author: JUSTICE WEBER

text:
    WILLIAM B. MALONEY and MARGARET N. MALONEY, Plaintiffs and Appellants, v. WILLIAM HEER and JOYCE I. HEER, Respondents and Appellants.
    No. 92-380.
    Submitted on Briefs January 14, 1993.
    Decided April 8, 1993.
    50 St.Rep. 382.
    257 Mont. 500.
    850 P.2d 957.

      For Plaintiffs and Appellants: Larry Jent, Williams, Jent & Dockins, Bozeman.

      For Respondents and Appellants: Joseph T. Swindlehurst, Huppert & Swindlehurst, Livingston.
   JUSTICE WEBER

delivered the Opinion of the Court.

Plaintiffs William B. Maloney and Margaret N. Maloney (Maloneys) appeal the decision of the District Court of the Sixth Judicial District, Park County, in their action for breach of a real estate contract which awarded damages to the Maloneys for their costs of a survey of the property but denied other damages and attorney’s fees. Defendants William and Joyce I. Heer (Heers) cross-appealed, claiming there was no breach, that the Maloneys were precluded from pursuing this appeal, and that the claim was barred by the statute of limitations. We affirm in part, reverse in part, and remand.

The restated issues for appeal are:

1. Did the District Court err when it denied the defendants’ motion for summary judgment on the basis of the statute of limitations?

2. Were the plaintiffs precluded from pursuing this appeal by their acceptance of damages?

3. Did the District Court err in finding a breach of contract which did not affect marketability of title?

4. Did the District Court award the correct damages to the Maloneys?

5. Did the District Court err by not awarding attorney’s fees to the plaintiffs?

The Heers and the Maloneys entered into an agreement for the sale of the Parkway Motel in Livingston, Montana on August 16, 1985. The agreement provided, among other things, that the Heers would assign their Burlington Northern railroad lease to the Maloneys at closing. Subsequently, the parties executed a contract for deed on September 16, 1985.

The contract for deed stated there was a Burlington Northern railroad lease held in connection with the premises which the Heers would assign to the Maloneys. Both the Maloneys and the Heers were mistaken about the area covered by the lease. Although the Maloneys inspected the property several times before closing on the contract for deed, they did not inspect a copy of the lease. The contract for deed also included a provision agreeing that the sellers made no representations not included in the agreement and that the purchasers relied on their own knowledge and inspection of the premises.

On December 6, 1985, the railroad sent the Maloneys a lease application letter which stated that the Maloneys had “purchased the motel that encroaches on our property.” The application described the same area as the prior lease. On January 14, 1986, the Maloneys returned the completed application to the railroad. In answering questions in the application, the Maloneys stated that the use to be made of the site was a motel encroachment and listed a “portion of the motel” as a response to the question asking for a list of all buildings or structures presently on the site covered by the lease. The railroad returned executed leases on October 10, 1986 for an indefinite term at the rate of $180 per year, reserving the right to change the lease rate in the future.

Neither the buy/sell agreement nor the contract for deed specifically disclosed any encroachment of the motel building or appurtenances into the railroad right of way. The buy/sell agreement stated that, “the real property is to be conveyed by warranty deed ... Both the real and personal property shall be free and clear of all encumbrances except those described in this agreement.” The contract for deed provided that the property would be conveyed “by good and sufficient warranty deed, accompanied by a title insurance policy showing merchantable title.” At the time the District Court issued its findings and conclusions on April 2, 1992, both the Maloney-Heer contract for deed and the contract for deed between the Heers and the prior owners (Kovashes) were still in escrow. The Kovashes had transferred the railroad lease to the Heers on June 16, 1978 after selling the motel to the Heers in 1977. That lease stated that it was for “maintaining and operating thereon a portion of a motel.” An attached diagram indicated a 20' by 20' area. The Heers’ subsequent lease dated June 16,1978 makes no reference to the motel. Joyce Heer testified the Heers had been told by Mr. Kovash when they purchased the motel that the lease was for parking.

The Maloneys have operated the motel since September of 1985. In 1988, when Mr. Maloney contacted a real estate office in Livingston, the realtor was unwilling to take the listing because of the encroachment. The Maloneys then hired a surveyor to survey the property, incurring survey fees of $1,895.50. The surveyor determined that the encroachments consist of a small triangular portion of the motel building (about 115 square feet), tiny parts of a planter/sign and of a swimming pool/garbage storage area (about eight and twelve square feet, respectively) in the central parking area, and a small part of the motel eaves on the south end of the building.

The Maloneys unsuccessfully tried to negotiate a long-term lease with the railroad. After the Maloneys initiated this action, the Heers’ attorney assisted the Maloneys in obtaining a new railroad lease for a strip four times as large as the area covered by previous leases with an annual rent of $384. This lease commenced August 1, 1990 and will end July 31,2020, with an option to renew for two succeeding ten year periods — a total of fifty years. The Heers expert testified that the new lease term exceeds the foreseeable thirty to forty-year useful life of the motel for ordinary real property depreciation purposes.

The District Court determined that the present value of the lease assigned with the motel purchase and the present value of the new lease for fifty years differed by only $2,495.63, a nominal amount over that period of time and not a reasonable basis on which to award damages. Further facts will be provided throughout this opinion as necessary.

I.

Is the Maloneys’ claim for breach of contract barred by the statute of limitations?

The Heers raised this issue in a motion for summary judgment. Our standard of review for a District Court’s conclusion of law is whether it is correct. Steer, Inc. v. Department of Revenue (1990), 245 Mont. 470, 803 P.2d 601. The Heers contend that the two-year limitations period for fraud and mistake under § 27-2-203, MCA, applies to this action instead of § 27-2-202, MCA, which allows an eight-year period for contract actions founded upon a written instrument. They claim that this case involves a mutual mistake relating to the railroad lease and is not a contract action governed by § 27-2-202, MCA.

This Court recently held that § 27-2-202, MCA, governed an action on a contract for deed which affected real property boundaries. See Larson v. Undem (1990), 246 Mont. 336, 805 P.2d 1318. In that case, the vendors breached the contract when they sold the property without first obtaining written consent from their vendor and by failing to provide an accurate legal description of the property. Larson, 805 P.2d at 1321. We conclude that the gravamen of the claim pursued here is a breach of contract action governed by the eight-year statute of limitations provided for in § 27-2-202, MCA. See Erickson v. Croft (1988), 233 Mont. 146, 760 P.2d 706.

We hold the Maloneys’ breach of contract claim was not barred by the statute of limitations.

II.

Are the Maloneys precluded from pursuing this appeal by accepting damages paid to them from funds held by the court?

The Maloneys deposited funds with the court rather than make their payments under the contract directly to the Heers pending disposition of this case. They accepted payment from these funds for survey costs awarded to them in this action. The Heers contend that by accepting the $1,895.50 from the court, the Maloneys cannot now appeal from the District Court’s judgment because they have acquiesced in the judgment.

The Heers cite Niles v. Carbon County (1977), 174 Mont. 20, 568 P.2d 524; LeClair v. Reiter (1988), 233 Mont. 332, 760 P.2d 740; and Peck v. Bersanti (1935), 101 Mont. 6, 52 P.2d 168, in support of their contentions. These cases do not support their argument. Niles and LeClair provide that a party who has a judgment entered against him and who allows the judgment to be executed against him or pays the judgment voluntarily cannot then appeal if his conduct is inconsistent with the appeal. Peck holds just the opposite of what the Heers have contended.

In Peck, we discussed the general rule on this issue that one cannot both accept the fruits of a judgment and appeal from it at the same time. Peck, 52 P.2d at 169. This Court has also recognized the exception to the general rule —

where the reversal of a judgment cannot possibly affect an appellant’s right to the benefit accepted under a judgment, then appeal may be taken and will be sustained despite the fact that the appellant has sought and secured such benefit.

Peck, 52 P.2d at 169.

After Peck, this Court again discussed the general rule and the exception in Ferguson v. Town Pump, Inc. (1978), 177 Mont. 122, 580 P.2d 915. In Ferguson, the plaintiffs asked on appeal for damages to be mathematically increased. This Court stated that

Where the only possible outcome of a successful appeal by a plaintiff is an increase in the damage award, then there is nothing inconsistent about accepting the fruits of the original judgment and appealing from it, and such an appeal may properly be taken.

Ferguson, 580 P.2d at 918. Ferguson is directly on point here. The Maloneys have appealed to increase their damage award. Although the issue whether the District Court erred in granting the Maloneys damages for survey costs is before the Court, it is the Heers who cross-appealed that issue, not the Maloneys.

We hold that the Maloneys are not precluded from pursuing this appeal by accepting damages for their costs of survey.

III.

Did the District Court err in finding a breach of contract which did not affect marketability of title?

The Heers contend that there cannot be a breach of contract where the title was not rendered unmarketable and the plaintiffs suffered no damage to cure the breach of contract. They maintain that an encroachment which is minimal and does not expose the buyer to a reasonable prospect of litigation is not unmarketable.

The District Court here found that the Heers breached the contract and awarded the Maloneys $1,895.50 for their costs to survey the property. The breach here is a contract breach of the covenant against encumbrances. The contract for deed provides in pertinent part:

IT IS MUTUALLY UNDERSTOOD AND AGREED That Sellers shall execute and deliver a Bill of Sale and Bulk Sales Affidavit reflecting that the personal property is conveyed free and clear of all liens and encumbrances, with the exception of the amount owing Empire Federal Savings and Loan Association, of Livingston, Montana, on the Montana Trust Indenture herein-before referred to; and that the Sellers shall likewise execute a Warranty Deed to the Purchasers, of even date herewith, conveying and assuring the said Purchasers title to the above-described property, free and clear of all encumbrances ... (Emphasis supplied.)

The contract further provided that the Heers would assign their lease to the Maloneys. Both parties agree that they understood that the purpose for the railroad lease was for parking. An earlier lease unseen by either party had stated its purpose as an “encroachment of motel.”

Nonetheless, the contract provided that the property would be conveyed free of encroachments not specified in the contract. None of the instruments disclosed encroachments of the motel building on the railroad right of way. It appears that the Heers were not aware of this during the time of their ownership. The District Court determined that this was a “technical” breach of the contract and of title because the Heers warranted that the title would be free of encumbrances. We agree with the conclusion of the District Court that this is a breach of the contract.

Counsel for the Heers assisted the Maloneys in procuring a thirty-year long-term lease with options for two additional ten-year extensions. The District Court concluded that because of the motel’s age, there would be no possibility that the problem would extend beyond the depreciable useful life of the motel. The District Court further justified its finding of marketable title as follows:

Maloneys operation of and income from the motel has not been hindered or impaired by the encroachments ... [A]ny damage from this is so insubstantial and the likelihood of litigation so remote that it does not render title to the property unmarketable. ... It is also significant that these encroachments and conditions have existed for forty years with no objections from the railroad or other adjoining owners ...

An encroachment on adjacent property does not necessarily make a title unmarketable.

If A owns Blackacre, his title thereto is not bad by reason of a structure thereon that encroaches on adjoining premises. A’s title is unmarketable, however, if the encroachment jeopardizes a buyer’s peaceful possession by exposing the buyer to the possible necessity of removing the encroachment.... If the encroachment is by Blackacre, marketability depends upon two factors: (1) is the encroachment substantial? (2) may the encroachment, if substantial, remain undisturbed?

1 M. Friedman, Contracts and Conveyances of Real Property (5th ed. 1991) § 4.15(b) 1.

Marketable title is a question of law for the court. While it is doubtful that the encroachment in this case could be classed as substantial under the above test from Friedman’s Contracts and Conveyances of Real Property, it is clear that the encroachment may remain undisturbed during the remaining years of the potential 50-year duration of the current lease term.

We hold that the District Court was correct in finding a breach of contract which did not render the title unmarketable.

IV.

Did. the District Court correctly award damages?

The District Court awarded the Maloneys $1,895.50 for their costs in obtaining a survey of the property. The court determined that any other costs presented by the Maloneys for determination were speculative, nominal over the period of time of the lease and did not form a reasonable basis on which to award damages. Although the annual lease payment has increased over the years, this could be expected as the lease agreement provided for such increases. The court further found that the Maloneys’ operation of and income from the motel had not been hindered or impaired by the encroachments. In fact, their earnings from the operation were higher than they had expected and they had increased the revenues by 24% over the figures reported by the Heers, even though they had converted one of the motel bedrooms to their own personal family use.

Both parties presented expert testimony relating to damages. The Maloneys’ appraiser, Steven A. Hall, testified that it would cost $19,761.52 to cure the encroachments. He acknowledged that there was no reasonable possibility of litigation with the railroad with the fifty-year lease. Mr. Hall’s calculation was based on a strip of right of way 20’ by 264’, the entire length of the property. Mr. Hall testified that he was not aware the original lease included part of the building and that this information would affect his calculations of the cost to cure. James E. Burke, a realtor and appraiser, testified for the Heers. He testified that the encroachments did not have any significant effect on the value or marketability of the property and that the gross revenues from the business were much more important in determining such fact.

We review a district court’s findings of fact to determine whether they are clearly erroneous. Interstate Prod. Credit Ass’n v. DeSaye (1991), 250 Mont. 320, 820 P.2d 1285. To determine if findings are clearly erroneous, we first review the record to determine whether they are supported by substantial evidence. Second, if the findings are supported by substantial evidence, we determine if the trial court has misapprehended the effect of the evidence. Third, if substantial evidence exists and the trial court has not misapprehended the effect of the evidence, this Court may still find clear error in a finding, despite evidence to support it, if a review of the record leaves it with a firm and definite conviction that a mistake has been committed. DeSaye, 820 P.2d at 1287.

Although conflicts may exist in the evidence presented, it is the trial judge’s duty to resolve them and due regard is given to the court’s ability to judge the credibility of the witnesses. DeSaye, 820 P.2d at 1287. The District Court’s findings relating to damages are supported by substantial evidence in the record. The District Court explained why the testimony of the Heers’ expert was more credible. The Heers’ expert based his calculations upon credible mathematical calculations of differences in present values for annual rent over fifty years between the old lease and the new lease. That calculated difference was only $2,495.63 more for a new lease which covered an area four times larger than the old lease. Not only is this amount nominal when distributed over the fifty-year period, it is speculative.

The District Court determined that the Maloneys should be awarded costs for their survey. The Maloneys presented evidence of their costs of survey and the need for that survey. This too is supported by substantial evidence. After a thorough review of the record, we conclude that the District Court’s findings regarding damages are not clearly erroneous. They are supported by substantial evidence in the record, the District Court did not misapprehend the effect of the evidence and we are not left with a firm and definite conviction that a mistake has been made.

We hold that the District Court properly calculated the award of damages allowable to the Maloneys.

V.

Did the District Court err by not awarding attorney’s fees to the plaintiffs?

The Maloneys contend that they are the prevailing party in this action as the District Court found a breach of contract and awarded them damages for their survey costs. The general rule in Montana is that attorney’s fees are not recoverable absent a statutory or contractual provision. Here, the contract for deed provides:

IT IS FURTHER AGREED That, if it becomes necessary for either of the parties to bring suit to enforce any of the terms of this agreement, the prevailing party shall be entitled to reasonable attorney’s fees, together with other costs attending the same, from the other party.

The District Court found that because of the circumstances of this case, each side should pay their own attorney’s fee. The court reasoned that although the contract provides for attorney’s fees to the prevailing party in the event of a lawsuit, plaintiffs did not prove any real damages aside from the costs of surveying. The court noted that the Heers’ counsel had assisted Maloneys in obtaining a “very favorable new long term lease from the railroad.”

While the record shows that the Heers’ counsel assisted the Maloneys in negotiating a new lease, this assistance was not forthcoming until after the Maloneys initiated this lawsuit. When the Maloneys were first told by a realtor that there was a possible marketability of title problem, they advised the Heers to that effect. They unsuccessfully tried to negotiate a more preferable long-term lease with the railroad. Again, it was only after their own efforts failed that they pursued this action against the Heers. As a result of this lawsuit, the Maloneys acquired a new lease and incurred survey costs — all of which required their time and effort.

The contract is clear — the prevailing party is entitled to attorney’s fees. We have previously concluded the Heers breached the contract. Under the terms of the contract, the Maloneys as the prevailing party are entitled to attorney’s fees. However, the Heers contend that the Maloneys, having been awarded only $1,895.50, are hardly the prevailing party.

The Heers cite Montana cases to support this argument, including Knudsen v. Taylor (1984), 211 Mont. 459, 685 P.2d 354, and Parcel v. Myers (1984), 214 Mont. 220, 697 P.2d 89. None are similar to this one. All other claims brought by the Maloneys were dismissed and the only issue remaining at the time of the bench trial was the contract issue, which the court found was technically breached by the Heers. The Heers make much of the District Court’s use of “technical” to describe the breach. A technical breach is still a breach of contract, although the damages may be nominal. We conclude that the contract breach in this case entitled the Maloneys to reasonable attorney’s fees as the prevailing party.

The record shows that the Maloneys unsuccessfully attempted to negotiate a long-term lease to substitute for the indefinite term lease they had assumed. While the Maloneys benefitted from the assistance of the Heers’ counsel, we are unable to determine whether this satisfies the contract term providing for reasonable attorney’s fees to the prevailing party. This assistance demonstrates that the Heers tried to mitigate their damages, but it does not establish that such action can take the place of a “reasonable” attorney’s fee.

The contract for deed requires an award of a reasonable attorney’s fee to the prevailing party. Although the fixing of reasonable fees is within the discretion of the District Court, Smith v. Johnson (1990), 245 Mont. 137, 798 P.2d 106, the record does not support the District Court’s decision concerning attorney’s fees.

Affirmed in part, reversed in part and remanded to the District Court for a determination of reasonable attorney’s fees.

CHIEF JUSTICE TURNAGE, JUSTICES GRAY, HARRISON and McDonough concur.


source: Caselaw Access Project

author: JUSTICE WEBER JUSTICE TRIEWEILER

license: Public Domain

text:
    THE STATE OF MONTANA, EX REL., STANFORD R. POLL, ARTHUR A. LINDLIEF AND DONALD C. JUNEAU, Relators, v. MONTANA NINTH JUDICIAL DISTRICT COURT, GLACIER COUNTY, THE HONORABLE ROBERT S. KELLER, Presiding Judge, Respondent.
    No. 91-635.
    Submitted September 24, 1992.
    Decided April 13, 1993.
    50 St.Rep. 387.
    257 Mont. 512.
    851 P.2d 405.

      For Relators: Joseph R. Hunt argued, Johnson & Hunt, (Juneau), Shelby; Charles F. Moses, Moses Law Firm, (Lindlief) Billings; Marcus S. Topel and David R. Callaway argued, Topel & Goodman, (Poll) San Francisco, California.
    For Respondent: Marc Racicot, Attorney General, Deanne L. Sandholm argued, Assistant Attorney General, Helena; James C. Nelson, Glacier County Attorney, Cut Bank.
   JUSTICE WEBER

delivered the Opinion of the Court.

This case arose from a criminal proceeding in Glacier County. The information charged 58 counts of misdemeanor conspiracy in violation of § 45-4-102(1), MCA, involving agreements to conduct illegal gambling activities at the Montana Restaurant and Casino on the Blackfeet Indian Reservation in Browning, Montana. Defendants moved to dismiss for lack of jurisdiction. The District Court for the Ninth Judicial District, Glacier County, denied the motion. This Court accepted supervisory control in order to determine the jurisdictional issue before trial. We affirm.

The issues before us are:

1. For purposes of criminal jurisdiction, is a person an “Indian” if he has no Indian ancestry but has been adopted by an Indian family and raised on the reservation?

2. Does the State of Montana have jurisdiction over non-Indian defendants for crimes committed on the reservation where there is no Indian victim?

3. Does the State of Montana have authority to regulate gambling on the reservation?

Carl Kipp, Bob Juneau and defendant, Don Juneau operated the Montana Restaurant and Casino on the Blackfeet Reservation in Glacier County, Montana. The Blackfeet tribal business permit was in Carl Kipp’s name. It was stipulated that Carl Kipp and Bob Juneau are Indians. Don Juneau’s Indian status is at issue.

On November 9, 1988, the Glacier County Attorney, filed an information charging Stanford R. Poll (Poll), Arthur A. Lindlief (Lindlief) and Don Juneau with 58 counts of misdemeanor conspiracy in violation of § ’45'-4-102(l), MCA, involving agreements to conduct illegal gambling activities at the Montana Restaurant and Casino (Casino) in Browning, Montana. All offenses are alleged to have occurred between May 1,1987, and June 1,1988. The information charged the defendants with conspiring with Carl Kipp.

On February 23,1989, defendants Lindlief and Poll filed a motion to dismiss the information for lack of jurisdiction because of (a) the exclusive territorial jurisdiction of the Blackfeet Tribe; (b) the sovereignty of the Blackfeet Tribe; (c) the preemption by the federal government under Article VI of the United States Constitution and controlling jurisdiction over all Indian affairs; and (d) the preemption by the Blackfeet Nation of jurisdiction over business activities within the exterior boundaries of the Blackfeet Reservation.

The State opposed the motion arguing that all three defendants — Poll, Lindlief and Don Juneau, were non-Indian; that the Casino was owned and operated by the defendants and not the Tribe; and the Tribe had not adopted any comprehensive scheme of legislation authorizing, controlling or regulating gambling on the Blackfeet Indian Reservation, whether by Indians or non-Indians.

Lindlief and Poll challenged the State’s assertion concerning Don Juneau’s non-Indian status and further contended that their criminal liability was predicated solely on the conduct of individuals who were Indians not subject to state jurisdiction and that the Casino was being operated pursuant to a tribal business license and gambling permit.

The District Court denied the motion to dismiss, however, urging this Court to accept an application for an appropriate writ in order to determine the jurisdictional question in advance of trial. Subsequently, Lindlief filed a petition for a writ of supervisory control with this Court. This Court denied the petition on the grounds there was not an adequate factual record upon which it could exercise supervisory control.

The District Court held an evidentiary hearing on May 19, 1990. Subsequent to the hearing, the parties again submitted briefs arguing the jurisdiction of the state court. The District Court again denied the defendants’ motion to dismiss.

On December 31, 1991, Poll, Lindlief and Don Juneau again petitioned this Court to issue a writ of supervisory control. On March 10, 1992, this Court accepted jurisdiction of the application for writ of supervisory control to determine the jurisdictional issue before trial. Additional briefing was ordered and the case was orally argued before this Court on September 2, 1992.

I

For purposes of criminal jurisdiction, is a person an “Indian” if he has no Indian ancestry but has been adopted by an Indian family and raised on the reservation?

It was stipulated by the parties that Lindlief and Poll are not Indians. Therefore, this issue centers on defendant Don Juneau. Don Juneau was born of non-Indian parents but later adopted by an Indian, Benton Juneau. Don Juneau was raised on the Blackfeet Reservation and has lived and worked there all his life. Don Juneau testified that he is not enrolled as a member of any federally recognized Indian tribe; he does not vote in Indian elections; he does not receive any per capita federal benefits as an Indian; and, he has never held a Tribal office. He is married to a full-blooded member of the Rocky Boy Tribe and has children that are half Indian.

Defendants maintain that Don Juneau is an “Indian” for purposes of criminal jurisdiction. They maintain that Congress has not defined “Indian” as it is used in criminal jurisdiction statutes. They contend that since Don Juneau was adopted by Indian parents, under Montana adoption laws, he is also Indian. Section 40-8-125(1), MCA, provides:

After the final decree of adoption is entered, the relation of parent and child and all the rights, duties, and other legal consequences of the natural relation of child and parent shall thereafter exist between such adopted child and the adoptive parents adopting such child and the kindred of the adoptive parents.

Under this statute, the adopted child joins the adoptive family as if born to them. Don Juneau’s father is 5/8 Indian. Thus, Don Juneau maintains that under the above statute, he is 5/16 Indian and therefore, is an “Indian” under federal and state law.

Defendants maintain that for purposes of criminal jurisdiction, “Indian” is a status, not a racial classification. United States v. Indian Boy X (9th Cir. 1977), 565 F.2d 585 (The Ninth Circuit based federal jurisdiction on residence and enrollment without mention of the percentage of Indian blood); St. Cloud v. United States (D.S.D. 1988), 702 F.Supp. 1456 (The court noted that Indian blood alone was not sufficient to warrant criminal jurisdiction because jurisdiction over Indians on reservations was based on status, not race).

Defendants contend that although Don Juneau is not a tribal member and he has no Indian blood, everything else about his life is Indian; he was adopted by an Indian; attended Indian schools; practiced the Indian religion; participated in tribal customs; married an Indian; has Indian friends; and, has Indian children. Thus, defendants urge that Don Juneau is an Indian and meets the status of Indian for criminal jurisdiction purposes.

The State maintains that criminal jurisdiction of the state court over Don Juneau, is dependent upon a determination of Don Juneau’s status as a non-Indian, citing State v. LaPier (1990), 242 Mont. 335, 790 P.2d 983, where this Court adopted the two-prong test of United States v. Rogers (1845), 4 How. 567, 16 U.S. 200, for determining whether a person has Indian status: (1) the defendant must have a significant amount of Indian blood; and (2) the defendant must have federal or tribal recognition as an Indian. Don Juneau is unable to meet either prong of the test. The State urges that Don Juneau fails the first part of the test because he has no Indian blood. He fails the second part of the test because he is not an enrolled member of the tribe and he receives no federal benefits as an Indian.

The LaPier case is controlling. Under the second prong of the LaPier test, Don Juneau was required to show that he had federal or tribal recognition as an Indian. He has failed to submit any proof to demonstrate the Blackfeet Tribe has recognized him as an Indian. As previously pointed out, he is not an enrolled member of any Indian tribe and he receives no federal benefits as an Indian. We therefore conclude that Don Juneau has failed to prove that he has received federal or tribal recognition as an Indian. We conclude that Don Juneau has failed to meet the test of LaPier.

We do not find it necessary to discuss the issue from LaPier of the necessity of a significant amount of Indian blood. As mentioned, the defendants contend that such a definition is no longer appropriate because “Indian” is a status, and not a racial classification to be determined by quantity of Indian blood. Because Don Juneau has failed the second part of the LaPier test, no further discussion is necessary.

We hold that Don Juneau is not an Indian for purposes of criminal jurisdiction.

II

Does the State of Montana have jurisdiction over non-Indian defendants for crimes committed on the reservation where there is no Indian victim?

Defendants maintain that when making a determination as to whether a state has jurisdiction over particular victimless crimes committed by non-Indians within the reservation, it is necessary to examine the federal, tribal and state interests involved to determine if the particular state has been preempted.

The respondents contend that the assertion of state authority within the reservation boundaries does not infringe upon federal interests when a non-Indian commits an offense against a non-Indian. Duro v. Reina (1990), 495 U.S. 676, 110 S.Ct. 2053, 109 L.Ed.2d 693; State v. LaPier (1990), 242 Mont. 335, 790 P.2d 983; State v. Snyder (Idaho 1991), 807 P.2d 55. The State notes that the defendants in this case are charged with conspiracy, and that the object of each conspiracy charged in this case is a violation of a particular gambling law of the State. The State contends that violation of the gambling laws of Montana are also victimless crimes because they are committed without injury to persons or the property of persons, and that therefore, the State has jurisdiction in this case where victimless crimes have been committed by non-Indians.

As respondent contends, it is a well-established rule of law that Indian tribes do not have criminal jurisdiction over non-Indians. In Duro, the Supreme Court stated:

Oliphant established that the inherent sovereignty of the Indian tribes does not extend to criminal jurisdiction over non-Indians who commit crimes on the reservation. Wheeler [v. United States, 435 U.S. 313, 98 S.Ct. 1079, 55 L.Ed.2d 303] reaffirmed the longstanding recognition of tribal jurisdiction over crimes committed by tribe members.

Duro, 495 U.S. at 683-85, 110 S.Ct. at 2059. The Duro Court extended that rule by holding that tribal jurisdiction does not extend to non-member Indians. Id. 495 U.S. at 683-85, 110 S.Ct. at 2059.

Not only is Don Juneau not a member of the Blackfeet Tribe, he is not an Indian. Therefore, under Duro the Blackfeet Tribe has no criminal jurisdiction over him. We hold that the State of Montana has jurisdiction over non-Indian defendants for crimes committed on the reservation where there is no Indian victim.

Ill

Does the State of Montana have authority to regulate gambling on the reservation?

Defendants maintain that it is not the involvement of the defendants with the tribe that is at issue here, but rather the tribe’s involvement in licensing and regulating gambling on the Blackfeet Reservation. They urge that State jurisdiction would interfere with tribal sovereignty. They point out that the failure of the State to regulate gambling on the reservation will not impede the State’s ability to regulate gambling outside of the reservation. They further contend that the Blackfeet Tribe passed a gambling ordinance to license gambling and gambling establishments within the reservation; and that application of State law to gambling activities within the reservation would significantly impact tribal finances, employment opportunities and its right to self-govern.

The State maintains that the determination of jurisdiction over the gambling activities of the defendants requires a particularized inquiry into the federal and tribal interests at stake as reflected in federal law and the State interests at stake. The State maintains that it has a substantial interest in protecting its citizens from the problems associated with unregulated gambling and that Montana has strictly regulated gambling. Section 23-5-102, MCA(1987). Finally, the State contends that the exercise of state authority within the Blackfeet Reservation does not infringe upon federal or tribal interests where a non-Indian commits an offense against a non-Indian.

In White Mountain Apache Tribe v. Bracker (1980), 448 U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665, the State of Arizona sought to apply its motor carrier license and use taxes to the Pinetop Logging Company (Pinetop). Pinetop consisted of two non-Indian corporations doing business solely on the Reservation. Pinetop paid the taxes under protest, and then brought suit asserting that under federal law the taxes could not lawfully be imposed on logging activities conducted exclusively within the reservation or on hauling activities on Bureau of Indian Affairs (BIA) and tribal roads.

The United States was a party to the action and argued that the federal government’s regulation of the harvesting, sale and management of tribal timber through the BIA covered every aspect of logging, from the making of the initial contracts between the BIA with other parties to the ultimate disposition of the timber. The White Mountain Tribe was also a party to the action. It argued that the tax would have an adverse affect upon the Tribe’s profit and that the imposition of taxes would undermine the federal policy of assuring profits which would inure to the Tribe.

The Court concluded that federal management was so pervasive as to preclude the additional burdens resulting from the Arizona taxes and held that the Arizona taxes were preempted by federal law. It held that where a State asserts authority over the conduct of non-Indians engaging in activity on the reservation, a particularized inquiry must be made into the nature of the state, federal, and tribal interests at stake, an inquiry designed to determine whether, in the specific context, the exercise of state authority would violate federal law. White Mountain, 448 U.S. at 145, 100 S.Ct. at 2584.

In the case before us, in contrast to White Mountain, neither the United States nor the tribe are parties to the action. The United States could have made itself a party and argued that federal law preempted State law, but it did not. Similarly, the Tribe could have entered the proceedings and argued that the State’s involvement would adversely affect the Tribe’s gambling ordinance, but it did not. Only the non-Indian defendants argue that the State’s involvement would adversely affect the Tribe’s gambling ordinance.

The dissent contends that the application of the Federal Indian Gaming Regulatory Act is a sufficient basis for denying State jurisdiction over the prosecution of the defendants. The offenses charged in the information occurred between May 1, 1987 and June 1, 1988. The effective date of the Indian Gaming Regulatory Act was October 17, 1988. Clearly the application of such an extensive regulatory act to alleged criminal activities which occurred prior to its enactment would be improper. It would violate both state and federal law with regard to ex post facto laws. As previously noted, the United States could have made itself a party and argued for federal law preemption but chose not to do so. We do not find it necessary to further discuss the Indian Gaming Regulatory Act.

With regard to the claimed adverse effect upon the Tribe’s gambling ordinance the recent case of Northern Border Pipeline Co. v. State of Montana (1989), 237 Mont. 117, 772 P.2d 829, is applicable. In that case this Court considered the argument on the part of Northern Border Pipeline Company, that the tax interfered with tribal self-government. This Court stated:

Northern Border argues that it has standing to bring the claims advanced in this suit by virtue of its taxpayer status and the direct economic injury it suffers from the double taxation. Northern Border further argues that this Court has previously addressed self-government issues in cases where no Indian tribes were parties. ... Our reading of these cases shows Northern Border’s argument to be incorrect. Our decision in Burlington Northern was based on applicable federal regulations, and did not address self-government. The plaintiff in Eagleman, while technically not an “Indian tribe,” was an individual who was “an enrolled member of the Fort Peck Sioux and Assiniboine Tribes.” ... Northern Border also cites two recent state court decisions, one from Arizona and one from New Mexico, for the proposition that consideration of a federal preemption claim necessarily includes consideration of self-government, thereby affording standing for a non-Indian to assert a self-government claim. We disagree with these holdings, and decline to apply them. (Citations omitted.) (Emphasis added.)

Northern Border Pipeline Co., 237 Mont. at 128, 772 P.2d at 836.

Based upon White Mountain Apache and Northern Border, we conclude that the defendants do not have standing to raise the argument that the action of the State interferes with the self-government of the Blackfeet Reservation. We hold that the State of Montana has authority to regulate gambling by non-Indians on the reservation.

We hold that the District Court properly had jurisdiction.

CHIEF JUSTICE TURNAGE, JUSTICES HARRISON and McDONOUGH and DISTRICT JUDGE THOMAS HONZEL sitting in place of JUSTICE HUNT, concur.

JUSTICE TRIEWEILER

concurring in part and dissenting in part.

I concur with the majority’s conclusion that Donald Juneau has not offered sufficient evidence to establish that he is an Indian as that status pertains to jurisdictional considerations. However, I disagree with this Court’s holding in State v. LaPier (1990), 242 Mont. 335, 790 P.2d 983, that to prove status as an Indian requires a person to prove both a significant amount of Indian blood and tribal or federal recognition. That test is antiquated and ignores the modern reality that many people of Indian descent are not enrolled tribal members for various reasons and that an inherent element of tribal sovereignty is to enroll members, regardless of their degree of Indian ancestry. However, in this case, Juneau has not proven Indian status by any criteria which has been previously recognized in case law or by federal statute.

I concur with the majority’s conclusion that Indian tribes do not have criminal jurisdiction over non-Indians. However, that lack of jurisdiction is not based upon the U.S. Supreme Court’s decision in Duro v. Reina (1990), 495 U.S. 676, 110 S. Ct. 2053, 109 L. Ed. 2d 693. Duro was concerned with tribal authority to prosecute a nonmember Indian who committed a crime on tribal land. Furthermore, regardless of Duro’s applicability to this case, it has been effectively reversed by a subsequent Congressional action which restored tribal criminal jurisdiction over nonmember Indians who break the law on tribal land. As pointed out in Mousseaux v. United States Commissioner of Indian Affairs (D.S.D. 1992), 806 F. Supp. 1433:

[On] October 24, emergency legislation was passed amending the Indian Civil Rights Act, 25 U.S.C. § 1301(2) and (3), and legislatively overruling the Supreme Court’s holding in Duro. This temporary legislation was later replaced with identical permanent legislation on October 28, 1991.

Mousseaux, 806 F. Supp. at 1440.

Indian tribes lack criminal jurisdiction over non-Indians who commit crimes on tribal land because of the U.S. Supreme Court’s decision in Oliphant v. Suquamish Indian Tribe (1978), 435 U.S. 191, 98 S. Ct. 1011, 55 L. Ed. 2d 209. In his dissent to that decision, Justice Marshall stated:

In the absence of affirmative withdrawal by treaty or statute, I am of the view that Indian tribes enjoy as a necessary aspect of their retained sovereignty the right to try and punish all persons who commit offenses against tribal law within the reservation.

Oliphant, 435 U.S. at 212, 98 S.Ct. at 1022-23.

While I agree with Justice Marshall’s dissent, and while the majority opinion in Oliphant appears to be neither historically nor legally well-founded, it does preclude tribal criminal jurisdiction over non-Indians for laws broken on the reservation. However, it does not logically follow that because tribes cannot prosecute non-Indians who commit crimes in Indian country, that the State of Montana has jurisdiction over non-Indian defendants for crimes committed on the reservation. That conclusion in Issue II of the majority opinion completely ignores the traditional role of the federal government in Indian affairs.

The proper test for determining whether the State of Montana has regulatory authority over any activity committed on the Blackfeet Reservation, through its criminal statutes or otherwise, is the test set forth by the U.S. Supreme Court in White Mountain Apache Tribe v. Bracker (1980), 448 U.S. 136, 100 S. Ct. 2578, 65 L. Ed. 2d 665. In that case, the U.S. Supreme Court held that where, as in this case, “a state asserts authority over the conduct of non-Indians engaging in activity on the reservation, there must be:

[A] particularized inquiry into the nature of the state, federal, and tribal interests at stake, an inquiry designed to determine whether, in the specific context, the exercise of state authority would violate federal law.

White Mountain, 448 U.S. at 145, 100 S.Ct. at 2584.

The majority opinion has performed no such analysis. It relies on its previous decision in Northern Border Pipeline Company v. State (1989), 237 Mont. 117, 772 P.2d 829, for its refusal to do so. For reasons I will explain later in this opinion, I decline to follow this Court’s decision in Northern Border Pipeline. However, the majority (which relies on Northern Border Pipeline) has refused to even perform that degree of analysis which is required by its previous decision. In Northern Border Pipeline, the dispute was over property taxes assessed by the State of Montana against that portion of a natural gas pipeline which traversed an Indian reservation, but which was owned by a non-Indian corporation. The portion which ran through the reservation was also taxed by the Assiniboine and Sioux Tribes. On appeal, Northern Border Pipeline argued that the State was preempted by federal regulation and that its tax interfered with the Tribes’ sovereign rights of self-government. After an extensive discussion of federal regulation in this area, the majority concluded that the tax was neither preempted by federal statutes nor regulations. However, it held that since neither the Tribes nor the federal government were parties to the suit, plaintiff did not have standing to assert the Tribes’ sovereign right of self-government.

I disagree with that conclusion because under the White Mountain test, an analysis of the state, federal, and tribal interests involves related considerations which cannot be analyzed separately. After pointing out in the White Mountain decision that both federal law and the rights of reservation Indians to make their own laws may provide independent, but related barriers to the assertion of state regulatory authority, the U.S. Supreme Court stated:

The two barriers are independent because either, standing alone, can be a sufficient basis for holding state law inapplicable to activity undertaken on the reservation or by tribal members. They are related, however, in two important ways. The right of tribal self-government is ultimately dependent on and subject to the broad power of Congress.

White Mountain, 448 U.S. at 143, 100 S.Ct. at 2583.

Therefore, I agree with the reasoning of the Court of Appeals of Arizona in Peabody Coal Company v. Arizona (Ariz. 1988), 761 P.2d 1094, where under the same circumstances it held as follows:

The state asserts that Peabody lacks standing to argue interference with tribal sovereignty rights. We disagree. In Ramah Navajo School Bd. v. Bureau of Revenue, 458 U.S. 832, 102 S.Ct. 3394, 73 L.Ed.2d 1174 (1982), the United States Supreme Court stated that to determine whether a state tax may be applied to a business performed on Indian reservation land without violating federal law, federal, tribal, and state interests must be analyzed. “These interests tend to erect two ‘independent but related’ barriers to the exercise of state authority over commercial activity on an Indian reservation: state authority may be pre-empted by federal law, or it may interfere with the tribe’s ability to exercise its sovereign functions.” Id. at 837, 102 S.Ct. at 3398, 73 L.Ed.2d at 1179; White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980). Because the preemption issue cannot be considered without also considering the tribal sovereignty issue[,] Peabody, of necessity, must have standing to raise the issue of interference with tribal sovereignty. [Emphasis added.]

Peabody Coal Co., 761 P.2d at 1098-99, cert. denied (1989), 490 U.S. 1051, 109 S. Ct. 1967, 104 L. Ed. 2d 435.

Therefore, I will discuss in this opinion both federal preemption and the State’s interference with the Tribe’s ability to exercise its sovereign function. However, by failing to discuss either issue, the majority has not even followed its previous decision in Northern Border Pipeline which it relied on to ignore the issues raised by defendants on appeal.

FEDERAL PREEMPTION

The involvement of the federal government in the issue of gambling on Indian reservations is extensive. In 1951, Congress prohibited the possession of gambling devices in Indian country. 15 U.S.C. § 1175 (1951). In 1970, Congress enacted the Organized Crime Control Act, found at 18 U.S.C. § 1955 (1970), which prohibits and provides federal punishment for the operation of illegal gambling businesses. That Act has been previously held applicable to Indian reservations. United States v. Farris, (9th Cir. 1980), 624 F.2d 890, cert. denied (1981), 449 U.S. 1111, 101 S. Ct. 920, 66 L. Ed. 2d 839.

However, the most comprehensive federal preemption of all is contained in the Indian Gaming Regulatory Act which was enacted by Congress and became effective on October 17, 1988. Its provisions are included in 18 U.S.C. §§ 1166 to 1168 (1988), and 25 U.S.C. §§ 2701 to 2721 (1988). For purposes of considering the federal and Indian interests in this issue, it is especially enlightening to refer to the Congressional findings which precede the actual terms of the Act and are set forth at 25 U.S.C. § 2701 (1988). There, Congress stated that:

(1) numerous Indian tribes have become engaged in or have licensed gaming activities on Indian lands as a means of generating tribal governmental revenue;
(2) Federal courts have held that section 81 of this title requires Secretarial review of management contracts dealing with Indian gaming, but does not provide standards for approval of such contracts;
(3) existing Federal law does not provide clear standards or regulations for the conduct of gaming on Indian lands;
(4) a principal goal of Federal Indian policy is to promote tribal economic development, tribal self-sufficiency, and strong tribal government; and
(5) Indian tribes have the exclusive right to regulate gaming activity on Indian lands if the gaming activity is not specifically prohibited by Federal law and is conducted within a State which does not, as a matter of criminal law and public policy, prohibit such gaming activity. [Emphasis added.]

Based upon these policy considerations, Congress has established comprehensive and extensive control over gambling on Indian reservations, including legalization of some forms of gambling, 18 U.S.C. § 1166(c)(1) (1988); establishment of a commission to monitor gaming on Indian lands, 25 U.S.C. §§ 2704 and 2706 (1988); delegation of exclusive jurisdiction to the tribes over some forms of gambling, 25 U.S.C. § 2710 (1988); authorization for tribes to enter into negotiations with the various states for the purpose of reaching an agreement concerning the conduct of gaming activities on reservations, 25 U.S.C. § 2710(d)(3)(A) (1988); authority for tribes to enter into management contracts for the operation of gaming facilities, 25 U.S.C. § 2711 (1988); and provision for the imposition of a civil fine for the violation of any of the Act’s provisions, 25 U.S.C. § 2713 (1988). Most importantly, however, may be the provision found at 18 U.S.C. § 1166(d) (1988) which provides that:

The United States shall have exclusive jurisdiction over criminal prosecutions of violations of State gambling laws that are made applicable under this section to Indian country, unless an Indian tribe pursuant to a Tribal-State compact approved by the Secretary of the Interior under section 11(d)(8) of the Indian Gaming Regulatory Act, or under any other provision of Federal law, has consented to the transfer to the State of criminal jurisdiction with respect to gambling on the lands of the Indian tribe.

The majority suggests that it need not consider this federal statute, which gives the United States exclusive jurisdiction over criminal prosecutions for violations of State gambling laws, on the grounds that the violations that are alleged in this case occurred prior to the effective date of the Federal Act. The majority reasons that to apply the unequivocal federal preemptions found at 18 U.S.C. § 1166(d) (1988) would violate constitutional provisions which prohibit ex post facto laws. However, in making this argument, the majority completely ignores its previous definition of ex post facto laws. In State v. Leistiko (Mont. 1992), 844 P.2d 97, 49 St. Rep. 1104, we established a two-part test to determine whether a statute violates the ban on ex post facto laws. In order to satisfy the test, we held that: “(1) the law must be retrospective, and (2) it must disadvantage the offender affected by it. Miller v. Florida (1987), 482 U.S. 423, 430, 107 S.Ct. 2446, 2451, 96 L.Ed.2d 351, 360-61.” Leistiko, 844 P.2d at 100. We also held that “[t]o meet the second prong of the test, the United States Supreme Court has said, ‘[i]t is axiomatic that for a law to be ex post facto it must be more onerous than the prior law.’ ” [Citation omitted.] Leistiko, 844 P.2d at 100.

As applied to the facts in this case, 18 U.S.C. § 1166(d) (1988) is not an ex post facto law because it would not disadvantage the defendants. It does not change the substantive law that pertained to their conduct. It merely specifies which government has jurisdiction to prosecute them for violations of those State gaming laws that they are accused of having violated. It is merely a procedural change, and as we have previously pointed out in State v. Coleman (1979), 185 Mont. 299, 315, 605 P.2d 1000, 1011, “changes in procedure not affecting materially the rights of a defendant do not come within the constitutional prohibition” against ex post facto laws.

The provision found at 18 U.S.C. § 1166(d) (1988) is clearly procedural, and became effective on October 17, 1988. The prosecution of this action was not commenced until November 8, 1988, and if for no other reason, was prohibited by the terms of this statute. It is clear that without considering the separate tribal interests, the independent but interrelated federal interest is sufficient to preclude the exercise of state jurisdiction over the defendants in this case. The federal government has specifically recognized by statute that federal Indian policy is to promote tribal economic development and self-sufficiency and that the best way to do that is to give Indian tribes the exclusive authority to regulate gaming activity on their reservations, so long as it is not specifically prohibited by federal law and is conducted in a state where the activity is not otherwise prohibited. 25 U.S.C. § 2701 (1988). Furthermore, even when federal or state laws which regulate gambling are violated in Indian country, the federal government has exclusive jurisdiction over criminal prosecutions for those violations.

While consideration of federal interests and federal preemption is, by itself, a sufficient basis for denying state jurisdiction over the prosecution of these defendants, an examination of tribal interests in this matter, and a comparison of the State’s interest, make the error of the majority opinion even clearer.

TRIBAL INTERESTS

First of all, it is clear that the Blackfeet Tribe provided a comprehensive set of laws regulating gambling on its reservation, even before federal enactment of the Indian Gaming Regulatory Act. In 1975, the Blackfeet Tribe of the Blackfeet Reservation enacted an amendment to Ordinance No. 41 of the Blackfeet Tribal Law and Order Code of 1967. That amended ordinance permitted gambling on the Blackfeet Reservation only in accordance with the ordinance. It established a gaming commission for the purpose of adopting rules and regulations pertaining to gambling and for the purpose of issuing licenses to gaming establishments. The ordinance also provided for criminal penalties for its violation.

In addition to setting up this regulatory system for gaming on the Blackfeet Reservation, the Tribal Ordinance set forth specific regulations regarding sports or gambling pools; punch boards, pull tabs, and similar devices; bingo, raffles, and keno; horse race betting and pari-mutuel betting; setting the legal age for gambling; prohibiting gambling for anything other than cash; and establishing specific procedures for criminal and civil enforcement of the ordinance. There can be no question that state regulation under these circumstances would have a strong impact “on the right of reservation Indians to make their own laws and be ruled by them.”

Furthermore, the facts in this case demonstrate that almost all of the impact of the gaming operation which the defendants were involved in was upon Indians located on the Blackfeet Reservation. The Montana Restaurant and Casino, where the activity complained of took place, was owned by three people, Donald Juneau, Bob Juneau, and Carl Kipp. Both Bob Juneau and Carl Kipp were Indians. The evidence indicated that, on the average, 90 percent of the customers who gambled on the premises were Indian. Of the 21 employees at the business, 20 were Indian. And before the business could operate, both a tribal business permit and a license for each video poker and keno machine had to be issued by the Tribal Department of Revenue. In other words, the Tribe had an interest in protecting the business’s customers, providing employment on the reservation, and in generating tribal revenue.

It is clear from all of the foregoing that tribal interests and the interests of the Tribe in self-government weigh heavily in favor of prohibiting State jurisdiction over the activities of the defendants.

STATE INTEREST

The State interest, on the other hand, is very slight, if any exists at all. The State contends that it has a substantial interest in regulating gambling throughout the State of Montana in order to protect the welfare of its citizens and avoid the domination of gaming enterprises by organized crime. It cites authority for the proposition that excessive casino gambling can produce serious harmful effects on the health, safety, and welfare of its citizens, including the “disruption of moral and cultural patterns, the increase in local crime, the fostering of prostitution, the development of corruption, and the infiltration of organized crime.” Posadas de Puerto Rico Assoc. v. Tourism Co. (1986), 478 U.S. 328, 341, 106 S. Ct. 2968, 2977, 92 L.Ed.2d 266, 280.

The State’s expressed concern for the moral well-being of its citizens would be more persuasive if it was not engaged in the promotion of gambling activities through its own state lottery (see Montana State Lottery Act of 1985, Title 23, Chapter 5, Part 10, renumbered in 1991 as Title 23, Chapter 7, see specifically, § 23-7-102, MCA), and if local governments were not becoming increasingly dependent on revenue generated by off-reservation gambling enterprises. (See § 23-5-409, MCA, Bingo and Keno; § 23-5-306, MCA, Live Card Game Tables; §§ 23-5-610 and -612, MCA, Video Gambling Machines.) However, even if the State’s concerns could be accepted at face value, nothing has been accomplished in this case by the prosecution of these defendants. The State concedes that it has no authority to prosecute Indians for activities conducted on Indian land, and therefore, Donald Juneau’s partners who are Indian, continued to operate the Montana Restaurant and Casino (at least at the time of the District Court hearing in this case) in the same fashion that they have always operated it without any interference from the State. Refusal to allow the State to regulate the defendants’gambling activities on Indian land will have absolutely no adverse impact on the State’s overall regulation of gaming in the State of Montana.

CONCLUSION

For these reasons, I do not see how any responsible consideration of the factors we have been compelled to consider by the U.S. Supreme Court in White Mountain can lead to any conclusion other than that, when considering state, federal, and tribal interests in the context of this case, the exercise of State authority over the defendants for the crimes they have been charged with would violate federal law and unreasonably interfere with the tribal interests which are at stake.

Therefore, I conclude that the judgment of the District Court should be reversed and the charges against the defendants should be dismissed.

JUSTICE GRAY concurs in the foregoing concurrence and dissent.


author: JUSTICE GRAY JUSTICE WEBER

text:
    SHAWN CADY, Plaintiff, Counter-Defendant and Respondent, v. WILLIAM D. BURTON and DEBRA A. BURTON, Defendants, Counter-Claimants and Appellants.
    No. 92-200.
    Submitted on Briefs December 22, 1992.
    Rehearing Denied May 6, 1993.
    Decided April 13, 1993.
    50 St.Rep. 395.
    257 Mont. 529.
    851 P.2d 1047.

      JUSTICE WEBER concurred in part; dissented in part, and issued an opinion in which CHIEF JUSTICE TURNAGE concurred.
    For Defendants and Counter-claimants and Appellants: Alan J. Lerner, Kalispell.
    For Plaintiff and Counter-defendant and Respondent: Robert B. Allison, Kalispell.
   JUSTICE GRAY

delivered the Opinion of the Court.

William and Debra Burton appeal from the findings of fact, conclusions of law, and judgment entered by the Eleventh Judicial District Court, Flathead County, rescinding two contracts for the sale and purchase of real property. We affirm in part and reverse in part.

We restate the issues on appeal as follows:

1. Did the District Court err in concluding that the contracts prohibited the Burtons from spending the earnest money?

2. Did the District Court err in rescinding the contracts on the basis of material breach?

While on vacation in the Flathead Valley in May of 1988, Shawn Cady (Cady), a resident of California, decided to purchase property in the area. Cady asked Linda Adams (Adams) and Caren Kastner (Kastner), owners of the Pine Cone Kitchen in Bigfork, if the restaurant was for sale and if they knew of other property for sale in the area. Adams and Kastner expressed interest in selling the restaurant and referred Cady to William Burton (Burton), their cousin. Burton and his wife, Debra Burton, were interested in selling a residence (the Echo Lake Residence) and a shopping complex (the Burton Complex).

Over the next several weeks, the parties executed a number of documents relating to the purchase and sale of the Echo Lake Residence, the Burton Complex, and the Pine Cone Kitchen. On May 18, Cady signed a document entitled Receipt and Agreement to Sell and Purchase with Adams and Kastner pertaining to the Pine Cone Kitchen. The agreement required Cady to pay $5,000 as earnest money. Additionally, the agreement provided that Cady could extend the closing for 90 days by paying an additional $5,000 earnest money.

On May 19, Cady and the Burtons executed two documents entitled Receipt and Agreement to Sell and Purchase: one for the Echo Lake Residence and the other for the Burton Complex. By their terms, the agreements were not effective until Cady paid earnest money in an unspecified amount. The agreements contained no other provisions regarding earnest money.

Cady and the Burtons subsequently executed documents entitled Exhibit “A”, Addendum to Purchase and Sale Agreement, and Addendum, Part Two. The exhibit and addenda expressly clarified the terms of the two earlier agreements for the sale and purchase of the Echo Lake Residence and the Burton Complex. Under the terms of Exhibit “A”, dated May 28, Cady was required to pay $5,000 as earnest money for each property. The first addendum, dated June 6, provided that the closing on both properties would take place on August 1; it permitted Cady to extend the closing on both properties by paying an additional $10,000 earnest money on August 1. The terms “deposit,” “depositing” and “held on deposit” were used in the first addendum in reference to the earnest money. The second addendum, dated June 8, also included the term “deposits” in reference to the earnest money.

Although the addenda did not clarify the agreement relating to the Pine Cone Kitchen, the addenda did refer to the Burtons’ receipt of initial earnest money in the amount of $15,000, and directed the Burtons to allocate $5,000 of the earnest money to each of the three properties. Accordingly, Cady sent a check to William Burton in the amount of $15,000. Burton gave $5,000 of the earnest money to Adams and Kastner.

In mid-July, Burton requested that Cady send additional earnest money even though it was not due until August 1. At that time, Burton informed Cady that he had spent the initial earnest money and that he needed the additional earnest money for personal expenses, possibly to avoid bankruptcy. Cady refused to send additional earnest money unless it was deposited in escrow or otherwise withheld from the Burtons’ personal use; Burton refused any arrangement that would prevent him from having immediate use of the money. The parties did not close on the properties on August 1, nor did Cady send the additional earnest money required to extend the closing date.

On September 20, Cady filed suit against the Burtons for rescission of the contracts relating to the Echo Lake Residence and the Burton Complex. In addition, Cady alleged that Burton had acted as an agent of Adams and Kastner and, on that basis, sought rescission of the contract regarding the Pine Cone Kitchen. Cady also sought a $15,000 judgment against the Burtons to recoup the earnest money paid on the three properties. The Burtons counterclaimed, seeking specific performance of the Echo Lake Residence and Burton Complex contracts and damages for Cady’s alleged breach of the contracts and the implied covenant of good faith and fair dealing. The Burtons subsequently dropped their specific performance claim.

A bench trial was held on November 12,1991. During the trial, the District Court granted partial summary judgment in favor of the Burtons, dismissing Cady’s claim relating to the Pine Cone Kitchen. At the conclusion of the trial, the District Court orally issued its findings and judgment. The court stated that its summary adjudication of the Pine Cone Kitchen contract was premised on its finding that Kastner and Adams were the real parties in interest. The court also found that the terms of the contracts regarding the Echo Lake Residence and the Burton Complex prohibited the Burtons from spending the earnest money prior to closing and, therefore, that the Burtons had breached the contracts. Furthermore, the District Court found the breach to be material. The District Court apparently dismissed the Burtons’ counterclaim on the basis that they had committed a material breach that excused Cady’s performance under the contract. The court awarded Cady $10,000 plus interest, representing a refund of the earnest money paid by Cady on the Echo Lake Residence and the Burton Complex.

On December 31,1991, the court filed findings of fact, conclusions of law and judgment consistent with its bench ruling. The court concluded that Cady was “entitled to withdraw” from the contract and to “request refund” of the earnest money relating to the Echo Lake Residence and the Burton Complex. The court denied the Burtons’ post-trial motions and the Burtons appealed.

Did the District Court err in concluding that the contracts prohibited the Burtons from spending the earnest money?

The District Court found that the original buy-sell agreements, together with Exhibit “A” and the two addenda, constituted the contracts relating to the sale and purchase of the Echo Lake Residence and the Burton Complex. The court also found that while the initial buy-sell agreements did not address the disposition of the earnest money, the addenda included the terms “deposit,” “depositing” and “held on deposit.” The District Court concluded that the payment of the earnest money was a deposit to be held by the Burtons and that the earnest money was not available to spend at their discretion until closing.

The Burtons contend that the District Court erred in determining that the terms “deposit,” “depositing” and “held on deposit” applied to the initial earnest money. They assert that the court relied almost exclusively on the following provision in the first addendum to conclude that they were prohibited from spending the earnest money:

4. If buyer agrees to drop the contingency of the sale of buyer’s residence in California, then interest on the remaining principal due on the Pine Cone Kitchen and the Echo Lake Residence will commence on January 1, 1989. Interest will be at 10 1/2 percent and will be added monthly to the remaining balance. The principal balance shall be reduced by earnest money payments held on deposit.

According to the Burtons, this provision prevents them from spending additional earnest monies received, but not the initial earnest money, if Cady dropped a contingency provision relating to the sale of his California residence. Nothing in the quoted language, however, creates differing obligations on the Burtons’ part with regard to initial versus subsequent earnest money payments.

The Burtons also assert that the referenced provision applies by its terms only to earnest money relating to the Pine Cone Kitchen and Echo Lake Residence and, therefore, does not prevent them from spending the earnest money relating to the Burton Complex. This contention ignores the recurrence of the terms “deposit,” “depositing” and “held on deposit” in the two addenda. The following provisions of the first addendum, which are applicable to the contracts for both the Echo Lake Residence and the Burton Complex, are particularly relevant:

3. This sale is contingent upon the sale of Buyer’s home in California. If seller receives an offer to sell either the Echo Lake Residence or the Burton’s Complex, or both, then buyer shall have 72 hours notice to drop this contingency. If buyer declines to drop the contingency, then seller may sell any or all of the properties to a new purchaser. Upon the closing of the sale to the new purchaser, buyer shall receive a full refund of all earnest money paid to date. Until the sale to the new purchaser closes, the purchase agreements b etween buyer and seller remain in full force and seller shall continue to hold earnest money.
5. Seller acknowledges receipt of the initial earnest money deposit of $15,000.00, with $5,000.00 allocated to the Pine Cone Kitchen, $5,000.00 to the Echo Lake Residence and $5,000.00 to the Burton’s Complex.

Furthermore, the second addendum contains the following provision:

This additional Addendum and the previous Addendum of June 6, 1988 shall only be valid and will only alter the previous agreements of the parties if Buyer signs and returns the June 6th Addendum and this additional Addendum to Seller by June 11, 1988 AND only if Buyer deposits $15,000.00 earnest money with Seller....

Contrary to the Burtons’ assertion, the terms “hold earnest money,” “earnest money deposit” and “deposits” in these provisions clearly pertain to earnest money paid on both the Echo Lake Residence and the Burton Complex.

The Burtons also contend that the District Court erred in defining the term “deposit.” The District Court relied upon the following definition from Black’s Law Dictionary:

To commit to custody, place in the hands of another to be held pending an event occurring, pending a permanent or temporary disposition of the funds, giving possession of personal property by one person to another with his consent; to keep for the use and benefit of the first or of a third person.

The Burtons assert that the District Court should have applied the Black’s Law Dictionary definition of the term “deposit” as it is used in the banking industry:

In Banking Law
The act of placing or lodging money in the custody of a bank or banker, for safety or convenience, to be withdrawn at the will of the depositor or under the rules and regulations agreed on. Also, the money so deposited, or the credit which the depositor receives for it.

On this basis, the Burtons contend that they were free to spend the earnest money in the same manner that a bank is able to use the deposits of its customers. We disagree.

The obvious flaw in this argument is that neither the Burtons nor Cady are bankers. The Burtons and Cady entered into the contracts to purchase and sell real estate as private individuals. It is a well-established principle of contract law, codified in Montana, that words of a contract are to be understood in their ordinary sense. Section 28-3-501, MCA; Schultz v. Stevens (1988), 233 Mont. 42, 45, 758 P.2d 287, 288. Under the general definition of the term “deposit,” and as commonly understood, deposited money is to be held and kept pending an event — here, the closing of the sale of real estate.

We hold that the District Court properly concluded that the contracts prohibited the Burtons from spending the earnest money relating to the Echo Lake Residence and the Burton Complex.

Whether the District Court erred in rescinding the contracts on the basis of material breach?

Ruling from the bench, the District Court found that the Burtons had breached the contracts by spending the earnest money. Furthermore, the court found that the breach was material.

Findings of fact made by a district court, sitting without a jury, must be affirmed unless the findings are clearly erroneous. Rule 52(a), M.R.Civ.P. We have adopted a three prong test to determine whether a finding is clearly erroneous; the first prong is whether substantial evidence supports the findings. Interstate Prod. Credit Ass’n v. DeSaye (1991), 250 Mont. 320, 323, 820 P.2d 1285, 1287.

The Burtons contend that the District Court erred in finding that the alleged breach was material. Relying on Sjoberg v. Kravik (1988), 233 Mont. 33, 759 P.2d 966, and VanUden v. Hendricksen (1980), 189 Mont. 164, 615 P.2d 220, they contend that a breach is material only if it substantially defeats the object of the contract. They assert that the contract provisions requiring the earnest money to be held on deposit were only incidental to the purpose of the contracts at issue and, therefore, that even if they breached the provisions, the breach was not material. We agree.

Sjoberg and VanUden reflect our consistent approach to the question of materiality of a contract breach: a breach is not material unless it defeats the primary purpose of the contract. In Sjoberg, plaintiff entered into two contracts to purchase properties owned by defendants in order to build a home and develop a horse ranch. The primary issue was whether defendants’ breach in failing to obtain a mortgage release, as required by the contracts, was material so as to support plaintiffs suspension of performance. The district court found that the purpose of the mortgage release provisions was to enable plaintiff to obtain financing to develop the horse ranch. On that basis, the court determined that defendants’ breach was material and, therefore, that plaintiff was entitled to suspend his payments under the contracts. We affirmed the district court’s finding of materiality because defendants’ breach — failure to obtain the mortgage release — substantially defeated the purpose of the contract. Sjoberg, 759 P.2d at 969.

In VanUden, plaintiffs filed suit to remove restrictive covenants affecting property that they contracted to purchase from defendants. Defendants counterclaimed, seeking cancellation of the contract on the basis of plaintiffs’ breach of the covenants. Plaintiffs moved for summary judgment on the counterclaim, asserting that cancellation was an improper remedy as a matter of law; the district court denied the motion. We reversed, concluding that the covenants were only incidental to the main purpose of the contract for deed — delivery of the deed in exchange for payment of the purchase price. We opined that where the alleged breach of covenants was not so substantial and fundamental as to defeat the main object or purpose of the contract, and could be compensated in damages, a breach of the covenants did not warrant cancellation. VanUden, 615 P.2d at 224.

Our review of the District Court’s finding of materiality in the case before us need not progress beyond the first prong of the DeSaye clearly erroneous test. Given the materiality test set forth above, no substantial evidence in the record supports the District Court’s finding that the Burtons’ breach was material.

The primary purpose of a buy-sell agreement is a restriction on the seller’s ability to market the property for a specified time in exchange for the buyer’s payment of earnest money and promise to complete the sale. See Payne Realty v. First Sec. Bank (Mont. 1992), 844 P.2d, 90, 94, 49 St.Rep. 1098, 1100. Nothing of record here suggests any other purpose for the buy-sell agreements at issue. The contract provision requiring the Burtons to hold the earnest money on deposit was incidental to the main purpose of the buy-sell agreements and breach of that provision did not substantially defeat, or even impact, the primary purpose of the contracts.

Indeed, Cady does not allege that the Burtons’ failure to hold the earnest money on deposit substantially defeated the object of the contracts. Cady testified that he would not have entered into the contracts had he known that the Burtons would spend the earnest money; in addition, he asserts that he was reasonably alarmed when he learned that the original earnest money had been spent. Cady’s assertions do not address our test for materiality and, therefore, do not provide substantial evidence that the Burtons’ breach was material in that it defeated the primary purpose of the contracts. We conclude that the District Court’s finding that the Burtons’ failure to keep the earnest money on deposit until closing constituted a material breach is clearly erroneous.

Based on its finding of material breach, the District Court concluded that Cady was entitled to “withdraw” from the contracts and to “request refund” of the earnest money. Thus, the District Court effectively rescinded the contracts regarding the Echo Lake Residence and the Burton Complex.

Our determination that the District Court’s finding of material breach is clearly erroneous necessarily leads to our conclusion that the court improperly rescinded the contracts. Only a material breach can serve as a basis for rescinding a contract.

A breach which goes to only a part of the consideration, is incidental and subordinate to the main purpose of the contract, and may be compensated in damages does not warrant a rescission of the contract; the injured party is still bound to perform his part of the agreement, and his only remedy for the breach consists of the damages he has suffered therefrom. A rescission is not warranted by a mere breach of contract not so substantial and fundamental as to defeat the object of the parties in making the agreement.

Reinke v. Biegel (1979), 185 Mont. 31, 35-36, 604 P.2d 315, 317 (citations omitted). Pursuant to Reinke, the Burtons’ breach provides Cady grounds to seek contract damages, but not rescission. Accordingly, we hold that the court erred in rescinding the contracts on the basis of material breach.

The District Court’s award of $10,000 plus interest, reflecting the earnest money paid on the Echo Lake Residence and the Burton Complex, appears to be a component of the rescission. The objective of rescission is to return the parties to the same position they would have occupied had they not entered into the contract. Brunner v. LaCasse (1988), 234 Mont. 368, 371, 763 P.2d 662, 664. As a general rule, a party lawfully rescinding a contract is entitled to recover the monies paid under the contract, with interest from the date of the breach. Brunner, 763 P.2d at 664. Based on our determination that the District Court erred in rescinding the contracts, we conclude that the award of $10,000 plus interest, which is part and parcel of the rescission, is in error as well.

We affirm the District Court’s conclusion that the contracts for the purchase and sale of the Echo Lake Residence and the Burton Complex prohibited the Burtons from spending the earnest money and its finding, on that basis, that the Burtons breached the contracts. We reverse the District Court’s finding that the Burtons’ breach was material and, consequently, its rescission of the contracts. Furthermore, because the District Court’s dismissal of the Burtons’ counterclaim appears to have been premised on the erroneous finding of a material breach, we reverse the court’s dismissal of the counterclaim.

Affirmed in part, reversed in part and remanded for further proceedings consistent with this opinion.

JUSTICES TRIEWEILER, HUNT, HARRISON and McDonough concur.

JUSTICE WEBER

concurs and dissents as follows:

I concur in the majority holding that the District Court correctly prohibited the Burtons from spending the earnest money. I dissent from the holding on Issue II, with regard to rescission of the contracts on the basis of material breach.

Of particular significance are the following provisions of the addendum of June 6,1988, referred to in the majority opinion:

PROVISIONS APPLICABLE TO EACH CONTRACT

1. Closing shall be on August 1, 1988. Buyer may extend the closing date to December 1, 1988 by depositing, with seller, an additional $10,000.00 earnest money. Buyer may continue to extend closing indefinitely by continuing to deposit an additional $10,000.00 sum as earnest money every six months thereafter.

2. If, under the existing terms of the Buy-Sell Agreements, the parties agree that they will close the purchase of the Echo Lake residence or the Burton’s Complex, but not both, then in this event, Buyer shall have refunded the earnest money attributable to the agreement which will not close. Buyer may, in any event, continue to extend the date of closing as agreed herein, provided he continues to deposit additional sums of $10,000.00 earnest money on August 1 and December 1, 1988 and every 6 months thereafter.

3. This sale is contingent upon the sale of Buyer’s home in California. If seller receives an offer to sell either the Echo Lake residence, or the Burton’s Complex, or both, then buyer shall have 72 hours notice to drop this contingency. If buyer declines to drop the contingency, then seller may sell any or all of the properties to a new purchaser. Upon the closing of the sale to the new purchaser, buyer shall receive a full refund of all earnest money paid to date. Until the sale to the new purchaser closes, the purchase agreements between buyer and seller shall remain in full force and seller shall continue to hold earnest money.

The majority opinion concluded that the primary purpose of a buy-sell agreement is a restriction on the seller’s ability to market the property for a specified time in exchange for the buyer’s payment of earnest money and promise to complete the sale. The majority further concluded that nothing in the agreement suggests any other purpose for the buy-sell agreements. I disagree with that conclusion.

In the above quoted paragraph 3, the parties agreed that each of the three sales are “contingent upon the sale of buyer’s home in California.” That is a significant factor not addressed in the majority opinion. That provision gives the right to the buyer to demand a return of the earnest money in the event he is not able to sell his home in California. That is a primary purpose in addition to the marketing and sale of the property in Montana.

We emphasize that the above provisions establish this is not an ordinary buy-sell agreement in which there is an agreement to buy and to sell. Under paragraph 2, the parties in the future could agree that they would close the purchase of either Echo Lake residence or Burton’s Complex, but not both. In that event the buyer was required to refund the earnest money attributable to the agreement which did not close. This again is a primary purpose or reason in addition to the marketing and sale.

In addition, under these paragraphs, buyer may continue to extend the date of closing by making additional $10,000 deposits. Even though such deposits are made, under the paragraphs, a primary purpose is to allow the deposits to be returned in the event that the buyer’s property in California is not sold.

Last, I point out that under paragraph 3, if the seller receives an offer to sell either Echo Lake residence or Burton’s Complex, or both, buyer has 72 hours to drop the contingent aspect of the sale. If the buyer declines to drop the contingency, then the seller may sell to a new purchaser. A key point here is that upon the closing of the sale to the new purchaser, the buyer shall receive a “full” refund of all earnest money paid to date. Clearly this is a primary purpose in addition to the sale of the property in Montana to the buyer.

In view of the foregoing express contingencies, it is clear to me that the spending of the earnest money indicates a very material problem with return of the earnest money if the sale is not completed. The deposit referred to in the first issue of the majority opinion becomes of little significance if it is spent and no longer constitutes such a deposit.

I conclude that the seller’s failure to hold the earnest money substantially defeated material objects and provisions of the contract. I would affirm the conclusion of the District Court that the buyer was entitled to withdraw from the contract and request refund of his earnest money. I would affirm the District Court’s award of $10,000 plus interest to the buyer.

CHIEF JUSTICE TURNAGE concurs in the foregoing concurrence and dissent.


text:
    IN THE MATTER OF MANDATORY CONTINUING LEGAL EDUCATION
    Dated March 23, 1993.
    50 St.Rep. 364.
    258 Mont. 1.
   ORDER

On October 29, 1992, this Court ordered that the name of Joe J. McKay be stricken from the rolls of attorneys licensed to practice law in Montana because of his failure to comply with the rules for Mandatory Continuing Legal Education (CLE) for the year 1991.

The Court is now informed by the Montana CLE Administrator that Joe J. McKay has submitted a CLE affidavit which meets the compliance requirements for 1991.

IT IS HEREBY ORDERED that the name of Joe J. McKay shall be reinstated to the rolls of attorneys licensed to practice law in Montana. The Clerk of this Court shall mail copies of this order to Joe J. McKay, to all Clerks of the District Court of Montana, the Federal District Court of Montana, and to the State Bar of Montana.

DATED this 23rd day of March, 1993.

/S/ JOHN CONWAY HARRISON, Acting Chief Justice

/S/ WILLIAM E. HUNT, SR., Justice

/s/ r. c. McDonough, justice

/S/ TERRY N. TRIEWEILER, Justice

/S/ FRED J. WEBER, Justice