                                                                                       February 27 2013


                                          DA 12-0007

                  IN THE SUPREME COURT OF THE STATE OF MONTANA

                                          2013 MT 48



BOSTWICK PROPERTIES, INC.,

              Petitioner and Appellant,

         v.

MONTANA DEPARTMENT OF NATURAL
RESOURCES AND CONSERVATION,

              Respondent, Appellee and Cross-Appellant.



APPEAL FROM:           District Court of the Eighteenth Judicial District,
                       In and For the County of Gallatin, Cause No. DV 09-1196C
                       Honorable John C. Brown, Presiding Judge


COUNSEL OF RECORD:

                For Appellant:

                       Brian K. Gallik, Goetz, Gallik & Baldwin, P.C., Bozeman, Montana;
                       Matthew W. Williams, Williams and Jent, PLLP, Bozeman, Montana

                For Appellee:

                       Brian C. Bramblett, Anne W. Yates, Montana Department of Natural
                       Resources and Conservation; Helena, Montana


                                                   Submitted on Briefs: December 12, 2012
                                                              Decided: February 26, 2013




Filed:
                       __________________________________________
                                         Clerk
Justice Brian Morris delivered the Opinion of the Court.

¶1     Bostwick Properties, Inc. (Bostwick) sought a water use permit from the Montana

Department of Natural Resources and Conservation (DNRC). DNRC denied the water use

permit. Bostwick petitioned for review by the District Court. The District Court agreed with

DNRC that Bostwick had failed to prove no net depletion of surface water and lack of

adverse effect, as required by § 85-2-360, MCA, and therefore Bostwick was required to

mitigate its water usage in order to receive a water use permit. The District Court further

determined, however, that Bostwick had submitted an adequate mitigation proposal, and,

therefore, DNRC improperly had denied Bostwick’s permit application. The District Court

further noted that DNRC had exhibited bias against Bostwick. The District Court separately

affirmed each of DNRC’s findings, and so determined that any bias on the part of DNRC

caused no prejudice to Bostwick. Bostwick appeals, DNRC cross-appeals, and we affirm.

¶2     Bostwick and DNRC present the following issues on appeal:

¶3     Whether DNRC had authority to deny Bostwick’s permit?

¶4     Whether DNRC and the District Court properly required Bostwick to mitigate its

water usage?

¶5     Whether the District Court properly determined Bostwick’s mitigation proposal was

adequate as a matter of law?

¶6     Whether DNRC had the authority to require Bostwick to identify a specific water right

for mitigation?

¶7     Whether DNRC bias substantially prejudiced Bostwick?


                                             2
                  PROCEDURAL AND FACTUAL BACKGROUND

¶8     Bostwick filed an application for a Beneficial Water Use Permit with DNRC on

December 1, 2006. Bostwick sought the water use permit for municipal use in its Lazy J

South subdivision in Gallatin County, Montana. Bostwick initially sought up to 79 acre-feet

per year of groundwater year round. Bostwick sought to extract this groundwater from an

aquifer. DNRC designated Bostwick’s water use permit application “correct and complete”

on February 12, 2007, and noticed the application to the public. Montana Department of

Fish, Wildlife, and Parks (FWP) and Montana Trout Unlimited (TU) objected to Bostwick’s

application. Both objectors later withdrew their objections provided that Bostwick reduced

its water use to 76 acre-feet per year.

¶9     DNRC failed to take action on Bostwick’s application within the timeframe set forth

in § 85-2-310(1), MCA. Bostwick sought a writ of mandate to require DNRC to issue the

water use permit, or, alternatively, to hold a hearing to force DNRC to show cause why

DNRC would not grant the permit. After Bostwick sought the writ of mandate, DNRC

issued a statement of opinion that denied Bostwick’s water use permit. DNRC determined

that Bostwick had failed to demonstrate no net depletion of surface water, as required by §

85-2-360, MCA, and had failed to prove legal availability and lack of adverse impact, as

required by § 85-2-311, MCA. DNRC determined that Bostwick had demonstrated the other

criteria required by § 85-2-311, MCA.

¶10    The District Court granted Bostwick’s request for a writ of mandate. DNRC appealed

to this Court. Bostwick Props. v. Mont. Dep’t of Nat. Res. & Conserv., 2009 MT 181, 351

                                            3
Mont. 26, 208 P.3d 868 (Bostwick I). We reversed the District Court’s grant of the writ of

mandate. We determined that DNRC had no legal duty to grant Bostwick’s permit

application because Bostwick had not yet proven lack of adverse effect and legal availability.

Bostwick I, ¶ 21. We remanded the case to DNRC with instructions to provide Bostwick

with an opportunity to be heard on its water use permit application. Bostwick I, ¶ 23.

Bostwick requested that DNRC disqualify itself to hear Bostwick’s application on the

grounds of bias. DNRC denied Bostwick’s request for disqualification.

¶11    The Gallatin River is part of a closed water basin. Sections 85-2-342 to 85-2-343,

MCA.     In order to receive a groundwater permit, Bostwick first had to provide a

hydrogeologic assessment to determine whether its proposed groundwater usage would result

in a net depletion of surface water. Section 85-2-360, MCA. Bostwick would have to

mitigate its water usage if Bostwick’s proposed pumping of groundwater would result in a

net depletion of surface water and adversely affect senior appropriators. Section 85-2-362,

MCA.

¶12    Bostwick offered alternatives to demonstrate that its groundwater use would not result

in a net depletion of the Gallatin River surface water, or would not cause an adverse effect.

Bostwick first proposed that its Pave and Infiltrate Plan would offset all proposed

consumption and would result in no net depletion of surface water. Bostwick next proposed

that no net depletion would occur because the hydrological connection between the aquifer

and the surface water was too attenuated and any potential adverse effect was unknown.

Bostwick argued that the amount of water that it sought was too small to result in an adverse

                                              4
effect. Bostwick also suggested that DNRC could terminate Bostwick’s water rights if

Bostwick’s de minimus water usage actually harmed senior rights holders. Bostwick finally

proposed mitigation in the form of purchasing Water Right No. 41H 226700, in the event

that Bostwick failed to demonstrate no net depletion or lack of adverse effect.

¶13     DNRC determined that Bostwick’s water use would result in a net depletion of

surface water, and that Bostwick had failed to demonstrate lack of adverse effect. This

determination required Bostwick to mitigate its proposed water use. DNRC further

determined that Bostwick’s proposed mitigation, purchasing Water Right No. 41H 226700,

was inadequate because the mitigation would provide only irrigation season water and would

provide no non-irrigation season water. DNRC’s determinations that Bostwick had failed to

demonstrate no net decrease and had failed to demonstrate a lack of adverse effect for non-

irrigation season water required Bostwick to mitigate non-irrigation season water loss as

well.

¶14     Bostwick sought review by the District Court. The district court agreed with DNRC

that Bostwick had failed to demonstrate no net depletion and lack of adverse effect. The

District Court deemed adequate as a matter of law, however, Bostwick’s mitigation proposal.

The District Court determined that DNRC improperly had denied Bostwick’s water use

permit subject to implementation of Bostwick’s mitigation plan. Bostwick appeals the

District Court’s determination that Bostwick failed to demonstrate no net depletion or lack of

adverse effect. DNRC cross-appeals on the grounds that Bostwick’s mitigation proposal did

not mitigate non-irrigation season water use.

                                              5
                               STANDARD OF REVIEW

¶15    We review for correctness a district court’s review of an administrative agency’s

decision. BNSF Ry. Co. v. Cringle, 2010 MT 290, ¶ 11, 359 Mont. 20, 247 P.3d 706. We

review for correctness a district court’s conclusions of law. Cringle, ¶ 11.

                                      DISCUSSION

¶16    Whether DNRC had authority to deny Bostwick’s permit?

¶17    Bostwick argues that its settlement with all objectors required DNRC as a matter of

law to grant Bostwick a water use permit. DNRC instead issued a statement of opinion that

provided that Bostwick had failed to show no net decrease, pursuant to § 85-2-360, MCA,

and to show legal availability and lack of adverse effect pursuant to § 85-2-311(1), MCA.

Bostwick argues that DNRC’s previous determination that Bostwick’s application was

“correct and complete” deprived DNRC of any further authority to issue a statement of

opinion or to deny the permit after Bostwick settled with the objectors.

¶18    We considered and rejected this argument in Bostwick I. The District Court in

Bostwick I concluded that DNRC was required, as a matter of law, to grant Bostwick’s

permit because DNRC had determined Bostwick’s application was “correct and complete,”

and all objections had been resolved. Bostwick I, ¶ 20. DNRC must grant a permit only if

Bostwick resolved the objections and Bostwick proved the § 85-2-311, MCA, criteria by a

preponderance of the evidence. Bostwick I, ¶ 21. Bostwick was required to prove legal

availability and lack of adverse effect by a preponderance of the evidence. Bostwick I, ¶ 21.




                                             6
DNRC had legal authority, and the legal duty, to deny Bostwick’s permit if Bostwick failed

to do so. Bostwick I, ¶ 21.

¶19    Whether DNRC and the District Court properly required Bostwick to mitigate its

water usage?

¶20    Bostwick offers four theories to support its argument that its water use would result in

no net depletion of surface water or would not adversely affect senior appropriators. We

analyze each in turn.

1. Bostwick’s Pave & Infiltrate Plan

¶21    Bostwick first argues that its Pave and Infiltrate Plan would offset any net depletion of

surface water from its proposed pumping of groundwater. Bostwick plans to pave roads and

parking lots in its proposed development. Bostwick contends that precipitation that

previously had evaporated or had been used by native plants would run off these new

impermeable surfaces. Bostwick would store this runoff water in retention ponds. Bostwick

would discharge this runoff water from the retention ponds into the groundwater, which in

turn eventually would recharge the Gallatin River. Bostwick estimated that it would collect

42 acre-feet per year of runoff water. This “savings” represents more than the 39 acre-feet

per year that Bostwick seeks to deplete with its water use permit. Bostwick argues, as a

result, that its development as a whole would cause no net decrease in surface water and no

adverse effect.

¶22    Section 85-2-361(1), MCA, lists factors that DNRC should consider in predicting

whether a water appropriation would result in a net depletion of surface water. These factors

                                               7
include the actual amount diverted, the amount likely to be lost in conveyance, any return

due to percolation, and any return flows such as wastewater. Section 85-2-361(1), MCA,

further provides that these factors do not constitute an exhaustive list of criteria to consider

when it evaluates net depletion of surface water. Bostwick argues that DNRC should

consider the runoff caused by Bostwick’s proposed development in this calculation of

potential depletion of surface water. Bostwick provides no legal support to include its runoff

water in the surface water depletion calculation.

¶23    We look at four factors when we interpret a statute. First, we ask whether the

interpretation reflects the intent of the legislature considering the plain language of the

statute. U.S. West, Inc. v. Dep’t of Revenue, 2008 MT 125, ¶ 16, 343 Mont. 1, 183 P.3d 16.

We next examine whether the interpretation comports with the statute as a whole. U.S. West,

¶ 16. We then consider whether an agency charged with administration of the statute has

placed a construction on the statute. U.S. West, ¶ 16. Finally, where appropriate, we analyze

whether the interpretation avoids absurd results. U.S. West, ¶ 16.

¶24    The plain language of § 85-2-361(1), MCA, indicates that Bostwick’s interpretation of

this statute fails to reflect the intentions of the legislature. The legislature listed only factors

that concern the appropriated water. The analysis of the “actual amount diverted” and the

“amounts that will likely be lost in conveyance” considers only the appropriated water.

Similarly, the “return flow” analysis contemplates how much of the appropriated water will

“return.” None of these factors requires DNRC to consider sources of water other than the

proposed water to be appropriated pursuant to Bostwick’s permit. Nothing indicates, based

                                                 8
on the plain language of the statute, that the legislature intended DNRC to consider

alternative sources of water, such as Bostwick’s runoff, when it calculates net-depletion.

¶25    Bostwick’s interpretation also conflicts with the statute as a whole. The legislature

separately considered the role of sources of water other than the appropriated water. The

legislature labeled this other water as “mitigation” water. Sections 85-2-102(15), 85-2-360

to 85-2-363, MCA. If a water allocation would result in a net depletion of surface water, the

statute requires the applicant to submit a mitigation plan that would introduce a new source

of water to offset any adverse effect caused by the net depletion of surface water. Section

85-2-360, MCA. The legislature clearly has directed DNRC to evaluate water other than the

appropriated water as potential mitigation. It would be contrary to the statutory scheme to

require DNRC instead to consider this runoff water in its net-depletion calculation.

¶26    Bostwick does not argue that it can use this runoff water as mitigation, and, indeed, it

could not. The legislature defined mitigation as the “reallocation of surface water or ground

water through a change in appropriation right.” Section 85-2-102(15), MCA. Bostwick

currently has no appropriation right to use this runoff water. The legislature clearly stated

that a water use permit represents the sole way to appropriate water. Sections 85-2-301 to

85-2-302, MCA. Bostwick could not use this runoff water as mitigation water.

¶27    The agency charged with administering this statute, DNRC, concluded that it should

not consider Bostwick’s runoff water when it calculated net depletion. Bostwick did not

argue specifically that this statute, § 85-2-361, MCA, or any legal authority, requires DNRC

to consider Bostwick’s runoff water as part of the net-depletion calculation. DNRC

                                              9
concluded that no legal authority supported Bostwick’s claim that DNRC should consider

Bostwick’s runoff as part of DNRC’s net-depletion calculation.

¶28    As noted above, Bostwick has no legal right to appropriate this runoff water. A water

use permit represents the sole way Bostwick could acquire an appropriation right. Sections

85-2-301 to 85-2-302, MCA. An anomalous result would occur if Bostwick could use this

runoff water in its net-depletion of surface water calculation even though Bostwick has no

legal right to appropriate this runoff water.

¶29    Finally, the legislature has moved away from the old-fashioned understanding of

water appropriation that underpins Bostwick’s claim that it can use this runoff water in the

net-depletion analysis. This Court previously recognized the notion of “developing” water

by tapping an underground aquifer or by bringing water to a location it otherwise would not

have reached. See State ex. rel. Mungas v. Dist. Ct., 102 Mont. 533, 59 P.2d 71 (1936); Rock

Creek Ditch & Flume Co. v. Miller, 93 Mont. 248, 17 P.2d 1074 (1933). Bostwick

essentially argues that it would be “developing” water by capturing runoff water.

Historically, a party who “developed” water could appropriate that water ahead of senior

appropriators. The legislature rejected the notion that a person could appropriate water by

“developing” it. The legislature instead declared that starting in 1973, a water use permit

represented the sole way to appropriate water. See §§ 85-2-301 to 85-2-302, MCA. This

new law superseded our old cases, including Mungas and Rock Creek, regarding the ability

of a party to appropriate water through the “development” of water. See §§ 85-2-301 to 85-

2-302, MCA.

                                                10
¶30    The legislature has adopted a system that recognizes the hydrological cycle and the

adverse effect that new appropriations of surface water or ground water could cause to senior

appropriators. The legislature specifically recognized that depletion of groundwater could

cause a depletion of surface water. See § 85-2-360, MCA. The legislature now requires

water use permit applicants to demonstrate that their groundwater usage in a closed basin

will not adversely affect senior appropriators of surface water. Sections 85-2-360, 85-2-363,

MCA. Bostwick’s capture of surface water similarly could cause a depletion in the surface

water or groundwater in the closed Gallatin River Basin that could adversely affect senior

appropriators. The legislature’s recent modifications to Montana water law confirm that the

legislature did not intend to allow Bostwick to use an additional source of water, such as the

runoff water, in the net-depletion of surface water calculation. See §§ 85-2-301 to 85-2-302,

MCA.

¶31    Nothing in § 85-2-361, MCA, supports Bostwick’s interpretation that DNRC should

consider the runoff water caused by Bostwick’s pavement when DNRC calculates the net

depletion caused by Bostwick’s water allocation. This interpretation would run contrary to

the plain meaning of the statute, to the statutory scheme as a whole, to the DNRC’s

interpretation, and would cause an absurd result whereby Bostwick could claim the runoff

water in the net-depletion calculation even though Bostwick would have no legal right to use

the water. See U.S. West, ¶ 16.

2. Attenuated Hydrological Connection




                                             11
¶32    Bostwick next argues that the attenuated hydrological connection between the source

ground water and the surface water would cause no net depletion of surface water in the

Gallatin River. Bostwick argues that the lack of net depletion of surface water related to its

water extraction would not adversely affect senior appropriators. Bostwick admits that the

groundwater that Bostwick seeks to extract from the aquifer ultimately would have ended up

in the Gallatin River. Bostwick argues, however, that no way exists to determine at what

point the Gallatin River would begin to lose water due to Bostwick’s extraction of water

from the aquifer. Bostwick argues that this uncertainty confirms that no net depletion, or no

adverse effect, could be shown.

¶33    Bostwick points to a recent DNRC permit for new groundwater use by Yellowstone

Club, In the Matter of the Application for Beneficial Water Use Permit 41H-30027281, as

evidence that DNRC should grant the water use permit when an unknown connection exists

between an aquifer and surface water. Yellowstone Club sought a water use permit several

miles from Bostwick’s proposed development. Yellowstone Club failed to demonstrate

where or how its depletion from the aquifer would affect the Gallatin River. DNRC

nevertheless granted the Yellowstone Club’s water use permit because no practical way

existed to establish how or when the groundwater would affect the surface water. Bostwick

argues that DNRC should have applied this same principle to Bostwick’s water use permit.

¶34    DNRC ultimately conceded to the District Court that it wrongly had granted the water

use permit to Yellowstone Club. The District Court determined that DNRC’s issuance of a

water use permit to the Yellowstone Club did not establish any binding precedent that would

                                             12
force DNRC to issue Bostwick’s permit under similar circumstances. The District Court

further determined that past DNRC cases and Montana law support DNRC’s decision to

deny a permit where uncertainty exists regarding any hydrological connection.

¶35    We agree. This Court possesses authority to reverse any arbitrary and capricious

agency decision. Section 2-4-704, MCA. We may reverse an arbitrary and capricious

decision of an agency, even if the agency follows its own prior arbitrary and capricious

decision. DNRC correctly applied the permit criteria for Bostwick’s permit application

despite DNRC’s failure to follow the same analysis in reviewing the Yellowstone Club’s

permit application.

¶36    Bostwick admits that some hydrological connection exists between the groundwater

from the aquifer and the Gallatin River. Bostwick argues it is unknown exactly when

Bostwick’s extraction of groundwater would affect the Gallatin River. Bostwick seeks to

shift the burden of proof to DNRC, however, and thereby require DNRC to grant the permit

if no net depletion, and so no adverse effect, could be shown. Section 85-2-311(1)(a)(ii),

MCA, clearly places the burden of proof on the applicant to demonstrate lack of adverse

effect. Bostwick bears the burden of demonstrating that its efforts to pump water from the

aquifer would cause no adverse effect on prior appropriators of the Gallatin River. Bostwick

admits that it could not establish the effect of this proposed pumping on prior appropriators.

The District Court correctly determined that Bostwick had failed to prove lack of any

adverse effect.

3. De Minimus Water Usage

                                             13
¶37    Bostwick next argues that the de minimus amount of water that it would deplete from

the Gallatin River could not adversely affect senior water rights holders. Boswick seeks to

deplete 24.1 gallons per minute. Bostwick notes that this 24.1 gallons per minute constitutes

0.035% of the lowest recorded flow on the Gallatin River. Bostwick contends that § 85-2-

360(5), MCA, supports an exception for its de minimus water usage. Bostwick recognizes

that its permit application predated this legislative amendment for de minimus usage.

Bostwick argues that the legislature merely confirmed the law that already existed.

¶38    Section 85-2-360(5), MCA, provides that the prediction of a net depletion does not

automatically mean that an adverse effect would occur. DNRC must determine whether an

adverse effect exists “based on the amount, location, and duration” of the depletion “relative

to the historic beneficial use.” Section 85-2-360(5), MCA. This language creates no de

minimus exception. It simply restates the principle that a depletion would not adversely

affect any prior appropriators if sufficient water exists. Alternatively, the amendment

acknowledges that if an adverse effect occurs, the amount of the adverse effect would not

necessarily represent the full amount of the depletion. Further, the amended version of the

statute still imposes on Bostwick the burden of proof to demonstrate lack of any adverse

effect. Section 85-2-311, MCA.

¶39    DNRC correctly determined that Bostwick failed to prove lack of adverse effect, even

for Bostwick’s minimal 39 acre-feet per year water depletion. No legally available water

exists on the Gallatin River during the irrigation season. The Gallatin Water Commissioner

generally cuts off water rights each irrigation season for priority dates later than 1890. In

                                             14
fact, in 2012, the Water Commissioner cut off water rights owners junior to 1883. Any

additional depletion of water, even one as minimal as 39 acre-feet per year, potentially would

adversely affect senior appropriators’ water rights.

4. Administration of Priorities

¶40       Bostwick further argues that any adversely affected senior rights holders on the

Gallatin River could force Bostwick to stop using water through the administration of

priorities. Bostwick would ask this Court to shift the burden of proving lack of adverse

effect and require prior appropriators to prove that Bostwick caused an adverse effect in

order to protect their rights. As Bostwick has already noted, the attenuated hydrological

connection would make it difficult for anyone to demonstrate an adverse effect. This

situation would make it difficult for senior appropriators to protect their rights.

¶41       The clear language of § 85-2-311, MCA, demonstrates that the legislature placed the

burden of demonstrating lack of any adverse effect on the applicant. The legislature closed

the Upper Missouri River Basin in recognition that significantly more water claims existed

than water to fulfill these prior appropriations. Mont. Trout Unlimited v. Mont. Dep’t of Nat.

Res. & Conserv., 2006 MT 72, ¶¶ 7-8, 331 Mont. 438, 133 P.3d 224. The legislature acted to

protect the water rights of the prior appropriators. We decline to approve a shift in the

burden of demonstrating adverse effect that could jeopardize these prior appropriators’ water

rights.

¶42       Whether the District Court properly determined Bostwick’s mitigation proposal was

adequate as a matter of law?

                                              15
¶43    Section 85-2-363(2)(g), MCA, required Bostwick to demonstrate how its mitigation

plan would offset all adverse effects to all prior appropriators. Bostwick sought to mitigate

its water usage with Water Right No. 41H 226700. This water right would mitigate

Bostwick’s water usage only during the irrigation season. This water right would not

mitigate Bostwick’s water usage during the non-irrigation season. DNRC denied Bostwick’s

permit application due to its failure to prove no net decrease of surface water and lack of

adverse effect for the non-irrigation season.

¶44    The District Court determined that no adverse effect could result as a matter of law

from Bostwick’s water usage during the non-irrigation season.           The District Court

recognized that Bostwick’s non-irrigation season water usage could affect adversely only one

party – FWP. FWP further has stated that Bostwick’s irrigation season only mitigation plan

will cause FWP no adverse effect.

¶45    Michael Nicklin, an expert for Bostwick, testified that Bostwick’s mitigation water

would continue to flow in the river downstream to the Canyon Ferry Dam if Bostwick

obtained a water right above where Interstate 90 crosses the Gallatin River. Bostwick’s

proposed mitigation with Water Right No. 41H 226700, would withdraw water upstream of

the Interstate 90 crossing. Sufficient flow currently exists in the Gallatin River downstream

from the Interstate 90 crossing to fulfill all appropriators’ water rights during irrigation

season. Bostwick’s mitigation water would flow into the Canyon Ferry Dam, therefore,

rather than being used by another appropriator. Canyon Ferry Dam would collect all of the

water that Bostwick mitigates during the irrigation season.

                                                16
¶46    Canyon Ferry Dam’s role in storing water likely would protect downstream water

users when Bostwick mitigates the full 39 acre-feet of water during the irrigation season,

rather than spreading evenly this mitigation throughout the year. FWP represented the only

party that could be adversely affected by Bostwick’s irrigation season only mitigation plan.

Bostwick’s settlement with FWP reflects FWP’s belief that it would not be adversely

affected by the irrigation season only mitigation proposed by Bostwick.

¶47    We determined in Bostwick I that the mere fact that Bostwick had settled with

objectors did not preclude DNRC from considering the § 85-2-311, MCA, criteria. Bostwick

I, ¶ 21. Nothing here revises that determination. Bostwick’s settlement with FWP should

not have precluded DNRC from considering the § 85-2-311, MCA, criteria. The settlement

does support the notion, however, that Bostwick’s proposal would limit any adverse effect

from the irrigation season only mitigation. In the unique circumstances presented here, with

the Canyon Ferry Dam regulating the flow of water for downstream appropriators, the

presence of only one party – FWP – potentially adversely affected during the non-irrigation

season by Bostwick’s proposal, and FWP’s acknowledgment through its settlement that it

would suffer no adverse effects during the non-irrigation season, we agree with the District

Court that Bostwick demonstrated a lack of adverse effects for its proposed irrigation season

only mitigation plan.

¶48    Whether DNRC had the authority to require Bostwick to identify a specific water right

for mitigation?




                                             17
¶49    DNRC required Bostwick to identify exactly which water right Bostwick would use to

mitigate its surface water depletions. Bostwick argues that DNRC should allow it to provide

details, such as amount of water, timing, location of water, and seniority of water rights,

without Bostwick having to specify a particular water right.

¶50    Section 85-2-362, MCA, imposes on DNRC the duty to determine whether a

mitigation plan would offset depletions effectively. Bostwick does not dispute DNRC’s

claim that DNRC routinely has required an applicant to identify the exact water right that the

applicant plans to use for mitigation. DNRC claims that identification of the water right

proves necessary to its full evaluation of a mitigation plan. This case demonstrates the need

for such specificity. Bostwick’s mitigation water must reach the Canyon Ferry Dam in order

to mitigate effectively Boswick’s net depletion. Bostwick’s own expert testified that

Bostwick would need to acquire for mitigation a water right that withdraws upstream from

where Interstate 90 crosses the Gallatin River, a water right senior to 1890, and a water right

for at least 39 acre-feet per year. Bostwick’s identification of a specific water right allows

DNRC to consider all of these factors when it evaluates the effectiveness of the mitigation

plan. We see no prejudice caused by DNRC’s requirement in light of the fact that that

Bostwick could mitigate with a water right with similar specifications if Bostwick could not

purchase Water Right No. 41H 226700.

¶51    Whether DNRC bias substantially prejudiced Bostwick?

¶52    Bostwick alleges that DNRC’s bias against Bostwick during the permit application

process violated Bostwick’s due process rights. This Court remanded to DNRC its initial

                                              18
denial of Bostwick’s permit application. Bostwick I, ¶ 23. Bostwick requested that DNRC

disqualify itself to hear the permit application on remand. Bostwick wanted the Attorney

General to appoint a neutral party to consider Bostwick’s application. DNRC refused and

instead appointed Scott Irvin, a DNRC employee, to hear Bostwick’s renewed request.

Emails between Irvin and other DNRC employees suggested that Irvin had exhibited bias

against Bostwick. Bostwick argues that the District Court improperly determined that Irvin’s

bias did not rise to the level of an “irrevocably closed mind” as contemplated in Madison

River R.V. Ltd. v. Town of Ennis, 2000 MT 15, ¶ 15, 298 Mont. 91, 994 P.2d 1098.

¶53    The District Court based its no prejudice determination on the fact that it

independently reached the same conclusions as DNRC. We characterize DNRC’s bias as an

“unlawful procedure.” Erickson v. State ex rel. Bd. of Med. Exam’r, 282 Mont. 367, 375,

938 P.2d 625, 630 (1997). The mere existence of an error in the process does not mandate

reversal. Erickson, 282 Mont. at 375, 938 P.2d at 630. The alleged error must have caused

substantial prejudice. Erickson, 282 Mont. at 375, 938 P.2d at 630. Bostwick failed to show

substantial prejudice. The District Court independently reached the same conclusions as

DNRC, with the exception of the non-irrigation season mitigation proposal. Bostwick’s

failure to demonstrate substantial prejudice relieves us of the need to consider whether

Irvin’s bias rose to the level of having an “irrevocably closed mind.” Madison River R.V., ¶

15.

¶54    Affirmed.

                                                        /S/ BRIAN MORRIS

                                            19
We Concur:

/S/ MIKE McGRATH
/S/ PATRICIA COTTER
/S/ MICHAEL E WHEAT




Justice Jim Rice, concurring.

¶55    In Bostwick I, Justice Nelson and I expressed dismay and concern over the

Department’s unfair treatment of Bostwick:

       DNRC’s quick action would be commendable if it hadn’t been taken to rectify
       DNRC’s earlier malfeasance and to short-circuit a court’s review of that
       malfeasance. Then, when Bostwick asked to be heard about the denial, DNRC
       obliged Bostwick by setting a hearing in front of the same official who had
       written the DNRC’s opinion denying the permit. Whether the DNRC was
       attempting to be humorous or capricious, I do not know, but on its face this
       raises potential due process concerns.

Bostwick I, ¶ 29 (Rice, J., concurring); see also ¶ 25 (Nelson, J., concurring). Despite this

rebuke, the Department continued its shenanigans after the case was remanded. E-mails

recovered by Bostwick revealed Department officials celebrating the decision in Bostwick I

and plotting a further ambush of Bostwick upon remand in these proceedings. As the

District Court found, “[i]t does appear that the Department exhibited bias against Bostwick

from the beginning stages of this matter.” However, the District Court reasoned that because

it had “upheld all but one of the Department’s substantive decisions,” that the agency’s bias

was “irrelevant.”

¶56    I believe the District Court’s approach to this issue put the procedural cart before the

horse, and I disagree that affirming an agency’s substantive decisions should necessarily
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render a bias issue irrelevant. This Court has previously exercised supervisory control over

district judge substitution because continuing the litigation could “cause uncertainty as to the

validity of the District Court judge’s involvement and decisions in this matter” and “risks

wasting significant resources” in the event the matter would need to be retried. Goldman

Sachs Group, Inc. v. Second Jud. Dist. Ct., 2002 MT 83, ¶ 8, 309 Mont. 289, 46 P.3d 606.

We revised the appellate rules to accommodate these concerns. See M. R. App. P.

14(3)(2011); see also D.H. v. Fourth Mont. Jud. Dist. Ct., 2012 MT 106, ¶ 2, 365 Mont. 82,

278 P.3d 1010. We have thus recognized that an improper presiding officer can undermine

the validity of an entire proceeding. Practically, it is difficult to measure the full reach of a

biased decisionmaker’s impact, as it can flow to the entirety of the case, including minor

rulings. A litigant may be faced with arguing that bias affected each adverse decision in the

case. The Legislature has provided for substitution of hearing examiners, including for bias.

See § 2-4-611(4); § 85-2-310(1)(b), MCA; see also In re Best, 2010 MT 59, ¶ 22, 355 Mont.

365, 229 P.3d 1201 (“due process requires a fair and impartial tribunal”). And further, as a

matter of due process, it is appropriate that the claim of bias be addressed as a threshold

issue, with interlocutory review if necessary, and not as a final issue reviewed only for

demonstrated prejudice.

¶57    Here, the Department’s proceeding should not have been conducted in the manner it

was. In my view, bias was established because the evidence demonstrated the Department’s

mind was irrevocably closed, and an unbiased hearing officer should have been substituted to

hear the matter. If Bostwick had requested a new hearing as a remedy, I would vote to grant

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it. However, Bostwick has not asked for such relief. Instead, Bostwick argues the bias issue

simply to bolster its substantive arguments. Therefore, in light of the posture of this case, I

believe the Court properly affirms on the basis of undemonstrated prejudice.

¶58    I likewise join in the Court’s resolution of the remaining issues.



                                                   /S/ JIM RICE




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