Mont. Tavern Ass'n v. State, Dept. of Revenue

No. 86-189

IN THE SUPRENE COURT OF THE STATE OF MONTANA
1986

MONTANA TAVERN ASSOCIATION,
et al.. ,
Plaintiffs and Respondents,

STATE OF MONTANA, acting by and
through the DEPARTMENT OF REVENUE,
Defendant and Appellant.

APPEAL FROM: District Court of the Second Judicial District,
In and for the County of Silver Row,
,
The Honorable Mark P. SuJ-livan Judge presiding.

COVNSEL OF RECORD:

For Appellant:
Michael G. Garrity, Dept. of Revenue, Helena, Montana

For Respondent:
Philip W. Strope, Helena, Montana

Submitted on Briefs: Sept. 4, 1986
Decided.: December 11, 1986

FiLed : DEC 1 1986
:

Clerk
Mr. Justice John C. Sheehy delivered. the Opinion of the
Court.

The Department of Revenue, State of Montana, appeals the
judgment of the District Court, Second Judicial District,
Silver Bow County, enjoining the Department from enforcing
its administrative rules to the detriment of the plaintiffs.
We affirm the District Court for the reasons set forth below.
In 1984, this Court held electronic poker machines were

illegal under the Montana Card Games Act. Gallatin County v.
D & R Music & Vending (Mont. 1984), 676 P.2d 779, 41 St.Rep.
224. The 49th Legislature of the State of Montana passed
H.B. 236, Ch. 720, Laws of 1985 the following year. This
law, known as the Video Draw Poker Machine Control Law of
1985, §§ 23-5-601 through -615, MCA, legalized the operation
of electronic video draw poker ma-chines in the State of
Montana. The effective date of the law was July 1, 1985.
Pursuant to its authority under § 23-5-605(2), MCA, the
Department promulgated emergency administrative rules to
become effective July 1, 1985. The Department certified the
Notice of Adoption of Emergency Rules to the Secretary of
State on June 17, 1985. The reason cited for adoption of the
emergency rules was the insufficient time after the end of
the 49th Legislative session in which to promulgate permanent
rules. The Department further found that the lack of
permanent rules between the effective date of the law and the
adoption of permanent rules posed an imminent peril to public
health, safety, and welfare, and also worked economic
hardship on potential licensees and local governments.
On June 27, 1985, plaintiffs Montana Tavern Association
and tavern owners Pavlovich, Keith, and Bullock, filed a
complaint seeking to enjoin the Department from enforcing
certain of its emergency rules. Plaintiffs claimed the Video
Draw Poker Machine Control Law authorized three categories of
video draw poker machines: (1) all used video poker
machines in operation before February 3, 1984; (2) new
video poker machines meeting the description and

specifications of 5 23-5-606, MCA; and (3) used video poker
machines in operation before February 3, 1984 meeting all the
specificat.ions of 5 23-5-606 except subsections (4)( j ) ,
(4)(k), and (4)(0) . Plaintiffs argued that the Department's
emergency rules denied the owners of used video poker
machines in category 1 the right to operate their machines.
Plaintiffs claimed immediate and irreparable economic injury
if they were not allowed to license their unmodified, used
machines after July 1, 1985.
In its answer to the complaint, the Department responded
that 5 23-5-612 ( 2 ) , MCA, required all used video poker
machines to meet the requirements of 5 23-5-606 except
subsections (4)( j ) , (4)(k), and 14) (0) as a condition
precedent to licensure. The Department also argued that its
emergency administrative rules complied with the provisions
of the statute.
The same day the complaint was filed, the District Court
granted a temporary restraining order against the Department,
restraining it from enforcing those sections of the emergency
rules which imposed the specifications of 5 23-5-606, MCA,
upon used video poker machines. The restraining order was to
be in effect until a hearing was set on the issuance of a
preliminary injunction.
A hearing on the preliminary injunction was held July 8,
1985. The District Court found that the Video Draw Poker
Machine Control Law was ambiguous, in that it could be
construed to authorize three types of machines. The court
also found that plaintiffs would be irreparably injured if
they were not allowed to operate their unmodified, used
machines, and that plaintiffs at that time were unable to buy
the necessary modification kits. The court found the public
health, welfare and safety would not be endangered by
licensing these used machines, and granted plaintiffs'
preliminary injunction.
The Department petitioned this Court for a writ of
supervisory control, which was denied October 31, 1985. The
District Court extended the preliminary injunction from
November 7, 1985 until a final hearing in December, 1985. On
February 3, 1986, the District Court entered its final
judgment enjoining the Department from enforcing the Video
Draw Poker Machine Control Law and its administrative rules
in such a way as to deny plaintiffs the right to keep
licenses for, and to maintain and operate, used video poker
machines which were owned and operated in Montana before
February 3, 1984.
The Department raises four issues on appeal:
(1) Flhether the District Court properly issued the
injuncticns requiring the Department to license unmodified,
used video poker machines?
(2) Whether the District Court erred in construing S
23-5-612 (2), MCA?
(3) Whether the District Court erred in admitting
evidence on legislative intent?
(4) Whether the District Court erred in ordering
injunctive relief to persons who were not parties to the
lawsuit?
 The plaintiffs respond that the issues raised by the
Department are moot, since the relief prayed for by the
Department (dissolution of the District Court's injunction?
has been available to the Department since June 30, 1986,
within the terms of the District Court's judgment.' We find
that the issues are not moot.
An issue is moot when, due to an event or passage of
time, the issue has ceased to exist and no longer presents an
actual controversy. State ex rel. Miller v. Murray (1979),
183 Mont. 499, 503, 600 P.2d 1174, 1176; Baker v. Bink (Mont.
1986), 726 P.2d 822, 823, 43 St.Rep. 1801, 1803. In the
instant case, the Department was forced to license a total of
474 used video poker machines under the District Court's
injunction. While most of the licenses for these used
machines have expired, there are still 13 machines remaining
whose licenses expire betvreen November 7, 1986 and January
21, 1987. The District Court's judgment remains in effect as
to these 13 machines until their present licenses expire.
Thus an actual controversy exists as to the legitimacy of the
licensure of these machines.
The first issue raised by the Department concerns
whether the District Court properly issued its injunction.

1 The section of the judgment in question states:
This order will terminate and have no force and effect
after June 30, 1986, except for used video draw poker
machines previously licensed by the Defendants for twelve
(12) month periods. For these machines this order will
terminate and have no force and effect after the expiration
of the twelve (12) month license period, but not before.
However, the Defendants will have the option of terminating
such licenses on June 30, 1986, providing they allow
licensees credit for the unexpired portion of their license
period on said machine on any new license issued for the year
commencing July 1, 1986. No used video draw poker machines
will- he licensed for the first tjme nor relicensed for a
Under S 27-19-103(4) and (6), MCA, an injunction cannot he
granted either to prevent the execution of a public statute
by officers of the law or to prevent the exercise of a public
office in a lawful manner. The Department argues the
District Court's injunctions prevent the Department, its
Director, and employees from enforcing the Video Draw Poker
Machine Control Law. We must turn to the terms of the
District Court's injunctions to determine whether those terms
are inconsistent with the Video Draw Poker Machine Control
Law thereby preventing the Department's enforcement of it..
In reviewing the District Court's issuance of the
injunctions, we will not interfere with the court's exercise
of discretion unless there is a showing of manifest abuse of
such discretion. Smith v. Ravall-i Co. Bd. of Health (Mont.
1984), 679 P.2d 1249, 1251, 41 St.Rep. 716, 718; Erie v.
State Highway Comm'n. (1969), 154 Mont. 150, 154, 461 P.2d
207, 209.
The District Court's first temporary restraining order
set forth the license criteria to be used by the Department
during the pendency of the order. The court ordered a.11 used
video poker machines to meet the following basic requirements

- addition - all other provisions of the Video Draw Poker
in to
Machine Control Law, and the emergency administrative rules
not in conflict with the restraining order. The license
criteria were:
(a) Licensee must be a person who has been granted
a license under section 16-4-401 (2), MCA, to sell
alcoholic beverages for consumption on the premise
[sic]. [See § 23-5-611, MCA.]
-

second period under the terms of this order after the date
hereof, unless the used machine complies with the Defendants'
administrative rules in effect upon application date.
 (b) The used machine must be a machine that was
owned and operated in the state on or prior to
February 3, 1984. County or city tax receipts,
county or city license receipts, bills of sale,
security documents for conditional sales
agreements, or such other kinds of proof of
ownership as the Department of Revenue may
authorize will be sufficient to establish ownership
or operation of a used machine on or before
February 3, 1984. [First sentence corresponds to S
23-5-602(4), MCA; proof of ownership was not
described in the statutes or regulations--an
applicant merely checked a box on the license
application indicating ownership on or before
February 3, 1984.1
(c) The machine must have an expected payback
value of one credit played to be at least 80% of
the value of the credit. -
[See S 23-5-607, MCA.1
(d) Each used machine must have an electronic
device that the department may use to verify the
winning percentage. [See 23-5-607, MCA.]
(e) The licensee must pay to the state of Montana
the license fee of $1,500 and such other and
additional charges as the city or county in his
home district may require. [See S 23-5-612 (1)(b),
KCA. 1
(f) Each licensee licensed under the authority of
this temporary restraining order must make his
machines available for inspection by the Department
of Revenue at any reasonable time. [See S
23-5-613, MCA.]
It is well settled in Montana that the purpose of a
temporary restraining order is to preserve the status quo
until a hearing can be held to determine whether an
injunction should be granted. Boyer v. ~aragacin (1978), 178
Mont. 26, 32, 582 P.2d 1173, 1177. None of the criteria set
forth by the District Court change or contravene the Video
Draw Poker Machine Control Law. If licensees meet the above
requirements plus the requirements of the statutes and the
non-conflicting portions of the administrative regulations,
the Department is required to issue the license. Licensure
is mandatory, not permissive, under S 23-5-612(1) (a), MCA.
Thus the District Court's temporary restraining order did not
prevent the Department from executing its duties under the
Video Draw Poker Machine Control Law.
The District Court's preliminary injunction reiterated
the above criteria and continued to enjoin the Department
from denying licenses to owners of used video poker machines
which met the criteria. For the reasons stated above, we
again hold that the preliminary injunction did not prevent
the Department from executing its duties under the Video Draw
Poker Machine Control Law.
The final judgment rendered February 3, 1986, enjoined
the Department from enforcing the law in such a way as to
deny plaintiffs the right to keep licenses which had been
issued pursuant to the court's orders. The owners of these
licenses were allowed to retain their licenses for a one year
period from the date of licensure. The licenses could not be
renewed, and new licenses for used video poker machines could
not be issued for the first time under the terms of the
court's order. Further, the court provided that its order
would terminate after June 30, 1986. On that date, the
Department was given the choice of terminating the licenses
for the used machines and crediting those licensees for the
unexpired portion of their licenses, or merely allowing the
licenses to expire on their own. The Department has
apparently chosen the second alternative--and the last of the
licenses granted under the court's order will expire January
21, 1987.
We do not find any abuse of discretion in the District
Court's final order. An injunction is an equitable remedy
fashioned according to the circumstances of the case.
Madison Fork Ranch \7. L & B Lodge Pole Timber Products (Mont.
1980), 615 P.2d 900, 906, 37 Et..Rep. 1468, 1474; Brown v.
Voss (Wash. 19861, 715 P.2d 514, 517. In this case, the
Department adopted its emergency rules on June 27, to be
effective July 1. The plaintiffs risked losing their used,
unmodified machines on July 1 unless they could buy
modification kits or new machines within three days. New
kits were not available at that time. Their only remedy was
to seek injunctive relief. Under these circumstances the
District Court found that plaintiffs would suffer irreparable
injury if they lost the use of the used, unmodified machines
since the old machines would have to be abandoned or,
alternatively, the owners would be forced to buy considerably
more expensive new machines. The issuance of an injunction
under these circumstances was not unreasonable. It was also
proper for the court to structure the terms of the final
order so as to protect the licensees and also limit the time
for them to come into compliance with the new law.
The seconc? issue concerns whether the District Court
erred in construing 5 23-5-612(2), M C A . ~ This subsection is
a grandfather clause for used video poker machines, allowing
their licensure until July 1, 1987. The Department argues
the court either misconstrued the plain meaning of, or
entirely disregarded, the provisions of 5 23-5-612(2).
A general rule of statutory construction is that the
intent of the legislature must first be determined from the

2 5 23-5-612(2). A used video draw poker machine may
be licensed under subsection (1) without meeting the
requirements of 23-5-606 (4)(j), (4)(k), and (4)(0) if
the applicant for licensure can establish to the
satisfaction of the department that, on the date of
application, he owns or possesses a machine which was
owned or operated in the state prior to February 3,
1984. A license issued under this subsection expires 1
year from the date of issuance or on July 1, 1987,
plain meaning of the words of the statute. Montana Ass'n. of
Underwriters v. State, Dept. of Admin. (1977), 172 Mont. 211,
215, 563 P.2d 577, 579. Where the statute is ambiguous, a
court will show deference to the interpretations given the
statute by the agency charged with its administration. State
Dept. of Highways v. Midland Materials (Mont. 1983), 662 P.2d
1322, 1325, 40 St.Rep. 666, 669. However, the agency ' s
interpretation must be reasonable so as to avoid absurd
results. -
Id. Further, where the legislative intent appears
contrary to the agency's interpretation, a court may overturn
the interpretation as an abuse of discretion. City of
Billings v. Billings Firefighters Local No. 521 (1982), 200
Mont. 421, 431, 651 P.2d 627, 632.
We find, as did the District Court, that $ 23-5-612(2)
is susceptible to two meanings. "A used video draw poker
machine may be licensed under subsection (1) without meeting
the requirements of $ 23-5-606 (4)( j ) , (4)(k), and
(4)(0) . . ." could mean either that all used machines may be
licensed without meeting the requirements of (4)(j), (4)(k),
and (4)(o), or that the used machines must meet all the
requirements of S 23-5-606, MCA, except for (4)(j), (4)(k),
and (4)(0). In light of this ambiguity, the court was
required to look at the Department's interpretation of this
subsection, and to uphold the interpretation if reasonable.
The Department interpreted S 23-5-612(2), MCA, to mean
that all used video poker machines must meet all
administrative rule specifica.tions and the requirements of $

23-5-606, MCA, except 4 j , 4 k . , and (4)(0). Rule 111

whichever occurs first. (Subsection (2) terminates July
1, 198?--sec. 15, Ch. 720, L. 1985.)
 (4)(a), Emergency Rules, 12 M.A.R. 805 (6/27/85). The resu1.t
of this interpretation would have been to force all owners of
used machines not meeting the above specifications to abandon
or modify their machines within three days, since the
effective date of the emergency rules was three days after
their adoption. Even assuming owners were to try to modify
the used machines in that time period, modification kits were
not available in the marketplace at that time at a reasonable
cost. The District Court's rejection of the Department's
interpretation of 5 23-5-612(2! was proper, where an
affirmance of that interpretation would lead to absurd
results.
The Department also argues the court should not have
admitted evidence of legislative intent, since the meaning of
(S 23-5-612(2), MCA, is clear on its face. As we stated
above, S 23-5-612(2) is susceptible to two meanings, and in
light of this ambiguity, the court was entitled to delve into
the legislative history of the subsection in order to
determine legislative intent. The evidence, consisting of a
typed statement signed by members of the 49th Legislative
Assembly and the oral testimony of two state representatives,
was properly admitted where legislative intent could not be
determined from the words of the statute. A reviewing court
is not required to rubber-stamp an administrative rule which
is inconsistent with a statutory mandate or which frustrates
legislative policy. Hi-Craft Clothing Co. v. N.L. R.B. (3rd
Cir. 1981), 660 F.2d 910, 914.

3 Testimony of a bar owner at the July 8, 1985
hearing indicated that the only kit available within the
next few weeks would cost $2,000, whereas in three or
four months, the components could be purchased for $7'5.
 The final issue raised by the Department is that the
District Court exceeded its personal jurisdiction by granting
injunctive relief to persons other than those specifically
named as plaintiffs in the complaint. The Department argues
that under the provisions of 27-19-104, MCA, in an action
for injunctive relief initiated by a public interest
association, a complaint must set forth the names and
addresses of the injured members of the association. The
Department reads S 27-19-104, MCA, together with § 27-19-105,
MCA, to mean that an injunction may only be binding upon
parties whose names and addresses appear on the complaint.
We find no merit in this argument. The plaintiff
Montana Tavern Association alleged in paragraph I1 of its
complaint that it was a voluntary trade association
representing persons holding liquor licenses in the State of
Montana. The Department admitted this allegation in its
answer. The Department will not now be heard to challenge
the adequacy of plaintiff Montana Tavern Association's
capacity. Under Rule 9la), M.R.Civ.P., challenges to a
party's authority to sue in a representative capacity must be
done by specific negative averment, including such
particulars as are peculiarly within the pleader's knowledge.
The Department did not meet this requirement by admitting
paragraph I1 of plaintiffs' complaint.
In the interests of judicial economy, it was within the
District Court's equitable jurisdiction to grant temporary
injunctive relief to the plaintiffs and others similarly
situated where there were common subject matter, facts and
issues. The scope of the injunctions was narrow--the
preliminary injunction applied only to those liquor license
owners who had owned and operated video poker machines before
February 3, 1984; the final order merely restrained the
Department from revoking the licenses of those tavern owners.
Additionally, the final order had a built-in termination
clause which foreclosed the possibility of relicensing the
unmodified machines. The District Court did not abuse its
di-scretion in fashioning this equitable result.
We affirm the order of the District Court and order the
parties to bear their own costs.

Justice

We Concur:
/-