### No. 81-40 INTHE SUPREMECOURT OF THE STATE OF MONTANA

STATEOF MONTANA, upon the relation of FLORENCE-CARLTON CONSOLIDATED SCHOOLS DISTRICT 15 & 

### 6"et al., Petitioners,

DISTRICTCOURT OF THE FIRSTJUDICIAL DISTRICT OF THE STATEOF MONTANA, IN AND FORTHE COUNTY OF LEWIS & 

### CLARK et ax., Respondents.

ORIGINAL PROCEEDING: 

### Counselof Record: For Petitioners: Herron,Meloy & 

### Llewellyn,Helena,Montana ClaytonHerron argued, Helena,Montana and

Peter Meloy argued, Helena,Montana ForRespondents: Bellingham & 

### Christenson, Billings,Montana CresapMcCracken argued,Great Falls,Montana BruceT. Toole argued, Billings,Montana JohnNorth, Helena,Montana Robert Gannon, Butte,Montana Thomas D. Ebzery,Billings, Montana Murphy,Robinson LawFirm,Kalispell,Montana Gregory C. Black, Butte,Xuntana Alan Hux and CarolDunn, Indianapolis,hdiana Hon. JohnHenson,District Judge,Missoula,Montana

Submitted: June 12, 1981 Decided: 

### Filed: 

### AUG

## 3

# -1981

* 

### ClerkMr. JusticeGene B. Dalydelivered theOpinion of theCourt. This action was commenced in the District Court of the FirstJudicial District, in and for the County of Lewis and Clark, by complaint for declaratory judgment on August 31, 1979. On March 20, 1980, an amended complaint, adding necessaryparties and deletingpartiesdeemed unnecessary to thisaction, was filed. Plaintiffs-relators filed a motion for leave to file a second amended complaint on June 18, 1980. Prior to any action of the court regarding this motion, relators filed a second motion for leave to filea revised second amended complaint. Defendants objected to thismotion and requested sanctionbe imposed upon relators

as a condition to proceeding with this revised second amended complaint. Respondent District Court granted the motion for leavetofilethe revised complaint, but reserved ruling on the requested terms. After briefing by all parties, respondent District Court granted defendants' request by imposing an award of costs upon relators as a condition precedent to proceeding with the revised second amended complaint. From thisorder, relators petition for a writ of supervisorycontrol. On August 31, 1979, Friends of the Earth, Inc., Edward M. Dobson, Daniel H. Henning, Gary Matson, Vicki Gale, Robert K. Lendis, the Montana Education Association, and theMontana StateFederationof Teachers, asplaintiffs, filed a complaint for declaratory judgment against the Montana Board of Land Commissioners and Westmoreland Resources, Inc., as defendants. This complaint alleged basically that the land commissioners were not requiring Westmoreland Resources, Inc., to pay the fullmarket valuefor royaltyrights for the extractionof coal on statetrust lands as required by law. The complaint prayed for declaratoryjudgment thatcoal leases issued toWestmoreland by the land commissioners were null and void, for an adjudication of the land commissioners1 duty to obtain full market value, and for attorneyfeesand costsof suit. Westmoreland Resources, Inc., filed successive motions for substitutionof judge, and theHonorable John S. Henson assumed jurisdiction on November 1, 1979. Pursuant to stipulation of the parties and order of the court, an amended complaint was filedon January 17, 1980, which added Florence-Carlton Consolidated Schools, Districts 15 and 6,

asaplaintiff tothisaction. On March 11, 1980, following motions, notices, and hearings, the District Court ruled that Friends of the Earth, Inc., did not have standing and was, therefore, dismissed from the action. The court also ruled that additional parties were indispensable to the action and ordered plaintiffs, relatorshere, toeffectjoinder of such parties. On March 20, 1980, in compliance with this order, relators filed an amended complaint joining the following defendants with the land commissioners and Westmoreland Resources, Inc.: Arkland Company; Ayrshire Coal Company; the Carter Oil Company; Consolidated Coal Company; Decker Coal Company; Gulf OilCorporation; Mapco, Inc.; Mobil Oil Corporation; Spring Creek Coal Company; Peabody Coal Company; Peter Kiewit Sons1 Corporation; Robert W. Adams; United States Steel Corporation; Western Energy Company; Thermal Energy, Inc.; and Thermal Resources, Inc. The amended complaint sought torender void allstateschool land coal leases held by the above-named defendants. It sought declaratory judgment alleging solely that the royalty rates in the existing leases did not reflect full

market value. No alternative theories or grounds for challenging the leases than that included in the original complaint of August 31, 1979, were included in the amended complaint filedMarch 20, 1980. On June 18, 1980, relators filed and served a motion for leave to file a second amended complaint. All defendants, except the Board of Land Commissioners, Westmoreland Resources, Inc., Thermal Resources, Inc., and Thermal Energy, Inc., had filed responsive pleadings to the amended complaint of March 20, 1980, prior to the second motion to amend. The proposed second amended complaint added an additional count in mandamus and 

### set forth five additional allegations, reasons and bases for relators' contention thatthe coal leaseswere null and void. Defendant United StatesSteelCorporationobjected to the filing of the second amended complaint and, in the alternative, requested the court to impose sanctions upon relators, such sanctions to be a reasonable allowance of attorneyfeesnecessarily incurred inpreparing an answer to the second amended complaint. Thisobjectionwas filedJune 24, 1980. Prior to a ruling on either relators' motion for leave to file a second amended complaint or United States Steel's objection to such motion, relators filed a motion for leave tofilea revised second amended complainton July 16, 1980. The proposed effectof this revisionwas tomake ten changes to the second amended complaint, such changesbeing matters of style and correct usuage, rather than matters of substance. This motion was noticed for hearing

on August 6, 1980. Prior to August 6, 1980, all defendants served and filed objections to relators' motion for leave to filethe second amended complaint revised. Alldefendants requested sanctions or conditions be imposed upon relators in the alternative. Following hearing on August 6, 1980, respondent District Court ruled that leave was granted to relators to file the second amended complaint (revised). The court reserved ruling on the question of imposition of sanctions until further briefing could be submitted by allparties. On September 24, 1980, respondent court granted the request for terms by awarding costs todefendants. The award was limited by the court to the "expenses, costs, attorney fees and so forth that the defendants have incurred" relating tothe revised second amended complaint. Defendants requested that such information be presented to the court by affidavits. The court requested such affidavits from defendants by October 7, 1980. The court then granted relators until October 13, 1980, to review the affidavits and decide whether to request a hearing regarding the costs or to simply file something on the record. Defendants filed affidavits of costs ranging from $209.28 to $2,520. Relators filed an affidavit and motions in opposition to claims for attorney fees on October 13, 1980, but failed to request a hearing on thematter. Eventually relators did filea motion for a hearing on November28, 1980. The motion, however, came after the imposed deadline; thus, the court took no action regarding the request. On November 28, 1980, the court awarded each defendant $150 partial costs as a condition to relators1 proceeding on the revised second amended complaint. The court further ordered that such an award was not due the Montana Board of Land Commissioners or Westmoreland Resources because those defendants had not filed any responsive pleadings in the matter. Relators were required to make payment within thirty days after entry of the judgment

# . On December 22, 1980, relators deposited with the clerk of the court five checks in the amount of $150 each, payable to the five separate law firms handling the action for defendants. The checks were deposited with the express reservationthattheywere tobe delivered only if the court indicated that the amount received was in fullsatisfaction of 

### its order. These checks, however, were never delivered todefense counsel because on January 9, 1981, Judge Henson wrote relators1 counsel, informing him that relators were required topay eachdefendant designated by theorder $150, not each law firm involved (atotal award of $2,400). Subsequently, various defendants filed motions for dismissal because of relators1noncompliance with the order of November 28, 1980. On January 30, 1981, relators filed thispetition for writ of supervisory control regarding the order awarding costs as a condition to proceeding on the revised second amended complaint. There have been two issues submitted to this Courtfor review: 1. Is a writ of supervisory control an appropriate form of judicial review inthisinstance? 2. Did the District Court abuse 

### its discretion in awarding "costs" to defendants as a condition to relators' proceeding on the second amended complaint (revised)? Relators contend generally that there 

### is no direct appeal or other remedial procedure available in this instance. Moreover, if review 

### is not granted under the petition or the award not paid, relatorswillbe denied the right to have their complaint determined inaccordance with due process of law, thereby resulting in gross injustice, oppression and irreparable injury. Regarding the second issue relators contend that the District Court has no authorityto impose sanctions against

a party as a condition to allowing proposed amendments to 

### its pleadings. Even if terms can be imposed, the District Court's awarding of "attorney fees," asopposed totheaward of "incidental costs," was improper. Furthermore, sincethe defendants have not been prejudiced by the amendments and since relators have not engaged in gross misconduct, the imposition of sanctions cannot be justified. Respondent contends first that the relief asked for by relators is not a proper area for a writ of supervisory control. The order awarding "costs" 

### is interlocutory in nature and does not present extraordinary or compelling circumstances beyond simply requiring relatorstoproceed to trial. The issueraised by relatorscan easilybe raised on appeal after a trial has been had on the merits and a judgment rendered thereon.Respondent further contends that authority to impose conditions on relators' request toamend their complaint 

### is drawn from the language in Rule 15(a),M.R.Civ.P., which provides that

# ".

. . a partymay amend hispleadings onlyby leave of court or by written consent of the adverse party; and leave shall be freely given when justice sorequires." Thus, the District Court 

### is empowered to act as justice requires, to safeguard the parties from prejudice by imposing such terms as are just upon the party requesting the amendment. Here, defendants have been prejudiced tothe extent of incurring substantial costs as a result of relators' desire to expand their complaint to include additional legal theories and relief, therebyjustifying the impositionof terms. Respondent raises a third issue on appeal: Did the relators waive any right to an evidentiary hearing on the award to be given, either by failing to make a timely request for such a hearing or by attempting to comply with theDistrictCourt's order? The issue, however, need notbe discussed further in that relators have stated in their reply brief that they do not seek a hearing on the amount of the award to be granted under the court's order. The relators' solecontention is that no amount can be properly awarded under thecircumstances, and, thus, a hearing 

### isnot required. Proper judicial administration requires freedom of action by the District Court prior to trial and noninterference on our part atthisstageof theproceeding. Stateex rel. Kosena v. DistrictCourt (1977), 172Mont. 21, 560 P.2d 522. The institution of an original proceeding inthis Court seeking a writ of supervisory control can be justified, however, when there is no directappeal or other remedial procedure available to provide relief from the District Court's action and when extraordinary and compelling circumstances are presented. See Rule 17(a), M.R.App.Civ.P. In this instance, no direct appeal 

### is available from the order requiring relators topay the award todefendants

asa condition toallowing theamendment of their complaint. Furthermore, 

### we find that extraordinary circumstances are present which require an inquiry into the District Court's proceedings prior to trial and final judgment. If we declined to review thematter atthis stage, relators could be precluded from proceeding on all counts they deem necessary for appropriate relief, resulting in a possible improper denial of their rightof access tothecourts. The major issue in this proceeding is whether the DistrictCourt was within 

### itsjurisdiction in imposing terms upon the allowance of relators' amended complaint. Rule 15(a),M.R.Civ.P., provides inpart: 

# ".

. 

# . Otherwise a party may amend his pleading only by leave of the court or by written consent of the adverse party; and leave shall be freely given when justice so requires." Rule 15(a),M.R.Civ.P., as cited above, is identical toRule 15(a)of the federal rules under which it is widely held that it is within a court's discretionto impose terms

or conditions upon granting a motion for leave to amend. See Key Pharmaceuticals, Inc. v. Lowey (S.D. N.Y. 1972), 54 F.R.D. 447; Sherrellv. Mitchell Aero, Inc. (D. Wisc. 1971), 340 F.Supp. 219; Thermodynamics Corp. v. Union Carbide Corp.(D. N.H. 1967), 42 F.R.D. 607; Jacobs v. McCloskey & Co. (E.D. Pa. 1966), 40 F.R.D. 486. Comments and reasons for upholding such an exercise of discretion is fullydiscussed in 6Wright & Miller, FederalPractice andProcedure, Civil

"Rule 15(a) gives the court extensive discretion to decide whether to grant leave to amend after the time for amendment as of course has passed. In addition, a number of courts have concluded that it gives them authority to impose conditions when permission to amend 

### is allowed 

# . 

# . . The statement in Rule 15(a)that 'leave shallbe freely given when justice so requires' presupposes that the court may use its discretion to impose conditions on the allowance of a proposed amendment as an appropriate means of balancing the interests of the party seeking the amendment and those of theparty objecting toit. The imposition of terms often will further the rule's liberal amendment policy. If the party opposing the amendment can be protected by the use of conditions from any possible prejudice that might result from the untimeliness of the amendment, there is no justifiable reason for not allowing it." Seealso3 Moore's Federal Practicetl15.08[6]. As a result of the District Court's discretion to impose terms, the question now becomes whether the court in this instance abused 

### its discretion. In this regard, the most important factor, and perhaps the most frequent reason given for denying leave toamend, is thattheopposingparty willbe prejudiced if the movant is permitted to alter his pleading. Mitchell v. Mitchell (1976), 169 Mont. 134, 545 P.2d 657. Other factorstobe considered arethegood faith of the party seeking the amendment, the reasons for the movant's delay, and the length of the delay. Mitchell v. Mitchell, supra; 6 Wright & Miller, FederalPractice and Procedure, Civil 

### 55 1487, 1488. Here, the original complaint was filed on August 31,1979. The complaint alleged that certain coal leases entered intoby defendant StateBoard of Land Commissioners and the remaining defendants were voidable or void. The complaint was grounded on the theory that the Board, by entering intoleaseswhich provided for a royaltyratebelow full market value, was in violation of section 77-3-315, MCA, and, thus, was inbreach of trustresponsibilities owed to relators. Relators prayed that the DistrictCourt issue

a declaratoryjudgment adjudicating thedutyof theBoard of Land Commissioners to obtain the full market value of the land and declaring the leases null and void for the Board's failuretoabideby thisduty. Certain plaintiffs were dismissed from the proceedings and additional plaintiffs and defendants were joined by order of the court and stipulationof the parties in amended complaints filed on January 17, 1980 and March 20, 1980. No additional allegationsor theorieschallenging the validity of the leases were included in these complaints. On June 18, 1980, relators filed their motion for leave tofilethe second amended complaint. Thismotion

was made after all but four of the defendants had filed responsive pleadings to the allegations and grounds for relief setforth inthe originaland amended complaint. The second amended complaint again alleged that the coal leases were void or voidable. Relators, however, in supporting the allegation expanded the theory of their case to include the following contentions not previously presented to thecourt: (1)The Board, by entering intothe leases, had acted in violation of Art. X, Section 11, 1972 Mont.Const.; ofsection 81-501 through 81-551, R.C.M. 1947 (sections 77-3-301 through 77-3-321, MCA); section 81-103, R.C.M. 1947 (sections 77-1-202 and 77-1-203(1), MCA); section 77-1-102, MCA; and the laws of the Stateof Montana and the United States relating to the powers and obligations of trustees. (2)The Board hasviolated itstrustresponsibilities in wasting the assets of the trustby removing the subject of the trust (coal deposits) from the competitive market, wherein a greater royalty rate could be obtained, for an unconscionable period of time. (3) The Board has further violated its trust responsibilities by failing to effect a forfeiture of the leaseson the basis thatthedefendant lessees have breached

an implied covenant todevelop, produce and market thecoal. (Defendant lessees allegedly have yet to develop the land for coalproduction.) (4)The Board, by granting a unilateral, preemptory right of termination to defendant lessees without receiving

a similar right, has unreasonably relinquished control of trust assetswithoutmutuality or consideration. (5)The royalty rates in the lease do not represent full and fairmarket value ascompared with other royalties

on contiguous or similar land. The leaseshave thus reduced the full market value of the estate constituting a direct violation of the purpose of the trust toobtain the maximum benefit for itsbeneficiaries. In addition toexpanding the theory of their action, relators' second amended complaint also expanded theprayer for relief to include a request for a writ of mandamuscompelling theBoard tovoid the leasesand tomake the land availablefor new and renegotiated leases. Upon receiving the motion for leave to file this amended complaint, defendants objected and argued that, if leave was granted, it should be made conditional. Defendants' request was based on a contention that by allowing the amendment, they would be prejudiced to the extent of incurring substantial costs. The District Court agreed with defendants' position and imposed terms in granting relators' motion. In their petition for a writ of supervisory control relators argue that since formal discovery proceedings had not been instituted e.,interrogatories served or depositions taken) and since the case had not been 

### set for trial or briefing on the merits, there was no prejudice to defendants caused by filing the second amended complaint. The only retracing of effort required of defendants, maintains relators, would be tofileamended answers. We find that generally the District Court has the power to impose terms or conditions on leave to file an amended complaint. Relators argue, however, that the District Court erred in considering "attorney fees" as a component of the partial costs granted as a condition to their amendment. In support of the argument, relators rely upon the general rule adopted by this Court that in the absence of a contractual agreement or specific statutory authority, attorney fees are not recoverable. SeeWiner v. Jonal Corporation (1976), 169 Mont. 247, 545 P.2d 1094; Kintner v. Harr (1965), 146Mont. 461, 408 P.2d 487. Relators have properly set forththegeneral rule inregard to an award of attorney fees. It should be noted, however, thatthe rulehasbeen expanded to include allowing attorney fees in spite of the absence of any specific statute or contractual agreement, solely upon equitable grounds. See Means v. Montana Power Company (1981), 

## - Mont. 

## , 625 P.2d 32, 38 St.Rep. 351. It is upon this

same inherent equitablepower thatother courtshave allowed the imposition of an award of attorney fees as a condition to amendment. See Matlack, Inc. v. Hupp Corporation (E.D. Pa. 1972), 57 F.R.D. 151; Mirabella v. Banco Industrial de la Republics Argentina (1970), 34 App.Div.2d 630, 309 N.Y.S.2d 400; William v. Myer (1907), 150 Cal. 714, 89 P. 972. If, under allof thecircumstancesof a case, justice would require the imposition of costs as a condition to allowing an amendment, equitycan further, inextreme cases, allow, as an element of those costs, attorney fees. Prejudice to a party in this kind of case resulting from an amended complaint 

### is not limited solely to general costs expended in undertaking additionalpreparation but obviously

can include attorney fees expended in responding to issues

or theoriesnot previouslyasserted. Thisdiscretionby the court, however, should be carefully and sparingly used and the court should be careful thata spin-off doesnotdevelop which would or could deny the adverse party access to the court and a fairtrialon themerits. Relators' final argument is that the $150 award to each defendant is unsupported, unreasonable, and amounts to

a clear abuse of discretionby theDistrictCourt. Due torelators' failureto timely request a hearingon thematter, the only evidence upon which the award could be based is contained in the affidavits submitted by the parties listing the costs incurred as a result of the amendment. The total costs listed in the affidavits (including attorney fees) ranged from $209.28 to $2,520. These claims represent expenditures made by thevarious law firms, which in some instances represent more than one defendant. It would appear that the claims have been inflated with inappropriateexpenditures (i.e., expenses and fees for all servicesastoallpleadings todate, notjust those expenses and fees related tothe filing of the second amended complaint)

# . This, however, does not invalidate the $150 assessment, atleastmathematically. As indicated herein, we affirm the District Court's authority to impose conditions on a request to amend pleadings, as or when justice requires. The imposition of such sanctions, however, requires a showing of extraordinary prejudice. We do not find sufficient strength in the record here to support this degree of prejudice; nor did all parties suffer the same kind or amount of prejudice. Therefore, the order imposing cash sanctions is vacated and 

### set aside, without prejudice, so that the matter can be raised on an appeal, if appropriate.

### We concur:

D'strictJudge, sitting 

### in p

# 4 ace 

### of Mr. Chief Justice Frank 

### I. Haswell