Prairie County Cooperative State Grazing District v. Kalfell Ranch, Inc.

NO. 942347

IN THE SUPREME COURT OF THE STATE OF MONTANA
1994

IN RE THE MATTER OF KALFELL RANCH, INC.,
a Corporation
PRAIRIE COUNTY COOPERATIVE
STATE GRAZING DISTRICT,
Petitioner, Appellant
and Cross-Respondent,
-VS-

KALFELL RANCH, INC., a Corporation,
Respondent, Respondent
and Cross-Appellant.

APPEAL FROM: District Court of the Seventh Judicial District,
In and for the County of Prairie,
The Honorable R.C. McDonough, Judge presiding.

COUNSEL OF RECORD:
For Appellant:
Thomas M. Monaghan; Lucas & Monaghan, Miles
City, Montana
For Respondent:
Lorraine A. Schneider; Simonton, Howe &
Schneider, Glendive, Montana
Robert R. Throssell, Special Attorney General;
Keller, Reynolds, Drake, Johnson & Gillespie,
Helena, Montana (for Montana Board of Natural
Resources and Conservation)

Submitted on Briefs: October 28, 1994
Decided: December 22, 1994
Filed:
Justice Karla M. Gray delivered the Opinion of the Court.

The Prairie county Cooperative State Grazing District

(District) appeals from a judgment entered by the Seventh Judicial

District Court, Prairie County, affirming a decision by the Board

of Natural Resources and Conservation (BNRC) which reversed, in

part, a decision of the District. Kalfell Ranch, Inc. (Kalfell)

cross-appeals from the court's determination that the BNRC's

failure to address certain of its claims constituted an implied

denial of the claims and the court's affirmance of that denial on

the merits. We affirm on both the appeal and the cross-appeal.

The District raises the following issue on appeal:

Is § 76-16-414, MCA, rather than § 76-16-403, MCA,
applicable in this case?

Kalfell raises the following issue on cross-appeal:

Whether the District Court erred in determining that, by
failing to address claims raised by Kalfell, the BNRC in
effect denied them and in denying them on the merits?

FACTUAL AND PROCEDURAL BACKGROUND

The District is a cooperative state grazing district

authorized and organized under Title 76, Chapter 16, of the Montana

Code Annotated, known as the Montana Grass Conservation Act (Act).

It was organized in the 1930s and has operated continuously since

that time. The District includes lands owned by private entities

(such as the Burlington Northern Railway or its subsidiaries);

state lands (such as school trust lands); and federal lands under

the jurisdiction of the Bureau of Land Management (BLM). Large

portions of the lands within the District are controlled by the

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BLM, although leased to the District.

Kalfell, a ranch corporation, is a member of the District.

Members receive grazing preferences under the provisions and

procedures of the Act. Grazing preferences are rights to obtain
grazing permits from a state grazing district; they are measured

in animal unit months (AUMs) . A permit is evidence of grazing

privileges granted by such a district.

Originally, most of the livestock grazing within the District

was done in common pastures. Over time, particularly in the 1950s
and 1960s and in large part as a result of BLM actions in

administering lands under its control, individual fenced units came

into being on which District members grazed their livestock.

Leases of federal lands were granted in the names of the permittee

and the District. Leases of state lands ultimately were in the

names of the permittees. Fencing agreements were executed between

the various permittees and BLM. Thus, over the years, many of the

lands within the District changed from common use to individual

use; a limited number of common pastures remained. Some

permittees had lands within their individual pasture which

consisted primarily of federal lands; others had portions of

federal, state and private lands.

The lands involved in this case were privately owned by
Glacier Park Company (Glacier), a subsidiary of Burlington Northern

Railway, and leased by the District. Twenty-six District

permittees exercised grazing preferences on the Glacier lands. In
1989, Glacier decided to sell these lands and cancelled its leases

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with the District. The District elected not to purchase the lands.

It asked Glacier to first offer the lands for sale to the

permittees within whose fenced units the lands were located; if the

permittee did not purchase it, the land should be offered next to

a neighbor of the permittee and, finally, the land should be

offered for sale to the general public.

Glacier acquiesced in the District's request. Twenty-five of

the twenty-six permittees exercising grazing preferences on the

Glacier lands purchased the land within their respective fenced

unit. Kalfell was unable to purchase the approximately six and

one-half sections of Glacier land located within its pastures.

Glacier subsequently sold that land to a neighbor of Kalfell.
Because of the District's loss of the six and one-half

sections of Glacier land on which 7,828 grazing preferences--out of

a total of 124,890--were exercised, the District could not provide

the affected permittees with sufficient land upon which to exercise

the entirety of their grazing preferences. As a result, the

permittees could not exercise some of their grazing preferences;

Kalfell was unable to use 966 of its grazing preferences or ADMs.

The District's board of directors tendered monetary

compensation to the twenty-six affected permittees, purportedly

pursuant to 5 76-16-414(Z), MCA. The compensation per AUM was

approximately $5.72, and the total compensation offered to each

permittee varied, depending on the number of AUMs each could no
longer use.

Twenty-five of the twenty-six affected permittees accepted the

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District's offer of compensation. Kalfell, which was unable to use

the second highest number of AUMs, did not accept the $5,526.97

tendered by the District's board of directors.

Kalfell requested a hearing before the District. It contended

that the loss of the Glacier lands must be shared by all members of

the District and not borne solely by the twenty-six directly

affected members. It argued that § 76-16-403, MCA, providing for

a proportionate reduction of all members' grazing privileges, was

the applicable statute and that the District's board of directors
had erred in proceeding under § 76-16-414, MCA. It also alleged in

pertinent part that the board of directors breached its fiduciary

duty in failing to purchase the Glacier land, failed to enforce

statutes and rules which prohibit competitive bidding, and failed
to collect the value of, and compensate it for, improvements made

to Glacier lands.
After a hearing in which testimony and exhibits were received,

the District issued its Decision of Board on August 11, 1992. It

determined that the board of directors had acted properly in

applying § 76-16-414, MCA, and that the compensation offered to

Kalfell was the appropriate remedy. It rejected Kalfell's claims

that the board of directors was obligated to purchase the Glacier

(or substitute) land and to collect the value of, and compensate

Kalfell for, improvements to the Glacier land. It indirectly

addressed Kalfell's claim that the board of directors failed to
follow statutes and rules which prohibit competitive bidding by

focusing on the undisputed fact that the transactions by which

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Glacier disposed of its lands were private sales over which the

District had no control.
Kalfell appealed to the BNRC pursuant to § 76-16-109, MCA.

Pursuant to that statute, the BNRC heard oral argument but neither

requested nor received additional testimony or exhibits. The

BNRC's Opinion and Order reversed the District's conclusion that

5 76-16-414, MCA, was applicable. The BNRC concluded that, when

the District was unable to meet the needs of those holding grazing

preferences because of the sale of the Glacier lands, it was

obligated by § 76-16-403, MCA, to proportionately reduce all

grazing preferences. The BNRC rejected Kalfell's claim that the

District was required to purchase either the Glacier land or other
grazing land sufficient to meet the assigned grazing preferences;

it did not address Kalfell's claims relating to competitive bidding

and compensation for its improvements to the Glacier land.

The District petitioned, and Kalfell cross-petitioned, for

judicial review of the BNRC's Opinion and Order. The District

Court upheld the BNRC's conclusion that § 76-16-403, MCA, is

applicable. It further determined that the Board's failure to

address Kalfell's other claims constituted an implied denial of

those issues, a denial with which the court agreed on the merits.

Both parties appeal from the District Court's judgment.

STANDARD OF REVIEW

Section 2-4-704, MCA, sets forth the statutory standards for

judicial review of an administrative agency's decision. We have

interpreted those statutory standards to mean that an agency's

6
findings of fact are subject to review' to determine whether they

are clearly erroneous. GBN, Inc. v. Montana Dep't of Revenue

(1991), 249 Mont. 261, 264, 815 P.2d 595, 596 (citation omitted).

An agency's conclusions of law are reviewed to determine whether

they are correct. GBN, Inc., 815 P.2d at 597.

We recently have clarified that, in multi-level proceedings
and reviews under the Montana Administrative Procedure Act (MAPA),

the "agency" decision to be scrutinized on judicial review is that

of the agency which issued the initial decision. See Baldridge v.

Board of Trustees (1994), 264 Mont. 199, 870 P.Zd 711. Here, that

agency decision is the District's Decision of Board dated August

11, 1992.

Is 5 76-16-414, MCA, rather than § 76-16-403, MCA,
applicable in this case?

The District contends that its original decision that § 76-16-

414(2), MCA, applies to the facts and circumstances of this case

was correct as a matter of law and that the BNRC and the District

Court erred in applying § 76-16-403, MCA. Section 76-16-414, MCA,
provides in its entirety as follows:

76-16-414. Equalization of district assets. (1)
Whenever a state district shall possess reserves, the
values of which are greater than its liabilities, and the
state district shall determine that a part of such
reserves is in excess of its reasonable needs to operate
the district, such state district may refund to the
permittee members their proportionate share of such
reserves as determined at the last annual accounting.
(2) Whenever a state district shall possess
reserves and physical assets, the values of which are
greater than its liabilities, and a permittee member
shall lose his grazing preference, he shall be entitled
to receive his proportionate share of the value of such
excess from the state district, as determined by the
annual accounting of the state district. The state

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 district may set off the amount of 'any claim it may have
against such former member.
(3) Whenever a new member shall receive a grazing
preference, he shall, as a condition of receiving such
preference, pay to the state district the value of the
equitable interest in the physical assets and reserve
fund which accrues to him by virtue of such membership.
Such value shall be determined at the time of receiving
such preference and upon the basis of the determination
of value of such physical assets and reserves made at the
last annual accounting.

Section 76-16-403, MCA, provides:

76-16-403. Procedure if reduction in grazing
privileges necessary. If reductions in grazing privileges
become necessary, operators with temporary permits will
be reduced first on a proportionate basis. When the
extent of reduction of privileges exceeds that of
temporary permits, then the rights of operators with both
dependent commensuratepropertyand commensurate property
shall be reduced together on a proportionate basis.

Our role in construing statutes is clear; we must 'Iascertain

and declare what is in terms or in substance contained therein . .

. I.'I we may not insert what has been omitted or omit what has been
inserted. Section l-2-101, MCA; Curtis v. Dist. Court of 21st Jud.

Dist. (Mont. 1994), 879 P.Zd 1164, 1166, 51 St.Rep. 776, 778. The

intent of the legislature is to be pursued and effectuated.

Section l-2-102, MCA; Curtis, 879 P.2d at 1166; Minervino v.

University of Montana (1993), 258 Mont. 493, 496, 853 P.2d 1242,

1244. We look first to the plain meaning of the words used in the

statute. Stansbury v. Lin (1993), 257 Mont. 245, 249, 848 P.2d

509, 511. If the legislative intent can be determined from the

plain language of the words used, we may not go further and apply

other means of interpretation. Curtis, 879 P.2d at 1166 (citation

omitted). It is only when the intent cannot be determined from the

language of the statute that we will examine the legislative

8
history. State ex rel. Roberts v. Public Service Com'n (1990), 242

Mont. 242, 246, 790 P.2d 489, 492 (citations omitted).

The District contends that § 76-16-414(2), MCA, is the

specific remedy provided by the Montana legislature for the
situation which occurred upon the District's loss of control of the

Glacier lands. The District maintains that Kalfell "lost" its

grazing preference and, therefore, was entitled to only a

proportionate share of the District's assets, as offered by the

District, pursuant to § 76-16-414(2), MCA. It cites no statutory

or case authority in support of its contention that preferences

were "lost;" furthermore, the plain language of 5 76-16-414, MCA,

does not support the District's position.

Kalfell did not "lose" any grazing preferences or permits via

Glacier's sale of the lands at issue here; it merely became unable

to exercise its preferences because of the District's loss of the

Glacier lands. Grazing preferences--rights to obtain grazing

permits--are statutory creations which are determined and

distributed pursuant to statutory requirements. Sections 76-16-

103(7) and 76-16-401, MCA. They can be transferred pursuant to

statute. See, e.q., § 76-16-406, MCA. Grazing preferences also

may be revoked pursuant to statute. Section 76-16-412, MCA. No

statute provides for the evaporation, extinguishment, or loss of a

grazing preference as a result of the loss of control of land by a

grazing district. As a result, we reject the District's underlying
premise that Kalfell lost grazing preferences upon the sale of the

Glacier lands.

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 Moreover, the District's argument ignores the final sentence
of § 76-16-414(Z), MCA. The inclusion there of the term "such
former member" clarifies that the remedy provided therein is
available only when a member loses the entirety of its grazing
preference(s) and, as a result, is no longer a member of the
District. Notwithstanding the parties' dispute over whether
Kalfell actually "lost" any of its grazing preferences, it is
undisputed that Kalfell did not lose the entirety of its grazing
preferences and that it remains a permittee member of the District.
We conclude that the language of § 76-16414(2), MCA, is clear,
unambiguous and plain in expressing the legislature's intent; it
permits of no additional interpretation by this Court. See Curtis,
879 P.2d at 1166.
In addition, reading subsection (2) in the context of the
entirety of § 76-16-414, MCA, further clarifies that the
legislature's purpose in enacting the statute was, as its heading
denotes, to equalize a district's assets under three distinct
scenarios. Subsection (1) provides the method of equalizing assets
when a district determines it has reserves in excess of its
reasonable needs; subsection (2) provides for equalization when a
permittee member loses its grazing preference(s) altogether and, as
a result, becomes a former member; and subsection (3) provides for
equalization when a new member receives a grazing preference.
Section 76-16-414, MCA. None of those scenarios is before us here.
Nor can we accept the District's argument that its, and
members', agreements with the BLM--by which BLM lands within the

10
District were individually allotted and individual units were
fenced--changed the fundamental nature of the grazing preferences
assigned and managed by it pursuant to state law. In essence, the
District contends that its involvement with federal agencies under
the federal Taylor Grazing Act (43 U.S.C. 55 315 et seq.) allows it
to ignore or violate Montana statutes by ceding control of the
District to the BLM. It is undisputed that the District was
established pursuant to §§ 76-16-201 et seq., MCA. While the Act
is intended to provide a means of cooperation with federal agencies
involved with the Taylor Grazing Act, the District cannot exercise
powers inconsistent with the Montana Act in doing so. See §§ 76-
16-102 and 76-16-204(2) (f), MCA. We conclude that the District
erred in concluding that § 76-16-414, MCA, is applicable to the
facts before us.
Section 76-16-403, MCA, on the other hand, is clearly
applicable here by its terms. There is no question but that the
District's loss of control over the Glacier lands impacted on
assigned grazing preferences. Some 50,000 fewer acres were
available on which members could exercise their grazing preferences
and the District did not purchase or, apparently, lease new lands
to enable members to fully exercise their preferences. Thus, the
impact on members' ability to exercise their grazing preferences
resulted from the inadequacy of lands under the District's control,
not from the "loss" of any grazing preferences. Under such a
circumstance, "reductions in grazing privileges become necessary,"
as specifically contemplated in 5 76-16-403, MCA. The statute

11
provides for reducing grazing privileges on a proportionate basis.

We conclude that the District erred in concluding that 5 76-16-403,

MCA, is not applicable here.

The District also argues that application of § 76-16-403, MCA,

produces an impossible result. It asserts that, because of the

change in grazing characteristics in the District from large,

unfenced common pastures to individual units, it could not have

apportioned the "loss" of the 7,828 grazing preferences resulting

from the loss of control of the Glacier lands at the time the lands

were sold and cannot now apportion the 966 preferences Kalfell is

unable to exercise.
The means by which the District can, or must, comply with

clearly applicable statutes is not an issue before us in this case.

Boiled down to its essence, the District's argument is that,

because it did not seek amendments to the Act as grazing

characteristics changed over the years, this Court should relieve

it from a difficult situation by ignoring the rules of statutory

construction regarding plain and unambiguous statutory language.

Suffice it to say that we cannot alter the clear language of

applicable statutes; only the legislature can do so.
Having concluded that the District erred as a matter of law in

applying § 76-16-414(2), MCA, we hold that the BNRC and the

District Court did not err in concluding that § 76-16-403, MCA,

rather than 5 76-16-414, MCA, applies in this case.

Did the District Court err in determining that, by
failing to address claims raised by Kalfell, the BNRC in
effect denied them and in denying them on the merits?

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 There is no question but that procedural requirements were not

strictly met in this case by either the District or the BNRC. The

District's Decision of Board did not strictly comply with the
requirements of § 2-4-623, MCA, which may stem from the District's

unfamiliarity with conducting proceedings under the MAPA. We

caution the District--and other grazing districts which may conduct

such proceedings--that our willingness to overlook nondispositive

irregularities in the format and content of its Decision of Board

in this case, partly because Kalfell did not raise the issue,

should not be interpreted to mean that we will countenance such

irregularities in future cases reaching us under the Grass

Conservation Act. Like all entities and proceedings to which the

MAPA applies, grazing districts will be held to applicable

statutory requirements.

Similarly, the BNRC did not rule on all claims appealed to it
by Kalfell; these omissions, like those of the District, are not

dispositive here. We encourage the BNRC, however, to more

carefully review the record before it in future cases in order to

properly consider and resolve all issues.

As set forth above, the decision we must scrutinize on appeal

to this Court is the District's Decision of Board. In discussing

this issue, then, we review the District's determinations a)

rejecting Kalfell's claim that its board of directors violated a

fiduciary duty in failing to purchase the Glacier lands; b)

indirectly rejecting Kalfell's claim that its board of directors

failed to enforce statutes and rules which prohibit competitive

13
bidding; and c) rejecting Kalfell's claim for reimbursement for

improvements it made to Glacier land. Because these determinations

are, in essence, conclusions of law based on a largely undisputed

record, we review the District's conclusions to ascertain whether

they are correct. GBN, Inc., 815 P.2d at 597.

a. Duty to Purchase

Kalfell claims that the District's board of directors had an

affirmative duty to purchase the Glacier lands, or substitute land,

in order to enable the District's members to exercise their grazing

preferences in full. It argues that 5 76-16-102, MCA, which states

that one of the purposes for establishing the Act under which the

District was formed is to provide for the stabilization of the

livestock industry, and § 76-16-305(2), MCA, authorizing the

District to purchase lands--taken together--mandate a conclusion

that the District's board of directors abused its discretion and
violated its fiduciary duty in failing to purchase the Glacier

lands or other land in order to provide sufficient land under the

District's control on which members could exercise their grazing

preferences in full. We disagree.

The legislature's stated purposes in enacting the Grass

Conservation Act are broad statements of guiding principles; they

do not require a grazing district to take specific actions. See§
76-16-102, MCA. Section 76-16-305(2), MCA, provides that a grazing

district may purchase or lease lands when necessary to comply with

the purposes of the Act; the authorizing language clearly is
discretionary. Nothing in the statutory framework under which the

14
District operates requires it to purchase such lands.

In addition, as discussed above, 5 76-16-403, MCA, clearly

contemplates the situation which arose here and provides a method

for remedying a loss of land which results in the inability of

members to exercise their full grazing preferences. Kalfell,

having asserted the correct interpretation of § 76-16-403, MCA, in

countering the District's position regarding applicability of § 76-

16-414, MCA, cannot now be allowed to ignore the clear language of

that statute and argue, inconsistently, that the District's board
had an obligation to purchase land rather than to proportionately

reduce members' grazing preferences. We hold that the District did

not err in concluding that its board of directors was not required

to purchase either the Glacier lands or substitute land.

We note that the BNRC did address this issue by stating in its

Opinion that "Nothing in statute requires the District to purchase

grazing land." Thus, on this issue, the BNRC and the District

Court correctly determined, as a matter of law, that the District's

rejection of this claim by Kalfell was not error.
b. Statutes and Rules Prohibiting Competitive Bidding

Kalfell claims that the District's board of directors failed

to enforce both 5 76-16-412(2), MCA, and the terms and conditions
contained in its grazing permits by not revoking the preferences of

Fluss Ranch, Inc. (Fluss), Kalfell's neighbor, based on its

prohibited competitive bidding in purchasing the Glacier land

within Kalfell's individual unit. The District obliquely addressed

this claim by focusing on the undisputed fact that the sale of

15
Glacier's land to Fluss was a private sale over which it had no

control.

Section 76-14-412(2), MCA, authorizes a grazing district to

revoke preferences if a permittee violates any of the district's

rules. The District's rules, printed on the grazing permits issued
to its members, prohibit a permittee from entering into competitive

bidding "against the district or any member thereof for the lease

of grazing lands in the district which are within any member's

allotment." The rules also allow the permit to be cancelled for

violation of any of the rules or regulations of the District.
Taken together, § 76-14-412, MCA, and the District's rules

allow revocation of preferences or cancellation of permits for

rules violations by a permittee; neither requires it. Where the

language of a statute is plain and unambiguous, we must give that

language full effect. Curtis, 879 P.2d at 1.166. Here, decisions

to revoke preferences or cancel permits are entirely discretionary

with the District.

Moreover, the rule prohibiting competitive bidding is

inapplicable here as a matter of law. Insofar as is relevant here,

the rule prohibits competitive bidding against another member for

the lease of grazing lands in the District which are within the
other member's allotment. Here, the sale of the Glacier land was
clearly not a "lease" of that land to which the rule would apply.
We hold that the District was correct as a matter of law in
rejecting this claim by Kalfell.

We note that the BNRC did not address this issue. Again, we

16
encourage the BNRC to more carefully review the record and issues

before it in its decision-making process. A full analysis of this

issue by the BNRC could conceivably have prevented an appeal,

saving the parties time and expense.

c. Improvements

Kalfell asserted at the District, the BNRC and the District

Court that it was entitled to the value of improvements it made to

the Glacier land and that the District was obligated, pursuant to

5 76-16-410, MCA, to collect the value of such improvements from

Fluss on its behalf. The District rejected this claim, concluding

that the statute did not apply. The BNRC did not address this

issue in considering Kalfell's appeal from the District's Decision

of Board.

We note that Kalfell's presentation of this issue appears to

have shifted somewhat on appeal to this Court. Kalfell now appears
to assert only that it was an abuse of discretion for the District

not to recover the value of the improvements "for the benefit of

the District." We address the issue as it originally was raised

at, and rejected by, the District.
Section 76-16-410, MCA, states that subsequent owners of land

must compensate a grazing district for the value of range

improvements constructed with the consent of the owner upon lands

leased by the district. Kalfell's argument that, pursuant to the

statute, the District was obligated to collect the value of the

improvements from Fluss and pay it over to Kalfell--or add it to

Kalfell's equity in the District--is totally unsupported by the

17
language of the statute. The statute speaks only to compensation

of the grazing district, not to any obligation of a district to
collect those funds for payment to a previous lessee.
Furthermore, the statute addresses only improvements in which
a grazing district itself is involved. Here, Kalfell's own
testimony was that the District was not involved in its decision to
make the improvements and, indeed, that it had not made any
agreement with Glacier as to ownership of the improvements in the
event Glacier sold the land. We conclude that § 76-16-410, MCA, is
not applicable to the facts before us and, therefore, that neither
the District nor the District Court erred in rejecting Kalfell's
claim based on that statute.
Affirmed.

We concur:

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Justice William E. Hunt, Sr., specially concurring.
I concur in the result of the majority opinion, but not in all
that is said therein.

19