                                          No.    80-47

        I N THE SUPREME COURT O T E STATE O M N A A
                               F H         F OTN

                                                 1980




ED SKILLMAN,

                                          P l a i n t i f f and A p p e l l a n t ,



THE DEPARTMENT O STATE LANDS O THE
                  F              F
STATE O MONTANA; THE BOARD O LAND
       F                       F
COMISSIONERS a n d JAMES R. FOSTER,

                                          D e f e n d a n t s and R e s p o n d e n t s .




Appeal from:     The D i s t r i c t C o u r t o f t h e F i r s t J u d i c i a l D i s t r i c t ,
                 I n and f o r t h e County o f L e w i s and C l a r k , The
                 Honorable P e t e r G. Meloy, J u d g e p r e s i d i n g .

Counsel o f Record:

        For Appellant:

               H a r r i s o n , Loendorf and P o s t o n , H e l e n a , Montana

        For Respondents :

               David Woodgerd, Department o f S t a t e Lands, H e l e n a ,
               Montana
               H. A. B o l l i n g e r , Bozeman, Montana




                                          S u b m i t t e d on B r i e f s :    J u n e 5 , 1980

                                                               Decided :        J L 2 8 1980
                                                                                U
Mr.   J u s t i c e John Conway H a r r i s o n d e l i v e r e d t h e Opinion of
t h e Court.

         Respondent Ed S k i l l m a n p e t i t i o n e d t h e D i s t r i c t C o u r t

f o r j u d i c i a l r e v i e w of a d e c i s i o n by t h e S t a t e Board of Land

Commissioners t o renew a l e a s e of s t a t e l a n d t o James R.

Foster.        The Board of Land Commissioners had renewed t h e

l e a s e a f t e r f i n d i n g t h a t F o s t e r had a p r e f e r e n c e r i g h t .         The

D i s t r i c t C o u r t h e l d t h e Board of Land Commissioners e r r e d i n

renewing t h e lease.               The c o u r t remanded t h e c a s e t o t h e

Board w i t h d i r e c t i o n s t o c a n c e l t h e F o s t e r l e a s e and lease

t h e land without a preference r i g h t .                     The Department of

S t a t e Lands and t h e S t a t e Board of Land Commissioners a p p e a l

t h e d e c i s i o n of t h e D i s t r i c t C o u r t a s s e r t i n g t h e l e a s e t o

F o s t e r s h o u l d be r e i n s t a t e d .   S k i l l m a n c r o s s - a p p e a l s con-

t e n d i n g t h e c o u r t s h o u l d have awarded t h e lease t o him

r a t h e r t h a n o r d e r i n g t h e l e a s e reopened f o r b i d s .

        The f a c t s i n t h i s c a s e a r e n o t d i s p u t e d by t h e p a r t i e s .

F o s t e r h e l d a S t a t e of Montana s u r f a c e l e a s e t o 6 4 0 acres of

g r a z i n g l a n d i n Park County, Montana.                   The l e a s e e x p i r e d on

F e b r u a r y 28, 1979.         On J a n u a r y 2, 1979, F o s t e r a p p l i e d t o

renew h i s l e a s e on t h e l a n d a t a r a t e of $7.50 p e r AUM

(animal-unit-month).                  On J a n u a r y 23, 1979, S k i l l m a n a p p l i e d

t o lease t h e l a n d a t a r a t e of $18.75 p e r AUM.                       F o s t e r was

n o t i f i e d of t h e b i d s u b m i t t e d by S k i l l m a n and informed t h a t

a s c u r r e n t lessee he was e n t i t l e d t o e x e r c i s e a p r e f e r e n c e

r i g h t t o meet t h e b i d .         F o s t e r e x e r c i s e d t h e p r e f e r e n c e and

m e t t h e b i d on F e b r u a r y 22, 1979.             The l e a s e was renewed t o

him on F e b r u a r y 28, 1979.

        F o s t e r a l s o r e q u e s t e d and was g r a n t e d a h e a r i n g t o

d e t e r m i n e whether t h e b i d was i n t h e b e s t i n t e r e s t o f t h e

S t a t e of Montana.            S t a t e Land Commissioner Leo B e r r y con-

d u c t e d t h e h e a r i n g on t h e m a t t e r on March 27, 1979.                   Evi-
dence i n t r o d u c e d a t t h e h e a r i n g showed t h a t F o s t e r had

s u b l e a s e d t h e l a n d t o J i m S e r r a z z e n b u t had n o t f i l e d a

s u b l e a s e form w i t h t h e Commissioners.              Subsequent t o t h e

h e a r i n g , Commissioner B e r r y recommended t h a t a renewal l e a s e

be i s s u e d t o F o s t e r a t t h e r a t e of $7.50 p e r AUM.              The Board

a c c e p t e d t h e recommendation and renewed t h e l e a s e a t t h e

$7.50 r a t e .

        On J u l y 2 , 1979, t h e Department of S t a t e Lands c a n c e l e d

F o s t e r ' s l e a s e f o r f a i l u r e t o f i l e a sublease.        On c a n c e l -

l a t i o n of t h e lease, i t was e x p l a i n e d t o F o s t e r t h a t h i s

l e a s e would be renewed i f he p a i d a p e n a l t y of 50 p e r c e n t of

t h e a n n u a l r e n t a l of t h e l a n d .   F o s t e r p a i d t h e p e n a l t y , and

the lease was reinstated.

        The f o l l o w i n g i s s u e i s r a i s e d by t h e Department of

S t a t e Lands f o r review:

        Did t h e D i s t r i c t C o u r t err i n d e t e r m i n i n g F o s t e r s h o u l d

n o t be g r a n t e d a p r e f e r e n t i a l r i g h t t o l e a s e t h e l a n d i n

q u e s t i o n under t h e a u t h o r i t y of J e r k e v . S t a t e Department of

Lands ( 1 9 7 9 ) ,           Mont.            ,   597 P.2d 49, 36 St.Rep.                389?
        Respondent S k i l l m a n r a i s e s t h e f o l l o w i n g i s s u e on

cross-appeal:

        Did t h e D i s t r i c t C o u r t err i n d e c l a r i n g t h e l a n d i n

q u e s t i o n s h o u l d be reopened f o r p u b l i c b i d r a t h e r t h a n

awarding t h e lease t o S k i l l m a n ?

        The arguments of t h e S t a t e a r e n o t p e r s u a s i v e i n t h i s

case.      Although t h e S t a t e i s c o r r e c t i n s t a t i n g t h a t J e r k e

i s l i m i t e d t o i t s f a c t s , t h e d i s t i n c t i o n s made by t h e S t a t e
a r e not f a t a l t o i t s application here.                 A s Chief ~ u s t i c e

Haswell p o i n t e d o u t i n J e r k e , t h e c r u c i a l p o i n t of t h e case

is this:
        "To a l l o w a n e x i s t i n g lessee who d o e s n o t u s e
        t h e land t o exercise a preference r i g h t consti-
        t u t e s a n u n c o n s t i t u t i o n a l a p p l i c a t i o n of t h e
        preference r i g h t s t a t u t e , s e c t i o n 81-405(1),
        R.C.M.      1947, now s e c t i o n 77-6-205 (1) MCA."            ,
        597 P.2d a t 51, 36 St.Rep. a t 392.

        The m e r e f a c t t h a t t h e l e s s e e i n t h i s c a s e i s a n i n d i -

v i d u a l i n s t e a d of a g r a z i n g d i s t r i c t i s n o t s u f f i c i e n t l y

m a t e r i a l t o t h e p o l i c y involved t o disallow t h e a p p l i c a t i o n

of t h e p r e c e d e n t .

        F u r t h e r , i f t h e c a s e i s d i s t i n g u i s h a b l e and J e r k e

s h o u l d n 6 t be c o n t r o l l i n g a s p r e c e d e n t , t h e r e i s even more

j u s t i f i c a t i o n f o r a p p l y i n g t h e r a t i o n a l e of J e r k e h e r e .   In

J e r k e , a l t h o u g h t h e r e was a s u b l e a s e i n v o l v e d , t h e r e i s no

e v i d e n c e t h a t t h e r e was a n i l l e g a l s u b l e a s e , as i n t h e c a s e

before us.          Here t h e l e s s e e , F o s t e r , s u b l e t h i s g r a z i n g

l e a s e w i t h o u t h a v i n g t h e s u b l e a s e approved by t h e Department

of S t a t e Lands a s r e q u i r e d by h i s lease w i t h t h e S t a t e .

S e c t i o n 77-6-205(1), MCA, r e c i t e s i n a p p l i c a b l e p a r t :

        " ( 1 ) A l e s s e e of s t a t e l a n d c l a s s e d a s a g r i -
        c u l t u r a l , g r a z i n g , town l o t o r c i t y l o t who h a s
        p a i d a l l t h e r e n t a l s due from him t o t h e s t a t e
        and - - n o t v i o l a t e d - t e r m s - -s lease
                who h a s -                      the            of h i -
        i s e n t i t l e d t o have h i s l e a s e renewed              . . ."
        (Emphasis s u p p l i e d . )

       F u r t h e r , ARM §26.3.108(2) e s t a b l i s h e s t h e D e p a r t m e n t ' s

policy:

       " ( 2 ) A s u r f a c e lessee h a s a p r e f e r e n c e r i g h t
       t o renew h i s l e a s e p r o v i d e d a l l r e n t a l s have
       been p a i d and t h e t e r m s - -e p r e v i o u s l e a s e
                                           of t h
       --- v i o l a t e d . " (Emphasis s u p p l i e d . )
       have n o t been

       A s t r i c t r e a d i n g of t h e s e s t a t u t e s r a i s e s a s e r i o u s

q u e s t i o n whether F o s t e r even had a r i g h t t o renew ( s e c t i o n

77-6-205,       MCA) o r a p r e f e r e n t i a l r i g h t i n t h e l e a s i n g pro-

c e d u r e (ARM § 2 6 . 3 . 1 0 8 ( 2 ) ) , when t h i s c a s e was f i l e d i n

D i s t r i c t Court.         Assuming h i s s u b l e a s e a r r a n g e m e n t , a l t h o u g h

n o t approved by t h e Department, w a s n o t s u f f i c i e n t t o d e p r i v e
him of h i s p r e f e r e n c e r i g h t , he would c l e a r l y be t h e t y p e of

lessee t h a t t h e p o l i c y of J e r k e was d e s i g n e d t o a f f e c t .

         I n c o n s i d e r a t i o n of o u r r e a s o n i n g i n J e r k e , w e a r e

compelled t o a p p l y t h e same r e a s o n i n g t o t h e c a s e b e f o r e u s .

I n Jerke, w e held:

        "Where t h e p r e f e r e n c e r i g h t d o e s n o t f u r t h e r
        t h e p o l i c y of s u s t a i n e d y i e l d , i t c a n n o t be
        given e f f e c t .     I n s u c h a s i t u a t i o n , f u l l market
        v a l u e can be o b t a i n e d o n l y by p u r e c o m p e t i t i v e
        b i d d i n g . Here, t h e Grazing D i s t r i c t , t h e
        h o l d e r of t h e p r e f e r e n c e r i g h t , d o e s n o t even
        u s e t h e l a n d ; i t c a n n o t u s e good a g r i c u l t u r a l
        p r a c t i c e s o r make improvements t h e r e o n .              ..
        "To a l l o w t h e p r e f e r e n c e r i g h t t o be e x e r c i s e d
        i n t h i s c a s e would be t o i n s t a l l t h e Grazing
        D i s t r i c t a s t h e t r u s t e e of t h e l a n d . It,
        r a t h e r t h a n t h e Department of S t a t e Lands,
        would d e c i d e who w i l l occupy t h e l a n d , b u t i t
        would n o t be bound by a c o n s t i t u t i o n a l o r f i d u -
        c i a r y d u t y . Under such a scheme, t h e c o n c e p t
        of s u s t a i n e d y i e l d would have no p l a c e . "        597
        P.2d a t 51, 36 St.Rep. a t 391.

        There a p p e a r s t o be no o p e r a t i v e f a c t on t h e r e c o r d

h e r e t h a t would j u s t i f y o v e r r u l i n g t h e t r i a l c o u r t ' s d e c i -

sion t o follow Jerke.                 Every p o i n t o f law and e v e r y p o l i c y

c o n s i d e r a t i o n i s a s a p p l i c a b l e t o F o s t e r a s i t was t o t h e

grazing d i s t r i c t .       Therefore, the underlying r a t i o n a l e t h a t

o r i g i n a l l y d e c i d e d J e r k e i s e q u a l l y d i s p o s i t i v e of t h i s

case.

        On c r o s s - a p p e a l S k i l l m a n c o n t e n d s t h a t h e s h o u l d be

awarded t h e l e a s e b e c a u s e h e was t h e h i g h e s t b i d d e r when

b i d s w e r e o r i g i n a l l y opened.        H e i n t e r p r e t s t h e l a n g u a g e of

J e r k e and s e c t i o n 77-6-205(2), MCA, r e l a t i n g t o " p u r e com-

p e t i t i v e b i d d i n g " a s meaning b i d d i n g once and a s u b s e q u e n t

award t o t h e h i g h e s t b i d d e r .

        I t would be t r u l y i n e q u i t a b l e t o f o l l o w t h i s i n t e r p r e -

tation.        F o s t e r was under t h e i m p r e s s i o n t h a t he would have

a v a l i d p r e f e r e n c e r i g h t , and he s h o u l d n o t b e p e n a l i z e d f o r
t h a t good f a i t h b e l i e f .      He should have a n e q u a l o p p o r t u n i t y

t o b i d on t h e l e a s e .       I n d e e d , i f he i s n o t a l l o w e d t o p a r t i -

c i p a t e , t h e n t h e s p i r i t of t h e c o m p e t i t i v e b i d d i n g s t a t u t e

would be d e f e a t e d .       I n a d d i t i o n , F o s t e r had no r e a s o n t o

s u s p e c t t h a t he c o u l d n o t e x e r c i s e t h e p r e f e r e n c e r i g h t

s i n c e J e r k e had n o t been d e c i d e d by t h i s C o u r t .

        The judgment of t h e D i s t r i c t C o u r t i s a f f i r m e d .              The

l e a s e i s c a n c e l e d and reopened f o r b i d d i n g by a l l p a r t i e s .




W concur:
 e



    3                 4
        Chief J u s t i c e
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