Helena Sand & Gravel, Inc. v. Lewis & Clark County Planning & Zoning Commission

DA 11-0510 November 30 2012

IN THE SUPREME COURT OF THE STATE OF MONTANA
2012 MT 272

HELENA SAND AND GRAVEL, INC.,
a Montana Corporation,

Plaintiff and Appellant,

v.

LEWIS AND CLARK COUNTY PLANNING
AND ZONING COMMISSION, and THE
LEWIS AND CLARK COUNTY BOARD OF
COUNTY COMMISSIONERS,

Defendants and Appellees.

APPEAL FROM: District Court of the First Judicial District,
In and For the County of Lewis and Clark, Cause No. CDV 08-581
Honorable Kathy Seeley, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Michael S. Kakuk (argued); Kakuk Law Offices, P.C.; White Sulphur
Springs, Montana

For Appellees:

Leo J. Gallagher, County Attorney; K. Paul Stahl (argued) and Jeff Sealey,
Deputy County Attorneys; Helena, Montana

For Amicus Curiae:

Steven T. Wade, Morgan M. Weber; Browning, Kaleczyc, Berry &
Hoven, P.C.; Helena, Montana (for the Montana Contractors Association)

Argued and Submitted: August 15, 2012

Decided: November 30, 2012

Filed:

__________________________________________
Clerk
Justice Beth Baker delivered the Opinion of the Court.

¶1 Helena Sand and Gravel, Inc. (HSG) appeals the First Judicial District Court’s

order denying its motion for summary judgment and granting summary judgment in favor

of Lewis and Clark County Planning and Zoning Commission and Lewis and Clark

County Board of Commissioners (collectively, “the County”).

We address the following issues on appeal:

¶2 1. Whether, in adopting the zoning pattern and regulations prohibiting mining in
a special district, the County abused its discretion by failing to consider existing land
uses or to ensure substantial compliance with the Lewis and Clark County Growth Policy
(Growth Policy).

¶3 2. Whether the County’s adoption of zoning regulations prohibiting sand and
gravel mining constitutes illegal reverse spot zoning.

¶4 3. Whether HSG has an established property right, entitling it to bring a takings
claim against the County.

¶5 We affirm the District Court’s decision as to the first two issues. We affirm in

part and remand as to the third.

PROCEDURAL AND FACTUAL BACKGROUND

¶6 The establishment of local zoning districts is governed by statute in Montana. A

district may be created in one of two ways—by citizen petition to the board of county

commissioners under § 76-2-101, MCA, known as “Part 1 zoning,” or directly by the

board of county commissioners under § 76-2-201, MCA, known as “Part 2 zoning.” This

case involves Part 1 zoning. HSG challenges the County’s decision to adopt a citizen-

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initiated proposal to configure a zoning district that favors residential uses and prohibits

mining.

¶7 HSG owns approximately 421 acres located north of East Helena, Montana. In

June 2008, HSG obtained a permit from the Montana Department of Environmental

Quality (DEQ) to mine gravel on 110 acres of its property. Those 110 acres are not at

issue in this case. Before DEQ granted the permit, a group of citizens living north of East

Helena submitted to the County a petition seeking to create Special Zoning District

Number 43 (District 43). The proposal delineated an area which encompassed the

property owned by HSG and its purpose was: “to accommodate and protect the use of

single-family dwelling units and associated agricultural land uses while promoting and

preserving the rural residential atmosphere of the area and enhancing the aesthetic

character and property values of the area.” It proposed to prohibit industrial and mining

activities in the district, including any sand and gravel operations to be performed by

HSG on the remaining 311 acres of its property. The petition was signed by

approximately seventy percent of the property owners within the proposed district.

¶8 The statutory provisions for Part 1 zoning authorize the board of county

commissioners, “whenever the public interest or convenience may require,” to create a

planning and zoning district “upon petition of 60% of the affected freeholders,” unless

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“50% of the titled property ownership in the district protest the establishment of the

district within 30 days of its creation.” Section 76-2-101, MCA (2007).1

¶9 On April 1, 2008, following a public meeting, the Lewis and Clark County Board

of Commissioners (the Board) voted to create District 43. HSG commented during the

meeting that the petition constituted “illegal gerrymandering” because “[t]he district

borders have been specifically and unreasonably drafted to benefit the petitioners”; no

protest, however, was filed by fifty percent of the land owners within thirty days of the

Board’s approval of the district. Thus, on May 8, 2008, the Board adopted a resolution

creating the boundaries of District 43.

¶10 The matter proceeded to the Lewis and Clark County Planning and Zoning

Commission (the PZ Commission), which is statutorily required to adopt a development

pattern for the new district and authorized to recommend regulations to the Board to

implement the development pattern. Sections 76-2-104 and -107, MCA. On June 4,

2008, the PZ Commission held a hearing in which it solicited public comments regarding

the development pattern and regulations proposed by the petitioners. HSG reiterated the

concerns it had raised at the earlier meeting and submitted a proposal recommending that

sand and gravel mining operations be authorized within the district under a conditional

use permit. In order to provide the county attorney’s office with additional time to

analyze the legal issues raised by HSG, the PZ Commission continued the hearing.

1
The 2007 version of the statute applied at the time that the petitioners submitted their proposal
in February 2008. Unless otherwise indicated, all statutory references are to the 2007 Montana
Code Annotated.
4
¶11 On June 11, 2008, the county attorney’s office informed the PZ Commission that

it needed additional evidence on two issues—(1) whether the proposed development

pattern and regulation complied with the Growth Policy, and (2) how the proposed

zoning compared with existing uses surrounding and within the district. The PZ

Commission directed planning staff to create a report on the two issues.

¶12 The staff report, prepared on June 18, 2008, described the broader transitional area

in which District 43 is located as being “characterized by a range of residential and rural

residential development,” though it noted the existence of two operational gravel mines

in the area. The report was made available to the public and, on June 30, 2008, the PZ

Commission reopened its June 4 hearing in order to discuss the report’s findings. The

Commission received numerous public comments, including comments from HSG. The

PZ Commission met on July 1, 2008, to consider the development pattern and regulations

for District 43. In discussing the public input they had received, the Commissioners

stated that it was a “difficult decision.” The regulations were adopted and referred to the

Board for approval. The Board held a public meeting on July 3, 2008, during which it

again received comments from HSG and other members of the public. The Board then

tabled the matter for a week and, on July 10, 2008, approved the regulations.

¶13 In July 2008, HSG filed a complaint in the First Judicial District Court, alleging

that the County had adopted a zoning pattern and regulations that improperly prohibited

HSG from mining sand and gravel on its property. The District Court considered cross-

motions for summary judgment on whether the County had improperly adopted the

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zoning pattern and regulations creating District 43, and whether the County’s zoning

decision constituted a taking of HSG’s property. The District Court entered summary

judgment in favor of the County on both issues. It reasoned that the zoning regulations

substantially complied with the growth policy and that they did not single out HSG for

disparate treatment because “the County’s prohibition on sand and gravel operations

applies to all of the land within [District 43], not only to the property owned by HSG.”

The District Court also concluded that HSG did not have an established property right in

its ability to apply for a mining permit because “DEQ does not lack ‘all discretion’” in

granting and denying such permits and thus “approval of the permit is not ‘virtually

assured.’”

STANDARD OF REVIEW

¶14 We review de novo the district court’s decision on motions for summary

judgment, applying the same Mont. R. Civ. P. 56(c) criteria as the district court. Ternes

v. State Farm Fire & Cas. Co., 2011 MT 156, ¶ 18, 361 Mont. 129, 257 P.3d 352.

Summary judgment is appropriate when, drawing all reasonable inferences in favor of the

non-moving party, there is no genuine issue of material fact and the moving party is

entitled to judgment as a matter of law. Ternes, ¶ 18.

¶15 When reviewing a zoning decision, we “give deference to the decisions of the

local board.” Town & Country Foods, Inc. v. City of Bozeman, 2009 MT 72, ¶ 14, 349

Mont. 453, 203 P.3d 1283. Our review is limited to the question whether the zoning

authority abused its discretion. Town & Country Foods, ¶ 13. To constitute an abuse of

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discretion, the zoning authority’s decision must be based on information that is “so

lacking in fact and foundation that it is clearly unreasonable.” Town & Country Foods,

¶ 13 (citing Flathead Citizens for Quality Growth, Inc. v. Flathead County Bd. of

Adjustment, 2008 MT 1, ¶ 32, 341 Mont. 1, 175 P.3d 282). If the validity of the

legislative classification for zoning purposes is “fairly debatable,” then the legislative

judgment of the zoning board controls. Mack T. Anderson Ins. Agency v. City of

Belgrade, 246 Mont. 112, 120, 803 P.2d 648, 652 (1990) (quoting Euclid v. Ambler

Realty Co., 272 U.S. 365, 387-88, 47 S. Ct. 114, 118 (1926)).

DISCUSSION

¶16 1. Whether, in adopting the zoning pattern and regulations prohibiting mining in
a special district, the County abused its discretion by failing to consider existing land
uses or to ensure substantial compliance with the Growth Policy.

¶17 Under § 76-1-605, MCA, zoning regulations adopted by a local governing body in

an area covered by a growth policy must “be guided by and give consideration to the

general policy and pattern of development set out in the growth policy . . . .” Section 76-

1-605(1)(c), MCA. The statute also provides that “[a] growth policy is not a regulatory

document” and “[a] governing body may not withhold, deny, or impose conditions on

any land use approval or other authority to act based solely on compliance with a growth

policy . . . .” Section 76-1-605(2)(a)-(b), MCA. In considering the degree to which

zoning regulations adopted by the local authority must conform to the growth policy, we

have held that the standard is “substantial compliance.” Little v. Bd. of Co. Comm’rs, 193

Mont. 334, 353, 631 P.2d 1282, 1293 (1981) (determining whether a Part 2 zoning

7
decision was in substantial compliance with master plan); Heffernan v. Missoula City

Council, 2011 MT 91, ¶ 74, 360 Mont. 207, 255 P.3d 80 (holding that, following the

2003 revisions to statutes governing growth policies and planning boards, “the

‘substantial compliance’ standard still applies”). We apply the substantial compliance

standard to zoning regulations adopted under Part 2, as seen in Little, and also those

adopted under Part 1. See Bridger Canyon Property Owners’ Ass’n v. Planning &

Zoning Comm’n, 270 Mont. 160, 170, 890 P.2d 1268, 1274 (1995) (stating that “the

propositions established in Little are applicable” to Part 1 zoning).

¶18 HSG argues that the zoning regulations do not substantially comply with the

Growth Policy because the zoning board “disregard[ed] the actual use of the land.” HSG

points out that the County’s staff report, made at the PZ Commission’s request, noted the

existence of five gravel pits in and around the transitional area encompassing District 43.

The County nonetheless classified the area as “rural residential.” HSG thus contends that

the County asked for, but did not “actually [use the] additional information in any

meaningful way.” It contends this case is comparable to Ash Grove Cement Co. v.

Jefferson County, 283 Mont. 486, 943 P.2d 85 (1997), where we held that the zoning

board had implemented regulations that conflicted with existing uses. The County

maintains that, despite the existence and operation of multiple gravel pits in and around

the area, the current land use is “primarily residential” and that Ash Grove is inapplicable.

¶19 We agree with the County that this case differs from Ash Grove. In that case, the

Jefferson County Board of Commissioners had adopted a master plan for Jefferson

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County that included the objective of inviting “continued mineral exploration, extraction

and refinement” and classified the area surrounding Ash Grove’s quarries and cement

plant as “Mining: Active Surface” and “Mining and Industrial: Intensive Mineral

Processing and Industrial Uses.” 2 Ash Grove, 283 Mont. at 489-90, 943 P.2d at 87-88.

The commissioners then adopted a citizen-initiated local vicinity plan that was intended

to amend the master plan and to supersede it as to any inconsistencies. Ash Grove, 283

Mont. at 498, 943 P.2d at 93. The local plan contrasted starkly with the existing master

plan—it described Ash Grove and its surroundings as having a “unique rural residential

character” and failed to include existing mining and industrial uses. Ash Grove, 283

Mont. at 490-91, 943 P.2d at 88. We concluded that the local plan failed to substantially

comply with the master plan and was not a proper amendment to the master plan because

it “disregards the actual use of the land to which it purports to apply . . . .” Ash Grove,

283 Mont. at 499, 943 P.2d at 93.

¶20 In this case, the special zoning district does not purport to amend the Growth

Policy, but—as permitted under Part 1 zoning—to create specific zoning requirements

within the area already defined by the Growth Policy. The creation of District 43 is

expressly contemplated by Montana law, unlike the local vicinity plans in Ash Grove,

that were authorized by the master plan itself and failed to comply with Part 1 zoning

requirements. Ash Grove, 283 Mont. at 489, 943 P.2d at 87. The relevant version of the

2
Planning documents formerly called “master plans,” “comprehensive plans,” or
“comprehensive development plans” are now referred to as “growth policies.” See Little, 193
Mont. at 349, 631 P.2d at 1291; see also Lake Co. First v. Polson City Council, 2009 MT 322,
¶ 17 n. 2, 352 Mont. 489, 218 P.3d 816 (citing § 76-1-106, MCA (2005)).
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Lewis and Clark County Growth Policy was adopted in February 2004, four years before

HSG obtained its mining permit from DEQ for the 110 acres. It states the following

county-wide policy objectives, among others: “[s]upport the continuation of farming and

ranching operations,” “[e]ncourage in-fill development of urban and transitional areas

already committed to development[,]” and “[p]rovide more predictability for property

owners and the development community regarding appropriate changes in land use . . . .”

The Growth Policy indicates that the Helena Valley Planning Area “is facing

considerable growth and development pressure.” Unlike Jefferson County’s master plan,

the Growth Policy seeks to strike a balance between agricultural and residential use; it

does not mention mining and industrial uses as a priority for the Helena Valley, but

suggests mining should be focused in the valley’s rural areas.

¶21 The Growth Policy defines three “urban” areas, two “special use areas,” and three

“transitional areas,” with the remaining lands of the Helena Valley designated as rural

areas. HSG’s property lies within one of the three “transitional areas,” which the Growth

Policy defines as containing “low-density development and community services (schools,

parks, fire protection, neighborhood, commercial, etc.) and having the potential to

“accommodate additional infill development.” Specifically, HSG’s property and District

43 are located within Transitional Area F (Area F), which the Growth Policy describes

as:

. . . characterized by a range of residential development (urban density,
mobile home parks, ranchette density), a small commercial hub (Wylie
Drive and Canyon Ferry Road), two gravel resource extraction operations,
designated 100-year floodplains, and irrigation facilities. Portions of the
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 area are zoned for residential and ranchette uses, but a majority of the area
is not zoned.

The county’s staff report, prepared in June 2008, provided a similar description:

Area F is generally characterized by a range of residential and rural
residential development (including a few mobile home parks), a small
commercial hub located at the junction of Wylie Drive and Canyon Ferry
Road, two existing gravel resource extraction operations both located west
of Wylie Drive, three fire stations serviced by either the Eastgate Rural Fire
District or the East Helena Valley Fire District, two elementary schools . . .
and two community parks . . . . The Area is also comprised of various
commercial and/or industrial uses that include, but are not limited to the
following: a number of storage unit operations, manufacturing businesses,
automobile/boat storage, . . . day care center(s), a sign and graphic
business(es), a meat packing and processing facility or facilities, and other
various businesses and operations.

Other land uses noted in the report include two water treatment plants, agriculture, and

churches. Though the majority of Area F remains unzoned, as it was at the time of the

2004 Growth Policy, the report identified two special zoning districts in addition to

District 43—LaCasa Grande, designated as residential, neighborhood commercial, and

public lands and institutions, and T-L Ranch Acres, a “rural residential District that does

not contain any specific zoning designations.” Regarding District 43, the report stated

that “[t]he proposed development pattern/regulations are very similar to a combination of

both La Casa Grande and T-L Ranch Acres.” These descriptions of Transitional Area F

support the County’s determination that the existing uses were primarily residential and

that the proposed zoning pattern and regulations for District 43 did not conflict with such

existing uses.

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¶22 The County acknowledges that the existence of gravel pits in and around Area F

made its decision a “closer call.” This is reflected in the Commissioners’ statements

during the PZ Commission’s July 1, 2008 meeting. In deciding whether to adopt finally

the zoning pattern and recommend the proposed regulations to the Board, the

Commissioners stated that they had “received a volume of compelling testimony from

both sides” and that their decision was “difficult.” However, the balance tipped in favor

of adopting the regulations. Commissioner Hunthausen stated:

[T]he growth policy indicates to me that gravel pits are most appropriate in
rural areas and less appropriate in urban and transitional areas and
especially this transitional area where the residential character of that area
has pushed in and encroached[;] it’s very much upon this portion of the
transitional area. So it seems to me if we were consistent with the growth
policy that we would support this transitional area being kept in a
residential type of growth pattern.

Commissioner Murray pointed out that, although the Growth Policy acknowledged that

two gravel pits were present in Area F at the time the Growth Policy was adopted, this

did not mean that gravel pits must be allowed in transitional areas, since “[m]ost if not all

zoning districts have existing non-conforming uses in them.” See § 76-2-105, MCA

(allowing continuation of existing non-conforming uses).

¶23 The County notes accurately that this Court may reverse its decision only where it

is “so lacking in fact and foundation that it is clearly unreasonable.” Town & Country

Foods, ¶ 13. Having thoroughly reviewed the information upon which the County based

its decision, we conclude that it considered existing uses in Area F and District 43 and its

determination that the prevailing use was residential was not clearly unreasonable.

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¶24 Additionally, HSG argues that the zoning district was designed by petitioners with

the specific intent of preventing HSG from mining its property. Montana Contractors

Association filed an amicus brief warning this Court of the dangers of such “blatant

gerrymandering” and underscoring the negative economic impact that would result from

the relocation of mining operations away from developing areas where demand for gravel

is highest. HSG and amici contend that the petitioners deliberately drew the district

boundary so that fifty percent of the property owners would not protest its establishment.

The County agrees that “the citizens who petitioned for the creation of [District 43]

initiated the process with the main purpose of stopping HSG from mining on its

property,” but maintains that the County “did not act with that same purpose.” We agree

with the County. Regardless of what motivated the petitioners to initiate the Part 1

zoning process, the record demonstrates that the County heard and considered public

comments from both sides at all stages of its decision-making process. The

Commissioners’ own comments indicate that they were careful to make their decision

based on compliance with the Growth Policy and the existing uses within the district,

rather than based on HSG’s proposed mine expansion.

¶25 During the PZ Commission’s July 1 meeting, Deputy County Attorney Sealey

advised the Commission that its decision was not to be “based on Helena Sand &

Gravel’s pit,” but on “the growth policy and whether gravel pits generally belong in

transitional areas and whether gravel pits belong in this particular transitional area [and]

this particular district.” Voting in favor of adopting the regulations, Commissioner

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Hunthausen stated, “my decision is not about Helena Sand & Gravel. It’s not about this

particular gravel pit. It’s about in general . . . is it consistent with the growth policy and

is this the direction that we want to head as a county.” Prior to adopting the zoning

pattern, Commissioners made statements on the record expressing their preference for

comprehensive zoning and acknowledging the need for gravel mining:

Chairman Tinsley: This is a classic example of why we need
comprehensive zoning. We need gravel to build our highways. We need
gravel to do construction yet all of the gravel ground is covered by
residential housing because there was no zoning. . . . This is a textbook
case of why zoning is necessary and what we have been pushing and
talking about as long as I’ve been a county commissioner. . . .

Commissioner Hunthausen: . . . I would just echo what you said[,] that
comprehensive zoning is the way to do this. This is probably not the most
efficient and effective way to zone an area. . . . This is a difficult position
[for] us to be put in[,] for a local business to be put in[,] and for residents to
be put in. If we can plan our valley ahead of time and work to lay it out in
a way that works for most of us most of the time[,] then I think we have a
much better process and a way to go in the future.

¶26 HSG’s complaint about “gerrymandering” relates more to the effects of Part 1

zoning than it does to the County’s decision that the zoning district was acceptable in

consideration of existing uses and the Growth Policy. HSG is not challenging the

constitutionality of zoning by citizen petition. The consequences of Part 1 zoning

decisions such as this one understandably are difficult for affected landowners. However,

the Legislature expressly has authorized zoning by citizen petition and HSG

acknowledges that “[t]his Court does not sit as a super-legislature or super-zoning

board.” Town & Country Foods, ¶ 14. The County followed the Part 1 requirements in

adopting the zoning district. The Growth Policy and staff report prepared by the County
14
provided information upon which the County reasonably relied in determining that

District 43 lies in an area that is characterized by residential development as the

prevailing use. Even if this zoning classification was “fairly debatable,” we must defer to

the legislative judgment of the zoning board. Mack T. Anderson Ins. Agency, 246 Mont.

at 120, 803 P.2d at 652. Thus, applying appropriate deference to the zoning authority, we

cannot conclude that the County’s decision to adopt the zoning pattern and regulations

for District 43 was clearly unreasonable and an abuse of discretion. Town & Country

Foods, ¶ 13.

¶27 2. Whether the County’s adoption of zoning regulations prohibiting sand and
gravel mining constitutes illegal reverse spot zoning.

¶28 HSG argues that the County’s decision to adopt the zoning pattern and regulations

proposed by the petitioners constituted illegal reverse spot zoning. HSG cites to federal

precedent that defines reverse spot zoning as “a land-use decision which arbitrarily

singles out a particular parcel for different, less favorable treatment than the neighboring

ones.” Penn Central Transp. Co. v. New York City, 438 U.S. 104, 132, 98 S. Ct. 2646,

2663 (1978). While this Court “has never considered or adopted a ‘reverse’ spot zoning

analysis” per se, we have considered spot zoning in a number of cases. Liberty Cove, Inc.

v. Missoula Co., 2009 MT 377, ¶ 24, 353 Mont. 286, 220 P.3d 617 (citing cases). Both

parties reference our spot zoning analysis in their discussion of this issue, and we agree

the precedents supply relevant authority. Both spot zoning and reverse spot zoning

involve “the process of singling out ‘a small parcel of land’” for differential use

15
classification. Little, 193 Mont. at 346-47, 631 P.2d at 1289 (emphasis in original); Penn

Central, 438 U.S. at 132, 98 S. Ct. at 2663.

¶29 In determining whether a county has engaged in illegal spot zoning, we apply the

three-part framework provided in Little. See Plains Grains L.P. v. Bd. of Co. Comm’rs,

2010 MT 155, ¶¶ 58-66, 357 Mont. 61, 238 P.3d 332 (applying the Little three-part test);

see also Greater Yellowstone Coalition v. Bd. of Co. Comm’rs, 2001 MT 99, ¶¶ 21-37,

305 Mont. 232, 25 P.3d 168 (same). The Little framework requires evaluation of

whether: (1) “the requested use is significantly different from the prevailing use in the

area,” (2) “the area in which the requested use is to apply is rather small,” and (3) “the

requested change is more in the nature of special legislation.” Little, 193 Mont. at 346,

631 P.2d at 1289. We clarified that “[t]here is no single, comprehensive definition of

spot zoning applicable to all fact situations,” but “usually all three elements are present”

when illegal spot zoning has occurred. Little, 193 Mont. at 346, 631 P.2d at 1289

(quoting Donald G. Hagman, Urban Planning and Land Development Control Law ch. 6

§ 93, 169 (West 1971)).

¶30 HSG relies heavily on the second factor of the Little test because it is the only

landowner shown to have been affected by the zoning in District 43. HSG is correct that

the second Little test usually “focuses on the number of owners who stand to benefit from

a zoning change.” See Greater Yellowstone Coalition, ¶¶ 26-28 (recognizing that second

test was met where only one landowner benefitted from rezone); see also Little, 193

Mont. at 347, 631 P.2d at 1289 (stating that “it is really a question of preferential

16
treatment for one or two persons as against the general public, regardless of the size of

the tract involved”) (citing Thomas v. Town of Bedford, 184 N.E.2d 285 (N.Y. 1962)).

Here, even though—at over 400 acres—its parcel of land is not physically small, HSG

has shown that it was the only landowner to be adversely affected by the zone change in

creation of District 43.

¶31 As we previously have observed, however, “zone changes for property owned by

one person are not always spot zoning pursuant to the Little test.” Greater Yellowstone

Coalition, ¶ 27. In particular, we “reinforced” in Little that “‘zoning has been held

invalid as spot zoning when it is not in accordance with a comprehensive plan. We

cannot ignore this test when our zoning statutes place great weight on the comprehensive

plan as a guide in zoning.’” Liberty Cove, ¶ 25 (quoting Little, 193 Mont. at 347, 631

P.2d at 1290). Compliance with a comprehensive plan, or growth policy as in this case,

is especially relevant to the third factor of the analysis. Little, 193 Mont. at 347, 631 P.2d

at 1290). The zoning is not “in the nature of special legislation” if it substantially

complies with the growth policy. HSG conceded the point during oral argument before

this Court:

The Court: Mr. Kakuk . . . if the Court were to conclude that the district
complies with the growth policy as a whole, does that then automatically
answer the second issue raised in your brief, which is that it was reverse
spot zoning? In other words, if it complies with the growth policy or if we
defer to the legislative judgment that it complied with the growth policy,
your spot zoning claim fails. Is that correct?

Counsel: Well, I don’t want to shoot myself in the foot, I’d like to say no,
but I think you’re right, ma’am.

17
This conclusion finds support in Little, which condemned the county’s actions as “spot

zoning of the worst kind” in part because the comprehensive plan recommended a

different use of the affected property. Little, 193 Mont. at 345-46, 631 P.2d at 1289. In

contrast, as discussed above, the Lewis and Clark County Growth Policy does not

recommend development of mining in transitional areas, but suggests that such activity

occur in the rural areas of the Helena Valley.

¶32 For similar reasons, HSG does not satisfy the first factor of the Little analysis.

Again, we already have determined that in adopting zoning regulations prohibiting

mining in District 43 the County did not unlawfully depart from the prevailing “rural

residential” use in the surrounding area. Our decision that the zoning pattern and

regulations substantially complied with the prevailing land use, as expressed in the

Growth Policy and staff report, disposes of two out of the three Little factors. HSG

therefore cannot demonstrate that its property was singled out for “a use classification

totally different from that of the surrounding area,” Little, 193 Mont. at 346-47, 631 P.2d

at 1289, and thus subjected to illegal spot zoning.

¶33 Moreover, if we were to follow HSG’s suggestion and apply the definition of

reverse spot zoning used in Penn Central, HSG’s claim likely also would fail under that

analysis. See Penn Central, 438 U.S. at 132, 98 S. Ct. at 2663 (stating that reverse spot

zoning is “the antithesis of land-use control as part of some comprehensive plan . . .”).

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¶34 3. Whether HSG has an established property right, entitling it to bring a takings
claim against the County.

¶35 We engage in a two-step inquiry to determine whether government action amounts

to a taking of private property—first, whether the plaintiff has a constitutionally protected

property interest and second, whether the property owner has been deprived of that

interest. Seven Up Pete Venture v. State, 2005 MT 146, ¶ 26, 327 Mont. 306, 114 P.3d

1009 (quoting Kiely Constr., L.L.C. v. City of Red Lodge, 2002 MT 241, ¶ 23, 312 Mont.

52, 57 P.3d 836) (“[T]he guarantees of the Fifth and Fourteenth Amendments apply only

when a constitutionally protected liberty interest or property interest is at stake.”)

(internal citation and quotation marks omitted). On cross-motions for summary

judgment, the parties agreed to limit the District Court’s decision to the first step of the

takings analysis—whether HSG has a constitutionally protected property interest.

Accordingly, we limit our review to that threshold question. Both in its summary

judgment briefs before the District Court and in its briefs on appeal, HSG argued that it

has constitutionally protected property interests arising from its alleged interest in the

expansion of its mining permit and from the impact of the zoning regulations on the value

of the real property on which the mining activity is proposed to occur. Because the

District Court concluded that HSG failed to show a protected entitlement to a mining

permit, it did not consider separately HSG’s ownership interest in the real property.

Since HSG raises both interests on appeal, we will consider both aspects of HSG’s claim.

¶36 First, in assessing whether a constitutionally protected property right inheres in an

opportunity to apply for a permit, we “focus on the degree of discretion given the
19
decisionmaker and not on the probability of the decision’s favorable outcome.” Kiely,

¶ 29 (quoting Jacobs, Visconsi & Jacobs, Co. v. City of Lawrence, 927 F.2d 1111, 1116

(10th Cir. 1991)). We recognize a property owner’s constitutionally protected claim of

entitlement to permit approval where “the local agency lacks all discretion to deny

issuance of the permit or to withhold its approval.” Kiely, ¶ 28 (emphasis in original)

(quoting Gardner v. Baltimore Mayor & City Council, 969 F.2d 63, 68 (4th Cir. 1992)).

The issuing agency lacks all discretion when the permitting criteria under state and

municipal law are “so narrowly circumscribed that approval of a [proper] application is

virtually assured.” Kiely, ¶ 28.

¶37 HSG argues that upon its submitting a proper application for a mining permit,

DEQ is statutorily mandated to grant the permit. According to HSG, DEQ does not have

the authority to deny an application; rather, it “must continue to notify the applicant of

any deficiencies and then allow the applicant to correct the application until it is deemed

complete.” HSG points to the language in the permitting process outlined in § 82-4-432,

MCA (2011).3 That statute states, “[i]f the application is acceptable, the department shall

issue a permit to the operator . . . .” Section 82-4-432(10)(c), MCA (emphasis added).

¶38 The language of the statutes makes clear that an applicant is not entitled to a

permit unless the application is “complete” and DEQ determines that the application is

“acceptable.” Section 82-4-432(4)(b)(i), MCA (determination that an application is

complete does not ensure that the application is acceptable). In addition to other

3
Since the DEQ permitting process had yet to occur for the remaining 300-plus acres, we refer to
the current version of the Montana Code Annotated in reference to that process.
20
requirements, “[a]n application is acceptable if it . . . includes a plan of operation that

satisfies the requirements of 82-4-434 and rules adopted pursuant to this part related to

82-4-434.” Section 82-4-432(10)(a), MCA. Section 82-4-434, MCA, also uses

mandatory language; it provides that DEQ “may not accept a plan of operation unless”

the plan meets the fourteen requirements listed in § 82-4-434(3)(a)-(n), MCA. Those

requirements include, among others, the following qualitative determinations:

“appropriate” protection of archaeological and historical values under subsection (h);

reclamation as concurrently with the operation “as feasible” under subsection (k);

“appropriate” surface and ground water protection under subsection (l); and minimized

noise and visual impacts “to the degree practicable” under subsection (m). In addition, an

acceptable application “must” include “a statement from the local governing body . . .

that the proposed sand and gravel opencut operation complies with applicable zoning

regulations . . . .” Section 82-4-432(2)(b), MCA.

¶39 Under these governing statutes, DEQ “shall issue a permit” only if it has

determined that the operating plan complies with zoning regulations and if it also has

decided that the operating plan meets the numerous qualitative requirements of § 82-4-

434(3)(a)-(n), MCA. If DEQ determines that any of those qualitative factors is lacking,

such as appropriate groundwater protection—a significant factor in a substantially

residential area—the permit would not move forward. In addition, throughout the

application review process, DEQ “shall accept public comment,” a factor we cannot

disregard as meaningless to the approval process. Section 82-4-432(4)(b)(iii), MCA; see

21
Mont. Sports Shooting Ass’n v. State, 2008 MT 190, ¶ 15, 344 Mont. 1, 185 P.3d 1003

(“We must presume that the Legislature would not pass useless or meaningless

legislation.”) (citation omitted).

¶40 HSG argues that since it already has a permit for the initial 110 acres, “it is a legal

certainty that, but for the zoning, it would receive a permit amendment for the additional

310 acres when it submitted an acceptable application.” HSG overlooks that any

amendment to an operating plan must meet the same requirements as the original permit

application in order to be “acceptable.” See §§ 82-4-432(11)(a) and 82-4-434(5)(b)(i),

MCA. The only exception—that an amendment application is not subject to the public

notice and meeting requirements “unless it proposes an increase in permitted acreage of

50% or more”—does not apply because HSG proposes a nearly three-fold increase in the

permitted acreage. See § 82-4-432(11)(b), MCA. Additionally, the original 110 acres for

which DEQ granted a mining permit are located centrally within HSG’s larger property.

HSG acknowledged during oral argument before this Court that the remaining acreage

was intended, at least in part, to serve as a buffer zone which protects the health, safety

and welfare of the surrounding residential area. Without this protective barrier in place,

DEQ certainly would need to reevaluate the “noise and visual impacts on residential

areas” and ensure safeguards to “prevent significant physical harm to the affected land or

adjacent land, structures, improvements, or life forms” prior to granting a permit

amendment. Section 82-4-434(3)(m)-(n), MCA.

22
¶41 The plaintiff in Seven Up Pete argued similarly to HSG that it had been deprived

of an alleged right to seek a permit to conduct cyanide heap leach mining because it

would have had the opportunity for a favorable permit decision but for enactment of an

initiative that banned such operations. Seven Up Pete, ¶ 22. We concluded that the

“State had wide discretion to reject the Venture’s permit application, even without the

enactment of I-137,” because permit approval “required convincing the State that this

cyanide leaching project was appropriate . . . .” Seven Up Pete, ¶ 32. Here, although the

specific statutory language is not as permissive as that considered in Seven Up Pete, the

applicant for a gravel mining permit or permit amendment likewise must convince DEQ

that its mining proposal is “acceptable,” according to the criteria listed in §§ 82-4-432

and 82-4-434, MCA, before a permit will issue. Thus, it is not just a matter of filling in

the blanks on an application form; DEQ unquestionably retains discretion, at a minimum,

to “withhold its approval.” Kiely, ¶ 28. We agree with the District Court, therefore, that

HSG does not have a constitutionally protected property interest in its right to apply for a

mining permit or permit amendment.

¶42 Absent a property right in HSG’s “opportunity” to obtain expansion of its permit,

the question becomes whether the County’s adoption of the development pattern and

zoning regulations affected and limited the use of HSG’s land to such an extent that a

taking occurred. The Supreme Court has directed that, when faced with a claim that

regulations have gone “too far,” courts should consider “whether the interference with [a

party’s] property is of such a magnitude that ‘there must be an exercise of eminent

23
domain and compensation to sustain [it].’” Penn Central, 438 U.S. at 136, 98 S. Ct. at

2665.

¶43 Thus, “[w]here a regulation places limitations on land that fall short of eliminating

all economically beneficial use, a taking nonetheless may have occurred, depending on a

complex of factors including the regulation’s economic effect on the landowner, the

extent to which the regulation interferes with reasonable investment-backed expectations,

and the character of the government action.” Palazzolo v. Rhode Island, 533 U.S. 606,

617, 121 S. Ct. 2448, 2457 (2001) (citing Penn Central, 438 U.S. at 124, 98 S. Ct. at

2659); see also Laurel Park Community, L.L.C. v. City of Tumwater, ___ F.3d ___, 2012

U.S. App. LEXIS 22330 (9th Cir. Oct. 29, 2012) (No. 11-35466). Zoning regulations

rarely amount to a taking of property on the ground that they affect some property owners

more severely than others, “because a landowner is not entitled to the highest and best

use of [its] property.” Animas Valley Sand and Gravel, Inc. v. Bd. of Co. Comm’rs of the

Co. of La Plata, 38 P.3d 59, 65 (Colo. 2001) (citing Penn Central, 438 U.S. at 125, 98 S.

Ct. at 2659-60) (other citations omitted); Laurel Park Community, ___ F.3d at ___ (“As a

general rule, zoning laws do not constitute a taking, even though they affect real property

interests . . .”) (citing Penn Central, 438 U.S. at 125, 98 S. Ct. at 2659-60). Palazzolo

makes clear that Penn Central requires an “ad hoc,” fact-specific inquiry where the

property retains economic value but, “when its diminished economic value is considered

in connection with other factors, the property effectively has been taken from its owner.”

Animas Valley Sand and Gravel, 38 P.3d at 66. This ad hoc inquiry provides a safety

24
valve “to protect the landowner in the truly unusual case.” Animus Valley Sand and

Gravel, 38 P.3d at 66.

¶44 Our inquiry for purposes of this appeal is limited to whether HSG even may assert

such a claim arising out of the impact of the zoning regulations on its real property

interests. In Kafka v. Montana Dep’t of Fish, Wildife and Parks, 2008 MT 460, ¶ 66, 348

Mont. 80, 201 P.3d 8, considering whether government action had constituted a taking of

the appellant ranchers’ land, fixtures and livestock, we held as a threshold matter that

“[t]here is no question that a person has a compensable property interest arising out of the

ownership of such real and personal property.” The County argues that, because HSG’s

mining permit is not virtually assured, Seven Up Pete also disposes of any claim arising

from its ownership of real property. The County points out that, while the plaintiff in

Seven Up Pete possessed only a leasehold interest, our holding that there was no viable

constitutional claim of entitlement also applies in cases of fee title ownership, such as

Germann v. Stephens, 2006 MT 130, 332 Mont. 303, 137 P.3d 545 and Roe v. City of

Missoula, 2009 MT 417, 354 Mont. 1, 221 P.3d 1200.

¶45 Neither Seven Up Pete, Germann, nor Roe, however, evaluated the threshold

inquiry whether a protected property interest arises from ownership of land. In each case,

rather, we considered whether the plaintiff had a protected interest in an opportunity—to

apply for a mining permit, Seven Up Pete, ¶ 22; to obtain a liquor license in order to

operate a casino and bar, Germann, ¶¶ 30-31; and to obtain an exemption from

subdivision review, Roe, ¶ 43. In all three cases, we rejected the claim that a lost

25
opportunity to obtain a government permit or exemption amounted to a taking of a

compensable property interest. Likewise, as discussed above, HSG is foreclosed from

basing its takings claim on any alleged lost opportunity to mine its additional 310 acres.

¶46 It is axiomatic, however, that the protections of “private property” under Article II,

§ 29 of the Montana Constitution and the Fifth Amendment to the United States

Constitution apply to real property owned in fee. See e.g. Kafka, ¶ 33 (indicating that a

constitutionally protected property interest exists where “the citizen had the rights to

exclude, use, transfer, or dispose of the property”) (quoting Members of the Peanut Quota

Holders Ass’n, Inc. v. U.S., 421 F.3d 1323, 1330 (Fed. Cir. 2005) (internal quotation

marks omitted)). Here, HSG claims a compensable interest by virtue of its investment in

421 acres of real property located in District 43 and the impact of the zoning regulations

on the value of that parcel of property.

¶47 In Kafka, we recognized that a plaintiff may assert a takings claim, even if not

entirely deprived of the established property interest. We stated that, “even when a

compensable property interest still retains economic value, just compensation may be

required if ‘justice and fairness’ require that economic injuries caused by public action be

compensated by the government, rather than remain disproportionately concentrated on a

few persons.” Kafka, ¶ 69 (quoting Penn Central, 438 U.S. at 124, 98 S. Ct. at 2659)

(internal quotation marks omitted). We recognized that “[d]etermining when such

compensation is required is essentially an ‘ad hoc, factual inquiry,’ based on the

26
circumstances of each case.” Kafka, ¶ 69. In order to make this factual inquiry, we

adopted the three factors provided by the United States Supreme Court in Penn Central:

(1) the character of the governmental action; (2) the extent to which the
regulation has interfered with distinct investment-backed expectations; and
(3) the economic impact of the regulation on the claimant.

Kafka, ¶ 69 (citing Penn Central, 438 U.S. at 124, 98 S. Ct. at 2659). Each of these

factors “aims to identify regulatory actions that are functionally equivalent to the classic

taking in which government directly appropriates private property or ousts the owner

from [its] domain.” Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 539, 125 S. Ct. 2074,

2082 (2005). In Palazzolo, for example, the Court concluded that, although the

plaintiff’s waterfront parcel retained substantial economic value despite coastal wetlands

regulations restricting use, “the claims under the Penn Central analysis were not

examined, and for this purpose the case should be remanded.” Palazzolo, 533 U.S. at

632, 121 S. Ct. at 2465. We do the same here. On remand, the District Court must

consider “the magnitude of the economic impact and ‘the degree to which it interferes

with legitimate property interests.’” Kafka, ¶ 71 (quoting Lingle, 544 U.S. at 539, 125 S.

Ct. at 2082).

¶48 Because, as recognized in Kafka, HSG has a constitutionally protected property

interest by virtue of its ownership of a 421-acre parcel of real property, we will grant its

request for remand to the District Court for the parties to “brief the Penn Central takings

test . . .” under the second prong of the takings analysis, narrowly limited to whether the

27
County’s adoption of the zoning pattern and regulations in District 43 constituted a taking

of HSG’s real property interest without just compensation.

¶49 Affirmed in part and remanded for further proceedings consistent with this

Opinion.

/S/ BETH BAKER

We concur:

/S/ PATRICIA COTTER
/S/ MICHAEL E WHEAT
/S/ BRIAN MORRIS

Justice James C. Nelson, concurring in part and dissenting in part.

¶50 I agree generally with the result of the Court’s Opinion—i.e., that HSG is entitled

to seek relief for the taking of its property interest in its sand and gravel operations. I

thus concur in the Court’s decision as to Issue 3. I dissent, however, from the Court’s

decision on Issues 1 and 2. While I am not going to belabor the point, the County’s

adoption of District 43, here, was little more than illegal reverse spot zoning. The record

demonstrates that District 43 was specifically designed to gerrymander HSG out of its

ability to extend its mining operation onto its remaining property. The fact that this was

accomplished as a result of a petition by other landowners (Part 1 zoning) is beside the

point. The “zone” was carefully crafted to deprive HSG of the further use of its property.

I am not persuaded that, but for the creation of District 43, there was any real doubt that

28
HSG would have been entitled to a further open cut mining permit for its other 311 acres.

It is simply a bootstrap argument to say that the permit to further mine would not have

been granted by DEQ because of the zoning. Moreover, District 43 was not adopted

because of the Growth Policy. Rather, the zoning was put in place specifically to prevent

HSG from mining sand and gravel on the remainder of its property. Illegal spot zoning

does not become legal if there is something in the Growth Policy that might support it.

And the County’s rationale to that effect is simply smoke and mirrors. Indeed,

District 43 was and is the poster child of NIMBY (not in my back yard) zoning.

¶51 It strikes me that this is yet another example where a majority of citizens decide

they do not like a particular business operation, although that operation is perfectly legal,

and thus set out to restrict the business’s operations through a “carefully crafted”

measure, but without any expectation of having to compensate the business owner.

Cf. Kafka v. Mont. Dept. of Fish, Wildlife & Parks, 2008 MT 460, ¶¶ 96-248, 348 Mont.

80, 201 P.3d 8 (Nelson & Rice, JJ., & Swandal, D.J., dissenting). The constitutional

guarantee “that private property shall not be taken for a public use without just

compensation was designed to bar Government from forcing some people alone to bear

public burdens which, in all fairness and justice, should be borne by the public as a

whole.” Armstrong v. United States, 364 U.S. 40, 49, 80 S. Ct. 1563, 1569 (1960). It

seems to me this principle ought to apply to the residents of District 43. Accordingly, I

am in agreement with the Court’s decision to remand for takings proceedings. In this

regard, I also join ¶¶ 55-57 of Justice Rice’s concurring and dissenting opinion.

29
¶52 Finally, I continue to maintain that Montana’s seeming lock-step reliance on

federal takings jurisprudence is a mistake. Article II, Section 29 of Montana’s

Constitution sets forth this State’s organic law on eminent domain. As I explained, in

detail, in Buhmann v. State, 2008 MT 465, 348 Mont. 205, 201 P.3d 70, Article II,

Section 29, as a fundamental right, triggers the highest level of protection by Montana’s

courts, and our enforcement of this right must take into account other coordinate and

overlapping guarantees in Montana’s Declaration of Rights. Buhmann, ¶¶ 131-135

(Nelson, J., & Swandal, D.J., dissenting). Moreover, the language of Montana’s eminent

domain provision is different than that of its federal counterpart in the Fifth Amendment.

Article II, Section 29 guarantees just compensation to the full extent of the loss where

private property has been “taken or damaged for public use.” The problem is that this

Court will continue to rely, lock-step, on federal takings jurisprudence until such time as

Montana counsel begin to argue for the broader protections afforded under Article II,

Section 29 in the trial courts and on appeal. There always has to be a first case.

¶53 With the foregoing observations, I concur in part and dissent in part from the

Court’s decision and join ¶¶ 55-57 of Justice Rice’s Concurrence and Dissent.

/S/ JAMES C. NELSON

Justice Jim Rice, concurring in part and dissenting in part.

¶54 I concur with the Court’s resolution of Issue 1. I also agree with the thrust of

Justice Nelson’s Concurrence/Dissent. I particularly agree with his conclusion that there
30
was no “real doubt that HSG would have been entitled to a further open cut mining

permit,” Concurrence/Dissent, ¶ 50, and for that reason I would conclude that under this

record HSG established a constitutionally protected property interest in pursuing a permit

and remand on that issue as well.

¶55 This case differs significantly from Seven Up Pete in that HSG not only owns the

gravel outright, but it has already obtained a permit and is currently mining. The Court

scours the statutes for pockets of agency discretion to deny further permitting, Opinion,

¶ 37, but in doing so the Court in my view over-emphasizes the theoretical basis for

denying further permitting and under-emphasizes the factual reality that HSG has been

previously successful in satisfying all of these concerns. We have never stated that the

certainty of obtaining a permit must be absolute, but this decision pushes to that end. I

cannot recall a case in the years of my tenure where the Court has approved a takings

claim; all have been denied. A survey of the Court’s jurisprudence reveals a seeming

course to make takings claims more difficult to establish, to the point, as Justice Nelson

explains, that legal business operations can be shuttered by the government “without any

expectation of having to compensate the business owner.” Concurrence/Dissent, ¶ 51.

¶56 We forget, I think, that the right of compensation for the loss of private property to

public purpose is one of the Bill of Rights and the Declaration of Rights, just like any

other civil right this Court is tasked with protecting. As a matter of basic civics, I find it

hard to believe that, in a democracy formed upon the concept of private property rights,

the government can prohibit a party from extracting gravel from the land it owns, which

31
the party is already extracting under permit, and do so with no obligation to recompense

the party for taking the value of this extractable property right out from beneath them. I

believe many citizens would be surprised to learn this as well.

¶57 It may be helpful to remember at this juncture that, ultimately, the citizens are the

masters of the government, the courts, and the law. If, in their view, government is

overstepping its bounds, and the law is deemed powerless by the courts to stop the

transgression, the citizens can petition for their grievances, change the law, and curtail the

government. As thorny as the takings issue may be, the Legislature is nonetheless

empowered to legislate on the issue, and the citizens are empowered to propose direct

initiatives, to provide greater protections against government action they deem to be

excessive.

¶58 I concur and dissent.

/S/ JIM RICE

32