Friends of the Wild Swan v. Department of Natural Resources & Conservation

No. 04-862

IN THE SUPREME COURT OF THE STATE OF MONTANA

2005 MT 351

FRIENDS OF THE WILD SWAN, a
Montana Nonprofit Corporation,

Plaintiff and Appellant,

v.

DEPARTMENT OF NATURAL RESOURCES
AND CONSERVATION, and MONTANA
BOARD OF LAND COMMISSIONERS,

Defendants and Respondents.

APPEAL FROM: The District Court of the First Judicial District,
In and For the County of Lewis and Clark, Cause No. BDV-2003-527,
Honorable Jeffrey M. Sherlock, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Andrew J. Nelson, Smith & Thiel Law Offices, Missoula, Montana

Timothy Bechtold, Rossbach Hart Bechtold P.C., Missoula, Montana

For Respondents:

Tommy Butler and Mark Phares, Special Assistant Attorneys General,
Department of Natural Resources and Conservation, Helena, Montana

Submitted on Briefs: July 13, 2005

Decided: December 29, 2005

Filed:

__________________________________________
Clerk
Justice Jim Rice delivered the Opinion of the Court.

¶1 Appellant Friends of the Wild Swan appeals from the order of the First Judicial

District Court granting summary judgment in favor of Respondents Department of Natural

Resources and Conservation and the Board of Land Commissioners. We affirm.

¶2 We restate the issue on appeal as follows:

¶3 Does § 77-1-202, MCA, require the Board of Land Commissioners to conduct a

harvest-level financial accounting when considering a proposed timber sale on school trust

lands?

BACKGROUND

¶4 In 2003, the Montana Department of Natural Resources and Conservation (DNRC)

selected one of three alternatives set forth in a Final Environmental Impact Statement on

logging in the Swan River State Forest. The selected alternative, “Alternative C,” proposed

harvesting 10.2 million board feet in three phases from a parcel of school trust lands known

today as the Goat Squeezer Project Area. The purpose of the harvest was to generate funds

for the Montana public schools as well as to promote timber stand health and vigor. DNRC

submitted the proposed timber harvest and sale to the Montana Board of Land

Commissioners (Board) as required, and the Board approved the harvest and sale on July 21,

2003. In approving the proposal, the Board did not conduct a harvest-level accounting of the

timber sale. Instead, the Board specifically evaluates costs and benefits at the programmatic,

or year-end, level only.

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¶5 Friends of the Wild Swan (FOWS), a nonprofit environmental group, challenged the

Board’s methodology in evaluating timber sale transactions in the District Court, arguing that

§ 77-1-202, MCA (2003) (henceforth § 77-1-202, MCA)1 required harvest-specific

accountings. The District Court, however, rejected that challenge and granted summary

judgment to the Respondents. FOWS appealed to this Court on November 10, 2004.

STANDARD OF REVIEW

¶6 In granting summary judgment, the District Court ruled as a matter of law that § 77-1-

202, MCA, did not require the Board to reconcile timber-sale costs and benefits at the

harvest-level. No factual disputes are identified, and we review the District Court’s

conclusions of law de novo, determining their correctness. Steer, Inc. v. Department of

Revenue (1990), 245 Mont. 470, 474-75, 803 P.2d 601, 603.

DISCUSSION

¶7 The issue of whether § 77-1-202, MCA, requires harvest-level accounting was one

of four issues addressed by the District Court and is the only substantive issue raised on

appeal. The District Court concluded that no “statute, constitution, rule, regulation, or case

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The 2005 Legislature amended § 77-1-202(1), MCA, which now reads, in
pertinent part:

The Board shall administer this trust to:
(a) secure the largest measure of legitimate and reasonable advantage to the
state; and
(b) provide for the long-term financial support of education.

The amendments were effective July 1, 2005. FOWS brought this suit prior to that date,
challenging the timber sale pursuant to the 2003 version of the statute. All future
references to this section herein are to subsection (1) of the 2003 version of the statute.

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law” required the State to perform such specific accountings. The District Court pointed to

the year-end accounting requirements as well as to mandated calculations and reporting

methodologies as indications that the Legislature never intended to require more specific

accountings. It also relied on the Legislature’s two-time rejection of bills which would have

required harvest-level accounting in reaching its conclusion. See H.B. 605 (Mont. 2003),

H.B. 576 (Mont. 2001). FOWS challenges that conclusion and asserts that the requirement

of § 77-1-202, MCA, to “secure the largest measure of legitimate and reasonable advantage

to the state” language is rendered meaningless without a harvest-level accounting

requirement.

The Trust For Public Schools

¶8 Under the Act of February 22, 1889 (the Enabling Act), the federal government

granted Montana certain lands “for the support of common schools.” Enabling Act, § 10.

The grant of those lands created a trust for the people. Montanans for the Responsible Use

of the School Trust v. Board of Land Commissioners, 1999 MT 263, ¶ 13, 296 Mont. 402,

¶ 13, 989 P.2d 800, ¶ 13 (Montrust I). Montana’s first Constitution accepted the lands which

were granted on the terms of the Enabling Act, recognizing that they were held in trust and

that the State acted as trustee. Montrust I, ¶ 13. Finally, Montana’s 1972 Constitution re-

affirmed the land grant, the trust, and the terms of the Enabling Act. Art. X, Sec. 11, Mont.

Const. (1972).

¶9 Pursuant to the Montana Constitution, the Board of Land Commissioners is directed

to administer the trust and act as the accountable trustee. See Art. XI, Sec. 4, Mont. Const.

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(1889); Art. X, Sec. 4, Mont. Const. (1972). To assist the Board in fulfilling its

responsibility as trustee, the Legislature enacted Sec. 3, ch. 60, L. 1927, today § 77-1-202,

MCA, which outlined the Board’s obligations with regard to the language of the Enabling

Act and the Montana Constitution. At the time this proceeding was initiated, the language

outlining the trust responsibility had not changed in seventy years. It provided:

In the exercise of these powers, the guiding principle is that these lands and
funds are held in trust for the support of education and for the attainment of
other worthy objects helpful to the well-being of the people of this state as
provided in The Enabling Act. The board shall administer this trust to secure
the largest measure of legitimate and reasonable advantage to the state.

Section 77-1-202, MCA.

Deference to the Board

¶10 Initially, we note that the law affords discretion to the Board in its administration of

the school land trust. In State v. Babcock (1966), 147 Mont. 46, 51, 409 P.2d 808, 811, we

explained that “[T]he State Board of Land Commissioners has considerable discretionary

power . . . . If the ‘largest measure of legitimate and reasonable advantage’ from the use of

state lands is to accrue to the state, then the State Land Board must, necessarily, have a large

discretionary power.” We further explained that this power was “inherent in the general and

discretionary powers conferred by the constitution, and necessary for the proper discharge

of its duties . . . .” Babcock, 147 Mont. at 51, 409 P.2d at 811. Finally, we affirmed that

discretion in Montanans for the Responsible Use of the School Trust v. Darkenwald, 2005

MT 190, 328 Mont. 105, 119 P.3d 27 (Montrust II), where, when faced with an evaluation

of the Board’s method of determining “fair market value,” we stated, “we will not ‘control

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the discretion of the board unless it appears that the action of the board is arbitrarily and, in

effect, fraudulent.’” Montrust II, ¶ 52 (citing Toomey v. State Bd. of Land Comm’rs (1938),

106 Mont. 547, 562, 81 P.2d 407, 415). This is not to say the Board has unfettered

discretion, or that its discretion is unlimited. Babcock, 147 Mont. at 52, 409 P.2d at 811.

However, it is clear that the Board’s obligation as trustee is a complex one, that the

obligation is governed by constitutional and statutory provisions which grant authority to the

Board over the trust, and that these provisions grant “large” or “considerable” discretion to

the Board in the performance of its duties.

¶11 In addition to the discretion granted to the Board as the administrator of the trust, the

law entitles the Board, as a state agency, to “respectful consideration” of its “long and

continued course of consistent interpretation” of § 77-1-202, MCA, which it has

administered for many years. Montana Power Co. v. Public Service Comm., 2001 MT 102,

¶ 25, 305 Mont. 260, ¶ 25, 26 P.3d 91, ¶ 25. This consideration can be overcome by

“compelling indications.” Montana Power, ¶ 25; see also Glendive Med. Ctr. v. Mont. Dep’t

of Public H.H.S., 2002 MT 131, ¶¶ 14-15, 310 Mont. 156, ¶¶ 14-15, 49 P.3d 560, ¶¶ 14-15.

Does § 77-1-202, MCA, require the Board to conduct a harvest-level accounting when
considering timber sales on school trust lands?

¶12 FOWS argues that in order to fulfill the obligations under § 77-1-202, MCA, the

Board must conduct a harvest-level accounting of every proposed trust-land timber sale

before approving the project. In response, the Board argues that it fulfills its obligation

under § 77-1-202, MCA, by conducting a program-wide accounting on a yearly basis, and

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notes that there is no proof that it has ever failed to secure “the largest measure of legitimate

and reasonable advantage.” The question presented, therefore, is whether § 77-1-202, MCA,

itself silent on accounting methodologies, requires the Board to conduct a harvest-level

financial accounting.

¶13 As a matter of statutory interpretation, our goal is to ascertain the intent of the

Legislature. McCormick v. Brevig, 2004 MT 179, ¶ 40, 322 Mont. 112, ¶ 40, 96 P.3d 697,

¶ 40; see also § 1-2-101, MCA. Our inquiry begins with the words of the statute itself: “The

legislative intent is to be ascertained, in the first instance, from the plain meaning of the

words used.” Western Energy Co. v. Dept. of Revenue, 1999 MT 289, ¶ 11, 297 Mont. 55,

¶ 11, 990 P.2d 767, ¶ 11; Brevig, ¶ 40.

¶14 First, we observe that the plain language of the statute, set forth above, does not

require such accountings. In fact, the statute on its face requires no accountings at all.

Instead, the statute simply requires the Board to “secure the largest measure of legitimate and

reasonable advantage to the state.” Section 77-1-202, MCA. Of course, this Court may not

“insert what has been omitted” when interpreting a statute. Section 1-2-101, MCA. This

principle counsels against reading a specific accounting requirement into § 77-1-202, MCA.

¶15 However, FOWS argues that, despite the absence of an explicit requirement in the

statute, we should reach a conclusion that the Board can fulfill its obligation to secure the

largest measure of benefit to the state with regard to proposed timber sales only by

conducting an accounting of all costs and benefits at the harvest level. FOWS reasons that

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a “comprehensive economic evaluation” is “implicit in the plain language of the statute,”

particularly when the Board’s fiduciary role with regard to school trust lands is considered.

¶16 FOWS’s reference to the purposes which the Board must serve is not inappropriate.

“We have many times stated that statutes must be read and considered in their entirety and

the legislative intent may not be gained from the wording of any particular section or

sentence, but only from a consideration of the whole.” State v. Heath, 2004 MT 126, ¶ 27,

321 Mont. 280, ¶ 27, 90 P.3d 426, ¶ 27 (citing Home Bldg. & Loan Ass’n of Helena v. Fulton

(1962), 141 Mont. 113, 115, 375 P.2d 312, 313). We are to give effect to all statutory

provisions within a statutory scheme. Section 1-2-101, MCA. The process of reading

relevant statutory schemes in their entireties is what allows the Court to give true effect to

the will of the Legislature. Dukes v. City of Missoula, 2005 MT 196, ¶ 14, 328 Mont. 155,

¶ 14, 119 P.3d 61, ¶ 14. Above, we have set forth the underpinnings of the Board’s trust

obligation over school lands, and we now turn to the broader statutory structure governing

that obligation.

¶17 While § 77-1-202 is itself silent about accounting obligations, there are provisions

within the statutory scheme which illuminate the legislative intent regarding the Board’s

accounting obligations. Section 77-1-223, MCA, “Forest land report to trust beneficiaries

–contents,” and § 77-1-224, MCA, “Asset value and average return of revenue methods

described,” detail the Board’s duties in reporting to trust beneficiaries, requiring yearly

reports to the trust beneficiaries, and instructing how the trust assets must be valued. These

statutes represent the Legislature’s affirmative efforts to require the Board to account for

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costs and profits in the timber-sale process. It is clear that the accounting required by §§ 77-

1-223 and 77-1-224, MCA, does not include harvest-level reconciliation.

¶18 In light of the explicit accounting directives set forth in these statutes, we are hard

pressed to conclude that the Legislature somehow meant to imply a more specific accounting

requirement within § 77-1-202, MCA, as urged by FOWS. To do so, we would need to

determine that the Legislature “implicitly” required an accounting by way of § 77-1-202,

MCA, which is silent on the issue, despite the fact it explicitly addressed the Board’s

accounting requirements in other provisions of the same statutory scheme.

¶19 FOWS asserts that these other statutory accounting requirements are insufficient

because they do not require the costs of individual sales, here the Goat Squeezer sale, to be

calculated. It argues that, if the Board’s “economic analysis is flawed or incomplete,” the

Board cannot demonstrate that it is securing the largest measure of legitimate and reasonable

advantage.

¶20 This argument erroneously assumes that the “legitimate and reasonable advantage”

which the Board must pursue is exclusively an economic one. While financial return is,

without question, a vital purpose, it is not the Board’s only goal. The law recognizes the

unique nature of the Board’s obligation to manage the school trust lands. Land trusts require

maintenance efforts to ensure long-term sustainability, and the Board is thus forced to make

“difficult to account for” decisions aimed at (1) ensuring long-term sustainability of school

trust lands, while also (2) providing adequate resources to present beneficiaries. See

Babcock, 147 Mont. at 53-54, 409 P.2d at 811; see also § 77-1-203, MCA. This duality of

9
purpose is unique in the context of land and resource management because it requires a

trustee to consider more than just immediate financial benefit in its decision making. Indeed,

one purpose of the Goat Squeezer sale was to promote timber-stand health.

¶21 Further in this regard, § 77-1-203, MCA, “Multiple Use Management,” requires land

management with the goal of promoting multiple purposes on the land, “so that . . .

harmonious and coordinated management of the various resources, each with the other, will

result without impairment of the productivity of the land . . . .” Section 77-1-203(1)(b),

MCA. This statute evidences legislative recognition that in the context of trust land

management, sustainable use and long-term forest health are important non-economic factors

which the Board must also consider. Although the statutory directive to “secure the largest

measure of legitimate and reasonable advantage” certainly includes economics, the phrase

is not limited in purpose to financial return, thus undercutting FOWS’s argument that there

must be additional accounting efforts in order to comply with it.

¶22 We concede that additional information and analysis is always possible, and may very

well be advantageous. Certainly, a limb by limb, tree by tree, or acre by acre accounting is

theoretically possible in the context of a timber sale, and undoubtedly such accountings

would help the Board in its evaluation of proposed timber sales. Indeed, one could envision

many things which could be read into the language of “secure the largest benefit” that would

aid in the performance of the Board’s duties. Of course, at some level, additional analysis

would probably be prohibitively expensive and counterproductive. The point, however, is

that it is not the duty of this Court to decide what accounting measures would best serve the

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Board in the fulfillment of its obligations. Those are matters for the Board and the

Legislature.

¶23 Given the lack of evidence to the contrary, we cannot conclude that the Board, in

view of the multiple purposes it must fulfill with regard to school trust lands, the deference

which the law provides in its administration of school trust lands, and current statutory

accounting requirements, has not or cannot secure the largest measure of benefit without a

harvest-level accounting of timber sales. Consequently, we conclude that such a requirement

is not implicit within § 77-1-202, MCA.

Strict Accountability

¶24 Finally, we address FOWS’s brief argument that harvest-level accounting is required

under § 77-1-202, MCA, by virtue of the “strict accountability” requirement of Article VIII,

Section 12 of the Constitution, which provides:

Strict accountability. The legislature shall by law insure strict accountability
of all revenue received and money spent by the state and counties, cities,
towns, and all other local governmental entities.

¶25 Interpreting this provision, we have stated that “[t]he Constitution indicates that the

strict accountability function is not self-executing.” Reep v. Board of County Commissioners

(1981), 191 Mont. 162, 169, 622 P.2d 685, 689. The provision directs the legislature to

implement the provision “by law,” and, as such, it is up to the Legislature to create the

statutory means which ensure “strict accountability.” In Reep, the Legislature, in the context

of county government audits, required the Department of Community Affairs to conduct

“comprehensive audits,” instead of leaving that task to the county auditor. Reep, 191 Mont.

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at 169, 622 P.2d at 688-89. The effect of that decision was to recognize that the Legislature

had significant discretion in creating a statutory scheme which satisfied the “strict

accountability” mandate. See also, Grossman v. State Dep’t of Natural Res. (1984), 209

Mont. 427, 464, 682 P.2d 1319, 1338 (holding that DNRC’s issuance of coal tax severance

bonds for water resource development did not violate the strict accountability requirement).

Such discretion is necessary given the breadth and diversity of monies spent and received by

various agencies of the State of Montana, and the peculiar accounting difficulties that may

be faced in some agencies and not in others.

¶26 Here, the Legislature responded to the need for strict accountability by enacting, § 77-

1-223, MCA, requiring annual detailed trust reports to all beneficiaries, and § 77-1-224,

MCA, describing exactly how certain revenue must be calculated and reported to the

beneficiaries. These provisions constitute the Legislature’s effort to ensure accountability.

¶27 FOWS does not argue that these statutes are unconstitutional for failing to ensure

“strict accountability.” Instead, it appears to argue that § 77-1-202, MCA, must be read as

requiring harvest-level accounting to give effect to the constitutional mandate for strict

accountability. However, the Legislature clearly addressed “strict accountability” of trust

revenues and administration costs by enacting the statutes addressed above. We cannot

conclude that, in order to ensure strict accountability, a harvest-level accounting requirement

must also be mandated.

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 Conclusion

¶28 As the United States Supreme Court noted in Chevron U.S.A. v. N.R.D.C. (1984), 467

U.S. 837, 865, 104 S.Ct. 2779, 2793, 81 L.Ed.2d 694, 717, “judges are not experts in the

field, and are not part of either political branch of the Government. Courts must, in some

cases, reconcile competing political interests, but not on the basis of the judges’ personal

policy preferences.” It may be easy to second-guess the Board’s approach of conducting

programmatic review of timber sales and the Legislature’s two-time rejection of bills

requiring harvest-level accounting of timber sales. However, the question here is not

whether more specific accounting is preferable or even desirable. Rather, the question is

whether harvest-level accounting of proposed timber sales is required by law. After review

of the Enabling Act, the Montana Constitution, and the statutory scheme, we conclude that

the Board is not required by law to conduct harvest-level review of timber sales. Therefore,

we conclude that the Board is not in violation of § 77-1-202, MCA, when it forgoes harvest-

level financial reconciliation. Consequently, the request of FOWS for attorney fees is also

denied.

¶29 Affirmed.

/S/ JIM RICE

We Concur:

/S/ KARLA M. GRAY
/S/ JOHN WARNER
/S/ BRIAN MORRIS

Justice Brian Morris concurs.

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¶30 I concur in the conclusion reached by Judge Sherlock and this Court on appeal that

nothing in the plain language of § 77-1-202, MCA, requires the Board of Land

Commissioners to conduct a harvest-level financial accounting when considering a proposed

timber sale on public trust lands. I write separately, however, to reiterate several points from

our decision in Montanans for School Trust v. Darkenwald, 2005 MT 190, 328 Mont 105,

119 P.3d 27 (Montrust II), that bear on the outcome here.

¶31 As the Court points out in ¶ 22, many things could be read into the language of

“secure the largest benefit” of § 77-1-202, MCA, that would aid in the performance of the

Board’s duties in managing school trust lands. We noted in Montrust II that the Board’s

discretionary authority to “secure the largest benefit” potentially countenances accepting

lease terms less than the highest bid in order to effectuate sustained yield concepts and

ensure the long term strength of the trust corpus. Montrust II, ¶ 56, citing State v. Babcock

(1966), 147 Mont. 46, 409 P.2d 808.

¶32 The Legislature also retains the ability to impose reasonable constraints upon the

Board’s discretion that the Board cannot ignore in carrying out its trust responsibilities.

Montrust II, ¶ 61. For example, in Skyline Sportsmen v. Bd. of Land Com’rs (1997), 286

Mont. 108, 114, 951 P.2d 29, 32, in the context of a proposed exchange of school trust land,

we held that “neither the Board’s fiduciary duty to the trust beneficiaries nor . . . other

factors” relieves the Board of its constitutional obligation to follow the “regulations and

restrictions” imposed by the Legislature. We recognize that some legislative decisions may

cabin the Board’s discretion in managing state trust lands in the short term, but these same

14
decisions also may help the Board “secure the largest benefit” in the long run. These

reasonable legislative regulations include various environmental and land-use restrictions.

Montrust II, ¶ 57.

¶33 Thus, as the Court correctly concludes today, nothing in the language of § 77-1-202,

MCA, that directs the Board to “secure the largest benefit,” requires the Board to conduct

a harvest-level financial accounting. Likewise, nothing in § 77-1-202, MCA, prevents the

Board from considering various non-economic factors, including the scenic and aesthetic

effects of proposed uses, in seeking to “secure the largest benefit” for trust beneficiaries

when contemplating whether to approve proposed timber sales.

/S/ BRIAN MORRIS

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Justice W. William Leaphart dissenting.

¶34 The Majority astutely observes that “we cannot conclude that the Board . . . has not

. . . secure[d] the largest measure of benefit without a harvest-level accounting of timber

sales.” ¶ 23. Nor can we, I submit, conclude that the Board has fulfilled this statutory

mandate absent such accounting. This is the precise reason why § 77-1-202, MCA, requires

harvest-level accounting of timber sales. For in the absence of such accounting, the statutory

command to the Board of Land Commissioners to “secure the largest measure of legitimate

and reasonable advantage to the state,” § 77-1-202(1), MCA, is rendered impotent—mere

surplus verbiage. While it is true that the Board could conduct its accounting at any level

of abstraction (i.e., “limb by limb, tree by tree”), the most rational manner in which to do

so— indeed the only manner which gives substantive meaning to the commands of § 77-1-

202, MCA—is at the harvest level (i.e., sale by sale). The Board makes discrete

management decisions pertaining to individual timber harvests. The Board does not decide

to make these sales on a “programmatic” basis; rather, the decision whether to harvest from

a particular stand of trees is made, as it should be, with respect to each individual sale. Only

by accounting for its actual costs on a per-sale basis can the Board have any understanding

of the marginal profits (i.e., “advantage to the state”) reaped by its various management

decisions. It takes little business acumen to know that one should not dispose of over three-

quarters of a million dollars of assets in a single lump sale without bothering to look at the

rate of return to one’s investment. It takes even less to understand that without comparing

the costs and benefits it is preposterous to suggest that one has secured the largest measure

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of benefit. But we should be clear, as is the Majority, that financial considerations are but

one of many considerations that the Board must account for in making its management

decisions. Rather than excusing the Board’s burying its head in the sand, however, the need

to simultaneously consider each sale’s environmental, ecological and silvicultural

implications supports the common sense notion that the Board should consider the various

costs and benefits of individual timber sales.

¶35 Aside from its financial contributions to (or incremental depletions of) the School

Trust, it is clear that every timber sale will have environmental, ecological and silvicultural

effects, both positive and negative. The State assures us that the Goat Squeezer sale will

have the beneficial effects of promoting timber stand health and vigor by removing trees at

risk of infection and will promote regeneration of shade intolerant plant species. The harvest

may even increase the rate of growth of decadent portions of the stand. On the other hand,

the road construction necessary to complete the sale will likely contribute to erosion and

sedimentation of streams, the harvesting of trees will reduce the winter range available to

white-tailed deer, and may eliminate those decadent portions of the stand which prove vital

to maintaining varied ecological niches capable of sustaining diverse biota. These effects,

both positive and negative, should all play into the Board’s calculus in making its

determination whether to proceed with the sale. Unlike the pecuniary implications of the

sale, however, it makes no sense whatsoever to aggregate these effects in a “programmatic

analysis” of all sales completed during a year. The economic, ecological and silvicultural

effects of a timber harvest are inherently local. Aggregating these effects across several sales

17
would render consideration of them utterly meaningless. An improvement in white-tailed

deer’s winter habitat in the Elkhorn Mountains will do nothing to offset the potentially

deleterious effects of the Goat Squeezer sale on the winter habitat of white-tailed deer who

live in the vicinity of Swan Lake. Stream sedimentation caused by roads constructed for the

Goat Squeezer sale will not be mitigated by the closure of a road in the Gallatin Canyon.

Aggregating these effects forces the Board to compare apples to oranges. More importantly,

it precludes the Board making informed decisions whether to proceed with any particular

management decision.

¶36 Accounting on a per-sale basis not only facilitates rational management decisions

today, it enables the Board to make far better decisions concerning future resource

allocations and land management decisions—it promotes sustainability. All land is not

created equal. Because of varying sun exposure, soil fertility—nutrient richness, moisture

retention, aeration, etc.—exposure to the elements, and other variables, certain lands are

better suited to growing trees for harvest than others. Because of these attributes, certain

stands of forest will require more expensive, intensive management (such as pre-harvest

thinning) in order to produce commercially viable timber. Although past success is not a

perfect predictor of future performance, it is one extremely useful indicator at a land

manager’s disposal. If the management costs incurred in growing trees for timber harvest

in an area greatly exceed the harvest receipts (and would do so irrespective of timber prices),

this indicates that perhaps such an area could be better utilized in the future for something

other than silviculture. Such adaptive management is routine practice for land managers.

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Without the Board’s accounting for the management expenditures incurred, however, its

future management decisions are deprived the adaptive advantages that could be gleaned

from this information.

¶37 The Legislature has told us that the Board has a duty to “secure the largest measure

of legitimate and reasonable advantage to the state.” Section 77-1-202(1), MCA. The

Legislature has also declared that “the preservation of natural areas on state trust land has

sufficient value to present and future education to meet the state’s obligation for the

disposition and utilization of trust land as specified in The Enabling Act.” Section 76-12-

103(2), MCA. There is no indication that the area comprising the Goat Squeezer sale has

been designated a “natural area.” See § 76-12-104, MCA. Nevertheless, the Legislature has

established a baseline measure of benefit that must be exceeded in order to engage in

extractive practices on certain trust lands. Certainly in such instances, the only way to

determine whether the “advantage to the state” exceeds this baseline is by determining the

marginal benefit expected from the harvest (or mine or dam).

¶38 The Majority points us to two statutory provisions that purportedly “illuminate the

legislative intent regarding the Board’s accounting obligations.” ¶ 17. These provisions,

however, say very little about the Board’s duties of accounting, instead detailing the Board’s

duty to transmit reports to beneficiaries. Section 77-1-223, MCA, sets forth the required

contents of financial reports, which the Board must prepare and provide annually to the

beneficiaries. These reports must summarize the asset value of the forested tracts and

calculate the average return of revenue on asset value for the forested tracts, § 77-1-223(2)-

19
(4), MCA, which is calculated by utilizing a ten-year rolling average, § 77-1-224, MCA. The

Board is not explicitly required to conduct any accounting whatsoever; rather, § 77-1-223,

MCA, like § 77-1-202, MCA, only implicitly requires the Board to complete any accounting.

Moreover, calculating a ten-year rolling average return of revenue on asset value is not

sufficient to ensure that the Board secures the largest benefit, even on a “programmatic” (i.e.,

annual) basis. In fact, the Board could lose money on any of its individual transactions,

during any single year or during a string of consecutive years, and the beneficiaries would

never learn of these losses so long as the Board reported a net gain over the course of a

decade. This Court has indicated that the State, as trustee, must “be able to prove ‘that the

information in the accounting is sufficiently accurate and complete to enable the

beneficiaries to protect and defend the equitable or beneficial interest.’” Montanans for the

Responsible Use of the School Trust v. Darkenwald, 2005 MT 190, ¶ 29, 328 Mont. 105, ¶

29, 119 P.3d 27, ¶ 29 (Montrust II) (quoting Loring, A Trustee’s Handbook § 8.24, at 622

(Charles E. Rounds, ed., 2005)). Is a ten-year rolling average return sufficiently complete

to enable the beneficiaries to defend their interest? Does this method of accounting meet the

Board’s “higher duty to the public than . . . an ordinary businessman,” Montanans for the

Responsible Use of the School Trust v. State ex rel. Board of Land Comm’rs, 1999 MT 263,

¶ 14, 296 Mont. 402, ¶ 14, 989 P.2d 800, ¶ 14 (citation omitted), would owe to his

beneficiaries? Would we tolerate such loose accounting by a private trustee? Of course not.

The reporting methodology in no way interferes with the Board’s ability to conduct more

detailed accounting. Nor does it enable the Board to ensure that it has secured the largest

20
measure of reasonable and legitimate advantage. To that end, these procedures, aimed

simply at keeping the beneficiaries moderately informed, are utterly worthless.

¶39 The majority relies primarily on two prior cases interpreting the statutory command

to the Board to “secure the largest measure of legitimate and reasonable advantage to the

state”—State ex rel. Thompson v. Babcock (1966), 147 Mont. 46, 409 P.2d 808, and

Montrust II—both of which are easily distinguishable from the present controversy. In

Babcock, we indicated that in order to fulfill its statutory mandate, which we described as

“the principal restriction on the power of the Board,” 147 Mont. at 52, 409 P.2d at 811, the

Board must have “a large discretionary power.” Babcock, 147 Mont. at 51, 409 P.2d at 811.

In Babcock, we allowed the Board to knowingly accept less than the highest bid for the lease

of agricultural lands because the interest in having a lessee who would be a good steward and

not abandon the lease was deemed worthy of consideration. Babcock, 147 Mont. at 49, 52-

53, 409 P.2d at 811. Unlike the present controversy, the Board was well informed about the

return it was receiving, but chose to receive less than the maximum financial return based

on non-pecuniary benefits. Here, in contrast, the Board has no sense of the return it is

receiving on the Goat Squeezer sale. If the Board knew it were selling assets at a loss, it

could conceivably provide an acceptable explanation for doing so, such as stemming the

spread of disease in a stand of trees.

¶40 In Montrust II, this Court affirmed the Board’s decision to sell a future stream of

mineral royalties and approved the Board’s method for determining the present full market

value of that future stream of income. Montrust II, ¶¶ 32, 64. The plaintiffs challenged the

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discount rate that the Board utilized in calculating the present value of the future stream of

revenue. Both sides presented expert testimony regarding the discount rate and members of

the Board testified that they had considered various discount rates before eventually selecting

one. Montrust II, ¶¶ 45-46. We declined to “‘control the discretion of the board’” in its

selection of a discount rate and consequent calculation of full market value. Montrust II,

¶ 52 (citation omitted). Nevertheless, the Board did prospectively consider its options before

selecting a discount rate and calculating the present full market value of the specific assets

sold. In stark contrast to the present case, the Board did not dispose of trust assets without

bothering to consider whether it was receiving a fair return (or generating any revenue at all).

¶41 Finally, to the extent that the Court’s decision in Montrust II hinged on the “Board’s

discretionary authority . . . in order to effectuate sustained yield concepts and ensure the

long-term strength of the trust corpus,” ¶ 56, this consideration counsels against allowing the

Board to proceed with timber sales under a veil of ignorance. Trees are a classic example

of a renewable resource: timber can be harvested from the same land in a perpetual cycle.

Growing trees for harvest, however, requires a considerable outlay of resources throughout

the growth cycle. Moreover, not all land is equally fertile and conducive to silviculture.

Therefore, a manager who seeks to maximize the generative capacity and income from her

land should track expenditures and returns in order to rationally allocate land to its optimal

uses in the future. Without doing so, it is impossible for a manager to plan so as to “secure

the largest measure of legitimate and reasonable advantage” from her lands.

¶42 I dissent.

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 /S/ W. WILLIAM LEAPHART

Justice Patricia Cotter joins in the dissent of Justice Leaphart.

/S/ PATRICIA O. COTTER

Justice James C. Nelson dissents.

¶43 It has been a tough year for the School Trust. First, we upheld a legislative scheme

that robs the Trust of resources for future school children in the name of current tax relief

(Montanans for the Responsible Use of the School Trust v. Darkenwald, 2005 MT 190,

¶¶ 66-69, 328 Mont. 105, ¶¶ 66-69, 119 P.3d 27, ¶¶ 66-69 (Leaphart, J., dissenting)

(Montrust II)); throws general trust law and fiduciary principles out the window as far as the

Trust is concerned; and approves a $94,000,000.00 short-fall in the Trust by 2031 (Montrust

II, ¶¶ 70-98 (Nelson, J., dissenting)).

¶44 Now we are told by the majority at ¶ 10 of this Opinion that while the Board of Land

Commissioners (the Board) does not have “unfettered discretion” in determining “fair market

value,” we will not find an abuse of that discretion unless the Board's action is, “in effect,

fraudulent.” What a lofty standard to set for our elected trustees in their management of the

lands committed under our Constitution and Enabling Act to the education of Montana's

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children! And, what a contrast with the standard we articulated in State v. Babcock (1966),

147 Mont. 46, 54, 409 P.2d 808, 812 (the State Board of Land Commissioners “owe[s] a

higher duty to the public than does an ordinary businessman”). Now the standard is: “Do

what you want; just don't do something that involves bad faith, dishonesty or moral

turpitude.” See Blacks Law Dictionary 672 (7th ed. 1999). Now, absent being able to prove

outright theft, graft or corruption, no future litigant such as Friends of the Wild Swan

(FOWS) or Montrust will have a chance in litigation seeking to protect the Trust from

mismanagement and waste by the Board.

¶45 Obviously, with the abuse of discretion bar set at ground level, pretty much anything

the Board chooses to do under § 77-1-202, MCA, will be acceptable. I disagree that the bar

is as low as the majority says it is. Moreover, I disagree that every decision the Board makes

under such a ridiculously inadequate standard is entitled to “respectful consideration” or

deference.

¶46 I agree with FOWS's argument and analysis, the majority's primer on statutory

construction notwithstanding. Section 77-1-202(1), MCA, can and should be interpreted to

require that each harvest must, as the statute plainly requires, “secure the largest measure of

legitimate and reasonable advantage to the state and provide for the long-term financial

support of education.” The majority takes comfort in the fact that the statute “does not

require accountings.” Likewise, it is also true that neither does the statute authorize the

Board to pursue a “methodology” of “program-wide accounting on a yearly basis”--i.e.,

24
accepting losses on some harvests under the premise that at the end of the year there should,

theoretically, be more profitable harvests than losers.

¶47 Even common sense dictates that one cannot secure the largest measure of return if

that measure--profitability--is reduced by unprofitable harvests. If I have three proposed

harvests and will make a combined profitable return of $200,000.00 on two of the three, how

exactly am I securing the largest measure of return, if I throw into that mix, the third sale on

which I will lose $50,000.00? The real problem is that the Board will never know which

individual harvests are winners or losers--i.e., it will never know whether it is securing the

largest measure of return--because it does not account for the harvests individually. I am

reminded of a pizza shop commercial a few years ago that had the proprietor saying that he

loses money on each individual sale, but makes up for that in volume.

¶48 The majority's attempt to “illuminate [] legislative intent” in the provisions of §§ 77-1-

2231 and 77-1-224, MCA, is also unavailing. These statutes--the Legislature's “affirmative

efforts,” as the majority puts it--are nonspecific as to accounting methods. None require any

particular accounting practice, and none prohibit an accounting method which would apprise

the Board as to whether it is receiving the “largest measure of legitimate and reasonable

advantage to the state” on each harvest.

¶49 The majority's reliance on these general statutes ignores the Board's fiduciary

responsibility with respect to state trust lands. What we stated in Montanans for the

1
The record reflects that the “Asset Value Reports” for trust assets in which the majority
seem to take comfort are based on program-level costs that are simply estimates.

25
Responsible Use of the School Trust v. Board of Land Commissioners, 1999 MT 263, ¶ 14,

296 Mont. 402, ¶ 14, 989 P.2d 800, ¶ 14 (Montrust I), bears repeating here:

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 (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.

Whether the Board's fiduciary obligations--its higher duty to the public--are reflected in

unrelated, general accounting statutes does not alter its fiduciary obligation to secure the

largest measure of legitimate and reasonable advantage to the state trust assets. Section 77-

1-202, MCA, imposes on the Board duties that would be imposed on any fiduciary.

Accounting for costs to ensure each disposition of the timber assets of the trust to ensure that

the largest advantage is achieved is part of that duty.

¶50 Furthermore, the majority's rationale--primarily focusing on legislative accounting

requirements (or more properly, the lack thereof)--is not bolstered by its discussion of the

Board's duties as regards forest management practices and non-economic considerations.

Despite what this Court did to minimize the Board's fiduciary obligations in Montrust II,

those trustee obligations, created under the Enabling Act and codified at § 77-1-202, MCA,

require that the Board ensure the largest measure of legitimate and reasonable advantage to

the state in the disposition of trust assets. The salient question is whether or not, at the

moment of disposition, the Board can definitively state that an individual timber sale creates

26
the statutorily required “largest measure” of advantage to the state and trust beneficiaries.

Without knowing the costs of the individual sale, the Board cannot answer that question; it

cannot accurately evaluate the sale's economic impact; and, therefore, it cannot comply with

the clear directive of § 77-1-202, MCA.

¶51 Additionally, the majority never explains how exactly forest management practices

and non-economic considerations would be harmed by the Board accounting for individual

harvests. If anything, those practices and considerations would be enhanced because of the

Board's more detailed knowledge of the legitimate and reasonable advantages of each sale

along with the associated costs. Justice Leaphart's dissent drives this point home.

¶52 Here, FOWS challenged the Goat Squeezer sale, not the annual timber harvest

program for all state trust lands. The undisputed fact is that the Board does not know the

costs or benefits of this sale in order to make an informed decision as to whether the sale's

projected revenue warrants approval. Program-level accounting does not answer this

question and, more importantly, does not obviate the Board's fiduciary obligation to realize

the largest measure of advantage in each individual disposition of trust assets.

¶53 In summary, the record reflects that the Goat Squeezer sale will incur an estimated

$750,400.00 in “expenditures” for the chosen action, Alternative C. The record also reflects

that stumpage values, an important factor in determining any timber sale, continue to decline

as does the rate of return on state forest lands. Here, the Board has failed to demonstrate that

the subject timber sale has secured any advantage, much less the largest measure of

legitimate and reasonable advantage which § 77-1-202, MCA, requires.

27
¶54 Interestingly, the United States Forest Service accounts for costs and revenues of each

individual timber sale on federal holdings in Montana, so it cannot be that difficult an

endeavor. Private businesses throughout this country utilize cost accounting as part of their

cost-benefit analysis; yet, seemingly, the Board and the State of Montana lack this elemental

accounting capability with respect to timber sales from School Trust lands.

¶55 The Board is not complying with § 77-1-202, MCA, if it cannot demonstrate that it

has secured the largest legitimate and reasonable advantage to the State with regard to each

sale of Trust assets. Not only has that unambiguous statutory mandate not been proven in

this case; but, as a result of the Court's decision here, the Board--exercising it's nearly

unlimited discretion--will not, as a practical matter, have to concern itself with this statutory

requirement in the future. Under these circumstances, we can only hope, that what the State

loses on individual sales, it will make up in volume.

¶56 I dissent.

/S/ JAMES C. NELSON

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