Title: Lohmeier et al v Dept of Natura

State: montana

Issuer: Montana Supreme Court

Document:

FILED

 

  

September 9.2008

DA 07-0374
IN THE SUPREME COURT OF THE STATE OF MONTANA

2008 MET 307

{JAMES C. LOHMEIER, SANDY MeMANUS

and ROSELEE FAUST,

Plaintiffs and Appellees, FILED
‘ SEP 9 2008

STATE OF MONTANA, MONTANA DEPARTMENT

(OF NATURAL RESOURCES AND CONSERVATION, Ed Smith

and UTILITY SOLUTIONS, LLC, Lennof THe SupneecounT

Defendants and Appellants

APPEAL FROM: District Court ofthe First Judicial District,
In and For the County of Lewis and Clark, Cause No. ADV-2006-854
Honorable Dorothy MeCarter, Presiding Judge
COUNSEL OF RECORD:
For Appellant Montana Department of Natural Resources and Conservation:

Britt T. Long, Tim D. Hall, Candace F. West, Anne W. Yates,
Special Assistant Attomeys General, Helena, Montana’

For Appellant Utility Solutions, LLC:
Matthew Williams, Williams & Jent,PLLP, Bozeman, Montana
Donald D. Macintyre, Attomey at Law, Helena, Montana

For Appellees:

Arthur V. Wittich, Frederick P. Landers, Jr, Hertha L. Lund,
Wittich Law Firm, P.C., Bozeman, Montana

 

Submitted on Briefs: May 7, 2008

Decided: September 3, 2008
Filed:

 
Justice Patricia O. Cotter delivered the Opinion of the Court.
{1 Montana’s Department of Natural Resources and Conservation (DNRC) and
Utility Solutions (US) appeal the order of the First Judicial District Court, Lewis and
Clark County, granting summary judgment in favor of plaintiffs and appellees, Lohmeier,
‘McManus and Faust (the Lohmeiers), and denying summary judgment for the defendants,
DNRC and US, We reverse

{2 The Lohmeiers sought a declaratory judgment invalidating the DNRC’s repeal of
‘Admin. R. M. 36.12.101(39) (2005), which defined the term municipal use as used in the
Montana Water Rights Act. The Lohmeiers claimed the repeal was invalid because the

repeal essentially broadened the municipal use exception contained in § 85-2-343(2\(c),

 

MCA (2005), thereby allowing the DNRC to consider and approve more permits and a
‘wider variety of applicants in the upper Missouri River basin than before the regulation’s
repeal. The Lohmeiers further asserted that the DNRC’s likely approval of more
applications had the potential to harm their senior appropriated water rights on the
Gallatin River, a tributary of the upper Missouri, ‘The District Court agreed, granting
summary judgment for the Lohmeiers and reinstating the regulation defining “municipal
use” as “water appropriated by and provided for those in and around a municipality or
unincorporated town.” Admin, R, M. 36.12.101(39) (2005), Defendants DNRC and US
appeal.

{B__ The sole issue on appeal is whether the District Court erred as a matter of law by
declaring the DNRC’s repeal of Admin. R. M. 36.12.101(39) (2005), defining “municipal

use,” invalid under § 2-4-506, MCA.
FACTUAL BACKGROUND.
{4 After the passage of the Montana Water Use Act in 1973 and the DNRC’s
subsequent determination of claims, “[iJt became clear . .. that there were significantly
‘more adjudicated and legitimate non-adjudicated claims to water than there was available
water” in the upper Missouri River basin. Montana Trout Unlimited v. Montana DNRC,
2006 MT 72, 97, 331 Mont. 483, 47, 133 P.3d 224, 47. The upper Missouri River basin
closure law (basin closure law), §§ 85-2-342 and -343, MCA (2005), enacted in 1993 in
response to this over-appropriation of water, placed a moratorium on new applications for

water rights in the Missouri River basin upstream from the Morony Dam near Great

 

Falls. The Gallatin River is a tributary of the upper Missouri River and subject to the
basin closure law

5 The 2003 Legislature amended § 85-2-302(2), MCA, to require the DNRC to
“adopt rules that are necessary to determine whether or not an application is correct and
complete, based on the provisions applicable to issuance of a permit under this part. The
rules must be adopted in compliance with Title 2, chapter 4." 2003 Mont. Laws, ch. 574,
§ 1. The DNRC ultimately promulgated many new rules addressing the permit
application process.’ Among these rules was a regulation defining “municipal use,” a
term used at least thirteen times in the text of and annotations to the 2003 Montana Water

Use Act, but undefined by statute. The new regulation defined municipal use as “water

"A water permit is a temporary water right given while an appropriation determination is
pending. The DNRC is also authorize to issue interim permits fo the period when the permit
Apliction spending

 
 

sd for those in and around a muni

 

appropriated by and pro lity or an unincorporated
town.” Admin, R, M. 36.12.101(39) (2005),

{6 Problems arose when the new regulation, Admin. R. M. 36.12.101(39) (2005), was
applied in conjunction with § 85-2-343(2)(c), MCA (2005). This statute exempts from
basin closure limitations any application for a permit to appropriate water for “municipal
use.” Under the administrative rule's new definition of “municipal use,” arguably only a
‘municipality or unincorporated town could qualify as an acceptable appropriator, whereas

previously it was only necessary that the water be appropriated for those in a municipality

or unincorporated town. Therefore, private enti

 

, such as private utility companies
who sought to appropriate water for public or municipal purposes and who were
previously allowed to do so, could no longer qualify for closed basin water rights under
‘the municipal use exception under this definition, Moreover, this definition was not
limited to the basin closure law. It applied to all references to municipal use throughout

the Montana Water Use Act.

 

{7 One year after the DNRC promulgated the regulation defining “municipal use,”
the DNRC sought to repeal it, asserting that the definition was not in keeping with the
historical interpretation of the term by the Montana Water Court and the DNRC. The

DNRC asserted that, between the years 1973 and 2005 before Admin, R. M,

 

36.12.101(39) (2005) went into effect, the DNRC had permitted many appropriations for

 

‘municipal use by private entities and utility companies, such as the Mountain Water

Company in Missoula. The DNRC argued that this new definition was not in keeping

 

with the historical application of municipal use and unfairly resulted in denying

 
appropriators municipal use applications based on their status as ot affiliation with a
private entity. Among others, US, the utility and development company based in the
Four Comers area outside Bozeman, submitted several comments to the DNRC both
before and after the promulgation of the municipal use definition, arguing against the new
definition because it effectively excluded private entities secking municipal use permits.

{8 The DNRC followed the necessary protocol and procedural steps to repeal the
rule, offering a comment period and public notice. Following repeal, the Lohmeiers

brought a declaratory judgment action, requesting the District Court to declare the

 

DNRC’s repeal of Admin. R. M. 36.12.101(39) (2005) invalid, pursuant to § 2-4-506,
MCA. US subsequently intervened in the case as a co-defendant with the DNRC.
{The DNRC moved for summary judgment arguing that the Lohmeiers could suffer

no harm by the repeal given the other protections afforded by § 85-2-311(I(b), MCA

 

(2005), which provided that the permit applicant must show that its proposed use would
have no negative effect on senior water rights holders in that area, ‘The DNRC also
argued that the rule was not repealed with an arbitrary and capricious disregard for the

purpose of the authorizing statute, Also requesting summary judgment, intervener US

 

argued that the case was non-justiciable because there was no actual injury to the
Lohmeiers. In addition, the Lohmeiers filed a cross-motion for summary judgment,
arguing that § 2-4-506, MCA, and this Court's opinion in Montana Trout Unlimited
provided ample legal authority for their request for relief.

{10 The District Court held that the DNRC violated § 2-4-506, MCA, when it repealed

the administrative rule defining “municipal use.” The court determined that by repealing
‘Admin. R. M, 36.12,101(39) (2005), the DNRC rendered the term municipal use
nebulous and unfairly accommodating of private developers’ applications for permits
‘The court ruled that the basin closure law was designed to protect and preserve existing
Water rights holders and that the DNRC’s repeal ofthe definition of municipal use would
undermine that purpose, potentially threatening the senior water rights holders in an

already over

 

ippropriated water source. ‘The court further concluded that the DNRC’s

 

repeal of the administrative rule contravened legislative intent and placed the existing
water rights of the plaintiffs in jeopardy. The court granted summary judgment to
plaintiffs, declaring the DNRC’s repeal ofits administrative rule invalid.

{11 Prior to the District Court’s entry of summary judgment, US had applied for and

 

was granted several muni fhen, the 2007 Legislature amended the

 

I use permits.
basin closure laws by eliminating any mention of municipal use and devising a new
‘method of granting closed basin water rights. 2007 Mont. Laws, ch. 391, §§ 5, 9, 11.
Because the 2007 law was not retroactive, the permits that the DNRC granted in 2006,
after it repealed the definition of municipal use, were still effective, Additional cases

have since been brought by senior water rights holders challenging the grant of these

   

2006 municipal use permits and arguing that the Legislature did not

 

fend the municipal
use exception to allow private entities, like US, to apply for or be granted a municipal use
permit, when it enacted the basin closure law.

STANDARD OF REVIEW
{12 We review a grant of summary judgment de novo under the same M. R. Civ. P. $6

standard applied by a district court. Chain v. State, Dept. of Justice, 2004 MT 216, § 8,
322 Mont, 381, 8, 96 P.3d 1135, $8 Where a court determines that no genuine issues

‘of material fact exist and concludes that the moving party is entitled to judgment as a

 

matter of law, we review the court's conclusions of law to determine whether the court's,
interpretation of the law is correct. Carbon County v. Union Reserve Coal Co, Inc., 271
Mont. 459, 469, 898 P.2d 680, 686 (1995).

DISCUSSION
{13 Mootness and justiciability.
{14 Before we reach the main issue before this court, we must consider the threshold
issue of whether this case is moot. Shamrock Motors, Inc. v. Ford Motor Co., 1999 MT
21, $17, 293 Mont. 188, 417, 974 P.2d 1150, $17. A matter is moot when, due to a
change in circumstance, the legal issue presented to a court ceases to exist and no longer
presents a controversy. Grabow v. Montana High School Ass'n, 2000 MT 159, 14, 300
Mont. 227, § 14, 3 P.3d 650, 14, citing Shamrock, § 19. However, when faced with a
‘constitutional question that becomes moot due to a change in circumstance, this Court
will nonetheless consider the merits of the moot issue when the issue is capable of
repetition yet evades review. Common Cause v. Statutory Committee, 263 Mont. 324,
328, 868 P.2d 604, 606 (1994).
{15 We conelude thatthe issue before this Court is not moot, notwithstanding the 2007
amendments to the basin closure law, because the issue continues to present a
controversy due to the nature of water rights applications. The filing date of a water

rights application determi

 

s both the priority ofthe claim and the law that applies to that

claim and any challenges to the water right. Section 85-2-302(4), MCA. Although the

 
2007 Legislature changed the law so that a municipal use exception no longer exists for

closed basin areas, the new law is not retroactive and the status of outstanding water

 

permit applications—at least two of which are currently in litigation—depends on the

‘outcome of this case. Therefore, we conclude this matter is not moot.

 

{16 Second, we examine whether the issue before us presents a justiciable controversy.
US argues on appeal that the Lohmeiers’ complaint did not present the District Court
With a justiciable controversy because the administrative rule repeal did not abridge any
of the Lohmeiers’ rights, and any rights the plaintiffs had under Admin. R. M.
36.12.101(39) (2005) were purely theoretical. Ifthe Lohmeiers’ rights were not impaired
after the basin closure but prior to the enactment of the rule, US argues their rights could

not be

 

paired by the repeal of the rule returning them to the prior status quo.

{17 In response, the Lohmeiers assert that this Court, in Montana Trout Unlimited,

 

‘closure laws are intended to protect senior water rights

 

ically held that the ba
holders from the injury of spending time and money to defend their water rights and

assert their objections to new applicants before the DNRC, a time consuming and

 

expensive process. By repealing the narrower municipal use definition, they argue, the
DNRC has opened the floodgates of applications, thus compelling the Lohmeiers to
spend the time and money to defend their water rights which this Court sought to prevent
via the language in Montana Trout Unlimited.

{16 We conclude that this case is justiciable, given the Lohmeiers® statutory right to
bring an action under § 2-4-506, MCA. As plaintiffs who are asserting senior water

tights, the Lohmeiers are entitled to bring this action but bear the burden of proving that
the repeal of the rule met one of two statutory prongs under § 2-4-506, MCA, which

‘addresses declaratory judgments on the val

   

ity or application of agency rules. They
‘must demonstrate either that the repeal of the rule interferes with or impairs or threatens
to interfere with or impair their legal rights or privileges, or thatthe repeal of the rule was
implemented with an arbitrary or capricious disregard for the purpose of the authorizing
statute as evidenced by the documented legislative intent, Section 2-4-506, MCA

417 _ Did the District Court correctly conclude that the repeal was invalid?

18 The State, acting through the DNRC, coordinates the development and use of the

 

water resources of the State so as to effect full utilization, conservation, and protection of

its water resources, Section 85-1-101(3), MCA. A person may only appropriate water

 

‘upon applying for and receiving a permit from the DNRC. Section 85-2-302(1), MCA.
‘The DNRC may adopt rules necessary to implement and carry out the purposes and
provisions of the surface and groundwater laws to “provide for the administration, control
nd regulation of water rights and establish a system of centralized records ....” Section
85.2-101(2), MCA. Moreover, the DNRC is authorized to adopt rules that are necessary
to determine whether or not an application for water rights is correct and complet.
Section 85-2-302(2), MCA.

{19 As noted above, the upper Missouri River basin is closed pursuant to §§ 85-2-319,
£85-2-342, and -343, MCA. “ *{BJasin closure area’ means a hydrologic drainage basin

area within which applications for certain water use permits cannot be accepted. Basin

 

2 Under § 2-4-102(11)(a), MCA, a “rule” for purposes of § 2-4-506, MCA, includes the repeal of
prior rule.

10
closure areas can be designated by statute, administrative rule, or in compacts.” Admin.
IR. M, 36.12.101(9) (2005), The basin closure law provides that the DNRC “may not
process or grant an application for a permit to appropriate water . . . within the upper

Missouri River basin until the final decrees have been issued . . .” unless the applicant's

 

proposed water use falls within one of the enumerated exceptions. Section 85-2-343,

MCA (2005). Municipal use was one of those exceptions:

(1) As provided in 85-2-319 and subject to the provisions of
subsection (2) of this section, the department may not process or grant an
application for a permit to appropriate water or for a reservation to reserve
water within the upper Missouri River basin until the final decrees have
been issued in accordance with part 2 of this chapter forall of the subbasins
of the upper Missouri River basin.

(2) The provisions of subsection (1) do not apply to:

(©) an application for a permit to appropriate water for domestic,
municipal, or stock use. .

Section 85-2-343, MCA (2005) (emphasis added). However, the Legislature did not
statutorily define “municipal use.”

{20 Between 1973 when the Water Use Act was enacted and 1993 when the basin

 

closure law for the upper Missouri was enacted, municipal use applications were
typically processed one at a time with attention given to the nature of the use—if the
‘water was to be used for a public water supply, it was municipal use. The DNRC granted
many municipal use permits to non-municipalities seeking to appropriate water for public
supply, such as private entities and water and sewer districts. From 1993 to 2005, the

term municipal use remained largely undefined under rule or statute, with one exception,

Section 85-2-227(4), MCA (2005), which addresses criteria for presumption of municipal

u
 

rnonabandonment, describes municipal use as “use by a city, town, or other public or

private entity that operates a public water supply system.” Outside of this statute,

 

however, the question of whether @ use was municipal was left to the interpretation of the

 

DNRC under the particular facts of each case.

 

{21 In its decision grar 5, the District Court

 

1g summary judgment to the Lohmei

 

identified one issue: whether the DNRC’s repeal of the regulation defining municipal use
is violation of § 2-4-506, MCA. Section 2-4-506, MCA, provides that an agency rule
ccan be held invalid if (1) it is found that the rule or its threatened application interferes

with or impairs or threatens to interfere with or impair the legal rights or privileges of the

 

plaintiff; or (2) the rule was adopted with an arbitrary or capricious disregard for the
purpose of the authorizing statute as evidenced by the documented legislative intent. The
District Court concluded as @ matter of law that the DNRC’s repeal of Admin. R. M.
36.12.101(39) (2005) was invalid because it violated both of the foregoing subsections of
§ 24-506, MCA.

422 The DNRC argues on appeal that the Lohmeiers failed to demonstrate either that it
repealed the rule with arbitrary or capricious disregard for the purpose of the authorizing
statute, or that Lohmeiers’ rights and privileges were impaired by the DNRC decision to
repeal and revise the definition of “municipal use.” As to the latter matter, the DNRC
‘maintains that the Lohmeiers’ rights were wholly and adequately protected under
§ 85-2-311(1)(b), MCA, which requires a new water right applicant to show by
preponderance of the evidence that “the water rights of a prior appropriator under an

existing water right, a certificate, a permit, or a state water reservation will not be

2
adversely affected.” The DNRC further argues that § 85-2-307(2), MCA, affords the
Lohimeiers an opportunity to object to a new water right application and voice objections
before the DNRC. Thus, it maintains, no water rights or privileges have been impaired or
threatened.

{23 As to the contention that the decision to repeal was made “with arbitrary and
capricious disregard for the purpose of the authorizing statute,” (§ 2-4-506(2), MCA) the

DNRC argues thatthe District Court erred in identifying “the authorizing statute.” The

 

court appeared to rely upon the upper Missouri River basin closure statute, § 85-2-343,

MCA (2005), as the authorizing statute, in rendering its opinion, However, this statute

 

does not “authorize” or even reference rule-making; rather, it addresses the processing

and granting of an application to appropriate water, ‘The authorizing statute—the one

 

302(2), MCA (2005).

 

under which the rule was promulgated—is § 85- statute

provides the DNRC with express authority to adopt rules governing the process for

 

approving permit applications and issuing permits for water appropriation. The DNRC
argues that Lohmeiers presented no evidence to support the contention that the DNRC’s
actions in repealing the recently enacted rule was either arbitrary or capricious.

{24 The Lohmeiers respond that having to challenge permit applications through the
‘administrative process and judicial review process is the impairment suffered by senior
water rights holders as a result of the rule repeal. They further argue that the District
Court correctly held that the DNRC acted with arbitrary or capricious disregard for the

authorizing statute because the purpose of the basin closure laws was to protect and

preserve existing water rights,

B
$25 US argues that the repeal or codification of a definition is purely an administrative
matter entrusted to the agency, and that the District Court erred in failing to defer to the
agency's judgment.

{26 The DNRC is empowered to act in both a quasi-legislative and quasi-judicial

‘manner. Section 85-2-112, MCA. Section 85-2-113(2), MCA, delegates authority to the

 

DNRC to “adopt rules necessary to implement and carry out the purposes” of surface and
groundwater regulation. Under § 85-2-302(2), MCA (2005), the DNRC controls the
permit application process for new appropriations of water and determines if an applicant
meets the DNRC’s criteria for a water use permit

{27 An administrative agency's quasi-legislative authority may be challenged under
§2-4-506, MCA. However, where the challenger does not meet the burden of proof,
deference to the agency's decision is appropriate, Additionally, “deference to agencies is
most appropriate when the agency interpretation has stood unchallenged for a
considerable length of time, thereby creating reliance in the public and those having an
interest in the interpretation of the law.” Montana Trout Unlimited, § 37. We conclude
here that the Lohmeiers failed to demonstrate how they are injured by the agency's case-
by-case interpretation of “municipal use,” which was the unchallenged modus operandi
of the DNRC for years before the rule was enacted, interrupted by @ period of only
eighteen months.

$28 In 1993, the upper Missouri River basin closure law was the third basin closure
law to be enacted and the second that contained an exception for municipal use.

However, the Legislature again declined to define the term. “Where the Legislature

4
acquiesces in long-standing agency interpretation of a statute and takes no action to
inform that interpretation, the court will presume that the Department has properly
interpreted the law.” Baitis v. Department of Revenue of State, 2004 MT 17, 4124, 319
Mont, 292, § 24, 83 P.34 1278, $24. We must conclude that when the Legislature
‘enacted the basin closure law, it was aware of and—declining to define municipal use—
acquiesced in the agency's prior interpretations of the term.

{29 We also presume the Legislature to know the contents of the code. Baitis, § 24
‘AS noted above, § 85-2-227(4), MCA, incorporates within the concept use by private
entities that operate public water supply systems. Thus, the character of the use rather
than the character of the applicant has been the defining factor in determining whether an
application could be considered as one within the municipal use category; historically,
therefore, private entities could qualify as municipal users as long as those entities were
‘operating public water supplies.

{80 Only after the DNRC adopted Admin, R. M, 36.12.101(39) (2005) was the
interpretation of municipal use called into question. Eighteen months after its adoption,
the regulation was repealed and the meaning of municipal use reverted to an agency
interpretation, as applications were reviewed on a case-by-case basis. ‘The regulation
defining municipal use was not in effect for more than a year and a half, Eighteen
‘months is not enough time for the agency to have instilled reliance in the public, whereas
the time between the enactment of the basin closure law in 1993 and the promulgation of

the new definition in 2005 is sufficient time to create reliance in the public and those

1s
Unlimited, 437.
431 We agree with the DNRC that the Lohmeiers failed to demonstrate that their rights
or privileges were impaired or threatened to be impaired by the repeal of the definition.
‘The definition had not been in effect long enough for the Lohmeiers to rely on it or suffer
sever seat npn Moet se ge
notice of the historical interpretation of the term as the DNRC’s public records show that
private entities had previously been granted municipal use permits.
$32 Finally, we also agree with the DNRC that the Lohmeiers failed to show that the
and capricious disregard for the authorizing statute as evidenced by the legislative intent.
Itis an agency prerogative to enact rules to aid in the permitting process, and itis also an
agency prerogative to repeal rules which are not of assistance, as long as in so doing, the
<tatute when it repealed the subject administrative rule.

‘CONCLUSION
433 For the aforementioned reasons, we conclude that the repeal of Admin. R. M.
fou Coy

Justice

34 Reversed.

16