No 

No. 98-368

IN THE SUPREME COURT OF THE STATE OF MONTANA

1998 MT 336

WILLIAM MEEKS, 

Petitioner/Respondent,

v. 

STATE OF MONTANA, DEPARTMENT

OF NATURAL RESOURCES AND 

CONSERVATION, 

Respondent

and

GARY GOTTFRIED,

Respondent/Appellant

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APPEAL FROM: District Court of the Twelfth Judicial District,

In and for the County of Chouteau,

The Honorable John A. Warner, Judge presiding.

COUNSEL OF RECORD:

For Appellant: 

Danna R. Jackson, Marra, Wenz, Johnson & Hopkins, Great Falls, Montana

For Respondent:

Floyd D. Corder, Corder & Allen, Great Falls, Montana

Submitted on Briefs: November 24, 1998

Decided: December 30, 1998

Filed:

__________________________________________

Clerk

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Justice James C. Nelson delivered the Opinion of the Court.

¶1. This is an appeal by Gary Gottfried (Gottfried), former lessee of the Department 

of Natural Resources and Conservation (DNRC), from a June 5, 1998 Order on 

Petition for Judicial Review and Judgment entered by the Twelfth Judicial District 

Court, Chouteau County. The District Court set aside DNRC's determination of 

value of Gottfried's improvements on the land subject to the lease and entered 

judgment for the sum of $8,101.22, in favor of Gottfried and against William Meeks 

(Meeks), the successor DNRC lessee. We affirm.

Background

¶2. Gottfried formerly leased 640 acres of farm land in Chouteau County under 

DNRC Lease No. 2724. Gottfried's lease was canceled in January 1996, for 

delinquency in the 1995 crop share payment. Meeks became the prospective new 

lessee. Section 77-6-305, MCA, requires that before a lease is issued to the new lessee, 

the lessee (Meeks) must show that the former lessee (Gottfried) has been paid for the 

value of his improvements (absent the former lessee electing to remove the 

improvements).

¶3. Gottfried and Meeks were unable to agree on the value of the improvements. 

Accordingly, under § 77-6-306, MCA, a panel of arbitrators was chosen to ascertain 

and fix the value. The arbitrators valued the improvements at $2,168. Dissatisfied 

with this valuation, Gottfried appealed to DNRC under § 77-6-306(3), MCA. DNRC 

determined the value of the improvements to be $22,225.59. Meeks then sought 

judicial review of DNRC's decision under § 77-6-306(4), MCA.

¶4. In the District Court proceedings, DNRC moved for summary judgment. 

Gottfried moved for intervention and joined DNRC's motion. Following a hearing in 

November 1997, the District Court denied Gottfried's motion to intervene and 

DNRC's and Gottfried's motion for summary judgment.

¶5. The three employees who made DNRC's decision, Dave Mousel, Barny Smith and 

Craig Roberts, were then deposed and their depositions were filed with the court. 

Following the submission of legal memoranda by Meeks and Gottfried, but without 

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further hearing, the District Court entered its aforementioned decision. The court 

took into consideration the depositions of the three DNRC employees. This appeal 

followed.

Issues

¶6. We address two issues on appeal:

¶7. 1. Did the District Court err in considering the depositions of the three DNRC 

employees in its judicial review of the administrative record?

¶8. 2. Did the District Court correctly determine that DNRC's valuation of 

Gottfried's improvements was clearly erroneous?

Issue 1.

Did the District Court err in considering the depositions of the three DNRC employees in 

its judicial review of the administrative record?

¶9. We review the District Court's determination to receive and consider the 

depositions of the three DNRC employees as a question of law over which our review 

is plenary. Bean v. Montana Bd. of Labor Appeals, 1998 MT 222, ¶ 11, 965 P.2d 256, ¶ 

11, 55 St.Rep. 927, ¶ 11 (citing Steer, Inc. v. Department of Revenue (1990), 245 Mont. 

470, 474-75, 803 P.2d 601, 603). Either the court erred in doing so or it did not.

¶10. Gottfried argues that the District Court erred by reviewing, de novo, DNRC's 

valuation of his improvements rather than simply upholding the agency's exclusive 

review authority under § 77-6-306(3), MCA, and crediting the expertise of the agency 

in this matter. According to Gottfried, the court over-reached its authority on 

judicial review, first, by allowing Meeks to depose the three DNRC employees and 

permitting those depositions to become part of the record and, second, by failing to 

limit its scrutiny to determine whether a fair procedure was used, whether questions 

of law were properly decided, and whether the agency decision was supported by 

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substantial evidence. We do not agree.

¶11. We addressed precisely this same issue in Evertz v. State Dept. of State Lands

(1991), 249 Mont. 193, 815 P.2d 135. In that case, Petitioner Ted Evertz leased 

approximately 1500 acres in Prairie County. Due to mismanagement of the property, 

Evertz's lease was canceled and transferred to another party. Pursuant to § 77-6-302, 

MCA, Evertz sought compensation for improvements to the land and, since the 

parties could not agree on a value, a panel of arbitrators was chosen to decide the 

value of the improvements. Evertz, 249 Mont. at 195, 815 P.2d at 137.

¶12. The arbitrators assigned a value of $2,800 to the improvements. Evertz, who 

valued the improvements at more than $53,000, appealed the decision to the 

Department of State Lands.(1) An employee for the Department reviewed the 

arbitrators' findings and prepared a 16 page document detailing the improvements 

claimed by Evertz. Relying on these findings, the Department affirmed the 

arbitrators' decision. Evertz, 249 Mont. at 195, 815 P.2d at 137.

¶13. Evertz petitioned the District Court for judicial review. He maintained that the 

record upon review should consist solely of his deposition and the deposition of the 

person who prepared the 16 page document for the Department. Evertz argued that 

the record offered by the Department was compiled without his input and that he 

was unable to cross-examine any of the people who had supplied the information. 

Evertz, 249 Mont. at 195-96, 815 P.2d at 137-38.

¶14. The District Court determined that all testimony and documentation created by 

the arbitrators and the Department in reaching their valuation should be included in 

the record. The court gave Evertz the opportunity to cross-examine any or all of the 

witnesses relied on and submit their deposition testimony, but Evertz chose not to do 

so. The court found that the decision of the arbitrators and the document prepared 

by the Department were more credible than Evertz's assertions. Thus, the court 

affirmed and directed that the successors in interest to Evertz pay him $2,800 as 

compensation for the improvements to the land. Evertz, 249 Mont. at 195-96, 815 

P.2d at 137-38.

¶15. On appeal to this Court, Evertz contended that he was entitled to a trial de novo

before the District Court and that the procedure followed at the agency level and 

upon judicial review denied him due process. We concluded that there is no 

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indication in § 77-6-306, MCA, that the judicial review contemplated by subsection 

(4) of that statute is to be a trial de novo. We stated, however, that the lower court is 

in a better position to understand how a decision was reached if it is able to review all 

of the material used to reach that decision. Thus, we held in Evertz that the District 

Court did not err in considering all the documentation regarding the leasehold. 

Evertz, 249 Mont. at 195-96, 815 P.2d at 137-38.

¶16. In that same fashion, in the case sub judice, Meeks did not demand, and the 

District Court did not allow, a trial de novo. Rather, the District Court simply 

allowed Meeks to depose the three DNRC employees, who made the decision for 

DNRC, to clarify how they arrived at their decision. Gottfried was free to present 

further evidence as well, but he chose not to do so. 

¶17. Accordingly, we hold that the District Court did not err in allowing Meeks to 

depose the three DNRC employees or in permitting those depositions to become part 

of the record. Following our holding in Evertz, we conclude that a district court can 

and should allow additional evidence to be presented to clarify the administrative 

record and to ensure that the parties have been afforded due process.

Issue 2.

Did the District Court correctly determine that DNRC's valuation of Gottfried's 

improvements was clearly erroneous?

¶18. In its June 5, 1998 Order on Petition for Judicial Review and Judgment, the 

District Court determined that DNRC's valuations of the improvements on the leased 

land totaling $22,225.59 were clearly erroneous, contrary to law, and arbitrary and 

capricious. Thus, the court set aside DNRC's valuations and determined that the 

appropriate valuations of the improvements on the leased land totaled $8,101.22. 

¶19. Gottfried contends on appeal that the District Court erred in failing to uphold 

DNRC's valuations. He argues that there is substantial credible evidence within the 

administrative record to support the conclusion that the reasonable value of the 

improvements remaining in serviceable condition on the leased land is $22,225.59. 

¶20. The improvements to the leased land at issue in this case are: (1) summer 

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fallowing; (2) fertilization of fallow ground; and (3) rock picking. We will discuss 

each in turn.

Summer Fallowing

¶21. Gottfried chemically fallowed 281.3 acres of the leased land in April 1995, and 

he mechanically fallowed the land twice thereafter. DNRC valued the chemical fallow 

at $2,365.22 and the two mechanical fallow treatments at $2,813. While the District 

Court agreed with the valuation for the chemical fallow, it concluded that the 

valuation for the mechanical fallowing was clearly erroneous. 

¶22. All parties agree that summer fallowing is an improvement under 36.25.125, 

ARM. The dispute arises over whether the benefit Meeks received from the summer 

fallowing should be a determining factor. 

¶23. The District Court concluded that Meeks only owed Gottfried $2,365.22 for the 

chemical fallowing since Meeks did not derive any benefit from the mechanical 

fallowing. Gottfried contends that the court has approached the valuation process 

incorrectly. He argues that the purpose of the improvements statute is so that former 

lessees can be compensated for the reasonable value of the improvements a lessee 

makes to a lease formerly held by him, not solely for the reasonable value 

"captured" by the new lessee.

¶24. Gottfried's lease was canceled in January 1996. DNRC did not issue Meeks a 

license for the land until June 12, 1996, too late to raise a crop for 1996. The DNRC 

employees who valued the improvements for DNRC admitted in their depositions 

that the mechanical fallowing done by Gottfried in 1995 had little value to Meeks in 

1996 because Meeks had to mechanically fallow several times to eliminate the cheat 

grass and noxious weeds that had grown up in the spring of 1996. 

¶25. Under § 77-6-303(1), MCA, the benefit Meeks received from the summer 

fallowing is a determining factor. This statute provides, in pertinent part:

In determining the value of these improvements, consideration shall be given to their 

original cost, their present condition, their suitableness for the uses ordinarily made of the 

lands on which they are located, and to the general state of cultivation of the land, its 

productive capacity as affected by former use, and its condition with reference to the 

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infestation of noxious weeds. [Emphasis added.]

¶26. Accordingly, we hold that the District Court correctly concluded that since 

Meeks did not derive any benefit from the mechanical fallowing, that valuation was 

clearly erroneous.

Fertilization of Fallow Ground

¶27. DNRC tested soil samples from the 281.3 acres fertilized by Gottfried and 

determined that there were 81 pounds more nitrate per acre than the adjacent 

unfertilized soil. DNRC calculated the value of the fertilizer and the cost of its 

application to be $19.82 per acre. Hence, DNRC determined that Meeks owed 

Gottfried $5,575.37 for this improvement. 

¶28. The District Court concluded that, under 36.25.125(6), ARM, fertilization is an 

improvement only when the ground is seeded. The fact that there were no seeded 

acres or growing crops on the land in question is not disputed, thus, the court 

concluded that DNRC's inclusion of the value of fertilization in its calculation of 

improvements was contrary to law.

¶29. According to the plain language of 36.25.125(6), ARM, the District Court was 

correct in concluding that fertilization is only an improvement when it is considered 

in connection with seeded acreage or growing crops: 

Summer fallowing, necessary cultivation done after the last crop grown, seeding and 

growing crops shall all be considered improvements. The value of seeded acreage and 

growing crops shall be limited to costs for seeding, seedbed preparation, fertilization and 

agricultural labor at the prevailing rate in the area. [Emphasis added.]

¶30. Therefore, we hold that the District Court did not err in concluding that Meeks 

was not required to compensate Gottfried for fertilizing the leased land.

Rock Picking

¶31. Meeks argues that rock picking is routine maintenance and not an 

improvement. However, in a November 26, 1996 Memorandum setting forth 

recommendations for the valuation of the improvements, DNRC explained why rock 

picking is considered an improvement to the land:

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Presence of rock in a field accelerates wear on machinery, causes disruption of farming 

operations, and results in equipment breakdowns. Breakdowns and downtime resultant 

from rock picked up by a combine can be especially costly, with repairs for single 

occurrences sometimes exceeding several thousand dollars, and resulting in days of down 

time while parts are sought and repairs are made. Significant unharvested crop losses from 

wind, hail, and rain can occur during down times, resulting in substantial indirect costs. 

The presence of field rock in a field thereby decreases operational efficiency and increases 

operating costs above that for lands not so affected.

While the District Court agreed with DNRC that rock picking is a benefit which is 

transferred with the land, the court disagreed with the value placed upon that improvement 

by DNRC. 

¶32. In determining the value of rock picking, DNRC relied upon a Custom Rates 

Book compiled by the MSU Extension Service which provides a cost guideline for 

various farming practices. The listed rates for rock picking ranged from $3.74 to $50 

per acre, with the statewide average being $15.25 per acre. The rates in this 

publication were last updated in 1990, thus DNRC adjusted the rates upward 15 to 

20 percent to reflect inflation. This resulted in a range of $17.53 to $18.30 per acre. 

Hence, DNRC determined that Gottfried's claimed rate of $20 per acre was 

appropriate and DNRC set the value of the rock picking on the 573.6 farmed acres at 

that rate.

¶33. We agree with the District Court's conclusion that the $20 per acre rate for rock 

picking established by DNRC was arbitrary and capricious as it had nothing to do 

with the actual cost of the rock picking. As Meeks points out, while the Custom Rates 

Book established that the statewide average for rock picking is $15.25 per acre, the 

average rate for the area that includes the leased land is $7.50 per acre. 

¶34. Accordingly, we hold that the District Court did not err in concluding that the 

appropriate valuation for rock picking was $10 per acre.

¶35. Affirmed.

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/S/ JAMES C. NELSON

We Concur:

/S/ JIM REGNIER 

/S/ TERRY N. TRIEWEILER

/S/ W. WILLIAM LEAPHART

/S/ KARLA M. GRAY

1. 1 Effective July 1, 1995, the Department of State Lands was disbanded and its functions 

were transferred to the newly established Department of Environmental Quality and the 

existing Department of Natural Resources and Conservation.

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