No
No. 98-535
IN THE SUPREME COURT OF THE STATE OF MONTANA
1999 MT 263
296 Mont. 402
989 P.2d 800
MONTANANS FOR THE RESPONSIBLE USE OF THE SCHOOL TRUST,
Plaintiff, Respondent, and Cross-Appellant,
v.
STATE OF MONTANA, ex rel. BOARD OF LAND COMMISSIONERS
and DEPARTMENT OF NATURAL RESOURCES AND CONSERVATION,
Defendants, Appellants, and Cross-Respondents.
APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis and Clark,
The Honorable Dorothy McCarter, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Tommy H. Butler (argued), Special Assistant Attorney General, Montana Department of Natural
Resources & Conservation, Helena, Montana
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For Respondent:
Roy H. Andes (argued), Attorney at Law, Missoula, Montana
For Amicus:
David J. Dietrich (argued); Dietrich Law Offices, Billings, Montana
(for Montana Leaseholders Association)
Mark L. Stermitz, Montana Appleseed Center for Law & Justice, Missoula,
Montana
Argued: May 18, 1999
Submitted: May 27, 1999
Decided: November 2, 1999
Filed:
__________________________________________
Clerk
Justice W. William Leaphart delivered the Opinion of the Court.
¶1 The State of Montana (hereafter, the State), appeals from the judgment and order
of the First Judicial District Court, Lewis and Clark County. Respondent Montanans
for the Responsible Use of the School Trust (hereafter, Montrust) cross-appeal the
judgment of the District Court.
¶2 We affirm in part and reverse in part.
¶3 The parties raise the following issues:
¶4 1. Whether the District Court erred in concluding that § 77-1-130, MCA, is
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unconstitutional.
¶5 2. Whether the District Court erred in concluding that the Department's rental
policy for cabin site licenses and leases under § 77-1-208, MCA, is unconstitutional.
¶6 3. Whether the District Court correctly determined that § 77-1-208, MCA, does
not violate the trust.
¶7 4. Whether the District Court erred in concluding that § 77-5-211, MCA, violates
the State's fiduciary duties regarding school trust lands.
¶8 5. Whether the District Court erred in concluding that § 77-6-304, MCA, is
constitutional.
¶9 6. Whether the District Court erred in concluding that § 77-6-305, MCA, is
constitutional.
¶10 7. Whether the District Court abused its discretion in denying Montrust
reasonable attorney fees.
Standard of Review
¶11 We review a district court's conclusions of law to determine whether they are
correct. Steer, Inc. v. Dept. of Revenue (1990), 245 Mont. 470, 474-75, 803 P.2d 601,
603. Statutes are presumed to be constitutional and it is the duty of the Court to
avoid an unconstitutional interpretation if possible. State v. Nye (1997), 283 Mont.
505, 510, 943 P.2d 96, 99 (citations omitted). A party challenging the constitutionality
of a statute "bears the burden of proving the statute unconstitutional. Any doubt is
to be resolved in favor of the statute." State v. Martel (1995), 273 Mont. 143, 148, 902
P.2d 14, 17 (citations omitted). A statute will be "upheld on review except when
proven to be unconstitutional beyond a reasonable doubt." Davis v. Union Pacific R.
Co. (1997), 282 Mont. 233, 239, 937 P.2d 27, 30.
Factual and Procedural Background
¶12 In February, 1997 Montrust filed a complaint challenging the constitutionality of
fourteen statutes that concern Montana's school trust lands and seeking declaratory
and injunctive relief. In May, 1997 Montrust filed an amended complaint. Following
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a hearing in May, 1997 the District Court issued a preliminary injunction prohibiting
the State from issuing deeds for historic rights of way on school trust lands under
House Bill 607 (codified as § 77-1-130, MCA) and from leasing or disposing of school
trust lands under § 20-6-621, MCA. A hearing was held in October, 1997, and the
District Court issued its Decision, Order and Permanent Injunction in April, 1998.
Concluding that ten of the statutes challenged by Montrust violated Montana's
Enabling Act and Constitution and that another statute was invalid as applied, the
District Court permanently enjoined eleven statutes. In June, 1998 the District Court
awarded Montrust costs of $312 but denied Montrust attorney fees. The State
appeals the District Court's permanent injunction of three statutes. Montrust cross-
appeals the District Court's ruling on three other statutes and the District Court's
denial of attorney fees.
Discussion
¶13 Under the Act of February 22, 1889 (hereafter, the Enabling Act), ch. 180, 25
Stat. 676 (1889), the federal government granted Montana the sixteenth and thirty-
sixth sections of each township in Montana "for the support of common schools."
Section 10 of the Enabling Act. The federal government's grant of those lands to
Montana constitutes a trust (hereafter, the trust). See Rider v. Cooney (1933), 94
Mont. 295, 306-07, 23 P.2d 261, 263 (citations omitted). The terms of the trust are set
forth in Montana's Constitution and the Enabling Act. See Art. XVII, Sec. 1, Mont.
Const. (1889) (providing federal grant of lands "shall be held in trust for the people,
to be disposed of as hereafter provided, for the respective purposes for which they have
been or may be granted") (emphasis added); Department of State Lands v. Pettibone
(1985), 216 Mont. 361, 366, 702 P.2d 948, 951 (concluding Montana's 1889
Constitution accepted the lands and "provided they would be held in trust consonant
with the terms of the Enabling Act . . . . The 1972 Montana Constitution continued
those terms") (citations omitted).
¶14 The State of Montana is a trustee of those lands (hereafter, the school trust
lands). See, e.g., Toomey v. State Board of Land Com'rs (1938), 106 Mont. 547, 559,
81 P.2d 407, 414; State v. Stewart (1913), 48 Mont. 347, 349, 137 P. 854, 855. Further,
"The state board of land commissioners, as the instrumentality created to administer
that trust, is bound, upon principles that are elementary, to so administer it as to
secure the largest measure of legitimate advantage to the beneficiary of it." Stewart,
48 Mont. at 349-50, 137 P. at 855. The State Board of Land Commissioners
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(hereafter, the Board) "owe[s] a higher duty to the public than does an ordinary
businessman." State v. Babcock (1966), 147 Mont. 46, 54, 409 P.2d 808, 812. Finally,
Montana's Constitutional provisions are "limitations on the power of disposal by the
legislature." Rider, 94 Mont. at 307, 23 P.2d at 263. One limitation on the legislature's
power of disposal is the trust's requirement that full market value be obtained for
trust lands. See Section 11 of the Enabling Act (as amended by the Act of May 7,
1932, ch. 172, 47 Stat. 150 (1932)) (providing that "none of such lands . . . shall ever
be disposed of . . . unless the full market value of the estate or interest disposed of, to
be ascertained in such manner as may be provided by law, has been paid or safely
secured to the State").
¶15 With the foregoing as background, we note the pertinent provisions of the
Enabling Act and Montana's Constitution. The Enabling Act provides in part:
That all lands granted by this Act shall be disposed of only at public sale after
advertising--tillable lands capable of producing agricultural crops for not less
than $10 per acre and lands principally valuable for grazing purposes for not
less than $5 per acre. . . .
The said lands may be leased under such regulations as the legislature may
prescribe.
The State may also, upon such terms as it may prescribe, grant such
easements or rights in any of the lands granted by this Act, as may be acquired
in privately owned lands through proceedings in eminent domain: Provided,
however, That none of such lands, nor any estate or interest therein, shall ever
be disposed of except in pursuance of general laws providing for such
disposition, nor unless the full market value of the estate or interest disposed
of, to be ascertained in such manner as may be provided by law, has been paid
or safely secured to the State.
Section 11 of the Enabling Act (as amended by the acts of May 7, 1932, ch. 172, 47 Stat.
150 (1932) and October 16, 1970, Pub. L. No. 463, 84 Stat. 987 (1970)).
¶16 Article X, Section 4 of Montana's Constitution provides:
Board of land commissioners. The governor, superintendent of public
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instruction, auditor, secretary of state, and attorney general constitute the
board of land commissioners. It has the authority to direct, control, lease,
exchange, and sell school lands and lands which have been or may be granted
for the support and benefit of the various state educational institutions, under
such regulations and restrictions as may be provided by law.
Art. X, Sec. 4, Mont. Const.
¶17 Article X, Section 11 further provides:
Public land trust, disposition. (1) All lands of the state that have been or
may be granted by congress, or acquired by gift or grant or devise from any
person or corporation, shall be public lands of the state. They shall be held in
trust for the people, to be disposed of as hereafter provided, for the respective
purposes for which they have been or may be granted, donated or devised.
(2) No such land or any estate or interest therein shall ever be disposed of
except in pursuance of general laws providing for such disposition, or until
the full market value of the estate or interest disposed of, to be ascertained in
such manner as may be provided by law, has been paid or safely secured to
the state.
(3) No land which the state holds by grant from the United States which
prescribes the manner of disposal and minimum price shall be disposed of
except in the manner and for at least the price prescribed without the consent
of the United States.
Art. X, Sec. 11, Mont. Const.
Discussion
¶18 As a preliminary matter, we note that the parties disagree over the standard of
review in the present case. The State urges that this Court should determine whether
the legislation in question "irrevocably" conflicts with the Board's fiduciary duties as
a trustee "in any conceivable instance" and whether the Board may constitutionally
apply the legislation. Montrust argues rather that there are two essential inquiries:
whether the legislation comports with the Montana Constitution, and whether the
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legislation is preempted by the Enabling Act. Montrust also argues that this Court
should employ an equal protection analysis. We conclude that neither party offers
persuasive authority for its proposed standard of review.
¶19 We therefore decline to adopt either party's proposed standard of review. As
previously discussed, the school lands are held in trust. Moreover, "[t]he essence of a
finding that property is held in trust, school, public, or otherwise, is that anyone who
acquires interests in such property do so 'subject to the trust.' " Pettibone, 216 Mont.
at 375, 702 P.2d at 956-57 (citations omitted). We follow our previously discussed
standard of review in determining whether the statutes are consistent with the
constitutional mandates of the trust and the State's fiduciary duties as a trustee.
¶20 1. Whether the District Court erred in concluding that § 77-1-130, MCA, is
unconstitutional.
¶21 Section 77-1-130, MCA, authorizes individuals and counties to apply to the
Department of Natural Resources and Conservation (hereafter, the Department) for
historic right-of-way deeds to provide access to private property or to continue
county roads. The statute provides in pertinent part:
At the time of issuing the historic right-of-way deed, the department shall
collect from the applicant the full market value of the acreage of the historic
right-of-way based on the following classifications of land:
(i) $37.50 per acre for state land classified as grazing land;
(ii) $275 per acre for state land classified as timber land;
(iii) $100 per acre for state land classified as crop land; and
(iv) $100 per acre for other land.
Section 77-1-130(4)(a), MCA. The District Court found and the State does not dispute that
§ 77-1-130, MCA's figures "are based on the median values for the classifications of land
in 1972."
¶22 The State argues that the District Court erred in striking § 77-1-130, MCA,
because it is facially valid and Montrust has not shown that it has constitutional
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infirmities beyond a reasonable doubt. The State relies on an Attorney General
opinion, 40 A.G. 24 (1983), in arguing that the figures in § 77-1-130, MCA, are
merely a minimum above which the Department may charge full market value. The
State contends that the Board has discretion not to implement the values set forth in
§ 77-1-130, MCA, and that this Court should assume that the Board will uphold its
constitutional duty to charge full market value for historic right-of-way deeds.
Montrust responds that by fixing fair market values at 1972 levels, § 77-1-130, MCA,
is unconstitutional because it expressly violates the trust's requirement that full
market value be obtained for school trust lands.
¶23 We conclude that the plain language of § 77-1-130, MCA, requires that full
market valuations of right-of-way acreage be based on 1972 levels. Section 77-1-130,
MCA, provides in part that "the department shall collect from the applicant the full
market value of the acreage of the historic right-of-way based on the following
classifications of land . . . ." Section 77-1-130(4)(a), MCA (emphasis added). The
statute's use of the word "shall" admits of no discretion and requires the department
to use 1972 values. We hold that this statute clearly violates the State's constitutional
obligation to obtain full market value for school trust lands.
¶24 2. Whether the District Court erred in concluding that the Department's rental
policy for cabin site licenses and leases under § 77-1-208, MCA, is unconstitutional.
¶25 Section 77-1-208, MCA, provides in pertinent part:
Cabin site licenses and leases--method of establishing value. (1) The board
shall set the annual fee based on full market value for each cabin site and for
each licensee or lessee who at any time wishes to continue or assign the
license or lease. The fee must attain full market value based on appraisal of
the cabin site value as determined by the department of revenue. The licensee
or lessee has the option to pay the entire fee on March 1 or to divide the fee
into two equal payments due March 1 and September 1. The value may be
increased or decreased as a result of the statewide periodic revaluation of
property pursuant to 15-7-111 without any adjustments as a result of phasing
in values. . . .
(2) The board shall set the fee of each initial cabin site license or lease or each
current cabin site license or lease of a person who does not choose to retain
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the license or lease. The initial fee must be based upon a system of
competitive bidding. The fee for a person who wishes to retain that license or
lease must be determined under the method provided for in subsection (1).
Section 77-1-208, MCA.
¶26 The District Court ruled that § 77-1-208, MCA, did not violate the trust because
it requires that full market value be obtained. However, the District Court found that
the Department had a policy of charging a rental rate of 3.5% of appraised value
(hereafter, the rental policy) and that Montrust had introduced an economic analysis
of cabin site rentals showing that the rental policy's 3.5% rate was "significantly
below a fair market rental rate." The District Court concluded that the rental policy
violated the trust's constitutional requirement that full market value be obtained for
school trust lands.
¶27 The State argues that Montrust challenged the constitutionality of § 77-1-208,
MCA's ban on competitive bidding for renewals of cabin site leases but did not
challenge the constitutionality of the rental policy. The State argues that it therefore
did not have notice of Montrust's objection to the rental policy and that it did not
consent impliedly to trying that issue. The State argues that the District Court should
not have addressed the rental policy after it affirmed the constitutionality of § 77-1-
208, MCA.
¶28 Montrust responds that its pleadings gave notice of the issue whether the
Department's rental policy achieved full market rates. Montrust argues further that
substantial evidence supported the conclusion that the rental policy did not obtain
full market value for cabin site leases.
¶29 We have previously addressed whether pleadings give sufficient notice of an
issue. In Miller v. Titeca (1981), 192 Mont. 357, 628 P.2d 670, this Court concluded
that the district court's resolution of damages "did not conform precisely with the
buyer's complaint." Titeca, 192 Mont. at 364, 628 P.2d at 675. However, the Court in
Titeca noted that under Rule 8, M.R.Civ.P., "all pleadings shall be construed as to do
substantial justice," and concluded that
The courts should "look to the claim as a whole, to the subject with which it
deals, to the reason and spirit of the allegations in ascertaining its real
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purpose. If such purpose can reasonably be said to be within the scope of the
language used, that purpose should be honored."
Titeca, 192 Mont. at 364, 628 P.2d at 675 (citation omitted). Thus, in assessing
whether Montrust's pleadings gave notice of the issue whether the rental policy was
constitutional, we look at Montrust's claim as a whole and to "the reason and spirit
of the allegations in ascertaining its real purpose." Titeca, 192 Mont. at 364, 628 P.2d
at 675 (citation omitted). ¶ In Montrust's complaint and amended complaint,
Montrust asserted that
§ 77-1-208, MCA[,] provides for competitive bidding for the first issuance of
cabin site leases, but prohibits it for renewals. By tying lease rental rates to the
taxation valuation procedure, the legislature has intentionally discounted the
value of those leases below full market rates. Doing so violates the duties of
prudence, loyalty, fidelity, productivity, accountability.
¶30 We conclude that this pleading gave notice of the issue whether cabin sites were
leased at full market rental rates. Although Montrust's complaint focussed on the
actions of the legislature instead of the Department, the complaint clearly signaled its
concern with the intentional discounting of leases below full market rates. We hold
that the State had adequate notice of Montrust's objection to the rental policy.
¶31 Moreover, we conclude that the rental policy violates the trust. We have
previously concluded that the Board and the Department have discretion in
administering the trust; however, their discretion is not unbounded. In State v.
Babcock (1966), 147 Mont. 46, 409 P.2d 808, we concluded that
There is no doubt that the State Board of Land Commissioners has
considerable discretionary power when dealing with the disposition of an
interest in land they hold in trust for the people of this state. . . .
....
The discretionary power of the Board is, however, limited. . . . Article XVII, §
1 of the Montana Constitution provides [one limitation]. A portion of such
section reads: "* * * and none of such land, nor any estate or interest therein,
shall ever be disposed of except in pursuance of general laws providing for
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such disposition, nor unless the full market value of the estate or interest
disposed of, to be ascertained in such manner as may be provided by law, be
paid or safely secured to the state."
Babcock, 147 Mont. at 51-52, 409 P.2d at 811 (emphasis added). In the present case, the
trust mandates that the State obtain full market value for cabin site rentals. Furthermore,
the State does not dispute the District Court's determination that the rental policy results in
below market rate rentals. We hold that the rental policy violates the trust's requirement
that full market value be obtained for school trust lands and interests therein.
¶32 3. Whether the District Court correctly determined that § 77-1-208, MCA, does
not violate the trust.
¶33 The District Court concluded that § 77-1-208, MCA, on its face does not violate
the trust because it requires that full market value be obtained for cabin site lease
renewals. As previously noted, § 77-1-208, MCA, provides that the Board "shall set
the fee of each initial cabin site license or lease or each current cabin site license or
lease of a person who does not choose to retain the license or lease . . . based upon a
system of competitive bidding." Section 77-1-208(2), MCA. However, for renewals of
cabin site leases or licenses, § 77-1-208, MCA, provides that "[t]he fee must attain
full market value based on the appraisal of the cabin site value as determined by the
department of revenue." Section 77-1-208(1), MCA.
¶34 On cross-appeal, Montrust argues that § 77-1-208, MCA, is facially
unconstitutional because its eschewal of competitive bidding is "calculated" to keep
cabin site rental rates below their full market value. Montrust's argument assumes
that without competitive bidding, the Department cannot obtain fair market value
for its renewals of cabin site leases. Montrust also argues that § 77-1-208, MCA,
breaches the State's fiduciary duty of undivided loyalty because of the preference
rights that cabin site lessees have to renew and assign their leases under §§ 77-6-205
and -208(1), MCA. The State responds that because § 77-1-208, MCA, mandates that
fair market value be obtained, it is consistent with the Enabling Act.
¶35 We conclude that § 77-1-208, MCA, on its face does not violate the trust. In Jerke
v. State Dept. of Lands (1979), 182 Mont. 294, 296, 597 P.2d 49, 51 (citation omitted),
the Court concluded that
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The legislature is thus given authority to determine the method by which full
market value is ascertained. The statutes dealing with the leasing of state land
will pass constitutional muster as long as the concept of full market value is
not abrogated.
Jerke, 182 Mont. at 296, 597 P.2d at 51 (citation omitted). See also Toomey, 106 Mont. at
561, 81 P.2d at 415 (concluding "when there is a sale of only an estate or interest in
[school trust] lands, the Legislature is given ample power to determine the method by
which to ascertain the full market value of the estate or interest"). Nothing in the plain
language of § 77-1-208, MCA, abrogates the trust's mandate that full market value be
obtained for school trust lands. Nor has Montrust shown that the renewal preference
accorded cabin site lessees results in below market cabin site renewal rates. Thus,
Montrust has failed to show that § 77-1-208, MCA, violates the duty of undivided loyalty.
We hold that the District Court did not err in concluding that § 77-1-208, MCA, does not
violate the trust.
¶36 4. Whether the District Court erred in concluding that § 77-5-211, MCA, violates
the State's fiduciary duties regarding school trust lands.
¶37 Section 77-5-211, MCA, provides:
Free permit to remove timber. Permits may be issued free of charge for
dead, down, or inferior timber in such quantities and under such restrictions
and regulations as the board may approve for fuel and domestic purposes to
residents and settlers of the state.
¶38 The District Court concluded that § 77-5-211, MCA, authorizes the Department
to act in violation of the trust. The District Court reasoned that because the statute
does not discriminate between timber with commercial value and timber that lacks
commercial value, it allows the State to give away commercially valuable timber in
violation of its trust duty of undivided loyalty.
¶39 The State argues that the District Court erred in concluding that § 77-5-211,
MCA, is unconstitutional, because the Department has discretion whether to issue
permits and Montrust has not shown that dead wood has commercial value in all
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instances. Montrust responds that § 77-5-211, MCA, violates the State's fiduciary
duty of undivided loyalty because it fails to distinguish between commercially
valuable timber and timber that lacks commercial value.
¶40 In Wild West Motors, Inc. v. Lingle (1986), 224 Mont. 76, 728 P.2d 412, this
Court considered a trustee's duty of undivided loyalty and concluded:
When a party undertakes the obligation of a trustee to receive money or
property for transfer to another, he takes with it the duty of undivided loyalty
to the beneficiary of the trust. The undivided loyalty of a trustee is jealously
insisted on by the courts which require a standard with a "punctilio of an
honor the most sensitive." A trustee must act with the utmost good faith
towards the beneficiary, and may not act in his own interest, or in the interest
of a third person.
Wild West Motors, 224 Mont. at 82, 728 P.2d at 415-16 (citations omitted).
¶41 In failing to distinguish between commercially valuable timber and timber that
lacks commercial value, § 77-5-211, MCA, authorizes the State to issue firewood
permits to third parties without charging them for any commercially valuable wood
that they collect. Thus, § 77-5-211, MCA, on its face violates both the trust's mandate
that full market value be received for school trust lands and the State's trust duty of
undivided loyalty. We hold that the District Court correctly concluded that § 77-5-
211, MCA, is unconstitutional.
¶42 5. Whether the District Court erred in concluding that § 77-6-304, MCA, is
constitutional.
¶43 Section 77-6-304, MCA, provides:
Removal of improvements. The former lessee may, however, remove the
movable improvements on the land and dispose of them to parties other than
the lessee. If he fails to remove the improvements from the land within 60
days from the date of the expiration of his lease, all of the improvements
become the property of the state unless the department for good cause grants
additional time for their removal.
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¶44 On cross-appeal, Montrust contends that § 77-6-304, MCA's sixty-day provision
violates the trust by providing direct unreimbursed benefits to nontrust entities.
Montrust argues that there is no evidence that the Department has charged former
lessees for exercising their sixty-day right under § 77-6-304, MCA. The State
responds that § 77-6-304, MCA, does not violate any fiduciary duty, that it merely
gives the Department time to inventory improvements on school trust lands, and that
§ 77-6-304, MCA, has no quantifiable impact on the trust fund. The State further
argues that bids on school trust lands take into account the sixty-day provision.
¶45 The District Court found that § 77-6-304, MCA, did not prevent the Department
from charging former lessees for the storage of improvements after the termination
of their leases. The District Court also found that § 77-6-304, MCA, does not prevent
a new lessee from moving onto trust land before the former lessee has removed his
improvements. The District Court further found that "it was reasonably necessary
for the Department to allow the former lessee some extra time to remove
improvements, especially in the winter months when most agricultural leases
terminate." The District Court acknowledged that the Department's policy is to
postpone new leases pending removals of improvements by former lessees.
Conceding that this policy could reduce potential profits to the trust, the District
Court concluded nonetheless that the policy did not breach the State's fiduciary
responsibilities and that § 77-6-304, MCA, is constitutional as applied to school trust
lands.
¶46 We note that leases in school trust lands are subject to the trust. In Rider v.
Cooney (1933), 94 Mont. 295, 23 P.2d 261, the Court determined that
When a lease is granted upon the public lands of the state, an interest or estate
in the lands has been alienated, and therefore the leasing of the lands of the
state for a term of years is the disposal of an interest or estate in the lands
within the provisions of our Constitution.
Rider, 94 Mont. at 308, 23 P.2d at 263.
¶47 In construing statutes, we have previously concluded that "[t]he intent of the
Legislature is to be pursued and we determine that intent by interpreting the plain
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meaning of the language used by the Legislature. The statutory language must be
reasonably and logically interpreted and words given their usual and ordinary
meaning." Matter of R.L.S., 1999 MT 34, ¶ 8, 293 Mont. 288, ¶ 8, 977 P.2d 967, ¶ 8.
¶48 Applying these canons of construction to § 77-6-304, MCA, we conclude that it
plainly authorizes the Department to allow former lessees to remain free of charge on
trust lands for up to sixty days while they remove movable improvements. The right
to remove movable improvements that is provided under § 77-6-304, MCA,
necessarily implies a right of occupancy in order to remove movable improvements.
Further, as previously noted, the Department's practice is to postpone the issuance of
new leases until movable improvements are removed. The Department's practice
recognizes that to allow former lessees to remove improvements, including for
example houses, cabins, and fences, after new leases have issued would interfere with
new lessees' quiet enjoyment and possession of leased lands. We agree with this
premise. As the District Court suggested, the Department could allow a new lessee to
move onto trust lands before improvements are removed. The former lessee's
occupancy during the period when he exercises his removal rights would however
conflict with the new lessee's occupancy. Section 77-6-304, MCA, clearly
contemplates that and authorizes the Department to avoid this conflict by postponing
new leases without trust compensation while former lessees exercise their removal
rights.
¶49 In Lassen v. Arizona Highway Dept. (1967), 385 U.S. 458, 87 S.Ct. 584, 17 L.
Ed.2d 515, Arizona's Highway Department sought to prohibit Arizona's State Land
Commissioner from applying rules regarding the acquisition of rights of way in lands
held in trust by Arizona. The Commissioner's rules provided in part that "Rights of
Way and Material Sites may be granted . . . for an indefinite period . . . after full
payment of the appraised value has been made . . . ." Lassen, 385 U.S. at 459-60, 87 S.
Ct. at 585, 17 L.Ed.2d at 517 (emphasis added). The Highway Department argued
that no compensation "need ever be actually paid since it may be conclusively
presumed that all highways enhance the value of the remaining trust lands in
amounts at least equal to the value of the lands which were taken." Lassen, 385 U.S.
at 465, 87 S.Ct. at 588, 17 L.Ed.2d at 521. The Lassen Court rejected this argument
and concluded that "the purposes of Congress require that the Act's designated
beneficiaries 'derive the full benefit' of the grant." Lassen, 385 U.S. at 468, 87 S.Ct. at
589, 17 L.Ed.2d at 522. The Lassen Court held that Arizona must compensate the
trust with money for the "full appraised value of any material sites or rights of way
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which it obtains on or over trust lands." Lassen, 385 U.S. at 469, 87 S.Ct. at 590, 17 L.
Ed.2d at 523.
¶50 In the present case, we conclude that allowing former leaseholders up to sixty
days to remove movable improvements without charge similarly denies the trust's
beneficiaries "the full benefit" of the trust lands. Lassen, 385 U.S. at 468, 87 S.Ct. at
589, 17 L.Ed.2d at 522. Further, § 77-6-304, MCA, violates the duty of undivided
loyalty by benefiting third parties to the detriment of the trust's beneficiaries. We
hold that § 77-6-304, MCA, is unconstitutional on its face.
¶51 6. Whether the District Court erred in concluding that § 77-6-305, MCA, is
constitutional.
¶52 Section 77-6-305, MCA, provides:
Settlement regarding improvements prerequisite to issuance of a new
lease. Before a lease is issued to the new lessee, the lessee shall show that the
former lessee has been paid the value of the improvements pursuant to 77-6-
302 or as determined under 77-6-306 or that the former lessee elects to
remove the improvements.
Further, § 77-6-301, MCA, provides that "[a] lessee of state lands may place upon the
lands a reasonable amount of improvements directly related to conservation of the land or
necessary for proper utilization of it." Section 77-6-302, MCA, further provides that "[w]
hen another person becomes the lessee of the lands, the person shall pay to the former
lessee the reasonable value of these improvements at the time the new lessee takes
possession. The reasonable value may not be less than the full market value of the
improvements."
¶53 The District Court concluded that § 77-6-305, MCA, does not violate the trust
"even though it may result in less revenue due to delayed leases." The District Court
further concluded that the Department must have latitude to administer school trust
lands.
¶54 On cross-appeal, Montrust argues that under § 77-6-305, MCA, a former lessee
can delay indefinitely the issuance of a new lease on trust lands. Montrust notes that
the parties stipulated that
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In denying the issuance of a lease to a new lessee, the school trust may receive
revenue from the land where it issues a land use license to farm or graze the
land. Otherwise, the land remains idle as far as generating any revenue to the
trust. Improvement disputes may continue for many months and even years.
Montrust argues that § 77-6-305, MCA, violates the fiduciary duties of loyalty and
accountability and that it conflicts with the Lassen Court's conclusion that gifts of trust
land or interests therein cannot be made to third parties although the trust may benefit
indirectly from such gifts.
¶55 The State responds that § 77-6-305, MCA, does not violate any fiduciary duty
and that it has no demonstrable impact on trust revenues or the trust corpus. The
State concedes that this statute is an occasional source of delay in the transfer of
leases on trust lands. However, the State argues that allowing a new lessee to assume
immediately a lease and to use the improvements installed by the former lessee can
create "needless complications in determining the value of improvements."
¶56 The State correctly observes that both the Board and the Department have
discretion in the management of trust lands. In Stewart, 48 Mont. at 350, 137 P. at
855, the Court observed that "of necessity, the board must have a large discretionary
power over the subject of the trust . . . ."
¶57 However, this discretion is not unlimited but must conform to the requirements
of the trust. See, e.g., Toomey, 106 Mont. at 559, 81 P.2d at 414 (concluding that "the
state is a trustee in this instance, and that a trustee must strictly conform to the
directions of the trust agreement . . . ."); Babcock, 147 Mont. at 51, 409 P.2d at 811
(recognizing discretionary powers of Board but concluding that "there can be no
such implied powers inconsistent with any part of the constitution") (citation
omitted). In allowing trust lands to idle indefinitely while former and new lessees
determine the value of improvements, § 77-6-305, MCA, is inconsistent with the
trust's mandate that full market value be obtained for school trust lands. We hold
that the specific requirement in § 77-6-305, MCA, that a new lease will not issue until
the new lessee shows that the old lessee has been paid the value of his improvements
is unconstitutional on its face. We note that our holding does not reach the
requirement, in § 77-6-305, MCA, that former lessees be reimbursed for their
improvements.
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¶58 7. Whether the District Court abused its discretion in denying Montrust
reasonable attorney fees.
¶59 The District Court denied Montrust's motion for reasonable attorney fees,
concluding that the present action involved "neither frivolous conduct, extreme
conduct, nor bad faith by the State." The District Court determined that § 25-10-711
(1), MCA, precluded the grant of attorney fees to Montrust.
¶60 Section 25-10-711, MCA, provides in pertinent part:
(1) In any civil action brought by or against the state, a political subdivision,
or an agency of the state or a political subdivision, the opposing party,
whether plaintiff or defendant, is entitled to the costs enumerated in 25-10-
201 and reasonable attorney's fees as determined by the court if:
(a) he prevails against the state, political subdivision, or agency;
and
(b) the court finds that the claim or defense of the state, political subdivision,
or agency that brought or defended the action was frivolous or pursued in bad
faith.
Section 25-10-711, MCA.
¶61 On cross-appeal, Montrust concedes that Montana has followed the American
rule, which provides that "a party in a civil action is generally not entitled to
[attorney] fees absent a specific contractual or statutory provision." Matter of
Dearborn Drainage Area (1989), 240 Mont. 39, 42, 782 P.2d 898, 899. However,
Montrust argues that Montana has recognized equitable exceptions to the rule.
Montrust argues in part that it is entitled to reasonable attorney fees under the
doctrine of private attorney general. Because this issue is dispositive, we do not
address the other grounds for attorney fees that Montrust has raised.
¶62 The State responds that the American rule bars attorney fees in the present case.
The State asserts that no contractual or statutory provision allows attorney fees.
Further, the State argues that § 25-10-711, MCA, does not help Montrust because the
State has not acted frivolously or in bad faith. The State also argues that even
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assuming arguendo that the doctrine of private attorney general is available in the
present case, Montrust is not entitled to attorney fees. Further, the State directs this
Court's attention to Helena Elementary School Dist. v. State (1989), 236 Mont. 44,
769 P.2d 684, opinion amended by Helena Elementary School Dist. v. State (1990), 236
Mont. 44, 784 P.2d 412, where the Court denied a request for attorney fees under the
common fund and substantial benefit doctrines. However, Helena Elementary School
Dist. is readily distinguished from the present case as we do not consider the common
fund and substantial benefit doctrines. We note that the State also appears to argue
that under a private attorney general theory, Montrust would be required to show
that the trust's beneficiaries have received a tangible monetary benefit from
Montrust's litigation. The State offers no authority for this interpretation, and we
decline to adopt such a narrow reading of "benefit."
¶63 We have previously recognized equitable exceptions to the American rule. See, e.
g., Foy v. Anderson (1978), 176 Mont. 507, 511, 580 P.2d 114, 117 (affirming award of
attorney fees on equitable grounds despite absence of specific contractual or
statutory grant); Holmstrom Land Co. v. Hunter (1979), 182 Mont. 43, 48-49, 595
P.2d 360, 363 (again affirming award of attorney fees on equitable grounds in
absence of statutory or contractual grant); Goodover v. Lindey's, Inc. (1992), 255
Mont. 430, 447, 843 P.2d 765, 775 (recognizing limited equitable exception to general
rule when party is "forced into a frivolous lawsuit"). In Means v. Montana Power
Co. (1981), 191 Mont. 395, 625 P.2d 32, this Court adopted the common fund
doctrine, concluding
The "common fund" concept provides that when a party through active
litigation creates, reserves or increases a fund, others sharing in the fund must
bear a portion of the litigation costs including reasonable attorney fees. The
doctrine is employed to spread the cost of litigation among all
beneficiaries . . . .
Means, 191 Mont. at 403, 625 P.2d at 37. In Matter of Dearborn Drainage Area, this
Court recognized but declined to apply the private attorney general doctrine, commenting
that "[t]he Doctrine is normally utilized when the government, for some reason, fails to
properly enforce interests which are significant to its citizens." Matter of Dearborn
Drainage Area, 240 Mont. at 43, 782 P.2d at 900.
¶64 A number of jurisdictions have adopted the private attorney general doctrine.
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See, e.g., Miotke v. City of Spokane (Wash. 1984), 678 P.2d 803 (adopting private
attorney general theory for attorney fees); Arnold v. Arizona Dept. of Health
Services (Ariz. 1989), 775 P.2d 521 (also adopting private attorney general theory);
Serrano v. Priest (Cal. 1977), 569 P.2d 1303.
¶65 In Serrano, the court affirmed the district court's award of reasonable attorney
fees to plaintiffs' attorneys under a private attorney general theory. The Serrano
court concluded that
there are three basic factors to be considered in awarding fees on this theory.
These are in general: (1) the strength or societal importance of the public
policy vindicated by the litigation, (2) the necessity for private enforcement
and the magnitude of the resultant burden on the plaintiff, (3) the number of
people standing to benefit from the decision.
Serrano, 569 P.2d at 1314. The Serrano court recognized that under the first factor, courts
could be "thrust into the role of making assessments of the relative strength or weakness of
public policies furthered by their decisions and of determining at the same time which
public policy should be encouraged by an award of fees, and which not--a role closely
approaching that of the legislative function." Serrano, 569 P.2d at 1314. However, the
Serrano court concluded that the public policy furthered by the litigation in that case was
"grounded in the State Constitution." Serrano, 569 P.2d at 1315. The Serrano court also
noted that the uncontested findings of the district court established that the "benefits
flowing from this adjudication are to be widely enjoyed among the citizens of this state,"
and concluded that under those circumstances, the award of attorney fees to the plaintiffs
"was proper under the theory posited by the trial court." Serrano, 569 P.2d at 1315.
¶66 We adopt the private attorney general theory and the three part inquiry set forth
in Serrano. Further, we conclude that Montrust is deserving of attorney fees under
the private attorney general theory. First, Montrust has litigated important public
policies that are grounded in Montana's Constitution. Second, the State argues that it
had a duty to defend the statutes in the present case; thus, the State does not dispute
the necessity of private enforcement of Montana's Constitution. Nor does the State
dispute the magnitude of Montrust's consequent burden. Third, Montrust's litigation
has clearly benefited a large class: all Montana citizens interested in Montana's
public schools.
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¶67 The award of attorney fees "to make the injured party whole" is within the
discretion of a district court. Russell Realty Co. v. Kenneally (1980), 185 Mont. 496,
505, 605 P.2d 1107, 1112 (citation omitted). We have concluded that
In determining whether the trial court abused its discretion, the question is not
whether the reviewing court agrees with the trial court, but, rather, did the trial
court in the exercise of its discretion act arbitrarily without the employment of
conscientious judgment or exceed the bounds of reason, in view of all the
circumstances, ignoring recognized principles resulting in substantial injustice.
Porter v. Porter (1970), 155 Mont. 451, 457, 473 P.2d 538, 541.
¶68 We hold that the District Court abused its discretion in denying Montrust's
request for reasonable attorney fees. As previously discussed, this Court has long
recognized equitable exceptions to the American rule, including the doctrine of
private attorney general. In the present case, Montrust has successfully litigated
issues of importance to all Montanans and incurred significant legal costs. We
conclude that the District Court ignored recognized principles in denying Montrust
reasonable attorney fees, resulting in "substantial injustice." Porter, 155 Mont. at
457, 473 P.2d at 541.
¶69 Affirmed in part and reversed in part for further proceedings consistent with
this opinion.
/S/ W. WILLIAM LEAPHART
We concur:
/S/ WILLIAM E. HUNT, SR.
/S/ TERRY N. TRIEWEILER
/S/ JAMES C. NELSON
Justice Karla M. Gray, concurring in part and dissenting in part.
¶70 I concur in the Court's opinion on all issues except issue 5, which is whether the
District Court erred in concluding that § 77-6-304, MCA, is constitutional. On that
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issue, I dissent from the Court's holding that § 77-6-304, MCA, is unconstitutional on
its face as violative of the trust.
¶71 Section 77-6-304, MCA, provides:
The former lessee may, however, remove the movable improvements on the
land and dispose of them to parties other than the lessee. If he fails to remove
the improvements from the land within 60 days from the date of the expiration
of his lease, all of the improvements become the property of the state unless
the department for good cause grants additional time for their removal.
The Court determines that this statute authorizes the Department to allow former lessees to
remain free of charge on trust lands for up to sixty days while they remove improvements
and, as a result, that the statute is facially inconsistent with the trust's requirement that full
market value be obtained for interests in school trust lands. I would agree with the Court's
conclusion if § 77-6-304, MCA, on its face, actually allowed for the continued occupancy
of the leased premises by a former lessee for sixty days. The statute does not do so,
however. Indeed, nothing in the statutory language permits continued occupancy by the
former lessee for sixty days or precludes the issuance of a lease to, and occupancy
thereunder by, a new lessee. Nor are the Department's policies relating to § 77-6-304,
MCA, relevant to the facial constitutionality of the statute.
¶72 In short, it is my view that Montrust has failed to establish that § 77-6-304,
MCA, is facially unconstitutional beyond a reasonable doubt as required by Martel.
Therefore, I dissent from the Court's holding on issue 5.
/S/ KARLA M. GRAY
Justice Jim Regnier joins in Justice Gray's foregoing concurring and dissenting opinion.
/S/ JIM REGNIER
Chief Justice J. A. Turnage joins in Justice Gray's concurring and dissenting opinion.
/S/ J. A. TURNAGE
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