No. 14366 IN THE SUPREME COURT OF THE STATE OF MONTANA 1979

ALBERT JERKE

## , Plaintiff and Appellant,

THE STATE DEPARTMENT OF LANDS, et al., Defendants and Respondents.

Appeal from: District Court of the First Judicial District, Honorable Peter G. Meloy, Judge presiding. Counsel of Record: ForAppellant: Scribner, Huss & Mulroney, Helena, Montana Lawrence D. Huss argued, Helena,Montana For Respondent: JohnNorth argued, Helena,Montana CharlesW. Jardine argued,Miles City,Montana For Amicus Curiae: Carl M. Davis, Dillon,Montana

Filed: 

## MAR-

## .' 199" Submitted: February 6, 1979Mr. Chief Justice Frank I. Haswell delivered the Opinion of the Court. Plaintiff appeals from an adverse judgment in an action to cancel a lease following a nonjury trial in the District Court of Lewis and Clark County. The Prairie County StateGrazing Districtwas created pursuant to the Grass ConservationAct, section 46-2301 et seq. R.C.M. 1947,now section 76-16-101 et seq. MCA. In conserving Montana's rangeland resources, the Grazing District procures available land and allocates it to its members for use in their individual farming or ranching businesses. Itdoes not use the land itself. Under a 1965 lease, the Grazing Districtwas the lessee of a tract of state land lying within Prairie County. This land

was allocated to David Hess and two other individuals who used it for their personal ranching enterprises. In early 1975 with the termination of the lease, the Department of State Lands, acting on behalf of the Montana Board of Land Commissioners,requested competitivebids for the lease of the tract. Appellant submitted the only bid. Itwas based

on a 26% crop share with a guaranteed minimum of $2,000per year. After appellant's bid was opened,an administrative hearing was held where the Grazing District challenged it as unreasonable. The Departmentdetermined the bid to be bona fide and the highest bid received. The Grazing District,as the existing lessee,was holder of a preference right under section 81-405(1), R.C.M. 1947,now section 77-6-205(1) MCA which provides: "I£other applicationshave been received,the holder of the lease has the preference right to lease the land covered by his former lease by meeting the highest bid made by any other applicant. " The rightwas exercised and the new lease was awarded to the Grazing

-2-District. In the summer of 1975 the land was subleased to David Hess. Appellant sought to have the lease and sublease set aside and to have the District Court order the Department of State Lands to award the lease to him. His basic argument,both at trial and on appeal, is that the preference right unconstitutionally prevents the State from obtaining full market value for the land. We limit our decision to the facts of this case and hold the preference statute to have been unconstitutionally applied. The proposition that public land isheld in trust for the people iswell settled. State ex rel. Thompsonv. Babcock (1966), 147Mont. 46, 54, 409 P.2d 808; Toomey v. State Board of Land Commissioners (1938), 106 Mont. 547, 559, 81P.2d 407. The State Board of Land Commissioners,acting through the Department of State Lands must adhere to a fiduciary standard somewhat higher than that of the ordinarybusinessman. State ex rel. Babcock v. Thompson, at 54. In addition, this "trust-like"standard is constitutionally defined. "No land or any estate or interest therein shall ever be disposed of except in pursuance of general laws providing for such disposition,or until the full market value of the estate or interestdisposed of, to be ascertained in such manner asmay be provided by law,has been paid or safely secured to the state.

### " 1972Mont. Const., Art. X, 511(2)

# . See also 1889Mont. Const., Art. XVII, 51.

(knphasissupplied.) The legislature is thus given authority to determine the method by which full market value is ascertained. The statutes dealing with the leasing of state land will pass constitutional muster as long as the concept of full market value is not abrogated. Rider v. Cooney (1933), 94Mont. 295, 310, 23 P.2d 261. In exercising its constitutional authority, the legislature has provided that fullmarket value shall encompass the concept of sustainedyield. Section 81-401,R.C.M. 1947, now section 77-6-101MCA. Sustained yield is the policy which favorsthe long term productivity of the land over the short term return of income. State ex rel. Thompsonv, Babcock, supra. The preference right seeks to further this policy by inducing the State's lessees to follow good agriculturalpractices and make improvementson the land. This is accomplished by guaran,teeingthat the lesseeswill not lose the benefits of their endeavorsby being outbid when their leases terminate. They are preferred and may renew their leases by meeting the highest bid submitted. Where thepreference right does not further thepolicy of sustained yield, it cannot be given effect. In such a situation, full market value can be obtained only by pure competitivebidding, Here, the Grazing District, the holder of the preference right, doesnot even use the land; it cannot use good agricultural practices ormake improvements thereon. Likewise, the actual user of the land,who as a member of the Grazing District is prevented frombidding on the lease, is not motivated to further the policy of sustained yield. There is no guarantee the Grazing District will exercise its preference right and moreover, if it does, the actual user is not assured the land will be allocated to him. To allow the preference right to be exercised in this

case would be to install the Grazing District as the trustee of the land. It,rather than the Department of State Lands,would decide who will occupy the land but itwould not be bound by a constitutional or fiduciaryduty. Under such a scheme,the policy of sustainedyield would have no place. To allow an existing lesseewho does not use the land to exercise a preference right constitutesan unconstitutional application of the preference right statute, section 81-405(1), R.C.M. 1947, now section 77-6-205(1) MCA. The only way full market value

can be obtained in such a situation is by pure competitivebidding. ~ccordingly, the judgment of the District Court is reversed.chiefJustice

Weconcur: