Town Pump, Inc. v. Board of Adjustment

No

No. 97-715

IN THE SUPREME COURT OF THE STATE OF MONTANA

1998 MT 294

TOWN PUMP, INC., a Montana corporation, and

TOWN PUMP OF HARDIN, INC., a Montana corporation,

Petitioners and Appellants,

v.

BOARD OF ADJUSTMENT OF THE CITY

OF RED LODGE, MONTANA,

Respondent and Respondent.

APPEAL FROM: District Court of the Thirteenth Judicial District,

In and for the County of Carbon,

The Honorable Robert W. Holmstrom, Judge presiding.

COUNSEL OF RECORD

For Appellants:

L. B. Cozzens; Crowley, Haughey, Hanson, Toole & Dietrich,

Billings, Montana

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For Respondent:

Gary R. Thomas; Thomas Law Office, Red Lodge, Montana

Submitted on Briefs: October 1, 1998

Decided: December 3, 1998

Filed:

__________________________________________

Clerk

Justice W. William Leaphart delivered the Opinion of the Court.

¶1. Appellants Town Pump and Town Pump of Hardin (Town Pump) appeal from
the judgment of the 13th Judicial District Court, Carbon County, holding that Town
Pump's appeal from the decision of the Board of Adjustment was moot because the
City of Red Lodge's Development Code had a permissible retroactive effect.

¶2. We affirm.

¶3. In determining whether the District Court erred, we consider the following issues:

¶4. 1. Whether the retroactive application of the Development Code resulted in a
denial of Town Pump's constitutional right to due process.

¶5. 2. Whether the State of Montana has preempted Red Lodge's regulation of the
sale of alcohol.

Standard of Review

¶6. In reviewing a district court's conclusions of law, we determine whether the
district court's interpretation of law is correct. Steer, Inc. v. Department of Revenue
(1990), 245 Mont. 470, 474-75, 803 P.2d 601, 603. In reviewing a district court's

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findings of fact, we determine whether there is clear error. Steer, Inc., 245 Mont. at
474, 803 P.2d at 603.

Factual and Procedural Background

¶7. Town Pump entered into two agreements to purchase real property (the
property). The second of the agreements was dated September 13, 1994. Under the
agreements, the owner of the property, Trillium Corporation, was required to obtain
subdivision approval from the City of Red Lodge (Red Lodge) in order to convey the
property to Town Pump. Town Pump intended to build and operate a gas station,
convenience store, and casino, and to sell beer and wine for consumption in the
casino. While Town Pump awaited approval for the subdivision of Trillium's
property, the property was rezoned as "commercial highway."

¶8. With the property rezoned as commercial highway, Town Pump could operate a
gas station and convenience store but had to obtain a "special exception" from Red
Lodge's Board of Adjustment (the Board) in order to sell beer and wine for on-
premises consumption. Acting as agents for Trillium, Town Pump filed an
application for a special exception (the beer and wine application) with the zoning
officer for the City of Red Lodge, Jerry Ballard (Ballard) on September 29, 1994.
Ballard forwarded the beer and wine application to the Board. The Board met to
consider the beer and wine application but apparently took no action.

¶9. In March, 1995 preliminary approval for the subdivision of the Trillium property
was granted, and Ballard again forwarded Town Pump's application to the Board.
On April 18, 1995 a public hearing was held on the beer and wine application. At the
conclusion of the hearing, the Board unanimously denied the beer and wine
application. Before the hearing, however, at least one member of the Board
conducted an ex parte telephone survey of Red Lodge citizens and talked with
acquaintances to learn their opinions about the beer and wine application. The
Board member did not disclose the survey or its results to Town Pump and based his
decision, at least in part, on the information he obtained. The Board's chairman
asked the public for a show of hands by everyone opposed to the beer and wine
application. Some Board members voted negatively because members of the public
opposed the beer and wine application.

¶10. In May, 1995 Town Pump brought suit against the Board, appealing the Board's

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denial of Town Pump's application. An evidentiary hearing was delayed repeatedly.
A trial date of December 12, 1995 was vacated because the parties agreed that a
continuance would facilitate resolution of some legal issues. On December 21, 1995
Red Lodge adopted a master plan. Trial was set for October, 1996 but was
continued, first to December, 1996, and then to April, 1997. Finally, the trial was
reset for May, 1997. Meanwhile, Red Lodge adopted an amended Development Code
(the Development Code) as an interim ordinance in April, 1997 and adopted it as a
permanent ordinance in May, 1997.

¶11. The Development Code addressed issues, such as drive-through facilities and
key lock systems for dispensing petroleum products, that had been brought to the
attention of Red Lodge after the Board began its review of Town Pump's proposed
development. Moreover, the Development Code required conditional use permits
instead of special exceptions for on-premises consumption of alcohol. The
Development Code further stated:

Retroactive Application. This code is made expressly retroactive and shall apply to
all applications for sign permits, building permits, zoning variances, zoning special
exceptions, zoning changes, and all other applications for building and land use
permits, land divisions, development activity, land use activity, and land use changes
which have been received by the city and not granted as of the effective date of this
code.

¶12. A trial without jury was held in May, 1997 and the District Court issued
findings of fact and conclusions of law in November, 1997.

¶13. The District Court made the following conclusions of law. Red Lodge had
authority to declare that the Development Code applied to all pending applications
for special exceptions. Town Pump did not obtain a vested interest in the beer and
wine application or in having the beer and wine application determined under the
ordinances of Red Lodge as they existed when Town Pump filed its application. Red
Lodge's application of the Development Code to the beer and wine application did
not violate the due process requirements of the United States Constitution or those
set forth in Article II, Section 17 of the Montana Constitution. The validity of the
Development Code "was not before the Court." Finally, the District Court concluded
that the Development Code rendered Town Pump's application and its appeal from
the decision of the Board moot, and denied Town Pump's petition for writ of

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certiorari.

Discussion

¶14. 1. Whether the retroactive application of the Development Code resulted in a
denial of Town Pump's constitutional right to due process.

¶15. Town Pump contends that the District Court erred in holding that Red Lodge's
adoption of the Development Code rendered moot the beer and wine application and
Town Pump's appeal from the Board's denial of the beer and wine application. Town
Pump argues that by arbitrarily and illegally denying the beer and wine application,
the Board violated Town Pump's right to substantive due process in the
administration of the zoning ordinance. Further, by enacting a retroactive
Development Code, the Board denied Town Pump's right to appeal and exonerated
itself for its wrongdoing.

¶16. Town Pump also argues that it had in effect a "passed" transaction, comprising
a series of events including the beer and wine application, the Board's illegal and
arbitrary conduct in denying it, and Town Pump's appeal of the Board's decision,
and that the passed transaction was protected under Montana's Constitution, Article
XIII, Section 1, Clause 3. Article XIII, Section 1, Clause 3 provides that "[t]he
legislature shall pass no law retrospective in its operations which imposes on the
people a new liability in respect to transactions or considerations already passed."
Thus, Town Pump argues that the Development Code should not be retroactively
applied because it impairs Town Pump's vested interest and burdens Town Pump's
"passed" transaction.

¶17. In addition, Town Pump argues that because it met the criteria for a special
exception under the old zoning procedures, the Board was required to grant the
special exception. Town Pump argues that the Board acted in bad faith in delaying
the trial in the District Court and that the Board attempted to delay Town Pump's
project. Finally, Town Pump asserts that it is a victim of discriminatory zoning, that
some amendments to the Development Code targeted Town Pump's project. Town
Pump contends that the Board should be barred by principles of estoppel and equity
from retroactively applying the Development Code.

¶18. The Board responds that the retroactive effect of the Development Code has not

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resulted in a denial of due process for Town Pump because Town Pump had neither
a vested interest in the beer and wine application nor a "passed" transaction. The
Board also argues that retroactive application of the Development Code is not barred
by principles of equity or estoppel because Town Pump failed to offer any evidence at
trial that the Board attempted to delay the permit process or the trial.

¶19. We first consider whether the retroactive effect of the Development Code
violates Town Pump's substantive right to due process. In Cosgriffe v. Cosgriffe, this
Court addressed whether a childhood sexual abuse statute of limitations with
retroactive effect violated the due process requirements of Montana's Constitution or
of the Fourteenth Amendment of the United States Constitution. Cosgriffe v.
Cosgriffe (1993), 262 Mont. 175, 864 P.2d 776. The statute of limitations in Cosgriffe
revived previously barred claims of childhood sexual abuse by the respondent's
daughter. The Court in Cosgriffe adopted a three-part test for determining whether a
statute has exceeded the restraints imposed upon it by substantive due process:

[T]he restraints on legislation imposed by substantive due process as a source of
constitutional protection for interests not specifically identified by explicit constitutional
language could be summarized in a three-part formula: the legislation must: (a) seek to
achieve a legitimate governmental purpose; (b) use means that are rationally related
thereto; and (c) be neither arbitrary nor unreasonable in its effects.

Cosgriffe, 262 Mont. at 179, 864 P.2d at 778. The Cosgriffe Court concluded that the
respondent did not have a vested interest in the previously applicable statute of limitations.
Cosgriffe, 262 Mont. at 180, 864 P.2d at 779.

¶20. Thus, we apply Cosgriffe's three-part test to determine whether the retroactive
effect of the Development Code exceeds the restraints imposed by substantive due
process. We conclude first that the Development Code had a legitimate purpose and,
second, that its means were reasonably related to that purpose. Cosgriffe, 262 Mont.
at 179, 864 P.2d at 778. The District Court interpreted Cosgriffe's third prong, that
legislation be "neither arbitrary nor unreasonable in its effects," to mean that a
retroactive law is unreasonable and arbitrary in its effects when it affects or destroys
"vested interests." Cosgriffe, 262 Mont. at 179, 864 P.2d at 778. However, in Wallace
v. Montana Dept. of Fish, Wildlife & Parks (1995), 269 Mont. 364, 889 P.2d 817, this
Court concluded:

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A retroactive law is defined as one "which takes away or impairs vested rights acquired
under existing laws or creates a new obligation, imposes a new duty, or attaches a new
disability in respect to transactions already passed." . . . Any such imposition on a vested
right or past transaction is sufficient to constitute an impermissible retroactive application
of a statute.

Wallace, 269 Mont. at 367-68, 889 P.2d at 819-20 (citations omitted). Thus, under the
third prong of Cosgriffe, we consider not only whether Town Pump had a vested right but
whether there was a passed or "past" transaction that the Development Code burdened.

¶21. This Court has not previously defined "vested interest." We have determined,
however, when a party does not have a vested interest. See, e.g., Femling v. Montana
State University (1986), 220 Mont. 133, 713 P.2d 996; Wallace, 269 Mont. 364, 889
P.2d 817. Plaintiff Femling, a veteran, applied for employment with Montana State
University (MSU) under a statute that gave absolute hiring preference to veterans.
Femling brought suit after MSU rejected him for the position. One day after he filed
suit, however, the veterans' preference statute was retroactively repealed. The Court
in Femling determined that "for substantive due process protections to apply,
Femling's claim to the absolute preference must be a vested right." Femling, 220
Mont. at 137, 713 P.2d at 998. The Femling Court concluded that "a veteran does not
have a reliance interest in the veterans' preference unless and until it is actually
received." Femling, 220 Mont. at 137, 713 P.2d at 998 (emphasis added) (citation
omitted).

¶22. In Wallace, the Wallaces obtained a license for a game farm from the
Department of Fish, Wildlife and Parks (the Department). The Wallaces
subsequently applied for and received expansion licenses for their game farm.
Recognizing that a pending bill would revise the game farm licensing statutes, the
Wallaces submitted a game farm expansion application. Before the Department was
required to act upon the Wallaces' application, the bill was enacted. The Department
denied their expansion application under the new game farm licensing statute, § 87-4-
409(3), MCA (1993). This Court held in Wallace that "the Wallaces' mere submission
of an application for expansion of their game farm did not vest in them a right to
issuance of the license as of the date the application was submitted." Wallace, 269
Mont. at 368, 889 P.2d at 820.

¶23. In accord with our decisions in Wallace and Femling, we hold that Town Pump

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did not have a vested interest in the beer and wine application. Like the Wallaces,
Town Pump did not gain a vested interest merely because it submitted the beer and
wine application before the adoption of the Development Code. Compare Femling,
220 Mont. at 137, 713 P.2d at 998 (holding Femling had no "reliance interest in the
veterans' preference unless and until it is actually received").

¶24. The District Court determined, and we agree, that the general rule appears to be
that applications for building permits may be denied based on zoning regulations
enacted after the applications are made. Town Pump argues, however, that if this
Court follows the general rule, the rule should be limited to cases where a zoning
ordinance was pending when an application was filed. A small number of states thus
limit the general rule. See Ronald F. Chase, Annotation, Retroactive Effect of Zoning
Regulation, In Absence of Saving Clause, on Pending Application for Building Permit,
50 A.L.R.3d 596 (1973). We decline to limit the general rule to instances when a
zoning ordinance is pending.

¶25. We conclude that the general rule should apply in the present case, and we note
the general rule accordingly:

In most jurisdictions it is clear that, as a general rule, the denial of an application for a
building permit may be based on a zoning regulation enacted or becoming effective after
the application was made, or to state the rule conversely, a zoning regulation may be
retroactively applied to deny an application for a building permit, even though the permit
could have been lawfully issued at the time of application.

Chase, 50 A.L.R.3d 596, 607. See, e.g., Town of Stephens City v. Russell (Va. 1991), 399
S.E.2d 814 (holding developer did not have a vested right to construct apartments on his
property when he failed to obtain permit before zoning was amended); Winiker Realty,
Inc. v. Zoning Board of Appeals of Millis (Mass. 1972), 285 N.E.2d 452 (holding
application for multi-unit dwellings controlled by subsequent amendment to zoning by-
law); Najarian Realty Corp. v. Zoning Board of Review (R.I. 1965), 208 A.2d 528
(holding application for gas station controlled by later amendment to zoning ordinance).

¶26. The dissent argues that we have misconstrued not only the general rule but the
status of the application. The dissent maintains that the general rule only applies to
"pending" applications and that Town Pump's application, having been denied, was
no longer "pending." The District Court described the application as pending, no

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doubt, because Town Pump had appealed the decision of the Board. Regardless how
the District Court characterized the application, however, the Development Code
expressly provides that it shall apply "to all applications . . . not granted as of the
effective date of the Code." Clearly, Town Pump's application had not been granted
as of the effective date. Contrary to the dissent's interpretation of the general rule,
moreover, the general rule does not provide that a zoning ordinance can only be
given retroactive effect when an application has been submitted but a zoning board
has not yet ruled upon the application. The dissent has misconstrued the analysis that
underlies the general rule: the issue is whether an applicant has a vested interest in
the application when it is submitted. The general rule would be divested of logic if it
meant that an application can be subjected to retroactive zoning laws only until the
moment that it is denied, and that thereafter the application is clothed in the
impervious armature of vested rights. What the dissent really appears to contend is
that Town Pump had a vested right in having the beer and wine application
determined under the applicable regulations at the time it submitted the been and
wine application. For this novel doctrine of vested rights, the dissent offers no
authority and no rationale.

¶27. One notable exception to the general rule arises through equitable
considerations. Some courts have declined to apply a new zoning rule to an
application made under existing zoning provisions when the applicant has
substantially changed his position in reliance on the existing zoning, or on the
probability of a permit being issued. See, e.g., Morris v. Postma (N.J. 1964), 196 A.2d
792; Sagittarius, Inc. v. Village of Arlington Heights (Ill. App. Ct. 1980), 413 N.E.2d
90; Board of Supervisors v. Medical Structures, Inc. (Va. 1972), 192 S.E.2d 799.
Because Town Pump has not argued that it substantially changed its position in
reliance upon the old zoning provisions, we do not address whether this exception
should be recognized in the present case.

¶28. We consider next whether Town Pump had a passed transaction. Town Pump
asserts that it had a passed transaction that comprised events including the beer and
wine application, the Board's conduct in denying the beer and wine application, and
Town Pump's appeal of the Board's decision. In Wallace, this Court defined
transaction as " 'an act or agreement, or several acts or agreements having some
connection with each other, in which more than one person is concerned, and by
which the legal relations of such persons between themselves are altered.' " Wallace,
269 Mont. at 370, 889 P.2d at 821 (citation omitted). Town Pump argues in essence

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that retroactive application of the Development Code has imposed new liabilities on
Town Pump's "passed" transactions. Town Pump argues further that by amending
the Development Code, the Board changed its legal relationship with Town Pump.
Town Pump fails, however, to articulate either its legal relationship with the Board
or how the legal relationship changed.

¶29. Moreover, in Wallace, this Court held that "[t]he mere submission of a license
application, although an act by the Wallaces, cannot be said to alter the legal
relationship between them and the Department." Wallace, 269 Mont. at 371, 889 P.2d
at 821. Further, the Court in Wallace determined that the Department's review of the
Wallaces' application under the new statute "did not impose a new duty, obligation,
or disability with respect to a transaction already passed." Wallace, 269 Mont. at 371,
889 P.2d at 821. We conclude that Town Pump did not have a "passed" transaction
with the Board and that the Board's amendment of the Development Code did not
change a "legal" relationship between the Board and Town Pump.

¶30. Thus, under the third prong of Cosgriffe, we conclude that the Development
Code was "neither arbitrary nor unreasonable in its effects": the Development Code
did not impair or burden a vested interest or passed transaction held by Town Pump.
Cosgriffe, 262 Mont. at 179, 864 P.2d at 778. We hold that the retroactive effect of the
Development Code has not denied Town Pump's constitutional right to due process.

¶31. Town Pump's argument that the Board should be estopped from applying the
Development Code because it acted in bad faith is without merit. The District Court
concluded:

The foregoing Findings of Fact disclose that, while this case was postponed a number of
times amounting to a total of approximately 18 months between the date that it was first
set for trial and the date it was in fact tried, the Petitioner consented to or did not object to
all but the last postponement. . . . Petitioner in this case is in no position to complain
because it did not resist the continuances which resulted in the much [sic] of the delay in
the trial of the case.

We agree.

¶32. Town Pump argues that in giving the Development Code retroactive effect, the
Board attempted to deny Town Pump its statutory and constitutional rights of

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appeal. However, Town Pump has exercised its rights to appeal: it appealed the
decision of the Board, and it appealed the decision of the District Court. Town
Pump's argument is without merit.

¶33. Town Pump argues further that it is the victim of discriminatory zoning, that
many of the amendments to the Development Code, including its retroactive
provision, were directed at Town Pump. However, Town Pump has made no showing
that the amendments were not intended to promote the public interest. This
argument is also without merit.

¶34. Finally, Town Pump contends that if this Court determines that the
Development Code has a permissible retroactive effect, any town will be free to
exculpate itself from wrongdoing through the enactment of exculpatory retroactive
laws. We disagree. As previously discussed, a retroactively applied law may not
exceed the limits imposed by substantive due process. Because our holding that the
Development Code does not have an impermissible retroactive effect is dispositive,
we do not address the issues that Town Pump has raised concerning grants of special
exceptions and the conduct of the Board.

¶35. 2. Whether the State of Montana has preempted Red Lodge's regulation of the
sale of alcohol.

¶36. Town Pump argues that under § 16-1-101(2), MCA, Montana has "entire
control" over the sale of alcoholic beverages. Therefore, the State of Montana
(Montana) has preempted both the old zoning provisions and the Development
Code's regulation of the sale of alcohol. Town Pump contends further that in State v.
Haswell, this Court determined that Montana had preempted the sale of alcoholic
beverages. State v. Haswell (1966), 147 Mont. 492, 414 P.2d 652. Town Pump also
argues that under § 16-3-309, MCA, the only power delegated to a municipality is the
ability to define areas within its limits where alcoholic beverages may be sold. Town
Pump concludes that discretion "to determine the suitability of premises within the
same zone and to review the impact on surrounding areas is vested in the state of
Montana." Town Pump argues further that it properly preserved the issue of
preemption and that the Board failed to preserve the issue that as a self-governing
entity, Red Lodge's regulation of the sale of alcohol has not been preempted by
Montana.

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¶37. The Board's response may be summarized as follows: Town Pump has failed to
preserve the issue of preemption for review, because Town Pump challenged the
adoption of the old zoning ordinance but not that of the Development Code. In the
alternative, even if Town Pump properly preserved the issue of preemption,
Montana's alcohol and beverage laws have not preempted either the old zoning
ordinance or the Development Code. Red Lodge is self-governing and under Article
XI, Section 6, of the Montana Constitution, as such it may "exercise any power not
prohibited by this constitution, law, or charter." Art. XI, Sec. 6, Mont. Const.
Montana has not prohibited Red Lodge from regulating the sale of alcohol.
Moreover, § 7-1-106, MCA, provides that "[e]very reasonable doubt as to the
existence of a local government power or authority shall be resolved in favor of the
existence of that power or authority."

¶38. The Board also argues that the Development Code is consistent with Montana's
regulations. Section 7-1-113, MCA, provides in pertinent part:

Consistency with state regulation required. (1) A local government with self-
government powers is prohibited the exercise of any power in a manner inconsistent
with state law or administrative regulation in any area affirmatively subjected by law
to state regulation or control.

(2) The exercise of a power is inconsistent with state law or regulation if it establishes
standards or requirements which are lower or less stringent than those imposed by state
law or regulation.

Section 7-1-113, MCA (emphasis added). Red Lodge's regulation of the sale of alcohol is
consistent with and stricter than Montana's regulations. Finally, under § 16-4-203(2)(b)
(iv), MCA, Montana may consider whether a proposed retail location for alcohol is
consistent with local zoning. The Board contends that this statutory provision is additional
evidence that the State of Montana has not preempted the Development Code.

¶39. As threshold issues, we determine that Town Pump preserved for appeal the
issue of preemption and that the Board is entitled to argue in response that Red
Lodge is a self-governing city. First, the issue of preemption logically encompasses
both the old zoning ordinance and the Development Code, and the record establishes
that Town Pump made the general argument that the State has preempted regulation
of the sale of alcohol. Second, in its post-trial brief, the Board impliedly raised the

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argument that Red Lodge has self-governing powers when it considered whether the
regulation of on-premises consumption of alcohol is permitted by a statute or by "a
city's general zoning powers." Thus, Town Pump and the Board have sufficiently
preserved for appeal, respectively, the preemption issue and the argument that Red
Lodge has self-governing powers.

¶40. We hold that Montana's alcoholic beverage laws have not preempted Red
Lodge's regulation of the sale of alcohol. Red Lodge's regulation of the sale of alcohol
is consistent with but more stringent than Montana's regulation of alcohol. Under §
16-4-203(2)(b)(iv), MCA, moreover, Montana may consider whether a proposed
retail location for alcohol is consistent with local zoning. We conclude that Montana's
statutory framework for the regulation of alcohol clearly contemplates that cities will
impose local zoning that regulates the sale of alcohol.

¶41. In light of our holding that Montana has not preempted Red Lodge's regulation
of alcohol, we review our conclusion in Haswell that Montana has preempted
regulation of the sale of alcohol. Haswell was decided before the 1972 Montana
Constitution. As this Court held in D & F Sanitation Service v. City of Billings,
before the 1972 Constitution, "[c]ities had only those powers expressly given them by
the legislature." D & F Sanitation Service v. City of Billings (1986), 219 Mont. 437,
444, 713 P.2d 977, 981 (citations omitted). The Court in D & F Sanitation then
interpreted Article XI, Section 6, as set forth in the 1972 Montana Constitution: "
'Under the shared powers concept, the assumption is that local government possesses
the power, unless it has been specifically denied.' " D & F Sanitation Service, 219
Mont. at 445, 713 P.2d at 982. We conclude that Montana has not specifically denied
Red Lodge's power to regulate the sale of alcohol. Accordingly, we overrule Haswell
to the extent that it is inconsistent with our holding in the present case.

¶42. Affirmed.

/S/ W. WILLIAM LEAPHART

We concur:

/S/ J. A. TURNAGE

/S/ JIM REGNIER

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/S/ WILLIAM E. HUNT, SR.

/S/ TERRY N. TRIEWEILER

Justice Karla M. Gray, dissenting.

¶43. I respectfully dissent from the Court's opinion that the retroactive application of
the Development Code did not impair or burden a vested interest held by Town
Pump and its corresponding determination that the District Court did not err in
concluding that Town Pump's appeal of the Board of Adjustment's decision was
moot because the Development Code had a permissible retroactive effect. In my view,
the Development Code is not applicable to Town Pump's original application for a
special exception, by its very terms. Moreover, any attempt to so apply it constitutes
an impermissible retroactive application which denies Town Pump's rights to due
process under both the United States Constitution and the Montana Constitution.
The Court's erroneous decision permits local governments to change the rules after
the fact in order to insulate themselves from pending judicial review of actions
alleged to be arbitrary, capricious and illegal. In effect, our decision allows local
governments to simply legislate themselves out of litigation. Such a decision will
hardly improve the distrust with which ever-larger segments of Montana's
population view their governments.

¶44. The pertinent facts are that Town Pump properly applied for a special exception
under zoning regulations then in effect. The Board took no action for approximately
6 months and then denied the application based on factors which appear, at very
least, to have been arbitrary and outside the scope of the applicable regulations.
Town Pump timely sought judicial review of the Board's allegedly arbitrary,
capricious and illegal conduct in May of 1995, seeking the District Court's reversal of
the Board's denial of its application and the court's grant of the special exception. A
trial finally occurred in May of 1997. In the meantime, Red Lodge had adopted the
Development Code, which required a conditional use permit rather than a special
exception for on-premises consumption of alcohol. The Development Code also
provided that it was "expressly retroactive and shall apply to all applications . . .
which have been received by the city and not granted as of the effective date of this
code."

¶45. On the basis of the Development Code, the Board contended that Town Pump's

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appeal was moot. The District Court agreed, concluding that Red Lodge had
authority to declare that the Development Code applied to all pending applications
for special exceptions. The Court also permits application of the Development Code.
While I agree that the city could declare the Development Code applicable to all
pending applications, I disagree that the Development Code is applicable to Town
Pump's application for a special exception and I further disagree with the Court's
rationale in determining that Town Pump's constitutional rights to due process were
not violated by application of the Development Code.

¶46. First, the language of the Development Code itself renders it applicable to
applications which have been received and not granted as of its effective date. Like
the District Court, I view the clear terms of the Development Code as rendering it
applicable to "pending applications." The fundamental flaw in the Court's analysis is
its inability to recognize that Town Pump's application was not "pending" at the
time the Development Code was enacted. Town Pump's application had, in fact, been
denied two years prior to enactment of that Code. Thus, since the Development Code
was inapplicable to Town Pump's application for a special exception by its terms, it is
not necessary to proceed with a retroactivity analysis at all. Absent the applicability
of the Development Code, it is clear that Town Pump was entitled to proceed with
judicial review of the Board's denial of its application.

¶47. The Court proceeds with a retroactivity analysis based on its misunderstanding
of the applicability of the Development Code in the first instance, and that analysis
continues to be flawed at every stage by its failure to grasp the completed nature of
the Board's action on Town Pump's application. I will highlight only a few of my
disagreements with the Court's analysis.

¶48. First, it is my view that the Development Code is impermissibly retroactive
because it impaired Town Pump's vested rights. Town Pump had a vested right in
having the application granted or denied in accordance with regulations applicable
at the time of the Board's action. Indeed, the Board acted under the then-existing
zoning regulations and denied Town Pump's application. At that point, Town Pump
had a vested interest in having its claim that the Board acted arbitrarily, capriciously
and illegally under existing regulations reviewed by a court of law. The Development
Code, which constituted a new set of regulations, was not enacted until two years
after the Board's action and Town Pump's request for judicial review. Clearly,
applying the Development Code to Town Pump's application meets our definition of

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a retroactive law in that it "takes away or impairs vested rights." See Wallace, 269
Mont. at 367, 889 P.2d at 819 (citations omitted).

¶49. Moreover, the Court's reliance on Wallace in support of its conclusion that
Town Pump's vested rights were not impaired is altogether misplaced. There, the
Wallaces submitted their game farm expansion application under the then-current
game farm licensing statutes, but a new statute was enacted prior to the time the
Department was required to act on the application. The Department denied the
application under the new statute and we properly held that the Wallaces' mere
submission of an application did not vest in them a right to issuance of the license
under the laws in existence on the date the application was submitted. Wallace, 269
Mont. at 368, 889 P.2d at 820.

¶50. Here, unlike the situation in Wallace, the regulations applicable to Town Pump's
application for a special exception at the time the application was submitted
remained applicable at the time the Board denied Town Pump's application. There
was no change in applicable regulations between the time Town Pump submitted its
application and the time the Board acted upon it, as occurred in Wallace. Indeed, the
change in regulations in this case did not occur until two years after the Board
denied Town Pump's application and Town Pump sought judicial review. Wallace is
inapplicable here.

¶51. Likewise, the Court misreads and, thereafter, misapplies the "general rule"
regarding whether applications may be denied based on regulations enacted after the
applications are made. That general rule is inapplicable here for the same reasons
Wallace does not apply. The general rule, as stated by the Court, is that an
application may be denied based on a regulation enacted or becoming effective after
the application is made. The plain meaning of the general rule--as scrutiny of the A.L.
R. Annotation on which the Court relies establishes--is that, when a regulation is
adopted or amended during the pendency of an application, the newer regulation can
be applied. Indeed, that was the situation before us in Wallace, but it is not the
situation before us in the present case. The general rule simply does not state that an
amended regulation can be applied after an application has been denied and during
the time that denial is being challenged in a court of law.

¶52. Finally, the cases from other jurisdictions cited by the Court in support of its
application of the general rule--that is, Town of Stephens City, Winiker Realty, Inc.,

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and Najarian Realty Corp.--also are inapplicable because each involves a Wallace-
type situation rather than the situation before us in the present case. In Town of
Stephens City, for example, the Virginia Supreme Court held that a developer had no
vested right in the zoning classification which existed at the time he submitted his
subdivision plat application where the zoning ordinance was amended during the
pendency of the developer's application and before action was taken or required to
be taken on the application. See Town of Stephens City, 399 S.E.2d at 816. Similarly,
in Winiker Realty, Inc., the application for a special permit was filed on April 23,
1968, the applicable zoning by-law was amended on June 24, 1968, to prohibit the use
sought by the applicant, and the application for a special permit was denied on July
19, 1968. Under those facts, the Supreme Judicial Court of Massachusetts held that
the application was controlled by the amended by-law. Winiker Realty, Inc., 285 N.
E.2d at 452-53. Finally, in Najarian Realty Corp., the hearing on an application for a
special permit for a gas station was held on September 8, 1964, under the same
zoning ordinance in effect at the time the application was filed. On September 24,
1964, however, the zoning ordinance was amended to eliminate the availability of a
special permit for a gas station and, thereafter, the application was denied under the
amended zoning ordinance. The Rhode Island Supreme Court held that the
amendment applied because the decision-making entity still had the power to act on
the application at the time of the amendment. Najarian Realty Corp., 208 A.2d at 529-
30. All of these cases involved situations where the amendment was made before the
decision-making body acted or was required to act. None involved the situation
before us here, where the Development Code was not enacted until some two years
after the Board had denied Town Pump's application under the earlier zoning
regulations and Town Pump had sought judicial review.

¶53. It is clear that Town Pump had a vested interest in having its case fully and
finally resolved under the zoning regulations which existed throughout the time of
both its application for a special exception and the Board's denial of the application,
and that this vested interest continued through judicial review of the Board's
decision. For that reason, I dissent from the Court's failure to hold that Town
Pump's constitutional rights to due process have been violated by the retroactive
application of the Development Code to moot Town Pump's judicial challenge to the
Board's action.

/S/ KARLA M. GRAY

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Justice James C. Nelson joins in the foregoing dissent of Justice Karla M. Gray.

/S/ JAMES C. NELSON

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