No. 80-47 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1980 

ED SKILLMAN, 

Plaintiff and Appellant, 

THE DEPARTMENT OF STATE LANDS OF THE 

STATE OF MONTANA; THE BOARD OF LAND 

COMISSIONERS and JAMES R. FOSTER, 

Defendants and Respondents. 

Appeal from: The District Court of the First Judicial District, 

In and for the County of Lewis and Clark, The 

Honorable Peter G. Meloy, Judge presiding. 

Counsel of Record: 

For Appellant: 

Harrison, Loendorf and Poston, Helena, Montana 

For Respondents : 

David Woodgerd, Department of State Lands, Helena, 

Montana 

H. A. Bollinger, Bozeman, Montana 

Submitted on Briefs: June 5, 1980 

Decided : JUL 2 8 1980 
Mr. Justice John Conway Harrison delivered the Opinion of 

the Court. 

Respondent Ed Skillman petitioned the District Court 

for judicial review of a decision by the State Board of Land 

Commissioners to renew a lease of state land to James R. 

Foster. The Board of Land Commissioners had renewed the 

lease after finding that Foster had a preference right. The 

District Court held the Board of Land Commissioners erred in 

renewing the lease. The court remanded the case to the 

Board with directions to cancel the Foster lease and lease 

the land without a preference right. The Department of 

State Lands and the State Board of Land Commissioners appeal 

the decision of the District Court asserting the lease to 

Foster should be reinstated. Skillman cross-appeals contending the court should have awarded the lease to him 

rather than ordering the lease reopened for bids. 

The facts in this case are not disputed by the parties. 

Foster held a State of Montana surface lease to 640 acres of 

grazing land in Park County, Montana. The lease expired on 

February 28, 1979. On January 2, 1979, Foster applied to 

renew his lease on the land at a rate of $7.50 per AUM 

(animal-unit-month). On January 23, 1979, Skillman applied 

to lease the land at a rate of $18.75 per AUM. Foster was 

notified of the bid submitted by Skillman and informed that 

as current lessee he was entitled to exercise a preference 

right to meet the bid. Foster exercised the preference and 

met the bid on February 22, 1979. The lease was renewed to 

him on February 28, 1979. 

Foster also requested and was granted a hearing to 

determine whether the bid was in the best interest of the 

State of Montana. State Land Commissioner Leo Berry conducted the hearing on the matter on March 27, 1979. Evi- 
dence introduced at the hearing showed that Foster had 

subleased the land to Jim Serrazzen but had not filed a 

sublease form with the Commissioners. Subsequent to the 

hearing, Commissioner Berry recommended that a renewal lease 

be issued to Foster at the rate of $7.50 per AUM. The Board 

accepted the recommendation and renewed the lease at the 

$7.50 rate. 

On July 2, 1979, the Department of State Lands canceled 

Foster's lease for failure to file a sublease. On cancellation of the lease, it was explained to Foster that his 

lease would be renewed if he paid a penalty of 50 percent of 

the annual rental of the land. Foster paid the penalty, and 

the lease was reinstated. 

The following issue is raised by the Department of 

State Lands for review: 

Did the District Court err in determining Foster should 

not be granted a preferential right to lease the land in 

question under the authority of Jerke v. State Department of 

Lands (1979), Mont. , 597 P.2d 49, 36 St.Rep. 389? 

Respondent Skillman raises the following issue on 

cross-appeal: 

Did the District Court err in declaring the land in 

question should be reopened for public bid rather than 

awarding the lease to Skillman? 

The arguments of the State are not persuasive in this 

case. Although the State is correct in stating that Jerke 

is limited to its facts, the distinctions made by the State 

are not fatal to its application here. As Chief ~ustice 

Haswell pointed out in Jerke, the crucial point of the case 

is this: 
"To allow an existing lessee who does not use 

the land to exercise a preference right constitutes an unconstitutional application of the 

preference right statute, section 81-405(1), 

R.C.M. 1947, now section 77-6-205 (1) , MCA." 

597 P.2d at 51, 36 St.Rep. at 392. 

The mere fact that the lessee in this case is an individual instead of a grazing district is not sufficiently 

material to the policy involved to disallow the application 

of the precedent. 

Further, if the case is distinguishable and Jerke 

should n6t be controlling as precedent, there is even more 

justification for applying the rationale of Jerke here. In 

Jerke, although there was a sublease involved, there is no 

evidence that there was an illegal sublease, as in the case 

before us. Here the lessee, Foster, sublet his grazing 

lease without having the sublease approved by the Department 

of State Lands as required by his lease with the State. 

Section 77-6-205(1), MCA, recites in applicable part: 

"(1) A lessee of state land classed as agricultural, grazing, town lot or city lot who has 

paid all the rentals due from him to the state 

and --- who has not violated the - terms --- of his lease 

is entitled to have his lease renewed . . ." 

(Emphasis supplied.) 

Further, ARM §26.3.108(2) establishes the Department's 

policy: 

"(2) A surface lessee has a preference right 

to renew his lease provided all rentals have 

been paid and the terms -- of the previous lease 

--- have not been violated." (Emphasis supplied.) 

A strict reading of these statutes raises a serious 

question whether Foster even had a right to renew (section 

77-6-205, MCA) or a preferential right in the leasing procedure (ARM §26.3.108(2)), when this case was filed in 

District Court. Assuming his sublease arrangement, although 

not approved by the Department, was not sufficient to deprive 
him of his preference right, he would clearly be the type of 

lessee that the policy of Jerke was designed to affect. 

In consideration of our reasoning in Jerke, we are 

compelled to apply the same reasoning to the case before us. 

In Jerke, we held: 

"Where the preference right does not further 

the policy of sustained yield, it cannot be 

given effect. In such a situation, full market 

value can be obtained only by pure competitive 

bidding. Here, the Grazing District, the 

holder of the preference right, does not even 

use the land; it cannot use good agricultural 

practices or make improvements thereon. . . 

"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 it 

would not be bound by a constitutional or fiduciary duty. Under such a scheme, the concept 

of sustained yield would have no place." 597 

P.2d at 51, 36 St.Rep. at 391. 

There appears to be no operative fact on the record 

here that would justify overruling the trial court's decision to follow Jerke. Every point of law and every policy 

consideration is as applicable to Foster as it was to the 

grazing district. Therefore, the underlying rationale that 

originally decided Jerke is equally dispositive of this 

case. 

On cross-appeal Skillman contends that he should be 

awarded the lease because he was the highest bidder when 

bids were originally opened. He interprets the language of 

Jerke and section 77-6-205(2), MCA, relating to "pure competitive bidding" as meaning bidding once and a subsequent 

award to the highest bidder. 

It would be truly inequitable to follow this interpretation. Foster was under the impression that he would have 

a valid preference right, and he should not be penalized for 
that good faith belief. He should have an equal opportunity 

to bid on the lease. Indeed, if he is not allowed to participate, then the spirit of the competitive bidding statute 

would be defeated. In addition, Foster had no reason to 

suspect that he could not exercise the preference right 

since Jerke had not been decided by this Court. 

The judgment of the District Court is affirmed. The 

lease is canceled and reopened for bidding by all parties. 

We concur: 

34%~ 

Chief Justice 

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