Title: SKILLMAN v DEPT OF STATE LANDS

State: montana

Issuer: Montana Supreme Court

Document:

No. 80-47 I N T H E SUPREME C O U R T O F T H E STATE O F M O N T A N A 1980 ED SKILLMAN, P l a i n t i f f and Appellant, THE D E P A R T M E N T O F STATE L A N D S O F THE STATE O F MONTANA; T H E BOARD O F LAND COMISSIONERS and JAMES R. FOSTER, Defendants and Respondents. Appeal from: The District Court of t h e F i r s t J u d i c i a l D i s t r i c t , I n and f o r t h e County of L e w i s and Clark, The Honorable P e t e r G. Meloy, Judge presiding. Counsel of Record: For Appellant: Harrison, Loendorf and Poston, Helena, Montana For Respondents : David Woodgerd, Department of S t a t e Lands, Helena, Montana H. A. B o l l i n g e r , Bozeman, Montana Submitted on B r i e f s : June 5, 1980 Decided : J U L 2 8 1980 M r . J u s t i c e John Conway Harrison d e l i v e r e d t h e Opinion of t h e Court. Respondent Ed Skillman p e t i t i o n e d t h e D i s t r i c t Court f o r j u d i c i a l review of a d e c i s i o n by t h e S t a t e Board of Land Commissioners t o renew a l e a s e of s t a t e land t o James R. Foster. The Board of Land Commissioners had renewed t h e l e a s e a f t e r finding t h a t Foster had a preference r i g h t . The D i s t r i c t Court held t h e Board of Land Commissioners e r r e d i n renewing t h e lease. The c o u r t remanded t h e case t o t h e Board with d i r e c t i o n s t o cancel t h e Foster l e a s e and lease t h e land without a preference r i g h t . The Department of S t a t e Lands and t h e S t a t e Board of Land Commissioners appeal t h e d e c i s i o n of t h e D i s t r i c t Court a s s e r t i n g t h e l e a s e t o Foster should be r e i n s t a t e d . Skillman cross-appeals con- tending t h e c o u r t should have awarded t h e lease t o him r a t h e r than ordering t h e l e a s e reopened f o r bids. The f a c t s i n t h i s case a r e n o t disputed by t h e p a r t i e s . Foster held a S t a t e of Montana s u r f a c e l e a s e t o 6 4 0 acres of grazing land i n Park County, Montana. The l e a s e expired on February 28, 1979. O n January 2, 1979, Foster applied t o renew h i s l e a s e on t h e land a t a r a t e of $7.50 per AUM (animal-unit-month). O n January 23, 1979, Skillman applied t o lease t h e land a t a rate of $18.75 per AUM. Foster was n o t i f i e d of t h e bid submitted by Skillman and informed t h a t a s c u r r e n t lessee he was e n t i t l e d t o e x e r c i s e a preference r i g h t t o meet t h e bid. Foster exercised t h e preference and m e t t h e b i d on February 22, 1979. The l e a s e was renewed t o him on February 28, 1979. Foster a l s o requested and was granted a hearing t o determine whether t h e bid was i n t h e b e s t i n t e r e s t of t h e S t a t e of Montana. S t a t e Land Commissioner Leo Berry con- ducted t h e hearing on t h e matter on March 27, 1979. Evi- dence introduced a t t h e hearing showed t h a t Foster had subleased t h e land t o J i m Serrazzen b u t had n o t f i l e d a sublease form with t h e Commissioners. Subsequent t o t h e hearing, Commissioner Berry recommended t h a t a renewal l e a s e be issued t o Foster a t t h e r a t e of $7.50 p e r AUM. The Board accepted t h e recommendation and renewed t h e l e a s e a t t h e $7.50 r a t e . O n J u l y 2, 1979, t h e Department of S t a t e Lands canceled F o s t e r ' s l e a s e f o r f a i l u r e t o f i l e a sublease. On cancel- l a t i o n of t h e lease, it was explained t o F o s t e r t h a t h i s l e a s e would be renewed i f he paid a penalty of 50 percent of t h e annual r e n t a l of t h e land. Foster paid t h e penalty, and t h e l e a s e w a s r e i n s t a t e d . The following i s s u e i s r a i s e d by t h e Department of S t a t e Lands f o r review: Did t h e D i s t r i c t Court err i n determining Foster should n o t be granted a p r e f e r e n t i a l r i g h t t o l e a s e t h e land i n question under t h e a u t h o r i t y of Jerke v. S t a t e Department of Lands (1979), Mont. , 597 P.2d 49, 36 St.Rep. 389? Respondent Skillman r a i s e s t h e following i s s u e on cross-appeal: Did t h e D i s t r i c t Court err i n d e c l a r i n g t h e land i n question should be reopened f o r public bid r a t h e r than awarding t h e lease t o Skillman? The arguments of t h e S t a t e a r e n o t persuasive i n t h i s case. Although t h e S t a t e i s c o r r e c t i n s t a t i n g t h a t J e r k e i s l i m i t e d t o i t s f a c t s , t h e d i s t i n c t i o n s made by t h e S t a t e a r e n o t f a t a l t o i t s a p p l i c a t i o n here. A s Chief ~ u s t i c e Haswell pointed o u t i n Jerke, the c r u c i a l p o i n t of t h e case i s t h i s : "To allow an e x i s t i n g lessee who does n o t use t h e land t o e x e r c i s e a preference r i g h t consti- t u t e s an u n c o n s t i t u t i o n a l a p p l i c a t i o n of the preference r i g h t s t a t u t e , s e c t i o n 81-405(1), R.C.M. 1947, now s e c t i o n 77-6-205 (1) , MCA." 597 P.2d a t 51, 36 St.Rep. a t 392. The m e r e f a c t t h a t t h e l e s s e e i n t h i s case is an i n d i - vidual i n s t e a d of a grazing d i s t r i c t i s n o t s u f f i c i e n t l y m a t e r i a l t o t h e p o l i c y involved t o disallow t h e a p p l i c a t i o n of t h e precedent. Further, i f t h e case i s d i s t i n g u i s h a b l e and J e r k e should n 6 t be c o n t r o l l i n g as precedent, t h e r e i s even more j u s t i f i c a t i o n f o r applying t h e r a t i o n a l e of Jerke here. I n Jerke, although t h e r e was a sublease involved, t h e r e i s no evidence t h a t t h e r e was an i l l e g a l sublease, as i n t h e case before us. Here t h e l e s s e e , Foster, s u b l e t h i s grazing l e a s e without having t h e sublease approved by t h e Department of S t a t e Lands a s required by h i s lease with t h e S t a t e . Section 77-6-205(1), MCA, r e c i t e s i n a p p l i c a b l e p a r t : " ( 1 ) A l e s s e e of s t a t e land c l a s s e d a s a g r i - c u l t u r a l , grazing, town l o t o r c i t y l o t who has paid a l l t h e r e n t a l s due from him t o t h e s t a t e and who has n o t v i o l a t e d t h e t e r m s of h i s lease --- - --- i s e n t i t l e d t o have h i s l e a s e renewed . . ." (Emphasis supplied.) Further, ARM §26.3.108(2) e s t a b l i s h e s t h e Department's policy: " ( 2 ) A s u r f a c e lessee has a preference r i g h t t o renew h i s l e a s e provided a l l r e n t a l s have been paid and t h e t e r m s -- of t h e previous l e a s e have n o t been v i o l a t e d . " (Emphasis supplied.) --- A s t r i c t reading of these s t a t u t e s r a i s e s a s e r i o u s question whether Foster even had a r i g h t t o renew ( s e c t i o n 77-6-205, MCA) o r a p r e f e r e n t i a l r i g h t i n t h e l e a s i n g pro- cedure (ARM §26.3.108(2)), when t h i s case was f i l e d i n D i s t r i c t Court. Assuming h i s sublease arrangement, although n o t approved by t h e Department, w a s n o t s u f f i c i e n t t o deprive him of h i s preference r i g h t , he would c l e a r l y be t h e type of lessee t h a t t h e p o l i c y of Jerke was designed t o a f f e c t . I n consideration of our reasoning i n Jerke, we a r e compelled t o apply t h e same reasoning t o t h e case before us. I n Jerke, w e held: "Where the preference r i g h t does n o t f u r t h e r t h e policy of sustained y i e l d , it cannot be given e f f e c t . I n such a s i t u a t i o n , f u l l market value can be obtained only by pure competitive bidding. Here, t h e Grazing D i s t r i c t , t h e holder of t h e preference r i g h t , does n o t even use t h e land; it cannot use good a g r i c u l t u r a l p r a c t i c e s o r make improvements thereon. . . "To allow t h e preference r i g h t t o be exercised i n t h i s case would be t o i n s t a l l t h e Grazing District a s t h e t r u s t e e of t h e land. It, r a t h e r than t h e Department of S t a t e Lands, would decide who w i l l occupy t h e land, b u t it would n o t be bound by a c o n s t i t u t i o n a l o r fidu- c i a r y duty. Under such a scheme, t h e concept of sustained y i e l d would have no place." 597 P.2d a t 51, 36 St.Rep. a t 391. There appears t o be no o p e r a t i v e f a c t on the record here t h a t would j u s t i f y overruling t h e t r i a l c o u r t ' s deci- s i o n t o follow Jerke. Every p o i n t of law and every p o l i c y consideration i s a s applicable t o Foster a s it was t o t h e grazing d i s t r i c t . Therefore, t h e underlying r a t i o n a l e t h a t o r i g i n a l l y decided J e r k e i s equally d i s p o s i t i v e of t h i s case. O n cross-appeal Skillman contends t h a t he should be awarded t h e l e a s e because he was t h e h i g h e s t bidder when b i d s w e r e o r i g i n a l l y opened. H e i n t e r p r e t s t h e language of J e r k e and s e c t i o n 77-6-205(2), MCA, r e l a t i n g t o "pure com- p e t i t i v e bidding" as meaning bidding once and a subsequent award t o t h e h i g h e s t bidder. It would be t r u l y i n e q u i t a b l e t o follow t h i s i n t e r p r e - t a t i o n . Foster was under t h e impression t h a t he would have a v a l i d preference r i g h t , and he should n o t be penalized f o r t h a t good f a i t h b e l i e f . He should have an equal opportunity t o bid on the lease. Indeed, i f he i s n o t allowed t o p a r t i - c i p a t e , then the s p i r i t of the competitive bidding s t a t u t e would be defeated. I n addition, Foster had no reason t o suspect t h a t he could n o t exercise the preference r i g h t since Jerke had not been decided by t h i s Court. The judgment of t h e D i s t r i c t Court i s affirmed. The l e a s e i s canceled and reopened f o r bidding by a l l p a r t i e s . W e concur: 3 4 % ~ Chief J u s t i c e , /