                                      NO.    90-152
                   IN THE SUPREME COURT OF THE STATE OF MONTANA
                                            1990


        ARNOLD F. KRUSE and
        PATRICIA KRUSE,
                   Plaintiffs and Appellants,
             vs.
       CASCADE COUNTY, a Municipal
       Corporation of the State of
       Montana, DICK MICHELOTTI,
       Treasurer, Cascade County and
       THE DEPARTMENT OF REVENUE,
       State of Montana,
                   Defendants and Respondents.



       APPEAL FROM:     District Court of the Eighth Judicial District,
                        In and for the County of Cascade,
                        The Honorable John M. McCarvel, Judge presiding.


       CY3UNSEL OF RECORD:
       c 3
       L3          For Appellant:
       -"
        --
      LL                Dirk Larsen, Larsen and Neill, Great Falls, Montana
      - .-
-.
1.-                For Respondents:
                       Larry G. Schuster, Department of Revenue, Property
                       Assessment Division, Helena, Montana


                                        Submitted on Briefs:    June 14, 1990
                                                   e   Decided: August 7, 1990
        Filed:



                                        Clerk
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Justice John Conway Harrison delivered the Opinion of the Court.

     Arnold and Patricia Kruse appeal the judgment of the Eighth
Judicial District Court of Cascade County holding that the Montana
Department of Revenue and Cascade County had legal authority to
impose back taxes on real property owned by the Kruses.    Because
they did not prevail in their case, the District Court also denied
the Kruses request for attorney's fees and costs pursuant to 5 25-
           MCA . We affirm the District Court judgment.
     Appellants raise two issues for review:
     1.   Did the District Court err in finding that the
     Montana Department of Revenue and Cascade County had the
     legal authority to correct erroneous assessments upon the
     Kruses' real property for the tax years 1986 and 1987
     pursuant to 5 15-8-601, MCA?
     2.   Did the District Court err in finding that the
     appellants were not entitled to an award of attorney's
     fees and costs pursuant to 5 25-10-711, MCA?
     Arnold and Patricia Kruse own seven parcels of real property
which form a contiguous, irregularly shaped block in Great Falls,
Montana.     Three of the parcels front 10th Avenue South and four
front 11th Avenue South.      The property was unimproved and not
within the city limits of Great Falls during the tax years at
issue.
     In 1985 the Department of Revenue (DOR) completed a program
of cyclical reappraisals of all taxable real property in Montana.
As part of that reappraisal, new appraised values were assigned to
the Kruses' property.        The Cascade County ~ppraisal office
determined that property on 10th Avenue South between 26th Street
and 34th Street, including the Kruses' property identified as Mark
                                                              1   '-   t




15A, Mark 15B, and Mark 15C, was to be valued at $700 per front
foot, and property on llth Avenue South between 26th Street and
34th Street, including Krusesl property identified as Mark 18, Mark
18A, Mark 18B and Mark 18C, was to be valued at $160 per front
foot.
     On January 1, 1986, erroneous values were assigned to the
Kruses' seven parcels of real property. The three parcels fronting
10th Avenue South as well as the four parcels fronting llth Avenue
South were assigned values of $2,500 per acre rather than the
previously determined appraised values as set out above.          The
erroneous values were carried forward for the 1987 tax year.      The
Kruses paid their 1986 and 1987 real property taxes based on those
erroneous values on time and without protest.
     In the spring of 1988, a DOR appraiser discovered that the
Kruse property had been erroneously assessed.     The Cascade County
Appraisal Office then reviewed all properties on 10th Avenue South
and found that 42 parcels of property fronting 10th Avenue South
had been erroneously assessed.   As a result, the DOR and Cascade
County set out to correct the erroneous assessments of 10th and
llth Avenues South properties for the tax years 1986 and 1987. To
correct the erroneous assessments the Cascade County Treasurer sent
supplemental tax bills to the property owners involved. The Kruses
received their supplemental tax bill in the amount of $5,316.84 on
August 29, 1988 and paid the additional taxes under protest to the
Cascade County Treasurer on September 27, 1988.
     In their letter of protest the Kruses stated that they had
                                                               a    '


already paid their 1986 and 1987 property taxes in full.           They
further stated that Cascade County was           imposing additional,
retroactive taxes unlawfully.       The Kruses then brought this suit
for return of the taxes paid under protest and for their attorney's
fees and costs.
     The appellants contend that the actions of the DOR and Cascade
County in 1988 amounted to a reappraisal of the properties in
question and resulted in an illegal and unlawful imposition of
additional retroactive taxes for 1986 and 1987.          The DOR and
Cascade County maintain that no new appraisal occurred, but the
property had been erroneously assessed and 5 15-8-601, MCA, grants
authority to correct erroneous assessments.
     The trial court entered judgment in favor of Cascade County
and DOR, stating that the erroneous assessment was simply a
clerical error, and ordered the Cascade County Treasurer to
disburse the $5,316.84 of taxes which had been paid under protest
for the 1986 and 1987 tax years.          The Kruses now appeal that
judgment   .
       Issue 1: Authority to Correct Erroneous Assessments
     The controlling statute is 5 15-8-601, MCA, which reads, in
pertinent part :
               (1) Whenever the department of revenue
               discovers that any taxable property of any
               person has in any year escaped assessment,
               been erroneously assessed, or been omitted
               from taxation, the department may assess the
               same provided the property is under the
               ownership or control of the same person who
               owned or controlled it at the time it escaped
               assessment, was erroneously assessed, or was
               omitted from taxation.     All such revised
            assessments must be made within 10 years after
            the end of the calendar year in which the
            original assessment was or should have been
            made. (Emphasis added.)
       The situation presented by this case is subject to 5 15-8-
601, MCA, and may be remedied as the statute provides.       The trial
court heard testimony from four staff members of DORIS Cascade
County Appraisal Office: Mr. Nick Lazanas, Director during the
reappraisal; Mr. George Tyner, the lead commercial appraiser; Mr.
Joe Seipel, the current supervisor; and Mr. Tom Pysher, the lead
residential appraiser. Their testimony clearly indicated that the
value of the Kruse property fronting 10th Avenue South had been
established at $700 per front foot and that the value of the
Krusesl 11th Avenue South property had been established at $160 per
front foot by the 1985 reappraisal, that the erroneous tax
assessment of $2,500 per acre was caused by a clerical error, and
that no new appraisal was made in 1988.
       Erroneous assessments may be corrected if property has been
undervalued due to a clerical or appraisal error.    Evans Products
Co. v. Missoula County     (1982), 201 Mont.   337, 654 P.2d 523.
Property which has not been fully taxed according to appropriate
tax procedures may be properly reassessed pursuant to 5 15-8-601,
MCA.    Blalock v. City of Melstone (1980), 186 Mont. 303, 607 P.2d
545.
       We agree with the trial court that the Kruses' seven parcels
of real property were erroneously assessed for the tax years 1986
and 1987.    The DOR previously determined appraised values of $700
per front foot and $160 per front foot for the Kruses' properties.
                                                             r.    8



Due to an error those values were not transmitted to Cascade
County's assessment rolls.     During 1988 the error was discovered.
The DOR did not rely on any new appraisal to correct the prior
erroneous assessments.       Rather, the DOR    clearly adhered to
previously determined values which had not been entered upon the
tax rolls of Cascade County.         The seven Kruse parcels were
erroneously assessed within the meaning of 5 15-8-601, MCA.       The
DOR and Cascade County acted properly pursuant to 5 15-8-601, MCA,
in 1988 by assigning the previously determined values to the Kruse
real property.
                 Issue 2:   Attorney's Fees and Costs
      The Kruses contend that the DORIS actions amounted to an
illegal imposition of back taxes and its defense of the case was
frivolous and conducted in bad faith.    The Kruses allege they are
therefore entitled to their attorney's fees and costs pursuant to
§   25-10-711, MCA.   In part, the statute reads:
           (1) In any civil action brought by or against
           the state, a political subdivision, or an
           agency   of   the   state or     a   political
           subdivision, the opposing party, whether
           plaintiff or defendant, is entitled to the
           costs enumerated in 25-10-201 and reasonable
           attorney's fees as determined by the court if:
            (a) he prevails against the state, political
            subdivision, or agency; and
           (b) the court finds that the claim or defense
           of the state, political subdivision, or agency
           that brought or defended the action was
           frivolous or pursued in bad faith.


section 25-10-711, MCA,
                                                            *    8


     The appellant failed to meet both requirements of 5 25-10-
711(1),   MCA.    The Kruses did not prevail against the DOR as
required by subsection (a) nor did the trial court find the DORIS
defense of the action frivolous or pursued in bad faith as required
by subsection (b). The trial court made specific findings of fact
that the DORIS defense in this case was meritorious, not frivolous
or in bad faith.     The trial court concluded that the DOR had an
absolute duty to defend and refused to award costs and attorney's
fees.
     Additionally, 5 15-8-115, MCA, requires the DOR to defend any
property tax appeal.     Where a State agency has a legal duty to
provide a defense, there can be no finding of bad faith or a
frivolous defense under the statute.   Matter of Dearborn Drainage
Area (Mont. 1989), 782 P.2d 898, 46 St.Rep. 1925.
     We   hold   that the trial court correctly     found that the
respondents were not liable for attorney's fees and costs under
5 25-10-711, MCA.
     Affirmed.




We concur:
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~4~7-   Chief Justice
