No. 89-105 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1989 

COTTONWOOD HILLS, INC., 

a Montana corporation, 

plaintiff and Appellant, 

-vsSTATE OF MONTANA, DEPARTMENT OF LABOR & 

INDUSTRY, UNEMPLOYMENT INSURANCE DIVISION, 

and WORKERS' COMPENSATION DIVISION, 

Defendant and Respondent. 

APPEA .L FROM: District Court of the Eighteenth Judicial District, 

In and for the County of Gallatin, 

The Honorable Thomas Olson, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Karl P. Seel; White & Seel, Bozeman, Montana 

For Respondent: 

James Scheier, Agency Legal Services, Helena, Montana 

Submitted on Briefs: June 30, 1989 

Decided: August 11, 1989 
Mr. Chief Justice J. A. Turnage delivered the Opinion of the Court. 

The District Court, Eighteenth Judicial District, dismissed 

the complaint of Cottonwood Hills, Inc., which sought money damages 

and judicial review of a workersf compensation action. Cottonwood 

Hills, Inc., appeals. 

The issue on appeal is whether the District Court abused its 

discretion by granting defendantsf motion to dismiss the complaint. 

We affirm. 

Cottonwood Hills, Inc. (Cottonwood), is a closely-held family 

corporation. In April 1985 Cottonwood hired several workers/contractors to build a pro shop at the public golf course near 

Bozeman, Montana. It is the characterization of these workers 

which was at the heart of this dispute. 

In January 1987 the Unemployment Insurance Division (UID) of 

the Department of Labor and Industry (Department) notified 

Cottonwood that it would be the subject of an audit. As a result 

of that audit, UID determined that Cottonwood was not paying the 

proper rate of unemployment insurance contributions. The UID 

found that three of Cottonwood's workers must be characterized as 

employees, not independent contractors, and thus additional 

premiums were owed. The Uninsured Employersf Fund and the State 

Compensation Insurance Fund (State Fund) assessed additional 

premiums and penalties against Cottonwood. Cottonwood appealed 

that decision. 

A contested case hearing as allowed under section 2-4-601 et 

seq, MCA, was held before the Employment Relations Division of the 

Department on April 19, 1988. A decision was issued upholding the 

additional assessments made by the UID. The Board of Labor Appeals 

affirmed the findings and decision on July 8, 1988. 

During the same time period, Cottonwood requested a contested 

case hearing before the Division of Workersf Compensation (DWC) of 
the Department. Hearing was held February 10, 1988, and a proposed 

order issued on March 30, 1988, in favor of the DWC and UID. The 

administrator of the DWC upheld the assessments made by the State 

Fund and Uninsured Employers' Fund in a final order dated October 

14, 1988. 

On August 11, 1988, Cottonwood filed a complaint in District 

Court. The complaint contested the final decisions of the DWC and 

the UID, alleged that they had not dealt with Cottonwood in good 

faith and requested money damages. The defendants (DWC, UID, the 

Department and the State) moved to dismiss the complaint as filed 

in an improper forum. The District Court granted defendants' 

motion. Cottonwood appeals. 

For this Court to reverse the District Court's grant of this 

motion, Cottonwood must make a showing that the District Court 

abused its discretion by dismissing the complaint. Gold Reserve 

Corporation v. McCarty (Mont. 1987), 744 P.2d 160, 44 St.Rep. 1723. 

Cottonwood is unable to make that showing. 

We conclude the District Court properly dismissed Cottonwood's 

complaint. 

Procedures for judicial review of administrative rulings are 

found in Part 7, Montana Administrative Procedure Act (MAPA), 

sections 2-4-701 through -711, MCA. Additionally, there are 

detailed review provisions set forth under the "Unemployment 

Insurancew statutes which govern the initial dispute in this case. 

Specifically applicable are section 39-51-1109 (tax appeals); 

section 39-51-2403 (decisions of appeals referee); and section 39- 

51-2404, (appeal to board) . Compliance with the procedures is 

mandatory because only after the procedures have been followed is 

the District Court vested with jurisdiction. F. W. Woolworth 

Company v. Employment Security Division (Mont. 1981) , 627 P. 2d 851, 

38 St.Rep. 694. 
The proper procedure for review of administrative rulings 

adverse to Cottonwood is set forth below. 

Pursuant to section 39-51-1109, MCA, Cottonwood already 

requested a hearing before an appeals referee to contest UID1s 

additional assessment. See also, sections 39-51-2403 and -2404, 

MCA . 

Pursuant to section 39-51-2404, MCA, Cottonwood then appealed 

the decision of the appeals referee to the Board of Labor Appeals. 

At this juncture, Cottonwoodls proper review procedure was to file 

a petition (not a complaint) with the District Court. This 

Cottonwood failed to do. 

Section 39-51-2410 (2) , MCA, states that the petition "which 

need not be verified but which shall state the grounds upon which 

a review is sought, shall be served upon the commissioners of Labor 

and Industry and all interested parties . . . The District Court 

would then review the matter to determine if the findings of the 

Board of Labor Appeals were based on substantial credible evidence. 

Cottonwood failed to follow the correct procedure. Dismissal of 

the complaint on that issue was proper and is hereby affirmed. 

Regarding the DWC decision, Cottonwood also is in error. Any 

appeal of a workersv compensation decision must be filed with the 

Workers1 Compensation Court and not the District Court. Section 

39-71-2041, MCA; section 24.29.207(2), A.R.M. The District Court 

specifically cited these sections when it noted that the review of 

the DWC decision was not properly before it. We agree and affirm 

the dismissal as to that issue. 

We note that dismissal of the complaint seeking money damages 

was also proper. Cottonwood alleged that the defendants had 

breached the covenant of good faith and fair dealing which attached 

to their contract (the workersv compensation insurance policy 

issued by State Fund to Cottonwood in 1986). The District Court 
noted that claims for breach of the covenant or !'bad faithvv are 

also tort actions in Montana. Gates v. Life of Montana Insurance 

Co. (1983), 205 Mont. 304, 668 P.2d 213. We agree. 

It is well-settled law that all tort claims against the State 

must first be filed with and reviewed by the Department of 

Administration. See, section 2-9-101, MCA, et seq., the State Tort 

Claims Act. Such was not done in this case, and the District Court 

had no jurisdiction to review the matter. It was properly 

dismissed. 

We note that dismissal of the claim alleging breach of the 

covenant of good faith and fair dealing was not challenged by 

Cottonwood on appeal, and, therefore, its dismissal would have been 

upheld in any event. 

Cottonwood is unable to show any abuse of discretion in the 

District Court's order of December 12, 1988, dismissing its 

complaint. 

Judgment affirmed. 

We concur: 

Chief Justice e-, 

Justices