No. 14277 INTHE SUPREME COURT OF THE STATE OF MONTANA

INTHE MATTER OF THE APPLICATION FOR AUTHORITY TO CONDUCT SAVINGS AND LOAN ACTIVITIES INTHE STATE OF MONTANA BY GATE CITY SAVINGS AND LOAN ASSOCIATION OF FARGO, NORTH DAKOTA.

Appeal from: DistrictCourt of the FirstJudicial District, Honorable L. C. Gulbrandson, Judge presiding. Counsel of Record: For Appellants: Hooks and Budewitz, Townsend, Montana Patrick F. Hooks argued, Townsend, Montana Scott, Linnell, Neilland Newhall, Great Falls, Montana Kenneth Neillargued, GreatFalls, Montana Loble and Pauly, Helena, Montana Peter Pauly argued, Helena, Montana er -n, GPS&F--a -&-EaUs7 lhlontana For Respondents: Church, Harris, Johnson and Williams, Great Falls, Montana Charles Love11 argued, Great Falls, Montana Cannon and Gillespie, Helena, Montana RossW. Cannon argued, Helena, Montana Alexander, Kuennlng, Millerand Ugrin, Great Falls, Montana Edward Alexander argued, Great Falls, Montana Submitted: February 14, 1979 

### \!UL~ 

## 1975 Filed: Decided:

### JUL 

## 3 1979Mr. Justice Daniel J. Shea delivered the Opinion of the Court. Gate City Savings and LoanAssociation of Fargo,North Dakota ("GateCity") and Fidelity Savings and Loan Association of Great Falls,Montana ("Fidelity")appeal from judgment of the Lewis and Clark County District Court in a proceeding for judicial review of an administrativehearing before the Department of Business Regulation ("Department"). The District Court reversed the Department's approval of a proposed merger between Gate City and Fidelity because the statute governing merger of building and loan associations, section 7-113.2, R.C.M. 1947, now section 32-2-231 MCA, (formerlysection 7-113(22), R.C.M. 1947) contained

an unconstitutional delegation of legislativepower. For the reasons set forth below, we affirm. The facts leading to this appeal are as follows: In 1972 Gate City applied to the Director of the Department of Business Regulation ("Director") for approval to merge with Fidelity and with Glendive Building and Loan Association of Glendive, Montana ("Glendive"). The application for merger was made pursuant to section 7-113(22), R.C.M. 1947,which provided: 

# ".

.

# .Any two (2)or more building and loan associations,

## &and with the consent 

## - and approval 

### -- of the superintendent of banks, [now known as the Director of the ~epartment of Business Regulation] may consolidate and unite and become incorporated in one 

### (1)body,with or without any dissolution or division of the funds or property of any such association,or any such associationmay transfer its engagements, funds and property to any like association upon such terms asmay be agreed upon by a majority vote of the respectiveboard of directors,and ratified by a two-thirds (2/3) vote of the sharespresent and voting in person or by proxy at a special meeting ormeetings of the stockholders of the respective associations convened for that purpose, upon notice given as provided by law, said notice to state the object of the meeting. No such transfer shall prejudice any right of any creditor of such association." (Emphasisand bracketed material added.) (This statute in its current, amended form is found at section 7-113.2, R.C.M. 1947, now section 32-2-231 MCA. For purposesof the issues considered herein, the amended version is identical tosection 7-113(22).) Being uncertain on how totreat theproposed merger application, theDirector requested an opinion from the State Attorney General. On October 3, 1972, theAttorney General issued a formal opinion that Montana law prohibits the proposed merger because operation of branch offices in this Stateby foreign savings and loan associations is .forbidden. 34 Op. Att'y. Gen. No. 53 (1972). The Department therefore denied Gate City's application formerger. Shortly thereafter, Gate City commenced a declaratory judgment action inLewis and Clark County DistrictCourt seeking statutory construction of section 7-113(22) inlight of the proposed merger and theAttorney General's opinion. Glendive and Fidelity were joined asplaintiffs and the Director was named asthe defendant. The Montana Savings and Loan League, FirstFederal Savings and Loan Association of Great Falls, Montana, and Great Falls Federal Savings and Loan Association of Great Falls, Montana (hereinafter "opponents") intervened in opposition tothe proposed mergers. On January 23, 1974, the DistrictCourt overturned denial of Gate City's application. The Director and opponents appealed and thejudgment was affirmed by thisCourt inGateCity v. Pitts (1975), 166Mont. 411, 533 P.2d 1083. Gate City reapplied tothe Department, and the Director held a prehearing conference forthe purpose of "defining issues, determining witnesses and agreeing upon stipulations." The report of thisprehearing conference shows that "counsel for the variousparties and the department were unable toreach any significant agreement as towhat constitutes the exact issues." The Department nonetheless stated itsposition that "since thereare no specific statutory guidelines the issues involved are necessarily broad." The Department refused to adopt the various specific criteriaproposed by the opponents. The only substantive criteria stated was whether itwould be in the public interest to grant or deny the proposed mergers. Hearings began on September 23, 1975and lasted a total of seven days. The Director finally issued his lengthy findings, conclusions and order on July 19, 1976 wherein he concluded that the proposed merger of Gate City and Fidelitywas in the public interest but theproposed merger of Gate City and Glendive was not. The Department therefore approved the Gate City/Fidelity merger and disapproved the Gate City/Glendive merger. Inquiries were made on if and when petitioners for rehearing would be entertained. The Department responded on August 11, 1976 with a detailed time schedule for petitions, briefing and argument. All specified deadlines were followed by both opponents and applicants, Gate City and Fidelity. The Departmentdenied the petitions for rehearing on November 

### 1,1976. On November 30, 1976,opponents brought the present suit for judicial review of the Department's findings and conclusions in Lewis and Clark County District Court. Gate City, the Director and Fidelity all filed responses to the petitions for judicial review that did not question the timeliness of the petitions, but rather contended that the opponents' petitions failed to state any of the grounds prescribed in section 52-4216(7), R.C.M. 1947,

now section 2-4-704(2) MCA, for reversal or modification of the Department's rulings. After extensivebriefing and oral argument, the court issued an order reversing the Department's ruling insofar as it purported to approve the proposed merger of Gate City and Fidelity. The Department's ruling was reversed on the ground that the 

### statutepermitting such mergers, section 7-113.2, 

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### contained an unconstitutional delegation of legislativepower to the Department by reason of a lack of statutory standards to guide its discretion. The court also stated "even if it be assumed that the legislative oversightmight have been cured by the administrative agency, it isplain that suchwas not accomplished here." Gate City and Fidelity appeal from this order and present the following issues for our consideration: (1) Whether the District Court erred in ruling that opponents' petitions for judicial review were timely filed under section 82-4216 (2) (a),R.C.M. 1947,now section 2-4-702 (2)(a)MCA. (2) Whether opponents were estopped from challenging the constitutionality of section 7-113.2, R.C.M. 1947, now section 32-2-231MCA. (3) Whether the District Court erred in holding section 7-113.2 constitutes an unconstitutionaldelegation of legislative power due to the absence of standards. (4) If an agencymay supply appropriate standards in the absence of statutory standards, were adequate standards provided here? Gate City,alone, insists this case can be decided on a nonconstitutional ground;that the DistrictCourt was without jurisdiction because the opponents' petitions for judicial review

were not timely filed in accordancewith section 82-4216(2)(a), R.C.M. 

### 1947,now section 2-4-702(2)(a) MCA. In pertinent part, this statuteprovides: "Proceedingsfor 

### review shall

### be instituted by 

### filing a petition in district court within 30 days after service of the final decision of the agency or, if a rehearing is requested, within 30 days after the decision thereon." Gate City argues that this provision does not create a right to petition for rehearing; itmerely accomodates such right whereadopted pursuant to administrative rulemakingprocedure. Gate City relies on Koehn v. State Bd. of Equalization (Cal.App. 1958), 333 P.2d 125, 128 for the "general rule" that an administrative agency has no inherentpower to rehear its decision. While thismay be the general rule in California, it is not nationally. See, 73 C.J.S. PublicAdministrative Bodies and Procedure 8156,n. 82;Annot., 73A.L.R.2d 939. The 

## - annotation summarizes: "Someauthoritieshave expressed the view that, like a court of general jurisdiction,an administrativeagency exercising functions of a judicial nature has the inherent power to grant a rehearing or otherwise to reconsider a previous decision. Other authorities deny the existence of suchpower and proceed on the theory that the power does not exist, in the absence 

### of specific statutory authority. An intermediate position is taken by those authorities which consider the controlling statute as a whole with a view to determining whether it was the intention of the legislature to confer the power of reconsideration upon the agency." (Footnotesomitted.) 73A.L.R.2d at 942-43. Notably, even the California courtmore recently stated that all administrativebodies have inherent power to reconsider their decisions unless it is such that itmay notbe set aside or unless reconsideration isprecluded by statute. In Re Fain

Thus far, this Court has not ruled on whether an administrative agency has inherentpower to reconsider its decision. The facts of the instant case do not require that we do so. The Department's finaldecision and order of July 19, 1976 stated: "You are entitled to judicial review of the Final Decision and Order pursuant to and in accordance with the provisions of section 82-4216, R.C.M. 1947." On August 11, 1976, the Department responded to inquiries about possible rehearing by issuing a detailed time schedule for petitions,briefing and argument. Gate City participated in opposing the petitions for rehearingand did not raise the jurisdictional issue cited here. Its position at that timewas stated in its brief in opposition to rehearing as follows: "Whilesection 82-4216,R.C.M. 1947, indicates that a rehearingmay be requested, we submit that it iswithin the sound discretion of the agency decision-maker, in this instance the Director of the Department, as to whether

or not to grant any such rehearing." It seems Gate City interpreted section 82-4216(2)(a)as creating a right to petition for rehearing (asdid opponents and the Department). Given this factual matrix and the language of section 82-4216(2)(a),the District Court did not err in concluding that the opponents' petitions for judicial review were timely. Under issue two, Gate City contends opponents are estopped from challenging the constitutionality of section 7-113.2 for their failure to raise the issuewhen it first came before this Court in Gate City v. Pitts, supra. Although not mentioned, Gate City is apparently referring to the doctrine of res judicata by which all questions that might have been litigated under the issues formed (aswell as those actually adjudged) in a prior appeal must be taken as at rest forever. 5B C.J.S. Appeal and Error 81822; Phalenv. Rilley (1970),156 Mont. 91, 475 P.2d 998. Here, it is important to bear inmind the nature and scope of proceedings leading to this and the prior appeal. The 1972 proposed merger was denied on the basis of an Attorney General's opinion that foreign savings and loan associations are prohibited frommerging with domestic associations. Gate City sought declaratory judgment in District Court for construction of section 7-113(22), R.C.M. 1947, in light of their application and the Attorney General's opinion. Itwas the District Court's decision, reversing the Department's ruling, that was appealed by the Director and joined in by the opponents. On the appeal, the scope of reviewwas limited to correction of errors committed by -7-the District Court (See,section 93-8907,R.C.M. 1947,now section 27-8-312 MCA, and Rule 2,Mont.R.App.Civ.P.), and Gate City framed the issue. That issue was the scope of section 7-113(22), not its implementation in a particular case. Constitutional issues should generally be raised at the earliest opportunity. Johnsonv. Doran (1975),167Mont. 501, 511, 540 P.2d 306, 311. Here, the earliest opportunitywas in 1975,when the Department first implemented the provision in the manner giving rise to the constitutional challenge. Gate City also argues that opponents are estopped from questioning the constitutionality of section 7-113.2 by actively supporting passage of the statute during the 1977 legislative session. The 1977 amendment to section 7-113.2 had no bearing

on the constitutionality of that portion of the provision granting the Departmentpower to approve or disapprove applications for merger. As already indicated, section 7-113.2, enacted in 1977, only changed section 7-113(22) to the extent that it restricted applications for merger to domestic savings and loan associations. There is nothing inconsistent in opponents' support of a statutory amendment precluding merger by foreign savings and loan associations and thepresent constitutional challenge. The dispositive issue in this case iswhether section 7- 113.2, R.C.M. 1947, now section 32-2-231MCA, contains an unconstitutional delegation of legislativepower. The central theme of Gate City's and Fidelity's argument against finding section 7-113.2 an unconstitutional delegation of legislative power is that the trend is away from requiring that statutory standards or guides be specified and toward finding the establishment of procedural safeguards sufficient for constitutional purposes. While this may be the trend under federal law and in

some states, it is not Montana's position.



### -8-All the cases dealing with the nondelegation doctrine in Montana have done sowith respect to the Montana Constitution. Article 111, section 1,of the 1972 Montana Constitution (formerly Article IV, section 1, 1889Montana Constitution) specifically states: 

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# . . Separation of powers. The power of the sovernment of thisstate is divided into three

J distinct branches--legislative, executive, and judicial. No person or persons charged with the exercise of power properly belonging to one branch shall exercise any power properly belonging to either of the others, except as in this constitution expressly directed or permitted." Two recent cases clarify what is and is not an overly broad delegation of legislative power in Montana. In Douglas

v. Judge (1977), Mont

# . , 568 P.2d 530, 34 St.Rep. 975, a statute authorizing the Department of Natural Resources to make loans to farmers and ranchers who proposed "worthwhile" renewable resource developmentprograms was held to be insufficient under the test set out in Bacus v. Lake County (1960), 138Mont. 69, 354 P.2d 1056. The Court articulated the test by quoting the following excerpt from Bacus: "In the case of State v. Stark, 100Mont. 365, 371, 52 P.2d 890, 892, this court has stated: "'Delegation of power to determinewho are within the operation of the law is not a delegation of legislativepower.. 

# . . But it is essential that the Legislature shall fix some standard by which the officer or board to whom the power is delegated may be governed,and not left to be controlled by caprice.

### ' "We agree

### w furtherby broad thatriththis statement of the law and go saying that the standardmust not be so the officer or board will have unascertainable limits within which to act." Douglas v. Judge, 568 P.2d at 534 (quotingBacus v. Lake County, 354 P.2d at 1062.) In State ex rel. Department of Health and Environmental Sciences

v. Lincoln County (1978), Mont. 

### , 584 P.2d 1293, 35 St.Rep. 1402, the Clean Air Act,which authorized the Department of Health and Environmental Sciences to establish limitson pollutant emissions and to prohibit facilities causing

or contributing to air pollution,was held 

### - not to be an unconstitutional delegation of legislativepower. This Court stated: "While the powers of the Board are expressed in broad and general language, they necessarilymust be as air pollution control is an emerging field of environmentalprotection for which detailed and precise standards have not yet been fully developed." State Dept. of Health and Environmental Sciences

v. Lincoln County, 584 P.2d at 1296. The instant casepresents a delegation of legislativepower that provides no standardsor guidelines either expressed or otherwise ascertainable. There is nothing in the statute "to enable the agency to know its rights and obligations." Huber

v. Groff (1976), 171Mont. 442, 457, 558 P.2d 1124, 1132 (quoting Milk Control Bd. 

### v. Rehberg (1962),141Mont. 149, 161, 376

Gate City attempts to characterize the statute as within the qualification enunciated in Altop v. City of Billings (1927), 79 Mont. 25, 35, 255 P. 11, 14: 

# ".

. . thatwhere it is impracticable to lay down a definite or all-comprehensive rule,or where the ordinance relates to the administration of a police regulation and is necessary to protect the general welfare,morals and safety of the public, it is not essential to the validity of the ordinance that itprescribe all the conditions upon which such license shallbeyanted or refused."

(Emphasisadded.) However, the statute in the instant case provides absolutely no standards, guides or conditions. Gate City also argues that the ascertainable standards are that the merger be made "upon terms agreed upon by a majority vote of the respectiveboard of directors, and ratified by a two-thirds vote" of the shareholders (section7-113.2). This contention ignores the clearmeaning of the statute. The majority vote ratification requirement and the approval of the Department requirement are obviously independentprerequisites formerger. -10-Finally, Gate City urges that any constitutional infirmity in the statutewas cured by the Department's supplying appropriate standards to govern the hearing. Relying on S.E.C. v. Chenery Corp. (1947), 332 U.S. 194, 91 L.Ed. 1995, 67 S.Ct. 1575,Gate City argues that in unforseeable situations involving a statutory delegation of legislativepower,determination on an ad hoc or case-by-case basis is appropriate. In Chenery, the contention was thatthe agency could not apply a general standard it had formulated for the first time in that proceeding,but instead,must promulgate new standards through its rulemakingprocedures. See,N.L.R.B. v. Bell Aerospace Co. (1974), 416 U.S. 267, 292, 40 L.Ed.2d 134, 153, 94 S.Ct. 1757, 1770. Thus, Chenery more closely resembles Altop

v. City of Billings, supra,where at least some standardswere provided by the legislature. Here, however,we find no -statutory standards or guidelines fromwhich the Department could extrapolate new ones. Indeed, the preliminary prehearing conference report shows that the opponents desired ad hoc formulation of standards sufficient to apprise them of the relevant issuesbefore the hearing. The only standard announcedwas "public interest." Itwas only after the hearing, when the Department issued its fkdings and conclusions that the substantive meaning of that term was clarified. Section 7-113.2, R.C.M. 1947,now section 32-2-231MCA, contains an overly-broad delegation of legislativepower and is hereby declared unconstitutional.

We Concur:

Justices -11-