject to a
very prominent "if":
(1) If the department is contemplating a series of
agency-initiated actions [which] will constitute a
major state action significantly affecting the
human environment, the department may prepare a
programmatic review ...
(Emphasis supplied.) Again, our discussion above shows that
the contemplated action at issue in the 1983 PER was the
issuance of leases, which the Department determined did not
constitute state actions significantly affecting the human
environment. That decision was not challenged by North Fork,
so no programmatic review was required.
The 1984 PER. The District Court adopted North Fork's
third argument in holding the 1984 PER to be insufficient.
North Fork asserted that under ARM 26.2.604, an evaluation of
the cumulative impacts of the proposed action was mandatory.
The District Court found the 1984 PER insufficient because of
its failure to address cumulative impacts.
The term "cumulative impacts" is defined in ARM
26.2.602(1). The rule states that analysis of cumulative
impacts under this definition involves consideration of past
and present actions related to the proposed action. The
proposed action under consideration in the 1984 PER was the
drilling of the test well, the first such well in the Coal
Creek area. The only past related action was the issuance of
leases to Cenex, which was the subject of the 1 9 8 3 PER. The
1 9 8 3 and 1 9 8 4 PER'S fulfill the requirement of ARM 2 6 . 2 . 6 0 4
in that they examine the impacts of issuing leases and drill-
ing a single test well, the only related proposed actions
before the Department.
The arguments advanced by North Fork and the District
Court's Memorandum attack the 1 9 8 4 PER for failing to consid-
er the cumulative impacts of related future actions, namely
the full-field development of oil and gas. However, ARM
26.2.604 requires consideration of related future actions
only when they are under current consideration. As we stated
above, full-field development was not a proposed action
before the Department. It was not included in Cenex's Annual
Operating Plan, and therefore was not under "current
consideration".
In sum, the arguments advanced by North Fork and the
rationale provided by the District Court failed to show that
the Department acted "unlawfully" in determining that approv-
al of Cenex' first annual operating plan did not require an
EIS. Our review of the record has not uncovered any statute
or regulation violated by the Department in its dealings with
Cenex thus far. The Department has followed required proce-
dures and included in its PER'S the information required by
statute and administrative rules. Nor can the decision on
the Cenex test well be analogized to the situation in Conner.
Even under the Conner criteria, the Department made its
decision to forego an EIS at a point in the process where
that decision was still left to the Department's discretion.
We therefore proceed to examine the Department's decision
under the "arbitrary or capricious" portion of our standard
of review.
B. The Department's Decision Was Not Arbitrary Or Capricious.
North Fork's second argument in its brief in support of
its motion for summary judgment addressed the 1984 PER, and
is relevant to this portion of our review. North Fork as-
serted that by the Department's own analysis, the approval of
the well was an action significantly affecting the human
environment. North Fork is critical of the Department's
treatment of the effects the well might have on bald eagles,
grizzly bears or grey wolves thought to inhabit or at least
frequent the Coal Creek area. North Fork notes that the
Department employs no eagle biologist or wolf biologist, and
no wildlife biologist is included in the list of PER prepar-
ers. However, North Fork's brief states,
The issue here is not the questionable quality of
the [eagle, bear and wolf] biology in the PER. The
issue is whether there is a "may affect" situation
According to North Fork, such a situation "clearly" exists,
and an EIS should have been prepared prior to approval of the
Cenex Annual Operating Plan.
For each of North Fork's contentions, it quotes a por-
tion of the 1984 PER discussing possible impacts of the well
on that animal. North Fork does not contend that required
analyses are missing, nor does it focus on the adequacy of
the analyses given. North Fork simply contends that the
impacts discussed are evidence themselves that the well may
significantly affect these facets of the human environment.
Its criticism of the lack of wildlife biologists in the list
of preparers appears aimed at showing that the Department did
not recognize the import of even the "questionable analysis"
found in the PER. According to North Fork, the Department
was therefore incorrect in deciding that drilling a test well
would not significantly affect the human environment, and its
decision ran afoul of the "unreasonable" standard of review.
Our analysis will be similar to that employed by North
Fork, except for the actual standard of review applied. This
Court has not had the opportunity to review an administrative
decision under MEPA utilizing the "arbitrary or capricious"
standard. In the Marsh case, however, the U.S. Supreme Court
stated a method for conducting such a review:
As we observed in Citizens to Preserve Overton
Park v. Volpe, 401 U.S. 402, 416 (1971), in making
the factual inquiry concerning whether an agency
decision was "arbitrary or capricious," the review-
ing court "must consider whether the decision was
based on a consideration of the relevant factors
and whether there has been a clear error of judg-
ment." This inquiry must "be searching and care-
ful," but "the ultimate standard of review is a
narrow one. "
Marsh, 57 LW at 4509. It is also worth noting that our
decisions in cases decided under MAPA (see, e.g., Thornton v.
Comm'r of the Dep't of Labor and Indus. (1981), 190 Mont.
442, 621 P.2d 1062; Wilderness Association, 648 P.2d at 740)
have recognized the limited scope of review in administrative
cases. We cannot substitute our judgment for that of the
Department by determining whether its decision was "correct."
Instead, we must examine the Department's decision to see
whether the information set out in the PER'S was considered,
or the decision to forego an EIS was so at odds with that
information that it could be characterized as arbitrary or
the product of caprice.
We will read the 1983 and 1984 PER'S together, because
as noted above, the 1984 PER was intended to supplement the
1983 PER. In these documents, the Department had before it
analyses of the possible impacts of drilling the test well
that raised a number of environmental concerns. There were
questions about maintaining the purity of the water in the
North Fork of the Flathead River and a nearby glacial lake.
There were questions about how the sight of the drilling rig,
the noise it produced while working and the smells associated
with its presence would affect endangered species such as
bald eagles that nested at the glacial lake, grizzly bears
that were thought to use the Coal Creek drainage as a travel
corridor to find food, and grey wolves which were slowly
being reintroduced to the area. There were also questions
about how these same sights, sounds and smells would affect
activities such as camping, river floating and hiking along
the river and in Glacier Park. The 1 9 8 3 PER consumed 3 9
pages in addressing these and other questions, while in the
1 9 8 4 PER the analyses required 75 pages.
In the process of preparing the two PER'S, the Depart-
ment consulted with over 30 departments and organizations,
including the Environmental Protection Agency, the Border
Grizzly Project and Wolf Ecology Project at the University of
Montana School of Forestry, the Rocky Mountain Oil and Gas
Association, and Glacier National Park. The Department also
utilized over 60 published studies and other references.
During public comment on the 1 9 8 4 PER, the Department re-
ceived 70 letters from concerned groups and individuals.
Clearly, there were many concerns expressed and much informa-
tion provided.
In response to this process, the Department decided to
include measures to mitigate the impact of oil and gas activ-
ities in the form of stipulations to Cenex's lease and to the
written approval of Cenex's operating plan. The Department
has argued that these stipulations prevented its approval of
the operating plan from rising to the level of a state action
significantly affecting the human environment. At the feder-
al 1-evel, the Ninth Circuit Court of Appeals has held that
such "mitigation measures" are to be considered in reviewing
a decision to forego an EIS, and if the measures are "signif-
icant", they may justify such a decision under the "unrea-
sonable" standard. Friends of Endangered Species, Inc. v.
Jantzen (9th Cir. 1985), 760 F.2d 976, 987. Given the nar-
rower, "arbitrary or capriciousw standard being applied in
this case, sufficiently significant mitigation measures
certainly would justify the Department's decision.
The mitigation measures adopted by the Department have
taken the form of a total of 42 protective stipulations, 11
attached to the lease and 31 attached to the approval of the
operating plan. They include such measures as forbidding any
activity on the lease tract during times of the year impor-
tant to bald eagle nesting and grizzly bear migration. The
drilling rig must be painted a color that will not stand out
against the natural background, additional mufflers must be
installed on the diesel engines used to power the rig, and
the engines must be mounted facing a certain direction to
reduce the noise reaching bald eagle nests and Glacier Park.
Five stipulations deal with any necessary disturbance of the
soil and its replacement. Eight stipulations concern main-
taining the quality of the ground water, and include restric-
tions on the chemical content of drilling fluids and the size
of trucks that may be used to haul diesel fuel to the rig.
The stipulations also address the workers on the rig, impos-
ing regulations on garbage disposal and forbidding the pres-
ence of personal pets, among other measures.
We have reviewed the concerns raised by the preparers of
the PER'S, as well as those raised by agencies consulted and
members of the public. We have also reviewed the mitigation
measures imposed by the Department. We conclude that the
Department has considered the concerns raised and taken
significant steps to address them. We therefore hold that
the Department's decision to approve Cenex's annual operating
plan was not arbitrary, nor was it an exercise of caprice.
Having also held that the Department did not act illegally,
we therefore uphold the Department's decision and reverse the
District Court on this question.
111.
One of the remedies afforded by the District Court was a
writ of mandate requiring the Department to prepare an EIS.
We have held above that an EIS was not required in this case,
which makes the issuance of the writ erroneous. We feel
compelled to add, however, that mandamus was an inappropriate
remedy in this case. As our discussion above has brought
out, the Department's decision to forego an EIS at this stage
of development was necessarily an exercise of discretion to
which courts must give a measure of deference. In fact, we
have previously held that the Department must exercise its
discretion in all phases of its management of state lands.
"If the 'large measure of legitimate and reasonable
advantage' from the use of state land is to accrue
to the state, then the [Department] must, necessar-
ily, have a large discretionary power. Every facet
of the [Department's] action cannot, and is not,
explicitly laid out in the statutes of the State
Constitution."
Jeppeson v. State (19831, 205 Mont. 282, 289, 667 P.2d 428,
431 (quoting Thompson v. Babcock (1966), 147 Mont. 46, 409
P.2d 808). We held in Jeppeson that mandamus is not avail-
able to compel a discretionary act. We therefore reverse the
District Court on this question.
We have held that the District Court applied the incor-
rect standard of review in this case, and that under the
correct standard, the Department's approval of Cenex's annual
operating plan was proper. We have further held that manda-
mus was not available in this case. We therefore reverse the
decision of the District Court, dissolve the writ of mandate
issued by the court, and remand this case for entry of judg-
ment in favor of the Department.
We Concur: A
@C % d
&
Justice
sitting for J u s t i d John C Sheehy
,
Justice ~illiamE. Hunt, Sr., dissenting.
I dissent. The District Court's summary judgment in
favor of North Fork should be affirmed.
The majority concludes that an oil well drilled in the
Coal Creek State Forest, located on the North Fork of the
Flathead ~ i v e r ,will not generate such a "significant impact
upon the human environment" as to require the preparation of
an Environmental Impact Statement (EIS) . The lease in ques-
tion, however, not only gives Cenex the right to drill for
oil and gas, it also empowers the corporation to engage in
other activities associated with oil and gas development--
laying pipelines, building tanks, constructing power stations
and other necessary structures. Should this one exploratory
well produce oil or gas, Cenex will definitely undertake
these activities--activities that will significantly affect
the human environment.
Taking comfort in the lease's seemingly restrictive
provisions that require Cenex to submit annually an operating
plan for written approval by the Department before Cenex
undertakes any additional developmental activity, the majori-
ty incorrectly concludes that the only issue involved in this
case is the impact of this one well. Much more than one,
site-specific well is at stake here. This well is merely the
first step toward the full development of oil and gas in the
Coal Creek State Forest. Should Cenex discover gas or oil
with this one well, as is highly probable, the economic
pressure for full-field oil and gas development of the area
will be tremendous. For the majority to believe that such
development is not at issue is incomprehensible.
The majority states that an EIS will not be required
until Cenex has made an "irretrievable commitment of resourc-
es." An irretrievable commitment of resources occurs at the
"go/no go" point of oil and gas development. with the
Department's approval of Cenex's proposal to drill one ex-
ploratory well, we have reached this "go/no go" point. The
drilling of one oil well on Coal Creek land constitutes a
disturbance of the ground and, definitionally, an irretriev-
able commitment of resources. An EIS must be undertaken
before the Department approves an annual operating plan that
includes a proposal to drill--whether the proposal is for one
well or twenty.
The immediate and long-term effects that drilling in the
Coal Creek State Forest will have on the human and physical
environment are potentially devastating. Yet, by choosing to
review the need for an EIS under the most lenient of all
standards of review--the arbitrary, capricious and unlawful
standard--the majority appears content to let the future of
our forests, rivers, wildlife and wilderness rest in the
hands of non-elected public officials. When I see the De-
partment giving priority to the raising of revenue over the
quality of our environment, I cannot share the majority's
assurance that the Department is adequately carrying out its
fiduciary duty to "secure the largest measure of legitimate
and reasonable advantage to the state" in managing school
trust lands.
The core of Montana's value derives from its natural
beauty. The area involved, teeming with wildlife, includes
the gateway to Glacier National Park, the Coal Creek State
Forest and the North Fork of the Flathead River, which not
only comprises part of the Wild and Scenic River System but
also feeds the majestic Flathead Lake. The majority and the
Department may be willing to exploit these state treasures
without taking a hard look at the future. I, for one, cannot
condone the Department's hasty and ill-considered decision to
allow drilling prior to the compilation of an EIS.
I would affirm the District Coyt.
- 25 - Justice