No. 88-516 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1989 

NORTH FORK PRESERVATION ASSOCIATION, 

Plaintiff and Respondent, 

-vsDEPARTMENT OF STATE LANDS, a Department 

of the State of Montana, 

Defendant and Appellant 

and 

FARMERS UNION CENTRAL EXCHANGE (CENEX), 

Intervenor and Appellant. 

APPEAL FROM: District Court of the Eleventh Judicial District, 

In and for the County of Flathead, 

The Honorable Michael Keedy, presiding Judge. 

COUNSEL OF RECORD: 

For Appellant: 

Tommy H. Butler argued, Dept. of State Lands, Helena, 

Montana 

Doug James argued; Moulton, Belligham, Longo & Mather, 

Billings, Montana 

Dana L. Christensen; Murphy, Robinson, Heckathorn & 

Phillips, Kalispell, Montana 

For Respondent: 

Jon L. Heberling argued; McGarvey, Heberling, Sullivan & 

McGarvey, Kalispell, Montana 

, - Andrew Bittker argued, Kalispell, Montana 

Submitted: June 15, 1989 
Mr. Justice R. C. McDonough delivered the Opinion of the 

Court. 

This appeal involves an oil and gas lease on school 

trust land within the Coal Creek State Forest, which was 

acquired from the State by the Farmers Union Central Exchange 

(Cenex) . School trust lands are administered by the Department of State Lands (Department), which issued the lease to 

Cenex. Pursuant to an Annual Operating Plan approved by the 

Department, Cenex proposes to drill an exploratory well on 

its leased tract. North Fork Preservation Association (North 

Fork) has challenged the Department's approval of Cenex's 

operating plan, alleging that the Department failed to prepare an environmental impact statement on the proposed well 

as required by law. North Fork filed its complaint in the 

District Court of the Eleventh Judicial District, Flathead 

County, and obtained a summary judgment in its favor. The 

judgment set aside the Department's approval of Cenex's 

operating plan; issued a writ of mandate directing the Department to prepare an environmental impact statement; and 

awarded costs, fees and a small money judgment. We reverse, 

and remand the case to the District Court for entry of judgment in favor of the Department. We hold that the District 

Court incorrectly applied the "clearly erroneous" standard 

for reviewing the Department's decision and misinterpreted 

applicable statutory and case law. We further hold that the 

Department's decision was proper under the correct, "arbitrary, capricious or unlawful" standard of review, and that 

mandamus was not a proper remedy in this case, as mandamus is 

not available to compel a discretionary act. 

The parties have stated a number of issues, some of 

which overlap: 
As Stated by the Department: 

1. Whether the Department must prepare an environmental 

impact statement on the drilling of a single exploratory well 

on school trust land which had been previously clear-cut of 

timber and is managed under the multiple use concept. 

2. Whether the Department is required to prepare a 

site-specific environmental impact statement concerning 

full-field oil and gas development. 

3. Whether mandamus is an inappropriate remedy to enforce the provisions of the Montana Environmental Policy Act. 

4. Whether North Fork Preservation Association sustained 

its burden of proof. 

As Stated by Cenex: 

1. Did the District Court apply the wrong standard of 

review in reviewing the State Lands' decision that approval 

of Cenexls plan to drill one exploratory well was not a major 

action of state government significantly affecting the quality of the human environment? 

2. Whether State Lands' decision that an environmental 

impact statement was not required was arbitrary and 

capricious. 

3. Whether the 1984 preliminary environmental review was 

sufficient, as a matter of law, without considering the 

"cumulative impacts" of oil and gas development and 

production. 

4. Whether a writ of mandamus will lie to compel the 

preparation of an environmental impact statement. 

As Stated by North Fork: 

1. Did the District Court apply the wrong standard of 

review to State Lands1 procedural decision to forego an 

environmental impact statement? 

2. Whether the Cenex operating plan "may significantly 

affect environmental attributes recognized as being 
endangered, fragile, or in severely short supply." ARM 

26.2.603 (3) (a) . 3. Piecemealing: At what stage in the oil and gas lease 

process is an environmental impact statement on development 

legally required? 

4. Is there a separate ground supporting the District 

Court's decision, which State Lands and Cenex did not raise 

on appeal? 

5. Whether the 1984 preliminary environmental review was 

legally sufficient, particularly in its evaluation of cumulative impacts. 

6. Whether a writ of mandate will lie to compel preparation of an environmental impact statement. 

In April of 1975, the Department received applications 

for oil and gas leases on 14 tracts of school trust land in 

the Coal Creek State Forest. The Department deferred action 

on possible leases until an environmental impact statement 

(EIS) could be prepared. Coal Creek State Forest is bordered 

on three sides by National Forest Service land, and on the 

fourth side by the North Fork of the Flathead River. The 

river is part of the National Wild and Scenic Rivers System, 

as well as the western boundary of Glacier National Park. 

The surrounding National Forest Service land was also 

the subject of oil and gas development proposals at about the 

same time. In 1976, the National Forest Service issued a 

draft EIS concerning proposed leases on land in its charge. 

The Department also issued an EIS in 1976. The introduction 

to the Department's EIS stated that the National Forest 

Service EIS dealt with the impacts of oil and gas leasing in 

the larger area surrounding Coal Creek, and the Department's 

EIS would therefore focus only on the state lands involved 

and should be considered "an extension of that made by the 

federal government." The Department's EIS permitted leasing 
of all 14 Coal Creek tracts. However, at a meeting of the 

State Board of Land Commissioners held in March of 1976, all 

of the bids received were rejected. The National Forest 

Service subsequently undertook a new environmental analysis 

of the area, and abandoned its 1976 draft EIS. 

In 1982, the Department received new applications for 

oil and gas leases covering a larger portion of the Coal 

Creek area. The Department prepared a preliminary environmental review (PER) for the purpose of determining whether 

issuance of oil and gas leases would be an action by state 

government "significantly affecting the quality of the human 

environment," therefore requiring an EIS under S 75-1-201, 

MCA. The PER was issued in 1983, and concluded that no such 

significant effect would result if certain protective stipulations were included in any leases granted. 

The Department then offered leases in Coal Creek State 

Forest at public auction. Cenex purchased leases to 17 

tracts. Each lease contained 16 environmentally protective 

stipulations. Under these stipulations, Cenex was required 

to submit an annual operating plan to the Department detailing all activities to be carried out on the leased acreage 

during the coming year. No activity could be undertaken 

until written approval of each year's plan was received from 

the Department. 

Cenex's first annual operating plan was submitted in 

1984. The plan proposed drilling an exploratory well on one 

of the leased tracts located approximately three miles south 

of the town of Polebridge and one mile west of Glacier Park. 

The proposed well site was a clear-cut left from previous 

logging under lease from the Department. Cenex planned to 

make improvements to an existing logging road in order to 

transport necessary drilling equipment and supplies. The 

Department delayed approval of the plan while it completed a 
site-specific PER, held two public hearings and received 

comments on the PER during a 30-day review period. After 

reviewing the comments, the Department issued a supplement to 

the PER. The Department then approved the plan, subject to 

31 additional protective stipulations. 

In February of 1985, North Fork filed this action. The 

complaint sought an order setting aside the Department's 

approval of the Cenex operating plan and the Cenex lease, and 

a writ of mandate directing the Department to prepare an EIS 

on the cumulative effects of oil and gas development in the 

Coal Creek area. Cenex successfully petitioned to intervene 

as a defendant in the case. The Department and Cenex filed a 

motion for summary judgment, as did North Fork. In 1988, the 

District Court issued a Memorandum and Order granting North 

Fork's motion, and subsequently entered judgment in North 

Fork's favor. This appeal followed. 

The many issues taken up by the parties have rendered 

their arguments difficult to follow. North Fork has gone so 

far as to attempt a "chart of corresponding issue numbers" in 

its brief to this Court. A careful reading of the issues and 

arguments offered, as well as the record from below, shows 

that the parties are posing three core questions: 

1. Did the District Court apply the proper standard of 

review? 

2. Did the Department proceed properly in approving 

Cenex's annual operating plan? 

3. Is mandamus an appropriate remedy to enforce provisions of the Montana Environmental Policy Act? 

We will proceed with our review by addressing these three 

questions. 
The District Court looked to the Montana Administrative 

Procedure Act (MAPA) for its standard of review. The court 

applied the standard of review found in S 2-4-704 (2) (e) , MCA: 

(2) ... The court may reverse or modify the decision if substantial rights of the appellant have 

been prejudiced because the administrative findings, inferences, conclusions, or decisions are: ... 

(el clearly erroneous in view of the reliable, 

probative, and substantial evidence on the whole 

record. 

On appeal, the Department and Cenex argue that the "clearly 

erroneous" standard was improper in this case. Cenex specifically argues that 5 2-4-704, MCA, was inapplicable, because 

the section deals with judicial review of "contested cases", 

and this was not a contested case. A "contested case" is 

defined at 5 2-4-102(4), MCA, as a proceeding before an 

agency where a "determination of legal rights, duties, or 

privileges" of a party is required to be made after an opportunity for hearing. In contrast to cases such as State ex 

rel. Montana Wilderness Association v. Board of Natural 

Resources and Conservation (1982), 200 Mont. 11, 648 P.2d 

734, no hearing was requested or held before the Department 

in this case. North Fork did not initiate this action until 

after the Department had approved Cenex's operating plan. 

There was no "evidentiary record" against which to measure 

the Department's decision and determine whether it was clearly erroneous. Cenex is therefore correct in asserting that § 

2-4-704, MCA, does not apply in this case. 

Both Cenex and the Department argue that the District 

Court should have employed an "arbitrary and capricious" 

standard. The Department asserts that decisions by administrative agencies are given deference by reviewing courts due 
to the agencies' access to superior expertise, and are not 

overturned unless arbitrary or capricious. The Department 

notes that in Wilderness Association, 648 P.2d at 740, this 

Court cited deference to agency expertise as one of three 

important factors in selecting a standard of review in a 

contested case. Cenex notes that the arbitrary and capricious standard was used prior to the enactment of MAPA, and 

would logically apply in this case. Our decision in Langen 

v. Badlands Cooperative State Grazing District (1951), 125 

Mont. 302, 308, 234 P.2d 467, 470, which is cited by Cenex, 

is relevant to both points: 

The review by the district court is only for 

the purpose of determining the legal rights of the 

parties involved. This is so because of the division of governmental powers under the Constitution, 

neither the district court nor the Supreme Court 

may substitute their discretion for the discretion 

reposed in boards and commissions by the legislative acts. [citations] ... The appeal from the commission to the district 

court is for the purpose merely of determining 

whether upon the evidence and the law the action of 

the commission is based upon an error of law, or is 

wholly unsupported by the evidence, or clearly 

arbitrary or capricious. On such review courts 

will only inquire insofar as to ascertain if the 

board or commission has stayed within the statutory 

bounds and has not acted arbitrarily, capriciously 

or unlawfully. [citations] 

Both sides agree that because the Montana Environmental 

Policy Act (MEPA) is modeled after its federal counterpart 

(NEPA), this Court can look to federal decisions under NEPA 

as an aid to addressing cases under MEPA. See Kadillak v. 

Anaconda Co. (1979), 184 Mont. 127, 602 P.2d 147. In fact, 

North Fork argues that we should adopt the "reasonableness" 

standard utilized by the U.S. Court of Appeals for the Ninth 

Circuit in cases cited in North Fork's brief. While looking 
to federal decisions is not always conclusive, cases decided 

on analogous facts can shed light on a given issue. 

The United States Supreme Court recently took up two 

companion cases involving the issues at bar. In one of those 

cases, Marsh v. Oregon Natural Resources Council (No. 

87-1704, May 1, 1989), 57 LW 4504, the Supreme Court addressed the issue of the proper standard for review of an 

agency decision not to amend a previously-issued EIS. The 

argument before the Court was that newly-discovered information cast doubt on the agency's previous conclusion that the 

proposed project would not significantly affect the environment. The agency involved had decided that the information 

did not raise questions sufficient to require amendment of 

the EIS. 

This case presents an analogous question. North Fork 

alleged several specific shortcomings in the procedure followed by the Department in approving Cenex's annual operating 

plan. The thrust of these contentions, when taken together, 

is that the information gathered by the Department indicated 

that Cenex's proposed well would generate a significant 

impact on the human environment, and an EIS should have been 

prepared. 

As in any comparison between federal and Montana law, 

there is a distinction between Marsh and this case. In 

Marsh, the federal Administrative Procedure Act was applicable where in this case MAPA judicial review provisions do not 

apply However, the federal act offers several possible 

standards of review. In choosing a standard, the Supreme 

Court in Marsh specifically rejected the "reasonableness" 

standard used by the Ninth Circuit Court of Appeals and 

adopted the "arbitrary and capricious" standard. In 

explaining its choice, the Court stated: 
The question presented for review in this case 

is a classic example of a factual dispute the 

resolution of which implicates substantial agency 

expertise. ... Because analysis of the relevant 

documents "requires a high level of technical 

expertise," we must defer to ''the informed discretion of the responsible federal agencies. 

[citations] 

The Department in this case was carrying out its 

statutorily-imposed fiduciary duty to "secure the largest 

measure of legitimate and reasonable advantage to the state" 

in managing school trust lands. Section 77-1-202, MCA. The 

Department also had to carry out duties imposed by MEPA, 

pursuant to which it prepared a PER in order to gather information for its decision on whether to prepare an EIS for 

Cenex's proposed action. This decision necessarily involved 

expertise not possessed by courts and is part of a duty 

assigned to the Department, not the courts. In light of 

this, and the cases cited above, we hold that the standard of 

review to be applied by the trial court and this Court is 

whether the record establishes that the agency acted arbitrarily, capriciously, or unlawfully. 

11. 

When applying the above standard of review to this case, 

it is important to keep in mind which Department action is 

challenged by North Fork: the approval of Cenex' Annual 

Operating Plan, which calls for the drilling of an exploratory well. North Fork has contended, and the District Court 

has held, that this action should not have been undertaken 

without prior preparation of an EIS. It is apparent from our 

review of the record, however, that the arguments of counsel 

and the District Court's Memorandum and Order have strayed 

from the issue of the operating plan to consider policies and 
activities that are not at issue here. This is a primary 

reason for our reversal of the District Court's judgment. 

A. The Department's Decision Was Not Unlawful. 

While the standard of review we have adopted utilizes 

three terms, it breaks down into two basic parts. One part 

concerns whether the agency action could be held unlawful, 

and the other concerns whether it could be held arbitrary or 

capricious. See Langen, 234 P.2d at 471. We will first 

address the "unlawful" portion. The Department is both 

empowered and constrained by a set of statutes and regulations relevant to its actions challenged in this case. One 

such statute is S 77-1-202, MCA, cited above, which imposes a 

fiduciary duty on the Department to manage the land at issue 

to the advantage of the State. The procedures followed by 

the Department in its dealings with Cenex were governed in 

part by MEPA (SS 75-1-101, et seq., MCA) and administrative 

rules enacted pursuant to MEPA (ARM 26.2.602, et seq. repealed 11/1/89; recodified at ARM 26.2.642, et seq.). 

North Fork's complaint in the District Court alleged in 

large part that the Department failed to carry out its appointed duties under these provisions. In the brief filed in 

support of its motion for summary judgment, North Fork made 

three arguments: 

1. [The Department's] decision to forego an EIS at 

the stage of drilling an oil well was clearly 

unreasonable and wrong. Conner v. Burford, 605 

F.Supp. 107 (D. Mont. 1985) and Kadillak v. 

Anaconda Co. (1979), 184 Mont. 127, 602 P.2d 147. 

2. The case is clearly one where the decision "may 

significantly affect" endangered species and a 

fragile environment, requiring an EIS under ARM 

26.2.603 (3) (a) . 3. [The Department] omitted to perform an evaluation of cumulative impacts, in violation of ARM 

26.2.604 (1) (b) and (c) . 
Two of these arguments, the first and third, are directly 

relevant to the "unlawful" portion of our standard of review. 

The District Court's Reliance on Conner v. Burford. The 

District Court agreed with North Fork's first argument, and 

relied on Conner v. Burford, supra, to hold the Department's 

1976 EIS, 1983 PER and 1984 PER to be insufficient. At the 

outset, the court adopted North Fork's broad view of the 

development of oil and gas in the Coal Creek area, and concluded that full-field development required the preparation 

of an EIS. The Department had argued that its 1976 EIS was 

sufficient for this purpose. The court found, however, that 

the 1976 EIS was insufficient because it focused only on Coal 

Creek lease tracts and did not address the overall impacts of 

such development. Without a valid EIS, the two PER'S became 

"falling dominos," their environmentally protective stipulations mere examples of the kind of "piecemeal" approach to 

environmental review held improper in Conner. We disagree. 

First, the Department's 1976 EIS has no relevance to 

this case. The overall impacts of full-field oil and gas 

development in the Coal Creek State Forest are not at issue. 

Section 75-1-201, MCA , (entitled "General 

Directions--Environmental-Impact Statements") sets out guidelines for "every recommendation or report on proposals for 

projects." ARM 26.2.603 ("Determination of Necessity for 

Environmental Impact Statement") governs consideration of a 

"proposed action". The proposed project/action under consideration in this case is the drilling of one exploratory well 

on one lease tract. In considering this proposed action, the 

Department prepared a site-specific PER in 1984, which supplemented a more general PER prepared in 1983. The conclusion reached by the Department was that an EIS was not 

required for the single Cenex test well. This is the decision under review. 
Second, while the District Court was correct in asserting that "[ilf found rich in oil and gas the acreage in 

question would be under tremendous pressure for further 

exploration and development," it was premature in concluding 

that an EIS was required. The court's conclusion apparently 

resulted from a misreading of the Conner case. The decision 

of the U.S. District Court for the District of Montana in 

Conner, cited by North Fork in its brief below, dealt with 

the question of when an agency action would "significantly 

affect" the environment, thus requiring preparation of an 

EIS. This is the same standard employed in § 75-1-201, MCA, 

and its attendant regulations. The Federal District Court 

held that issuance of a lease permitting oil and gas development was "the first stage of a number of successive steps" 

leading to development, and therefore met the "significantly 

affect" standard. The court feared that proceeding with a 

piecemeal environmental review by considering only one step 

at a time would ignore the cumulative effects of development 

and risk unforeseen, irreversible impacts. 

When reviewing the decision, however, the Ninth Circuit 

Court of Appeals made an important distinction. The appellate court reviewed case law determining that under the 

"significantly affect" standard, an EIS was always required 

at the "go/no go" point of oil and gas development. The test 

derived to pinpoint when the "go/no go" point is reached 

looks for the proposed action that will entail an "irretrievable commitment of resources". Some of the leases at issue 

in Conner had "no surface occupancy" (NSO) clauses. Under 

these clauses, no activity which would disturb the ground in 

any way could be undertaken without prior approval from the 

agency involved. The Ninth Circuit Court held that leases 

with NSO clauses were not an irretrievable commitment of 

resources. Nothing could happen under the leases without 
government approval. The point had not been reached where 

preparation of an EIS was "automatic." The court also noted, 

"We cannot assume that government agencies will not comply 

with their NEPA obligations in later stages of development." 

Conner, 836 F.2d at 1528. 

Cenex will operate under essentially the same type of 

strictures found in the Conner NSO leases. The lease at 

issue in this case was executed on a printed "Montana Oil and 

Gas Lease" form supplemented in blank spaces with information 

specific to the lease arrangement between the Department and 

Cenex for this well site. North Fork has made much of the 

printed language in the initial portion of the lease indicating that Cenex thereby acquires the right to do the 

following: 

. . . mining and operating for oil and gas, and of 

laying pipelines, building tanks, power stations, 

and other structures thereon necessary in order to 

produce, save, care for, dispose of and remove the 

oil and gas ... 

According to North Fork, it is hard to imagine these activities not significantly affecting the human environment of the 

Coal Creek area. 

North Fork is correct in that the lease could ultimately 

empower Cenex to conduct all of the listed activities, and it 

is easy to imagine these activities having a significant 

effect on the environment. However, the lease also contains 

specific environmental stipulations typed into to the lease 

form under paragraph 26, entitled "Special Provisions". One 

of these typed stipulations reads: 

If the lessee [Cenex] intends to conduct any activities on the leased premises, it shall submit to 

the Department of State Lands two copies of an 

Annual Operating Plan or Amendment to an existing 

Operating Plan, describing its proposed activities 

for the coming year. No activities shall occur on 
the tract until an Annual O~eratina Plan or 

Amendments have been aDDr0ved in writina bv the 

(Emphasis supplied.) It is a fundamental principle of contract law that written or typewritten provisions in a contract take precedence over printed provisions. Hoerner 

Waldorf Corp. v. Bumstead-Woolford Co. (1972), 158 Mont. 472, 

494 P.2d 293. The typed "special provision" therefore takes 

precedence over the printed authorization in this lease. 

Cenex can carry out the listed activities only with prior 

written approval of the Department. The issuance of this 

lease was thus not an "irretrievable commitment of resources" 

as the term was used in Conner. The District Court was 

incorrect in concluding that full development of oil and gas 

in the Coal Creek State Forest was a matter of successive 

steps set into irreversible motion by the issuance of the 

lease. Like the Ninth Circuit in Conner, this Court cannot 

assume that the Department will not comply with its MEPA 

obligations if development proceeds beyond this stage. 

The 1983 PER. The District Court's misapplication of 

the Conner decision also tainted its holdings that the 1983 

and 1984 PER'S were insufficient. Because the 1984 PER is a 

"supplement" to the 1983 PER, the court's holdings on both 

documents are relevant. The court held the 1983 PER inadequate because it relied on the inclusion of environmentally 

protective stipulations to support its finding that issuing 

leases would not significantly affect the human environment. 

The District Court held this approach insufficient for two 

reasons: (1) it represented piecemealing prohibited by Conner 

and (2) it should have been a "programatic" review as required by ARM 26.2.614. 
Our discussion of Conner has shown that a lease issued. 

pursuant to the 1983 PER need not be violative of the ruling 

in Conner, and the lease involved here in fact was not. As 

to ARM 26.2.614, the court engaged in selective reading of 

this rule, which has resulted in misinterpretation. The 

court and North Fork have at several points focused on portions of relevant provisions utilizing the words "shall" or 

"must" to conclude that the Department failed to carry out 

mandatory procedures. However, a cursory examination of ARM 

26.2.614 reveals that the procedures listed are subject to a 

very prominent "if": 

(1) If the department is contemplating a series of 

agency-initiated actions [which] will constitute a 

major state action significantly affecting the 

human environment, the department may prepare a 

programmatic review ... 

(Emphasis supplied.) Again, our discussion above shows that 

the contemplated action at issue in the 1983 PER was the 

issuance of leases, which the Department determined did not 

constitute state actions significantly affecting the human 

environment. That decision was not challenged by North Fork, 

so no programmatic review was required. 

The 1984 PER. The District Court adopted North Fork's 

third argument in holding the 1984 PER to be insufficient. 

North Fork asserted that under ARM 26.2.604, an evaluation of 

the cumulative impacts of the proposed action was mandatory. 

The District Court found the 1984 PER insufficient because of 

its failure to address cumulative impacts. 

The term "cumulative impacts" is defined in ARM 

26.2.602(1). The rule states that analysis of cumulative 

impacts under this definition involves consideration of past 

and present actions related to the proposed action. The 

proposed action under consideration in the 1984 PER was the 
drilling of the test well, the first such well in the Coal 

Creek area. The only past related action was the issuance of 

leases to Cenex, which was the subject of the 1983 PER. The 

1983 and 1984 PER'S fulfill the requirement of ARM 26.2.604 

in that they examine the impacts of issuing leases and drilling a single test well, the only related proposed actions 

before the Department. 

The arguments advanced by North Fork and the District 

Court's Memorandum attack the 1984 PER for failing to consider the cumulative impacts of related future actions, namely 

the full-field development of oil and gas. However, ARM 

26.2.604 requires consideration of related future actions 

only when they are under current consideration. As we stated 

above, full-field development was not a proposed action 

before the Department. It was not included in Cenex's Annual 

Operating Plan, and therefore was not under "current 

consideration". 

In sum, the arguments advanced by North Fork and the 

rationale provided by the District Court failed to show that 

the Department acted "unlawfully" in determining that approval of Cenex' first annual operating plan did not require an 

EIS. Our review of the record has not uncovered any statute 

or regulation violated by the Department in its dealings with 

Cenex thus far. The Department has followed required procedures and included in its PER'S the information required by 

statute and administrative rules. Nor can the decision on 

the Cenex test well be analogized to the situation in Conner. 

Even under the Conner criteria, the Department made its 

decision to forego an EIS at a point in the process where 

that decision was still left to the Department's discretion. 

We therefore proceed to examine the Department's decision 

under the "arbitrary or capricious" portion of our standard 

of review. 
B. The Department's Decision Was Not Arbitrary Or Capricious. 

North Fork's second argument in its brief in support of 

its motion for summary judgment addressed the 1984 PER, and 

is relevant to this portion of our review. North Fork asserted that by the Department's own analysis, the approval of 

the well was an action significantly affecting the human 

environment. North Fork is critical of the Department's 

treatment of the effects the well might have on bald eagles, 

grizzly bears or grey wolves thought to inhabit or at least 

frequent the Coal Creek area. North Fork notes that the 

Department employs no eagle biologist or wolf biologist, and 

no wildlife biologist is included in the list of PER preparers. However, North Fork's brief states, 

The issue here is not the questionable quality of 

the [eagle, bear and wolf] biology in the PER. The 

issue is whether there is a "may affect" situation 

According to North Fork, such a situation "clearly" exists, 

and an EIS should have been prepared prior to approval of the 

Cenex Annual Operating Plan. 

For each of North Fork' s contentions, it quotes a portion of the 1984 PER discussing possible impacts of the well 

on that animal. North Fork does not contend that required 

analyses are missing, nor does it focus on the adequacy of 

the analyses given. North Fork simply contends that the 

impacts discussed are evidence themselves that the well may 

significantly affect these facets of the human environment. 

Its criticism of the lack of wildlife biologists in the list 

of preparers appears aimed at showing that the Department did 

not recognize the import of even the "questionable analysis" 

found in the PER. According to North Fork, the Department 

was therefore incorrect in deciding that drilling a test well 
would not significantly affect the human environment, and its 

decision ran afoul of the "unreasonable" standard of review. 

Our analysis will be similar to that employed by North 

Fork, except for the actual standard of review applied. This 

Court has not had the opportunity to review an administrative 

decision under MEPA utilizing the "arbitrary or capricious" 

standard. In the Marsh case, however, the U.S. Supreme Court 

stated a method for conducting such a review: 

As we observed in Citizens to Preserve Overton 

Park v. Volpe, 401 U.S. 402, 416 (1971), in making 

the factual inquiry concerning whether an agency 

decision was "arbitrary or capricious," the reviewing court "must consider whether the decision was 

based on a consideration of the relevant factors 

and whether there has been a clear error of judgment." This inquiry must "be searching and careful," but "the ultimate standard of review is a 

narrow one. " 

Marsh, 57 LW at 4509. It is also worth noting that our 

decisions in cases decided under MAPA (see, e.g., Thornton v. 

Comm'r of the Dep't of Labor and Indus. (1981), 190 Mont. 

442, 621 P.2d 1062; Wilderness Association, 648 P.2d at 740) 

have recognized the limited scope of review in administrative 

cases. We cannot substitute our judgment for that of the 

Department by determining whether its decision was "correct." 

Instead, we must examine the Department's decision to see 

whether the information set out in the PER'S was considered, 

or the decision to forego an EIS was so at odds with that 

information that it could be characterized as arbitrary or 

the product of caprice. 

We will read the 1983 and 1984 PER'S together, because 

as noted above, the 1984 PER was intended to supplement the 

1983 PER. In these documents, the Department had before it 

analyses of the possible impacts of drilling the test well 

that raised a number of environmental concerns. There were 
questions about maintaining the purity of the water in the 

North Fork of the Flathead River and a nearby glacial lake. 

There were questions about how the sight of the drilling rig, 

the noise it produced while working and the smells associated 

with its presence would affect endangered species such as 

bald eagles that nested at the glacial lake, grizzly bears 

that were thought to use the Coal Creek drainage as a travel 

corridor to find food, and grey wolves which were slowly 

being reintroduced to the area. There were also questions 

about how these same sights, sounds and smells would affect 

activities such as camping, river floating and hiking along 

the river and in Glacier Park. The 1983 PER consumed 39 

pages in addressing these and other questions, while in the 

1984 PER the analyses required 75 pages. 

In the process of preparing the two PER'S, the Department consulted with over 30 departments and organizations, 

including the Environmental Protection Agency, the Border 

Grizzly Project and Wolf Ecology Project at the University of 

Montana School of Forestry, the Rocky Mountain Oil and Gas 

Association, and Glacier National Park. The Department also 

utilized over 60 published studies and other references. 

During public comment on the 1984 PER, the Department received 70 letters from concerned groups and individuals. 

Clearly, there were many concerns expressed and much information provided. 

In response to this process, the Department decided to 

include measures to mitigate the impact of oil and gas activities in the form of stipulations to Cenex's lease and to the 

written approval of Cenex's operating plan. The Department 

has argued that these stipulations prevented its approval of 

the operating plan from rising to the level of a state action 

significantly affecting the human environment. At the federal 1-evel, the Ninth Circuit Court of Appeals has held that 
such "mitigation measures" are to be considered in reviewing 

a decision to forego an EIS, and if the measures are "significant", they may justify such a decision under the "unreasonable" standard. Friends of Endangered Species, Inc. v. 

Jantzen (9th Cir. 1985), 760 F.2d 976, 987. Given the narrower, "arbitrary or capriciousw standard being applied in 

this case, sufficiently significant mitigation measures 

certainly would justify the Department's decision. 

The mitigation measures adopted by the Department have 

taken the form of a total of 42 protective stipulations, 11 

attached to the lease and 31 attached to the approval of the 

operating plan. They include such measures as forbidding any 

activity on the lease tract during times of the year important to bald eagle nesting and grizzly bear migration. The 

drilling rig must be painted a color that will not stand out 

against the natural background, additional mufflers must be 

installed on the diesel engines used to power the rig, and 

the engines must be mounted facing a certain direction to 

reduce the noise reaching bald eagle nests and Glacier Park. 

Five stipulations deal with any necessary disturbance of the 

soil and its replacement. Eight stipulations concern maintaining the quality of the ground water, and include restrictions on the chemical content of drilling fluids and the size 

of trucks that may be used to haul diesel fuel to the rig. 

The stipulations also address the workers on the rig, imposing regulations on garbage disposal and forbidding the presence of personal pets, among other measures. 

We have reviewed the concerns raised by the preparers of 

the PER'S, as well as those raised by agencies consulted and 

members of the public. We have also reviewed the mitigation 

measures imposed by the Department. We conclude that the 

Department has considered the concerns raised and taken 

significant steps to address them. We therefore hold that 
the Department's decision to approve Cenex's annual operating 

plan was not arbitrary, nor was it an exercise of caprice. 

Having also held that the Department did not act illegally, 

we therefore uphold the Department's decision and reverse the 

District Court on this question. 

111. 

One of the remedies afforded by the District Court was a 

writ of mandate requiring the Department to prepare an EIS. 

We have held above that an EIS was not required in this case, 

which makes the issuance of the writ erroneous. We feel 

compelled to add, however, that mandamus was an inappropriate 

remedy in this case. As our discussion above has brought 

out, the Department's decision to forego an EIS at this stage 

of development was necessarily an exercise of discretion to 

which courts must give a measure of deference. In fact, we 

have previously held that the Department must exercise its 

discretion in all phases of its management of state lands. 

"If the 'large measure of legitimate and reasonable 

advantage' from the use of state land is to accrue 

to the state, then the [Department] must, necessarily, have a large discretionary power. Every facet 

of the [Department's] action cannot, and is not, 

explicitly laid out in the statutes of the State 

Constitution." 

Jeppeson v. State (19831, 205 Mont. 282, 289, 667 P.2d 428, 

431 (quoting Thompson v. Babcock (1966), 147 Mont. 46, 409 

P.2d 808). We held in Jeppeson that mandamus is not available to compel a discretionary act. We therefore reverse the 

District Court on this question. 

We have held that the District Court applied the incorrect standard of review in this case, and that under the 

correct standard, the Department's approval of Cenex's annual 

operating plan was proper. We have further held that mandamus was not available in this case. We therefore reverse the 
decision of the District Court, dissolve the writ of mandate 

issued by the court, and remand this case for entry of judgment in favor of the Department. 

We Concur: A 

@C Justice %&d 

sitting for Justid John C, Sheehy 
Justice ~illiam E. Hunt, Sr., dissenting. 

I dissent. The District Court's summary judgment in 

favor of North Fork should be affirmed. 

The majority concludes that an oil well drilled in the 

Coal Creek State Forest, located on the North Fork of the 

Flathead ~iver, will not generate such a "significant impact 

upon the human environment" as to require the preparation of 

an Environmental Impact Statement (EIS) . The lease in question, however, not only gives Cenex the right to drill for 

oil and gas, it also empowers the corporation to engage in 

other activities associated with oil and gas development-- 

laying pipelines, building tanks, constructing power stations 

and other necessary structures. Should this one exploratory 

well produce oil or gas, Cenex will definitely undertake 

these activities--activities that will significantly affect 

the human environment. 

Taking comfort in the lease's seemingly restrictive 

provisions that require Cenex to submit annually an operating 

plan for written approval by the Department before Cenex 

undertakes any additional developmental activity, the majority incorrectly concludes that the only issue involved in this 

case is the impact of this one well. Much more than one, 

site-specific well is at stake here. This well is merely the 

first step toward the full development of oil and gas in the 

Coal Creek State Forest. Should Cenex discover gas or oil 

with this one well, as is highly probable, the economic 

pressure for full-field oil and gas development of the area 

will be tremendous. For the majority to believe that such 

development is not at issue is incomprehensible. 

The majority states that an EIS will not be required 

until Cenex has made an "irretrievable commitment of resources." An irretrievable commitment of resources occurs at the 

"go/no go" point of oil and gas development. with the 
Department's approval of Cenex's proposal to drill one exploratory well, we have reached this "go/no go" point. The 

drilling of one oil well on Coal Creek land constitutes a 

disturbance of the ground and, definitionally, an irretrievable commitment of resources. An EIS must be undertaken 

before the Department approves an annual operating plan that 

includes a proposal to drill--whether the proposal is for one 

well or twenty. 

The immediate and long-term effects that drilling in the 

Coal Creek State Forest will have on the human and physical 

environment are potentially devastating. Yet, by choosing to 

review the need for an EIS under the most lenient of all 

standards of review--the arbitrary, capricious and unlawful 

standard--the majority appears content to let the future of 

our forests, rivers, wildlife and wilderness rest in the 

hands of non-elected public officials. When I see the Department giving priority to the raising of revenue over the 

quality of our environment, I cannot share the majority's 

assurance that the Department is adequately carrying out its 

fiduciary duty to "secure the largest measure of legitimate 

and reasonable advantage to the state" in managing school 

trust lands. 

The core of Montana's value derives from its natural 

beauty. The area involved, teeming with wildlife, includes 

the gateway to Glacier National Park, the Coal Creek State 

Forest and the North Fork of the Flathead River, which not 

only comprises part of the Wild and Scenic River System but 

also feeds the majestic Flathead Lake. The majority and the 

Department may be willing to exploit these state treasures 

without taking a hard look at the future. I, for one, cannot 

condone the Department's hasty and ill-considered decision to 

allow drilling prior to the compilation of an EIS. 

I would affirm the District Coyt. 

- 25 - Justice