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.
2
¶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
1
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.
3
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.
4
(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
5
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
6
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
7
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
8
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
10
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.
11
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.
12
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.
13
¶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
15
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
16
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.
18
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.,
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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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