text:
    JOHN BOEGLI, Walt Boegli, John Payne, Robert Waller and Jack Young, Plaintiffs and Appellants, v GLACIER MOUNTAIN CHEESE COMPANY, a Montana corporation, Defendant and Respondent.
    No. 89-39.
    Submitted on Briefs July 7, 1989.
    Decided Aug. 15, 1989.
    777 P.2d 1303.
    Karl P. Seel, Bozeman, for plaintiffs and appellants.
    Michael Coil, Bozeman, for defendant and respondent.
   MR. JUSTICE McDONOUGH

delivered the Opinion of the Court.

Plaintiffs appeal from the dismissal of their action against the defendant in the District Court for the Eighteenth Judicial District, Gallatin County. The District Court based its dismissal on plaintiffs’ failure to exhaust their administrative remedies. We reverse the order of the District Court.

The issue is whether plaintiffs denied overtime compensation under § 39-3-405, MCA, must seek relief exclusively from the Commissioner of Labor under the provisions of Title 39, Chapter 3, MCA, entitled, “Wages and Wage Compensation.”

At the filing of the complaint, plaintiffs were employees of the Glacier Mountain Cheese Company (GMCC) in Gallatin County, Montana, who is the named defendant in this action. The complaint alleged that as an employer GMCC is subject to the provisions of the Montana labor laws contained in Title 39, Chapter 3. Plaintiffs alleged that GMCC was in violation of § 39-3-405, MCA, which provides in relevant part:

“OVERTIME COMPENSATION. (1) No employer shall employ any of his employees for a workweek longer than 40 hours unless such employee receives compensation for his employment in excess of 40 hours in a workweek at a rate of not less than IV2 times the hourly wage rate at which he is employed.”

Plaintiffs sought damages for overtime hours worked at the rate of 1V2 times the hourly wage, a penalty for failure to pay the overtime compensation as it became due upon termination of employment pursuant to § 39-3-206, MCA, and costs and attorney fees under § 39-3-214, MCA.

The defendant, GMCC, filed a Rule 12(b)(1) motion to dismiss, alleging that jurisdiction properly lies with the Department of Labor and that plaintiffs failed to exhaust their administrative remedy. The District Court granted defendant’s motion and ordered dismissal of the action.

In this case we are called upon to interpret various provisions of Title 39, Chapter 3, entitled “Wages and Wage Compensation.” Specifically, the statutes under Part 2 and Part 4 must be reconciled in order to determine whether a wage claimant must exhaust an administrative remedy with the Commissioner of Labor or whether an action can be initiated in District Court. The statutes relevant to this inquiry are as follows:

“39-3-209. Commission of labor to investigate violations and institute actions for unpaid wages. It shall be the duty of the commissioner of labor to inquire diligently for any violations of this part and to institute actions for the collection of unpaid wages and for the penalties provided for herein in such cases as he may deem proper and to enforce generally the provisions of this part.
“39-3-211. Commissioner to take wage assignments. Whenever the commissioner determines that one or more employees have claims for unpaid wages, he shall, upon the written request of the employee, take an assignment of the claim in trust for such employee and may maintain any proceeding appropriate to enforce the claim, including liquidated damages pursuant to this part. With the written consent of the assignor, the commissioner may settle or adjust any claim assigned pursuant to this section.
“39-3-212. Court enforcement of commissioner’s determination. A determination by the commissioner of labor and industry made after a hearing as provided for in parts 2 and 4 of this chapter may be enforced by application by the commissioner to a district court for an order or judgment enforcing the determination if the time provided to initiate judicial review by the employer has passed. The commissioner shall apply to the district court where the employer has its principal place of business or in the first judicial district of the state. A proceeding under this section is not a review of the validity of the commissioner’s determination.
“39-3-407. Enforcement. Enforcement of this part shall be treated as a wage claim action and shall be pursued in accordance with part 2 of this chapter, as amended. This part may also be enforced in accordance with part 5 of this chapter for the benefit of certain employees in the mineral and oil industry. The commissioner may enforce this part without the necessity of a wage assignment.
“39-3-408. Provisions cumulative. (1) The provisions of this part shall be in addition to other provisions now provided by law for the payment and collection of wages and salaries but shall not apply to employees covered by the Fair Labor Standards Act except as provided in subsection (2).
“(2) Sections 39-3-402 and 39-3-404 shall apply to an employee covered by the Fair Labor Standards Act if state law provides a minimum wage that is higher than the minimum wage established under federal law.”

Plaintiffs rely primarily upon this- last statute, § 39-3-408, MCA, which they contend makes the remedy provisions of Title 39, Chapter 3 cumulative so that exhaustion of administrative remedies is not required. Despite the clear and unambiguous language of that statute, the defendant GMCC argues that the other statutes cited above indicate a legislative intention that the Commissioner of Labor must first consider wage claims before the matter goes to district court. The lower court agreed, ruling that § 39-3-408, MCA, should not act as a hedge on the doctrine of administrative remedies.

We first note the general rule of statutory interpretation found in § 1-2-102, MCA, which states that legislative intent controls. Legislative intent is to first be determined from the plain meaning of the words used, and if interpretation of the statute can be so determined, the courts may not go further and apply any other means of interpretation. Oldenburg v. County of Flathead (1984), 208 Mont. 128, 130, 676 P.2d 778, 779. We conclude that § 39-3-408(1), MCA, is clear and unambiguous in its designation of cumulative remedies:

“The provisions of this part shall be in addition to other provisions now provided by law for the payment and collection of wages and salaries . . .” (Emphasis added.)

Defendant argues that despite a lack of ambiguity, § 39-3-408, MCA, has been impliedly altered by the subsequent enactment of other statutory provisions under Title 39, Chapter 3. Specifically, the defendant points to § 39-3-212, MCA, enacted in 1974, which gives the Commissioner the right to apply to a district court for an order enforcing the Commissioner’s determination. The defendant contends that any causes of action recognized by the Legislature upon passage of § 39-3-408, MCA, in 1971 were thereafter subjected to the 1974 provisions of § 39-3-212, MCA.

In this regard, defendant attaches significance to the cumulative remedy provision of Part 5, which applies to mineral and oil employees, and attempts to distinguish it from the cumulative provision of Part 4. The .cumulative remedy provision of Part 5 states:

“Remedy cumulative. The remedy herein provided for the greater security for the payment of wages and salaries and the collection thereof shall be in addition to any remedy now provided by law for the payment and collection of wages and salaries.”

Section 39-3-520, MCA.

Defendant argues that § 39-3-520, MCA, is unlike the cumulative provision of § 39-3-408, MCA, because it clearly stands alone without reference to any other part of Title 39, Chapter 3 as a means for its enforcement. Contrastingly, § 39-3-408, MCA, is subject to § 39-3-407, MCA, which requires enforcement of Part 4 to be pursued in accordance with Part 2. Part 2 refers to the powers and duties of the Commissioner of Labor. See §§ 39-3-209 to 213, MCA.

While this argument is discernible, we hold that it does not provide sufficient basis for this Court to ignore the plain language of § 39-3-408, MCA. That statute provides for cumulative remedies. As a final point, § 39-3-408, MCA, was amended in 1987 to include Subsection (2), which provides that the section applies to an employee covered by the Fair Labor Standards Act. While Subsection (2) does not apply as a matter of law to this case, the reenactment of subsection (1) in 1987 does indicate a cumulative process. We hold that resort to the Commissioner of Labor is not plaintiff’s exclusive option.

Reversed.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, HUNT, SHEEHY, WEBER and GULBRANDSON concur.


source: Caselaw Access Project

author: MR. JUSTICE McDONOUGH

license: Public Domain

text:
    ALDRICH & COMPANY, Plaintiff and Respondent, v. DAN J. DONOVAN, d/b/a D.J. Donovan Construction, Defendant and Appellant.
    No. 89-107.
    Submitted on Briefs June 30, 1989.
    Decided Aug. 15, 1989.
    Rehearing Denied Sept. 14, 1989.
    778 P.2d 397.

      Dan J. Donovan, Denver, pro se.
    Thomas J. Stusek, Work Law Firm, Billings, for plaintiff and respondent.
   MR. JUSTICE McDONOUGH

delivered the Opinion of the Court.

This is an appeal from a judgment for amounts due and owing on a promissory note and a customer’s job-by-job account. Dan Donovan, d/b/a D.J. Donovan Construction (Donovan), is a building contractor. Aldrich & Company (Aldrich), is a retailer of building supplies. Donovan executed a promissory note for approximately $5,400 owed to Aldrich on an “open” account. He also maintained a “job-by-job” account with Aldrich, each item charged being assigned to a specific project. Due to nonpayment of amounts due on the note and the account, Aldrich brought suit in the District Court of the Thirteenth Judicial District, Yellowstone County. Donovan counterclaimed for fraud and breach of warranty regarding building materials purchased from Aldrich. Both sides moved for summary judgment. Aldrich obtained a summary judgment in its favor. On appeal, Donovan argues procedural matters and there are questions of material fact which exist as to Aldrich’s claim. We affirm the District Court’s judgment.

Donovan presents three issues for review:

1. Did the District Court’s denial of summary judgment to Donovan, in violation of Rules 8(d) and 36(a) and (b), M.R.Civ.P., constitute an abuse of judicial discretion and/or clear error requiring reversal and entry of judgment for Donovan?

2. Did the District Court’s grant of summary judgment to Aldrich, in spite of its failure to file an Answer to the First Amended Counterclaim, constitute an abuse of discretion requiring reversal?

3. Should the District Court’s judgment be reversed, and the cause remanded for trial?

While working as a contractor in Billings, Donovan concentrated on residential and commercial remodeling. He maintained an “open” charge account with Aldrich. Donovan encountered problems in making payments on his open account. When the account reached approximately $5,200, Aldrich informed Donovan that he would have to execute a promissory note in that amount before any further credit could be extended to him. In July of 1984, Donovan executed such a note.

Aldrich then agreed to open a “job-by-job” charge account for Donovan. Charges to the account included items used in a remodeling job for a Mr. Graff. Graff and Donovan had a disagreement during the course of the job, and Donovan refused to charge any more materials for Graff to the job-by-job account. Graff then agreed to open his own account with Aldrich, which he used to charge items for the work being done by Donovan. Due to nonpayment of mounting sums owed on the Graff project, Aldrich eventually placed a mechanic’s lien on Graffs house. The lien was later foreclosed, and according to Aldrich, the proceeds were used to pay off both Graff’s own account and the charges in Donovan’s job-by-job account related to the Graff job.

Donovan continued to have problems paying Aldrich. In January of 1986, Aldrich initiated this action for nonpayment against Donovan, seeking collection of the note. In February of 1986, Aldrich amended its complaint to add a claim for the unpaid balance of Donovan’s job-by-job account.

The pleadings and motions in this case are a morass. The case reached a point where the matters to be addressed by the District Court were: (1) Aldrich’s renewed motion for summary judgment, with attendant briefs, affidavits and exhibits; and (2) Donovan’s combined motion for (a) leave to amend his counterclaim a second time, (b) summary judgment, and (c) to reopen and compel discovery, also accompanied by briefs, affidavits and exhibits. The court granted Donovan’s motion to amend his counterclaim, but denied his discovery and summary judgment motions. The court granted Aldrich’s motion for summary judgment. This appeal followed.

At the outset, our review of the record in this case has shown that the District Court is to be commended, both for its patience and its persistence in examining the record to arrive at its ruling.

I.

Donovan’s arguments on appeal are essentially those he raised in the District Court, and fall into two categories. The first is based on procedural rules, and the second is based on substantive law. Donovan’s procedural arguments assign error to the District Court’s decisions to grant summary judgment in favor of Aldrich and deny summary judgment in favor of Donovan for the same reasons. According to Donovan, Aldrich’s failure to file discovery responses within the time specified in Rule 36, M.R.Civ.P., resulted in Donovan’s requests for admissions being deemed admitted. Donovan also invokes Rule 8, M.R.Civ.P., for the proposition that Aldrich’s failure to respond to his first amended counterclaim means that the allegations of fraud found there are also deemed admitted. We disagree.

The District Court’s Memorandum and Order notes that Aldrich’s delay in responding to discovery was not the result of bad faith on Aldrich’s part, which afforded the court discretion to allow the responses to be filed late. The court cited Heller v. Osburnsen (1973), 162 Mont. 182, 510 P.2d 13, as authority for its exercise of discretion. In Heller, this Court noted that the purpose of Rule 36, M.R.Civ.P., is to alleviate delay in trials by removing uncontested issues; if no prejudice would ensue, a court could allow untimely filing in its discretion.

Aldrich’s delay in filing its response was at least in part due to the fact that after this action began Aldrich’s counsel moved to New York City. He was served there with Donovan’s requests for admissions and interrogatories. According to the affidavit of the Vice President of Aldrich, he did not have knowledge of the requests until shortly before Aldrich’s new counsel filed the response. The record does not disclose any bad faith on Aldrich’s part, and given the fact that Donovan received Aldrich’s responses nearly a year before the court’s Memorandum and Order was issued, Donovan was not prejudiced by the delay.

The discretion granted courts under Rule 36 in Heller applies with equal force to Donovan’s Rule 8 argument regarding his amended counterclaim. In fact, the procedural rules relied on by Donovan, if enforced strictly, could have worked against him. Donovan’s amended counterclaim was not filed until after Aldrich filed an answer to Donovan’s original counterclaim. Because Aldrich had filed its answer to the original counterclaim, Donovan was required under Rule 15, M.R.Civ.P., to seek leave of court before filing his amendment. He did not do so until he filed the combined motion ruled on by the court in the Memorandum and Order appealed here. The court technically did not grant leave to file the amendment until it granted summary judgment in favor of Aldrich, thereby obviating the need for a response by Aldrich.

Moreover, most of the documents in this case were untimely filed. Strict construction of procedural rules could have resulted in judgment against Donovan for failure to file a timely response to Aldrich’s complaints. The court’s leniency allowed for consideration of the merits of both Aldrich’s claims and Donovan’s counterclaims. Donovan therefore was not prejudiced by the court’s exercise of discretion.

II.

Donovan’s substantive arguments first address his counterclaim, and then Aldrich’s claim. Donovan’s original counterclaim, for breach of warranty alleged that certain vinyl siding he purchased from Aldrich was not fit for its intended purpose. After installation, the siding warped and blistered, requiring replacement. Donovan alleged the replacement costs as his economic loss. The District Court addressed this claim only briefly, because it found that Donovan had not shown damages. He had walked off the job by the time the siding was replaced; the contractor who took over the job purchased the replacement siding. On appeal, Donovan relies on his argument that the procedural rules discussed above rendered his requests for admissions and the allegations in his counterclaims deemed admitted, thereby proving his case. We have held Donovan’s procedural arguments insufficient, and our review of the record shows the District Court to be correct. Donovan made no showing of damages to the District Court. We therefore affirm the District Court on this question.

Donovan’s fraud claim alleged that two payments he made to Aldrich were not properly credited. In his briefs filed with the District Court, Donovan admits that the payments at first were credited, but alleges that these same amounts were later included in the lien filed by Aldrich against Graff. Donovan thus alleges that the statements of account sent to him by Aldrich were known by Aldrich to be misrepresentations, which Donovan relied on to his detriment by filing an action for labor and materials costs against Graff. The District Court held this claim insufficient, because the “facts” alleged by Donovan (e.g., Aldrich’s knowing misrepresentations) were mere conclusory statements rather than evidence. The court held that Donovan had presented virtually no evidence to support his claim, which therefore failed as a matter of law.

On appeal, Donovan again relies on allegations supposedly deemed admitted by the procedural rules discussed above to prove his case. We have held that these allegations were not deemed admitted, so this argument fails. However, even if the allegations in Donovan’s fraud counterclaim were deemed admitted, his claim would fail.

The two payments at issue were in the approximate amounts of $500 and $2,300. The record shows that the first payment was credited to Donovan’s note, and the second to Donovan’s account for the Graff job. Donovan admitted in his briefs below that these credits were correct. The record also shows that when the payments were made, Donovan did in fact owe the money to Aldrich. The gravamen of Donovan’s claim is that these amounts were included in Aldrich’s lien against Graff, which somehow worked to Donovan’s detriment in asserting his claim against Graff. We disagree.

First, no misrepresentations were made to Donovan regarding these payments. The sum sought by Aldrich on the note reflects credit for that payment, and no sum is sought for Graff materials charged to Donovan’s account. Any misrepresentation that may have been made by Aldrich regarding amounts owed on the Graff job would have been made in its lien action against Graff.

Second, any reliance by Donovan on the credits shown in Aldrich’s statements was irrelevant. The note at issue has nothing to do with the disputed Graff sums. The note was signed in July of 1984, and concerned amounts charged by Donovan prior to that date. The record, including the lien filed by Aldrich against Graff, shows that Aldrich began supplying materials for the Graff job in September of 1984, two months after the note was signed. Donovan therefore could not have included the note payment in any claim against Graff. The record also shows that approximately $16,000 worth of materials were supplied by Aldrich for the Graff job. It would be illogical to assume that Donovan’s decision to bring a claim against Graff for a remodeling job of this size turned on the $2,300 payment he made to Aldrich. While Donovan’s action against Graff was the subject of arguments to the District Court in this case, the record does not show that the disputed $2,300 payment had anything to do with Donovan’s failure to obtain judgment.

Donovan would have had to show nine separate elements to obtain a judgment for fraud. Selvidge v. McBeen (Mont. 1988), [230 Mont. 237,] 750 P.2d 429, 45 St.Rep. 168. The District Court correctly held that Donovan’s arguments alleged conclusory statements rather than facts. Our review has also shown that the facts in the record do not support two key elements of fraud, misrepresentation and reliance. We therefore affirm the District Court on this question.

We now turn to the issue of Aldrich’s entitlement to summary judgment for sums sought on Donovan’s note and charge account. Only two of Donovan’s arguments remain to be addressed at this point, the others having been discussed above. On the question of the note, Donovan admits he executed the note, but asserts that he did so under economic duress. He alleges duress in that Aldrich would not extend him further credit unless he signed the note.

A claim of economic duress requires a showing that the contract at issue was made under circumstances evincing a lack of free will on the part of the contracting parties. It is not sufficient to show that consent was secured by the pressure of financial circumstances, or that one of the parties merely insisted on its legal right. Shiplet v. First Security Bank of Livingston (Mont. 1988), [234 Mont. 166,] 762 P.2d 242, 45 St.Rep. 1816. The note at issue here evidenced an existing debt owed by Donovan to Aldrich. Aldrich did not force Donovan to incur the debt. Aldrich had a legal right to require security of some sort before extending further credit to Donovan. He was therefore “pressured” only by his need for further credit, not by any duress imposed by Aldrich. Aldrich was therefore entitled to summary judgment on the note.

Donovan argues that the amount sought on his account had been paid in full. Aldrich submitted account statements showing the amount it sought as being owed by Donovan on two specific jobs. Donovan’s argument alleged that he had “paid in full”, but listed two different jobs. Donovan never denied owing money for the two jobs listed by Aldrich. Aldrich was therefore entitled to summary judgment as to these amounts as well. We affirm the judgment of the District Court.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, SHEEHY and GULBRANDSON concur.


author: MR. JUSTICE HUNT

text:
    W.R. GRACE & COMPANY, a corporation, Petitioner and Appellant, v. DEPARTMENT OF REVENUE of the State of Montana; and The State Tax Appeal Board of the State of Montana, Defendants and Respondents.
    No. 88-266.
    Submitted April 6, 1989.
    Decided Aug. 18, 1989.
    Rehearing Denied Sept. 14, 1989.
    779 P.2d 470.

      George T. Bennett argued, Helena, Paul H. Frankel argued, Morrison & Foerster, New York City, Terry B. Cosgrove argued, Luxan & Murfitt, Helena, for petitioner and appellant.

      Paul Van Tricht argued, Tax Counsel, Dept, of Revenue, Helena, for defendants and respondents.
    Bruce W. Moerer, Montana School Boards Assoc., Helena, for amicus curiae.
   MR. JUSTICE HUNT

delivered the Opinion of the Court.

W. R. Grace & Company appeals from an order of the District Court of the First Judicial District, Lewis and Clark County, upholding a ruling by the State Tax Appeal Board (STAB), which denied certain deductions claimed by Grace on its net proceeds of mines tax returns for the years 1977, 1978 and 1979. We affirm.

The following issues are raised on appeal:

1. Did the District Court err in holding that STAB properly disallowed certain deductions in the calculation of Grace’s net proceeds taxes?

2. Did the Department of Revenue (Department) complete its deficiency assessment of Grace’s 1977 and 1978 net proceeds taxes within the time allowed by law?

W.R. Grace & Company, a Connecticut corporation, owns and operates a vermiculite mine and related plant and facilities on Vermiculite Mountain, located in Lincoln County near the Kootenai River, approximately nine miles northeast of Libby. Vermiculite is a micaceous mineral, which must be expanded before being used in various construction materials.

After the vermiculite ore is extracted from an open pit mine on Vermiculite Mountain, it is transported to a “transfer point” and, from there, into mine processing facilities. Processing carries the mineral through a storage and blending facility into a wet mill, then through a dry screen plant to a sized product storage facility, bordering the Kootenai River. From that point, a conveyer transports most of the unexpanded mineral across the Kootenai to rail-loading facilities adjacent to the Burlington Northern railroad tracks, where it is loaded in bulk onto rail cars. A small portion of the ore is hauled to separate facilities in Libby, owned and operated by Grace, where it is bagged and loaded onto rail cars. The unexpanded vermiculite is shipped FOB from these two points to expanding plants owned by Grace — none of which are located in Montana — or to expanding plants owned by third parties.

Grace maintains offices at both the mine site and the town of Libby. Personnel in the Libby office perform various administrative functions, e.g., accounting, procurement and payroll. A manager and assistant manager, who supervise the Libby employees as well as the employees working at the mine and milling facilities, also maintain an office in Libby.

The Montana facilities are part of Grace’s Construction Products Division (CPD), located in Cambridge, Massachusetts, separate from Grace’s corporate headquarters. The CPD manufactures and markets numerous commercial products for the construction and agricultural industries. It operates over one-half dozen plants in Canada and over 40 in the United States, although its only Montana plant is the mine and mill site on Vermiculite Mountain.

Grace timely filed its net proceeds of mines tax returns for the years 1977, 1978 and 1979. On the returns, Grace deducted the entire cost of the Vermiculite Mountain facilities and the Libby office. It also deducted a portion of the expenses incurred by the CPD in Cambridge.

The Department conducted an audit of the returns and concluded, among other things, that deductions for expenses incurred by the Libby and Cambridge offices were improper. Therefore, by letter dated August 7, 1981, the Department issued a proposed deficiency assessment. When an acceptable resolution of the issues could not be reached through assessment revision conferences between the parties, the Department issued final notice of deficiency. Grace timely appealed the final decision to STAB.

After a hearing, STAB ruled that the majority of the expenses were not properly deducted as they were either:

1) not an actual cost of extracting the vermiculite;

2) incurred by employees not actually engaged in working or superintending the mine;

3) incurred past the point of beneficiation; or

4) not properly prorated between the Libby office and the plant facilities.

STAB did conclude, however, that a portion of the expenses were properly deducted. These included:

1) expenses incurred in activities related to the safety of the mine, whether incurred in Cambridge or on Vermiculite Mountain;

2) salary and benefits for the two managers who maintained offices in Libby because they were actually engaged in superintending the mine;

3) salary of the chief geologist because he was actually engaged in working the mine; and

4) legal and consulting fees for filing water rights claims and obtaining patents.

On June 11,1987, Grace filed a petition for judicial review with the First Judicial District Court, Lewis and Clark County. The Department filed a cross-petition. The District Court upheld the STAB ruling in its entirety. Grace appeals from the District Court determination. The Department does not cross-appeal.

The standard of review governing appeals of administrative rulings, including those made by STAB, is codified at § 2-4-704, MCA. Department of Revenue v. Davidson Cattle Co. (1980), 190 Mont. 326, 330, 620 P.2d 1232, 1234-35. The standard is delineated as follows:

“(1) The review shall be conducted by the court without a jury and shall be confined to the record.
“(2) The court may not substitute its judgment for that of the agency as to the weight of the evidence on questions of fact. The court may affirm the decision of the agency or remand the case for further proceedings. The court may reverse or modify the decision if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:
“(a) in violation of constitutional or statutory provisions;
“(b) in excess of the statutory authority of the agency;
“(c) made upon unlawful procedure;
“(d) affected by other error of law;
“(e) clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record;
“(f) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion; or
“(g) because findings of fact, upon issues essential to the decision, were not made although requested.”

Section 2-4-704, MCA.

The statute sets out two basic standards. One, findings of fact will be upheld unless they are clearly erroneous, and two, conclusions of law will be upheld unless they constitute an abuse of discretion. Swan Corp. v. Montana Dept. of Revenue (Mont. 1988), [232 Mont. 210,] 755 P.2d 1388, 1389-90, 45 St.Rep. 998, 1000; City of Billings v. Billings Firefighters Local No. 521 (1982), 200 Mont. 421, 430-31, 651 P.2d 627, 632.

Neither party contests the valuation of the deductions declared by Grace nor whether Grace actually incurred the expenses claimed. Therefore, the question raised by Grace’s first issue — whether the deductions are statutorily permissible — involves only a question of law. Likewise, the second issue presented for review — whether the deficiency assessment is barred by the statute of limitations — involves solely a question of law. Thus, we will use the broader “abuse of discretion” standard in our analysis of both issues.

I

Did the District Court err in holding that STAB properly disallowed certain deductions in the calculation of Grace’s net proceeds of mines taxes?

The net proceeds of mines tax has been a part of the property tax scheme of Montana since 1864, preceding statehood itself. Faced with the difficulty of accurately measuring the value of undeveloped minerals in place, the territorial legislature adopted the net proceeds tax as a substitute for an ad valorem tax on the value of mines or mining interests. See Byrne v. Fulton Oil Co. (1929), 85 Mont. 329, 334, 278 P. 514, 517. The framers of the first state constitution incorporated the tax into that document at article XII, § 3. The current tax was separately codified in 1921 and, with the exception of some minor variations, the tax remains much as it was at that time. The 1972 Constitutional Convention eliminated the 1889 constitutional provision for the tax from the present constitution.

The tax is centrally assessed by the Department. Section 15-23-101, MCA. The producer or operator of the mine annually reports, on a form provided by the Department, the gross yield of the mineral, as well as various costs incurred in the mining process. Section 15-23-502, MCA. From the returns, the Department calculates the net proceeds of the mine by subtracting certain expenses from the value of the gross product. Section 15-23-503, MCA. The Department then transmits the assessed value of the net proceeds to the county assessor, who records the value in the assessment book as class one property. Sections 15-23-106 and 15-6-131, MCA.

At issue in this case is the deductibility of certain expenses claimed by Grace on its net proceeds returns. Section 15-23-502, MCA (1977), the statute in effect during the years in controversy, enumerates costs a taxpayer may declare on its net proceeds tax statement, including the following:

“(6) cost of extracting from the mine;
“(7) cost of transporting to place of reduction or sale;
“(8) cost of reduction or sale;
“(9) cost of marketing the product and conversion of same into money;
“(10) cost of construction, repairs, and betterments of mines and cost of repairs and replacements of reduction works;
“(12) cost of fire insurance and workers’ compensation insurance.”

Section 15-23-502, MCA (1977), is read in conjunction with § 15-23-503, MCA (1977). The latter statute lists the items the Department subtracts from gross value to arrive at net proceeds, including:

“(b) all moneys expended for necessary labor, machinery, and supplies needed and used in the mining operations and developments;
“(c) all moneys expended for improvements, repairs, and betterments necessary in and about the working of the mine, except as hereinafter provided;
“(d) all moneys expended for costs of repairs and replacements of the milling and reduction works used in connection with the mine;
“(f) all moneys actually expended for transporting the ores and mineral products or deposits from the mines to the mill or reduction works or to the place of sale and for extracting the metals and minerals therefrom and for marketing the product and the conversion of the same into money;
“(g) all moneys expended for fire insurance and workers’ compensation insurance and for payments by mine operators to welfare and retirement funds when provided for in wage contracts between mine operators and employees.”

Section 15-23-503(1), MCA (1977). The statute goes on to restrict the allowable deductions in the following manner:

“(4) No moneys invested in the mines and improvements during any year except the year for which such statement is made and except as provided in this section may be included in such expenditures, and such expenditures may not include the salaries or any portion thereof of any person or officer not actually engaged in the working of the mine or superintending the management thereof.” Section 15-23-503(4), MCA (1977).

Grace maintains that § 15-23-503, MCA (1977), allows the deduction of all costs related to the vermiculite mine as long as they are necessary to the mining operation. Therefore, Grace argues, all general overhead, office and administrative expenses attributable to the mining process for which it has properly accounted are deductible, whether incurred at the mine site, Libby or Cambridge.

Grace reads the statute too broadly. The law does not permit the deduction of “every conceivable item of expense.” Anaconda Copper Mining Co. v. Junod (1924), 71 Mont. 132, 140, 227 P. 1001, 1004. The net proceeds tax is not an income tax. It is a property tax. Its purpose is to arrive at a fair valuation of mining interests by using net proceeds as a proxy for the value of the mine itself. Byrne, 85 Mont, at 334, 278 P. at 517. Therefore,' what may be properly deducted from net proceeds is construed restrictively. Only the direct costs and expenses of extracting the mineral are deductible. Anaconda, 71 Mont, at 138, 227 P. at 1004.

Certainly, overhead and administrative expenses incurred by the Cambridge and Libby offices are necessary in the sense that they contribute to the smooth functioning of the vermiculite mine. However, they are not necessary in the sense contemplated by the net proceeds tax. Overhead, office and administrative expenses, while properly deductible for arriving at taxable income, are not properly deductible for determining the value of this taxable property. Not only must expenses be needed and used in the mining operation before they may be deducted from net proceeds, they must also be a direct cost of extracting the mineral.

In addition, Subsection (4) of § 15-23-503, MCA (1977), specifically provides that deductions shall not include “the salaries or any portion thereof of any person or officer not actually engaged in the working of the mine or superintending the management thereof.” Many of the expenses Grace seeks to deduct are salaries of personnel who are not working or superintending the mine, e.g., accountants, systems analysts, financial planners and lawyers. While we do not doubt that these individuals are important to the mining operation, the statute simply does not allow the deduction of their salaries.

Grace relies on our decision in Cyprus Mines Corp. v. Madison County (1977), 172 Mont. 116, 560 P.2d 1342, for the proposition that necessary overhead, office and administrative expenses are deductible as long as the taxpayer uses a proper cost accounting system. Indeed, in Cyprus Mines, we denied the taxpayer’s claims due to an improper method of allocating costs. However, the opinion does not stand for the proposition that a proper cost accounting system turns otherwise nondeductible expenditures into deductible expenditures. Before the items at issue may be subtracted from gross value to arrive at net proceeds, they must be needed and used in the mining operation as a direct cost of extracting the mineral. General overhead, office and administrative expenses are indirect costs, and, as such are not deductible — regardless of the accounting system employed by the taxpayer.

Our opinion today does not abrogate the general principle of Cyprus Mines. Expenses that are improperly accounted for will not be permitted. Thus, STAB did not abuse its discretion in concluding that computer use, electricity, telephone and transportation costs were not deductible because they were improperly prorated between the mine site and the Libby office.

Grace also contests STAB’s failure to allow deductions for transporting and marketing the mine product. STAB disallowed these expenses because it found that they were incurred beyond the point of beneficiation.

Section 15-23-503(1) (f), MCA (1977), provides for the deduction of costs incurred in transporting the mineral from the “mines to the mill or reduction works or to the place of sale and for extracting the metals and minerals therefrom and for marketing the product and the conversion of the same into money. “ However, in Pfizer, Inc. v. Madison County (1973), 161 Mont. 261, 505 P.2d 399, we limited the deductions allowed by this subsection. In Pfizer, we rejected the State Board of Equalization’s contention that the net proceeds tax extends all the way through the mining process to the point where the product is marketed, sold and converted into money. Instead, we held that the net proceeds tax applies only to the mining stage of the operation. Once the mineral passes the beneficiation stage — the pre-manufacturing phase of the mining process — the net proceeds tax no longer applies. Value added to the mineral from operations undertaken beyond the point of beneficiation is not included in the value of net proceeds. Therefore, deductions from such operations are not allowed.

“Where the net proceeds tax ends, there also ends the deductions for such tax. Only deductions for the mining operation will be allowed up through the beneficiation stage. All other expenses will be incurred as to the manufacturing process.”

Pfizer, 161 Mont, at 267, 505 P.2d at 402.

Grace points out that our affirmance of the STAB decision may result in some inconsistent applications of the law. For example, STAB permitted deductions for costs associated with the safety of the miners even though these expenses were incurred by personnel who were not directly engaged in working or superintending the mine. Any inconsistencies, however, may be attributed to the fact that the Department did not appeal the STAB decision to this Court. Whether STAB properly permitted deductions for costs associated with the safety of the miners is not in issue here and we will not attempt to address the question.

With regard to the issues that have been properly raised on appeal, we find that STAB did not abuse its discretion. Statutes and case law do not permit the expenses Grace sought to deduct on its net proceeds of mines tax returns.

II

Did the Department complete its deficiency assessment of Grace’s 1977 and 1978 net proceeds taxes within the time allowed by law?

By letter dated August 7, 1981, the Department issued its deficiency assessment of Grace’s 1977, 1978 and 1979 taxes. Grace argues that, because the Department did not complete the assessment of the 1977 and 1978 taxes until more than two years after the returns were due, it was barred by the statute of limitations from pursuing any deficiencies in net proceeds taxes for these years. Grace does not raise the statute of limitations issue with regard to the 1979 taxes because the Department issued the deficiency assessment within two years after that return was filed.

Grace relies on Caterpillar Tractor Co. v. Department of Revenue (Mont. 1981), [_ Mont. _,] 633 P.2d 618, 38 St.Rep. 1245, to support its argument that a two-year statute of limitations applies to deficiency assessments of net proceeds taxes. In Caterpillar, we held that, in the absence of a specific statute of limitations governing the particular tax in question, the general two-year limitations period prescribed in § 27-2-211(l)(c), MCA, for a liability created by statute other than a penalty or forfeiture applied.

The tax examined in Caterpillar, however, differs from the tax in question here. In Caterpillar, we considered the corporation license tax, which is a self-assessing tax on corporate income. The tax in issue in this case, on the other hand, is the net proceeds of mines tax, which is a centrally assessed tax on property. Prior to 1983, the limitations period for assessment revisions of property taxes, including the net proceeds of mines tax, was found at § 15-8-601, MCA. Because a specific statute of limitations governed the mines net proceeds tax during the years in question, the two-year limitations period found in § 27-2-211(1)(c), MCA, does not control this case.

Section 15-8-601, MCA, provides as follows:

“(1) Whenever the department of revenue discovers that any taxable property of any person has in any year escaped assessment, been erroneously assessed, or been omitted from taxation, the department may assess the same provided the property is under the ownership or control of the same person who owned or controlled it at the time it escaped assessment, was erroneously assessed, or was omitted from taxation. All such revised assessments must be made within 10 years after the end of the calendar year in which the original assessment was or should have been made.”

The statute sets out two prerequisites. The factual situation must involve taxable property that has “escaped assessment, been erroneously assessed, or been omitted from taxation;” and, the property sought to be assessed must remain “under the ownership or control of the same person who owned or controlled it at the time it escaped assessment, was erroneously assessed, or was omitted from taxation.” The circumstances of this case fulfill both conditions.

First, taxable property owned by Grace was omitted from taxation when Grace claimed statutorily impermissible deductions on its net proceeds of mines tax returns. In Butte & Superior Mining Co. v. McIntyre (1924), 71 Mont. 254, 229 P. 730, we noted that unlawful deductions taken by the taxpayer on its net proceeds of mines returns resulted in property omitted from taxation within the meaning of a predecessor to the present § 15-8-601, MCA. Here too, we hold that unlawful deductions claimed by a taxpayer on its net proceeds of mines tax returns allows taxable property to be omitted from taxation within the meaning of § 15-8-601, MCA.

Second, even though it had sold the vermiculite ore mined in 1977 and 1978 by the time the Department completed its deficiency assessment, Grace retained ownership and control of the property subject to taxation. This is because the “taxable property” contemplated by the statute is the mine itself. As we stated earlier, the net proceeds tax is an attempt to place an accurate fair market value upon the mine. The tax “is simply a tax in lieu of, or as a substitute for, [an] ad valorem tax on the value of mines or mining interests.” Byrne, 85 Mont, at 334, 278 P. at 517. The tax measures the value of the mine itself, not merely the value of the extracted minerals. Therefore, as long as Grace owns the vermiculite mine, it retains control of taxable property subject to the ten-year limitations period for reassessment under § 15-8-601, MCA.

Grace also argues that the legislature’s enactment of § 15-23-116, MCA, a comprehensive five-year statute of limitations for centrally assessed property, impliedly repealed the ten-year limitations period provided in § 15-8-601, MCA.

This Court looks disfavorably upon repeals by implication. State ex rel. Sol v. Bakker (1982), 199 Mont. 385, 392, 649 P.2d 456, 460. Without an express declaration by the legislature that an enactment repeals an existing law, a later statute will not repeal an earlier law unless the two are “plainly and irreconcilably repugnant to or in conflict with each other . . .” Johnson v. Marias River Electric Coop. (1984), 211 Mont. 518, 523, 687 P.2d 668, 671.

The legislature did not adopt the five-year statute, § 15-23-116, MCA, until 1983. The statute was made retroactive to taxes due after December 31, 1980. Act of March 23, 1983, ch. 194, § 3, 1983 Mont. Laws 389. The tax years at issue in this case, however, are 1977 and 1978. Therefore, even if the statutes are repugnant to each other, a question we will not consider at this time, they cannot possibly conflict prior to 1981, as the five-year statute of limitations had no force or effect prior to that year. With regard to the 1977 and 1978 tax years, Grace’s argument that § 15-23-116, MCA, impliedly repealed § 15-8-601, MCA, is without merit.

A ten-year statute of limitations governed the reassessment of Grace’s net proceeds taxes for the years 1977 and 1978. Therefore, when the Department issued its deficiency assessment in 1981, it did so within the time allowed by law.

Affirmed.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, GULBRANDSON, WEBER, SHEEHY and McDONOUGH concur.


author: MR. JUSTICE McDONOUGH MR. JUSTICE HUNT,

text:
    NORTH FORK PRESERVATION ASSOCIATION, Plaintiff and Respondent, v. DEPARTMENT OF STATE LANDS, a Department of the State of Montana, Defendant and Appellant, and Farmers Union Central Exchange (Cenex), Intervenor and Appellant.
    No. 88-516.
    Submitted June 15, 1989.
    Decided Aug. 22, 1989.
    Rehearing Denied Sept. 14, 1989.
    778 P.2d 862.

      Tommy H. Butler argued, Dept, of State Lands, Helena, Doug James argued, Moulton, Bellingham, Longo & Mather, Billings, Dana L. Christensen, Murphy, Robinson, Heckathorn & Phillips, Kalispell, for appellants.
    Jon L. Heberling argued, McGarvey, Heberling, Sullivan & McGarvey, Andrew Bittker argued, Kalispell, for plaintiff and respondent.
   MR. JUSTICE McDONOUGH

delivered the Opinion.of the Court.

This appeal involves an oil and gas lease on school trust land within the Coal Creek State Forest, which was acquired from the State by the Farmers Union Central Exchange (Cenex). School trust lands are administered by the Department of State Lands (Department), which issued the lease to Cenex. Pursuant to an Annual Operating Plan approved by the Department, Cenex proposes to drill an exploratory well on its leased tract. North Fork Preservation Association (North Fork) has challenged the Department’s approval of Cenex’s operating plan, alleging that the Department failed to prepare an environmental impact statement on the proposed well as required by law. North Fork filed its complaint in the District Court of the Eleventh Judicial District, Flathead County, and obtained a summary judgment in its favor. The judgment set aside the Department’s approval of Cenex’s operating plan; issued a writ of mandate directing the Department to prepare an environmental impact statement; and awarded costs, fees and a small money judgment. We reverse, and remand the case to the District Court for entry of judgment in favor of the Department. We hold that the District Court incorrectly applied the “clearly erroneous” standard for reviewing the Department’s decision and misinterpreted applicable statutory and case law. We further hold that the Department’s decision was proper under the correct, “arbitrary, capricious or unlawful” standard of review, and that mandamus was not a proper remedy in this case, as mandamus is not available to compel a discretionary act.

The parties have stated a number of issues, some of which overlap:

As Stated by the Department:

1. Whether the Department must prepare an environmental impact statement on the drilling of a single exploratory well on school trust land which had been previously clear-cut of timber and is managed under the multiple use concept.

2. Whether the Department is required to prepare a site-specific environmental impact statement concerning full-field oil and gas development.

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

4. Whether North Fork Preservation Association sustained its burden of proof.

As Stated by Cenex:

1. Did the District Court apply the wrong standard of review in reviewing the State Lands’ decision that approval of Cenex’s plan to drill one exploratory well was not a major action of state government significantly affecting the quality of the human environment?

2. Whether State Lands’ decision that an environmental impact statement was not required was arbitrary and capricious.

3. Whether the 1984 preliminary environmental review was sufficient, as a matter of law, without considering the “cumulative impacts” of oil and gas development and production.

4. Whether a writ of mandamus will lie to compel the preparation of an environmental impact statement.

As Stated by North Fork:

1. Did the District Court apply the wrong standard of review to State Lands’ procedural decision to forego an environmental impact statement?

2. Whether the Cenex operating plan “may significantly affect environmental attributes recognized as being endangered, fragile, or in severely short supply.” ARM 26.2.603(3)(a).

3. Piecemealing: At what stage in the oil and gas lease process is an environmental impact statement on development legally required?

4. Is there a separate ground supporting the District Court’s decision, which State Lands and Cenex did not raise on appeal?

5. Whether the 1984 preliminary environmental review was legally sufficient, particularly in its evaluation of cumulative impacts.

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

In April of 1975, the Department received applications for oil and gas leases on 14 tracts of school trust land in the Coal Creek State Forest. The Department deferred action on possible leases until an environmental impact statement (EIS) could be prepared. Coal Creek State Forest is bordered on three sides by National Forest Service land, and on the fourth side by the North Fork of the Flathead River. The river is part of the National Wild and Scenic Rivers System, as well as the western boundary of Glacier National Park.

The surrounding National Forest Service land was also the subject of oil and gas development proposals at about the same time. In 1976, the National Forest Service issued a draft EIS concerning proposed leases on land in its charge. The Department also issued an EIS in 1976. The introduction to the Department’s EIS stated that the National Forest Service EIS dealt with the impacts of oil and gas leasing in the larger area surrounding Coal Creek, and the Department’s EIS would therefore focus only on the state lands involved and should be considered “an extension of that made by the federal government.” The Department’s EIS permitted leasing of all 14 Coal Creek tracts. However, at a meeting of the State Board of Land Commissioners held in March of 1976, all of the bids received were rejected. The National Forest Service subsequently undertook a new environmental analysis of the area, and abandoned its 1976 draft EIS.

In 1982, the Department received new applications for oil and gas leases covering a larger portion of the Coal Creek area. The Department prepared a preliminary environmental review (PER) for the purpose of determining whether issuance of oil and gas leases would be an action by state government “significantly affecting the quality of the human environment,” therefore requiring an EIS under § 75-1-201, MCA. The PER was issued in 1983, and concluded that no such significant effect would result if certain protective stipulations were included in any leases granted.

The Department then offered leases in Coal Creek State Forest at public auction. Cenex purchased leases to 17 tracts. Each lease contained 16 environmentally protective stipulations. Under these stipulations, Cenex was required to submit an annual operating plan to the Department detailing all activities to be carried out on the leased acreage during the coming year. No activity could be undertaken until written approval of each year’s plan was received from the Department.

Cenex’s first annual operating plan was submitted in 1984. The plan proposed drilling an exploratory well on one of the leased tracts located approximately three miles south of the town of Polebridge and one mile west of Glacier Park. The proposed well site was a clear-cut left from previous logging under lease from the Department. Cenex planned to make improvements to an existing logging road in order to transport necessary drilling equipment and supplies. The Department delayed approval of the plan while it completed a site-specific PER, held two public hearings and received comments on the PER during a 30-day review period. After reviewing the comments, the Department issued a supplement to the PER. The Department then approved the plan, subject to 31 additional protective stipulations.

In February of 1985, North Fork filed this action. The complaint sought an order setting aside the Department’s approval of the Cenex operating plan and the Cenex lease, and a writ of mandate directing the Department to prepare an EIS on the cumulative effects of oil and gas development in the Coal Creek area. Cenex successfully petitioned to intervene as a defendant in the case. The Department and Cenex filed a motion for summary judgment, as did North Fork. In 1988, the District Court issued a Memorandum and Order granting North Fork’s motion, and subsequently entered judgment in North Fork’s favor. This appeal followed.

The many issues taken up by the parties have rendered their arguments difficult to follow. North Fork has gone so far as to attempt a “chart of corresponding issue numbers” in its brief to this Court. A careful reading of the issues and arguments offered, as well as the record from below, shows that the parties are posing three core questions:

1. Did the District Court apply the proper standard of review?

2. Did the Department proceed properly in approving Cenex’s annual operating plan?

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

We will proceed with our review by addressing these three questions.

I.

The District Court looked to the Montana Administrative Procedure Act (MAPA) for its standard of review. The court applied the standard of review found in § 2-4-704(2)(e), MCA:

“(2) . . . The court may reverse or modify the decision if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:
“(e) clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record.”

On appeal, the Department and Cenex argue that the “clearly erroneous” standard was improper in this case. Cenex specifically argues that § 2-4-704, MCA, was inapplicable, because the section deals with judicial review of “contested cases”, and this was not a contested case. A “contested case” is defined at § 2-4-102(4), MCA, as a proceeding before an agency where a “determination of legal rights, duties, or privileges” of a party is required to be made after an opportunity for hearing. In contrast to cases such as State ex rel. Montana Wilderness Association v. Board of Natural Resources and Conservation (1982), 200 Mont. 11, 648 P.2d 734, no hearing was requested or held before the Department in this case. North Fork did not initiate this action until after the Department had approved Cenex’s operating plan. There was no “evidentiary record” against which to measure the Department’s decision and determine whether it was clearly erroneous. Cenex is therefore correct in asserting that § 2-4-704, MCA, does not apply in this case.

Both Cenex and the Department argue that the District Court should have employed an “arbitrary and capricious” standard. The Department asserts that decisions by administrative agencies are given deference by reviewing courts due to the agencies’ access to superior expertise, and are not overturned unless arbitrary or capricious. The Department notes that in Wilderness Association, 648 P.2d at 740, this Court cited deference to agency expertise as one of three important factors in selecting a standard of review in a contested case. Cenex notes that the arbitrary and capricious standard was used prior to the enactment of MAPA, and would logically apply in this case. Our decision in Langen v. Badlands Cooperative State Grazing District (1951), 125 Mont. 302, 308, 234 P.2d 467, 470, which is cited by Cenex, is relevant to both points:

“The review by the district court is only for the purpose of determining the legal rights of the parties involved. This is so because of the division of governmental powers under the Constitution, neither the district court nor the Supreme Court may substitute their discretion for the discretion reposed in boards and commissions by the legislative acts, [citations]
“The appeal from the commission to the district court is for the purpose merely of determining whether upon the evidence and the law the action of the commission is based upon an error of law, or is wholly unsupported by the evidence, or clearly arbitrary or capricious. On such review courts will only inquire insofar as to ascertain if the board or commission has stayed within the statutory bounds and has not acted arbitrarily, capriciously or unlawfully, [citations]”

Both sides agree that because the Montana Environmental Policy Act (MEPA) is modeled after its federal counterpart (NEPA), this Court can look to federal decisions under NEPA as an aid to addressing cases under MEPA. See Kadillak v. Anaconda Co. (1979), 184 Mont. 127, 602 P.2d 147. In fact, North Fork argues that we should adopt the “reasonableness” standard utilized by the U.S. Court of Appeals for the Ninth Circuit in cases cited in North Fork’s brief. While looking to federal decisions is not always conclusive, cases decided on analogous facts can shed light on a given issue.

The United States Supreme Court recently took up two companion cases involving the issues at bar. In one of those cases, Marsh v. Oregon Natural Resources Council _U.S. _, 109 S.Ct. 1851, 104 L.Ed.2d 377 (1989), the Supreme Court addressed the issue of the proper standard for review of an agency decision not to amend a previously-issued EIS. The argument before the Court was that newly-discovered information cast doubt on the agency’s previous conclusion that the proposed project would not significantly affect the environment. The agency involved had decided that the information did not raise questions sufficient to require amendment of the EIS.

This case presents an analogous question. North Fork alleged several specific shortcomings in the procedure followed by the Department in approving Cenex’s annual operating plan. The thrust of these contentions, when taken together, is that the information gathered by the Department indicated that Cenex’s proposed well would generate a significant impact on the human environment, and an EIS should have been prepared.

As in any comparison between federal and Montana law, there is a distinction between Marsh and this case. In Marsh, the federal Administrative Procedure Act was applicable where in this case MAPA judicial review provisions do not apply. However, the federal act offers several possible standards of review. In choosing a standard, the Supreme Court in Marsh specifically rejected the “reasonableness” standard used by the Ninth Circuit Court of Appeals and adopted the “arbitrary and capricious” standard. In explaining its choice, the Court stated:

“The question presented for review in this case is a classic example of a factual dispute the resolution of which implicates substantial agency expertise .... Because analysis of the relevant documents ‘requires a high level of technical expertise,’ we must defer to ‘the informed discretion of the responsible federal agencies.’ [citations]”

The Department in this case was carrying out its statutorily-imposed fiduciary duty to “secure the largest measure of legitimate and reasonable advantage to the state” in managing school trust lands. Section 77-1-202, MCA. The Department also had to carry out duties imposed by MEPA, pursuant to which it prepared a PER in order to gather information for its decision on whether to prepare an EIS for Cenex’s proposed action. This decision necessarily involved expertise not possessed by courts and is part of a duty assigned to the North Department, not the courts. In light of this, and the cases cited above, we hold that the standard of review to be applied by the trial court and this Court is whether the record establishes that the agency acted arbitrarily, capriciously, or unlawfully.

II.

When applying the above standard of review to this case, it is important to keep in mind which Department action is challenged by North Fork: the approval of Cenex’ Annual Operating Plan, which calls for the drilling of an exploratory well. North Fork has contended, and the District Court has held, that this action should not have been undertaken without prior preparation of an EIS. It is apparent from our review of the record, however, that the arguments of counsel and the District Court’s Memorandum and Order have strayed from the issue of the operating plan to consider policies and activities that are not at issue here. This is a primary reason for our reversal of the District Court’s judgment.

A. The Department’s Decision Was Not Unlawful.

While the standard of review we have adopted utilizes three terms, it breaks down into two basic parts. One part concerns whether the agency action could be held unlawful, and the other concerns whether it could be held arbitrary or capricious. See Langen, 234 P.2d at 471. We will first address the “unlawful” portion. The Department is both empowered and constrained by a set of statutes and regulations relevant to its actions challenged in this case. One such statute is § 77-1-202, MCA, cited above, which imposes a fiduciary duty on the Department to manage the land at issue to the advantage of the State. The procedures followed by the Department in its dealings with Cenex were governed in part by MEPA (§§ 75-1-101, et seq., MCA) and administrative rules enacted pursuant to MEPA (ARM 26.2.602, et seq. repealed 11/1/89; recodified at ARM 26.2.642, et seq.).

North Fork’s complaint in the District Court alleged in large part that the Department failed to carry out its appointed duties under these provisions. In the brief filed in support of its motion for summary judgment, North Fork made three arguments:

“1. [The Department’s] decision to forego an EIS at the stage of drilling an oil well was clearly unreasonable and wrong. Conner v. Burford, 605 F.Supp. 107 (D. Mont. 1985) and Kadillak v. Anaconda Co. (1979), 184 Mont. 127, 602 P.2d 147.
“2. The case is clearly one where the decision ‘may significantly affect’ endangered species and a fragile environment, requiring an EIS under ARM 26.2.603(3)(a).
“3. [The Department] omitted to perform an evaluation of cumulative impacts, in violation of ARM 26.2.604(1)(b) and (c).”

Two of these arguments, the first and third, are directly relevant to the “unlawful” portion of our standard of review.

The District Court’s Reliance on Conner v. Burford. The District Court agreed with North Fork’s first argument, and relied on Conner v. Burford, supra, to hold the Department’s 1976 EIS, 1983 PER and 1984 PER to be insufficient. At the outset, the court adopted North Fork’s broad view of the development of oil and gas in the Coal Creek area, and concluded that full-field development required the preparation of an EIS. The Department had argued that its 1976 EIS was sufficient for this purpose. The court found, however, that the 1976 EIS was insufficient because it focused only on Coal Creek lease tracts and did not address the overall impacts of such development. Without a valid EIS, the two PER’s became “falling dominos,” their environmentally protective stipulations mere examples of the kind of “piecemeal” approach to environmental review held improper in Conner. We disagree.

First, the Department’s 1976 EIS has no relevance to this case. The overall impacts of full-field oil and gas development in the Coal Creek State Forest are not at issue. Section 75-1-201, MCA, (entitled “General Directions — Environmental Impact Statements”) sets out guidelines for “every recommendation or report on proposals for projects.” ARM 26.2.603 (“Determination of Necessity for Environmental Impact Statement”) governs consideration of a “proposed action”. The proposed project/action under consideration in this case is the drilling of one exploratory well on one lease tract. In considering this proposed action, the Department prepared a site-specific PER in 1984, which supplemented a more general PER prepared in 1983. The conclusion reached by the Department was that an EIS was not required for the single Cenex test well. This is the decision under review.

Second, while the District Court was correct in asserting that “[i]f found rich in oil and gas the acreage in question would be under tremendous pressure for further exploration and development,” it was premature in concluding that an EIS was required. The court’s conclusion apparently resulted from a misreading of the Conner case. The decision of the U.S. District Court for the District of Montana in Conner, cited by North Fork in its brief below, dealt with the question of when an agency action would “significantly affect” the environment, thus requiring preparation of an EIS. This is the same standard employed in § 75-1-201, MCA, and its attendant regulations. The Federal District Court held that issuance of a lease permitting oil and gas development was “the first stage of a number of successive steps” leading to development, and therefore met the “significantly affect” standard. The court feared that proceeding with a piecemeal environmental review by considering only one step at a time would ignore the cumulative effects of development and risk unforeseen, irreversible impacts.

When reviewing the decision, however, the Ninth Circuit Court of Appeals made an important distinction. The appellate court reviewed case law determining that under the “significantly affect” standard, an EIS was always required at the “go/no go” point of oil and gas development. The test derived to pinpoint when the “go/no go” point is reached looks for the proposed action that will entail an “irretrievable commitment of resources”. Some of the leases at issue in Conner had “no surface occupancy” (NSO) clauses. Under these clauses, no activity which would disturb the ground in any way could be undertaken without prior approval from the agency involved. The Ninth Circuit Court held that leases with NSO clauses were not an irretrievable commitment of resources. Nothing could happen under the leases without government approval. The point had not been reached where preparation of an EIS was “automatic.” The court also noted, “We cannot assume that government agencies will not comply with their NEPA obligations in later stages of development.” Conner v. Burford, 836 F.2d 1521 at 1528 (9th Cir. 1988).

Cenex will operate under essentially the same type of strictures found in the Conner NSO leases. The lease at issue in this case was executed on a printed “Montana Oil and Gas Lease” form supplemented in blank spaces with information specific to the lease arrangement between the Department and Cenex for this well site. North Fork has made much of the printed language in the initial portion of the lease indicating that Cenex thereby acquires the right to do the following:

“. . . mining and operating for oil and gas, and of laying pipelines, building tanks, power stations, and other structures thereon necessary in order to produce, save, care for, dispose of and remove the oil and gas ...”

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

North Fork is correct in that the lease could ultimately empower Cenex to conduct all of the listed activities, and it is easy to imagine these activities having a significant effect on the environment. However, the lease also contains specific environmental stipulations typed into to the lease form under paragraph 26, entitled “Special Provisions”. One of these typed stipulations reads:

“If the lessee [Cenex] intends to conduct any activities on the leased premises, it shall submit to the Department of State Lands two copies of an Annual Operating Plan or Amendment to an existing Operating Plan, describing its proposed activities for the coming year. No activities shall occur on the tract until an Annual Operating Plan or Amendments have been approved in writing by the Commissioner of State Lands or his designated representative.” (Emphasis supplied.) It is a fundamental principle of contract law that written or typewritten provisions in a contract take precedence over printed provisions. Hoerner Waldorf Corp. v. Bumstead-Woolford Co. (1972), 158 Mont. 472, 494 P.2d 293. The typed “special provision” therefore takes precedence over the printed authorization in this lease. Cenex can carry out the listed activities only with prior written approval of the Department. The issuance of this lease was thus not an “irretrievable commitment of resources” as the term was used in Conner. The District Court was incorrect in concluding that full development of oil and gas in the Coal Creek State Forest was a matter of successive steps set into irreversible motion by the issuance of the lease. Like the Ninth Circuit in Conner, this Court cannot assume that the Department will not comply with its MEPA obligations if development proceeds beyond this stage.

The 1983 PER. The District Court’s misapplication of the Conner decision also tainted its holdings that the 1983 and 1984 PER’s were insufficient. Because the 1984 PER is a “supplement” to the 1983 PER, the court’s holdings on both documents are relevant. The court held the 1983 PER inadequate because it relied on the inclusion of environmentally protective stipulations to support its finding that issuing leases would not significantly affect the human environment. The District Court held this approach insufficient for two reasons: (1) it represented piecemealing prohibited by Conner and (2) it should have been a “programmatic” review as required by ARM 26.2.614.

Our discussion of Conner has shown that a lease issued pursuant to the 1983 PER need not be violative of the ruling in Conner, and the lease involved here in fact was not. As to ARM 26.2.614, the court engaged in selective reading of this rule, which has resulted in misinterpretation. The court and North Fork have at several points focused on portions of relevant provisions utilizing the words “shall” or “must” to conclude that the Department failed to carry out mandatory procedures. However, a cursory examination of ARM 26.2.614 reveals that the procedures listed are subject to a very prominent “if”:

“(1) If the department is contemplating a series of agency-initiated actions [which] will constitute a major state action significantly affecting the human environment, the department may prepare a programmatic review ...”

(Emphasis supplied.) Again, our discussion above shows that the contemplated action at issue in the 1983 PER was the issuance of leases, which the Department determined did not constitute state actions significantly affecting the human environment. That decision was not challenged by North Fork, so no programmatic review was required.

The 1984 PER. The District Court adopted North Fork’s third argument in holding the 1984 PER to be insufficient. North Fork asserted that under ARM 26.2.604, an evaluation of the cumulative impacts of the proposed action was mandatory. The District Court found the 1984 PER insufficient because of its failure to address cumulative impacts.

The term “cumulative impacts” is defined in ARM 26.2.602(1). The rule states that analysis of cumulative impacts under this definition involves consideration of past and present actions related to the proposed action. The proposed action under consideration in the 1984 PER was the drilling of the test well, the first such well in the Coal Creek area. The only past related action was the issuance of leases to Cenex, which was the subject of the 1983 PER. The 1983 and 1984 PER’s fulfill the requirement of ARM 26.2.604 in that they examine the impacts of issuing leases and drilling a single test well, the only related proposed actions before the Department.

The arguments advanced by North Fork and the District Court’s Memorandum attack the 1984 PER for failing to consider the cumulative impacts of related future actions, namely the full-field development of oil and gas. However, ARM 26.2.604 requires consideration of related future actions only when they are under current consideration. As we stated above, full-field development was not a proposed action before the Department. It was not included in Cenex’s Annual Operating Plan, and therefore was not under “current consideration”.

In sum, the arguments advanced by North Fork and the rationale provided by the District Court failed to show that the Department acted “unlawfully” in determining that approval of Cenex’ first annual operating plan did not require an EIS. Our review of the record has not uncovered any statute or regulation violated by the Department in its dealings with Cenex thus far. The Department has followed required procedures and included in its PER’s the information required by statute and administrative rules. Nor can the decision on the Cenex test well be analogized to the situation in Conner. Even under the Conner criteria, the Department made its decision to forego an EIS at a point in the process where that decision was still left to the Department’s discretion. We therefore proceed to examine the Department’s decision under the “arbitrary or capricious” portion of our standard of review.

B. The Department’s Decision Was Not Arbitrary Or Capricious.

North Fork’s second argument in its brief in support of its motion for summary judgment addressed the 1984 PER, and is relevant to this portion of our review. North Fork asserted that by the Department’s own analysis, the approval of the well was an action significantly affecting the human environment. North Fork is critical of the Department’s treatment of the effects the well might have on bald eagles, grizzly bears or gray wolves thought to inhabit or at least frequent the Coal Creek area. North Fork notes that the Department employs no eagle biologist or wolf biologist, and no wildlife biologist is included in the list of PER preparers. However, North Fork’s brief states,

“The issue here is not the questionable quality of the [eagle, bear and wolf] biology in the PER. The issue is whether there is a ‘may affect’ situation ...”

According to North Fork, such a situation “clearly” exists, and an EIS should have been prepared prior to approval of the Cenex Annual Operating Plan.

For each of North Fork’s contentions, it quotes a portion of the 1984 PER discussing possible impacts of the well on that animal. North Fork does not contend that required analyses are missing, nor does it focus on the adequacy of the analyses given. North Fork simply contends that the impacts discussed are evidence themselves that the well may significantly affect these facets of the human environment. Its criticism of the lack of wildlife biologists in the list of preparers appears aimed at showing that the Department did not recognize the import of even the “questionable analysis” found in the PER. According to North Fork, the Department was therefore incorrect in deciding that drilling a test well would not significantly affect the human environment, and its decision ran afoul of the “unreasonable” standard of review.

Our analysis will be similar to that employed by North Fork, except for the actual standard of review applied. This Court has not had the opportunity to review an administrative decision under MEPA utilizing the “arbitrary or capricious” standard. In the Marsh case, however, the U.S. Supreme Court stated a method for conducting such a review:

“As we observed in Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416 [91 S.Ct. 814, 823, 28 L.Ed.2d 136] (1971), in making the factual inquiry concerning whether an agency decision was ‘arbitrary or capricious,’ the reviewing court ‘must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.’ This inquiry must ‘be searching and careful,’ but ‘the ultimate standard of review is a narrow one.’ ”

Marsh,- U.S. -, 109 S.Ct. at 1861. It is also worth noting that our decisions in cases decided under MAPA (see, e.g., Thornton v. Comm’r of the Dep’t of Labor and Indus. (1981), 190 Mont. 442, 621 P.2d 1062; Wilderness Association, 648 P.2d at 740) have recognized the limited scope of review in administrative cases. We cannot substitute our judgment for that of the Department by determining whether its decision was “correct.” Instead, we must examine the Department’s decision to see whether the information set out in the PER’s was considered, or the decision to forego an EIS was so at odds with that information that it could be characterized as arbitrary or the product of caprice.

We will read the 1983 and 1984 PER’s together, because as noted above, the 1984 PER was intended to supplement the 1983 PER. In these documents, the Department had before it analyses of the possible impacts of drilling the test well that raised a number of environmental concerns. There were questions about maintaining the purity of the water in the North Fork of the Flathead River and a nearby glacial lake. There were questions about how the sight of the drilling rig, the noise it produced while working and the smells associated with its presence would affect endangered species such as bald eagles that nested at the glacial lake, grizzly bears that were thought to use the Coal Creek drainage as a travel corridor to find food, and gray wolves which were slowly being reintroduced to the area. There were also questions about how these same sights, sounds and smells would affect activities such as camping, river floating and hiking along the river and in Glacier Park. The 1983 PER consumed 39 pages in addressing these and other questions, while in the 1984 PER the analyses required 75 pages.

In the process of preparing the two PER’s, the Department consulted with over 30 departments and organizations, including the Environmental Protection Agency, the Border Grizzly Project and Wolf Ecology Project at the University of Montana School of Forestry, the Rocky Mountain Oil and Gas Association, and Glacier National Park. The Department also utilized over 60 published studies and other references. During public comment on the 1984 PER, the Department received 70 letters from concerned groups and individuals. Clearly, there were many concerns expressed and much information provided.

In response to this process, the Department decided to include measures to mitigate the impact of oil and gas activities in the form of stipulations to Cenex’s lease and to the written approval of Cenex’s operating plan. The Department has argued that these stipulations prevented its approval of the operating plan from rising to the level of a state action significantly affecting the human environment. At the federal level, the Ninth Circuit Court of Appeals has held that such “mitigation measures” are to be considered in reviewing a decision to forego an EIS, and if the measures are “significant”, they may justify such a decision under the “unreasonable” standard. Friends of Endangered Species, Inc. v. Jantzen (9th Cir. 1985), 760 F.2d 976, 987. Given the narrower, “arbitrary or capricious” standard being applied in this case, sufficiently significant mitigation measures certainly would justify the Department’s decision.

The mitigation measures adopted by the Department have taken the form of a total of 42 protective stipulations, 11 attached to the lease and 31 attached to the approval of the operating plan. They include such measures as forbidding any activity on the lease tract during times of the year important to bald eagle nesting and grizzly bear migration. The drilling rig must be painted a color that will not stand out against the natural background, additional mufflers must be installed on the diesel engines used to power the rig, and the engines must be mounted facing a certain direction to reduce the noise reaching bald eagle nests and Glacier Park. Five stipulations deal with any necessary disturbance of the soil and its replacement. Eight stipulations concern maintaining the quality of the ground water, and include restrictions on the chemical content of drilling fluids and the size of trucks that may be used to haul diesel fuel to the rig. The stipulations also address the workers on the rig, imposing regulations on garbage disposal and forbidding the presence of personal pets, among other measures.

We have reviewed the concerns raised by the preparers of the PER’s, as well as those raised by agencies consulted and members of the public. We have also reviewed the mitigation measures imposed by the Department. We conclude that the Department has considered the concerns raised and taken significant steps to address them. We therefore hold that the Department’s decision to approve Cenex’s annual operating plan was not arbitrary, nor was it an exercise of caprice. Having also held that the Department did not act illegally, we therefore uphold the Department’s decision and reverse the District Court on this question.

III.

One of the remedies afforded by the District Court was a writ of mandate requiring the Department to prepare an EIS. We have held above that an EIS was not required in this case, which makes the issuance of the writ erroneous. We feel compelled to add, however, that mandamus was an inappropriate remedy in this case. As our discussion above has brought out, the Department’s decision to forego an EIS at this stage of development was necessarily an exercise of discretion to which courts must give a measure of deference. In fact, we have previously held that the Department must exercise its discretion in all phases of its management of state lands.

“If the ‘large measure of legitimate and reasonable advantage’ from the use of state land is to accrue to the state, then the [Department] must, necessarily, have a large discretionary power. Every facet of the [Department’s] action cannot, and is not, explicitly laid out in the statutes of the State Constitution.”

Jeppeson v. State (1983), 205 Mont. 282, 289, 667 P.2d 428, 431 (quoting Thompson v. Babcock (1966), 147 Mont. 46, 409 P.2d 808). We held in Jeppeson that mandamus is not available to compel a discretionary act. We therefore reverse the District Court on this question.

We have held that the District Court applied the incorrect standard of review in this case, and that under the correct standard, the Department’s approval of Cenex’s annual operating plan was proper. We have further held that mandamus was not available in this case. We therefore reverse the decision of the District Court, dissolve the writ of mandate issued by the court, and remand this case for entry of judgment in favor of the Department.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, WEBER and GULBRANDSON and HON. PETER L. RAPKOCH, District Judge, sitting for MR. JUSTICE SHEEHY concur.

MR. JUSTICE HUNT,

dissenting:

I dissent. The District Court’s summary judgment in favor of North Fork should be affirmed.

The majority concludes that an oil well drilled in the Coal Creek State Forest, located on the North Fork of the Flathead River, will not generate such a “significant impact upon the human environment” as to require the preparation of an Environmental Impact Statement (EIS). The lease in question, however, not only gives Cenex the right to drill for oil and gas, it also empowers the corporation to engage in other activities associated with oil and gas development — laying pipelines, building tanks, constructing power stations and other necessary structures. Should this one exploratory well produce oil or gas, Cenex will definitely undertake these activities — activities that will significantly affect the human environment.

Taking comfort in the lease’s seemingly restrictive provisions that require Cenex to submit annually an operating plan for written approval by the Department before Cenex undertakes any additional developmental activity, the majority incorrectly concludes that the only issue involved in this case is the impact of this one well. Much more than one, site-specific well is at stake here. This well is merely the first step toward the full development of oil and gas in the Coal Creek State Forest. Should Cenex discover gas or oil with this one well, as is highly probable, the economic pressure for full-field oil and gas development of the area will be tremendous. For the majority to believe that such development is not at issue is incomprehensible.

The majority states that an EIS will not be required until Cenex has made an “irretrievable commitment of resources.” An irretrievable commitment of resources occurs at the “go/no go” point of oil and gas development. With the Department’s approval of Cenex’s proposal to drill one exploratory well, we have reached this “go/no go” point. The drilling of one oil well on Coal Creek land constitutes a disturbance of the ground and, definitionally, an irretrievable commitment of resources. An EIS must be undertaken before the Department approves an annual operating plan that includes a proposal to drill — whether the proposal is for one well or twenty.

The immediate and long-term eifects that drilling in the Coal Creek State Forest will have on the human and physical environment are potentially devastating. Yet, by choosing to review the need for an EIS under the most lenient of all standards of review — the arbitrary, capricious and unlawful standard — the majority appears content to let the future of our forests, rivers, wildlife and wilderness rest in the hands of non-elected public officials. When I see the Department giving priority to the raising of revenue over the quality of our environment, I cannot share the majority’s assurance that the Department is adequately carrying out its fiduciary duty to “secure the largest measure of legitimate and reasonable advantage to the state” in managing school trust lands.

The core of Montana’s value derives from its natural beauty. The area involved, teeming with wildlife, includes the gateway to Glacier National Park, the Coal Creek State Forest and the North Fork of the Flathead River, which not only comprises part of the Wild and Scenic River System but also feeds the majestic Flathead Lake. The majority and the Department may be willing to exploit these state treasures without taking a hard look at the future. I, for one, cannot condone the Department’s hasty and ill-considered decision to allow drilling prior to the compilation of an EIS.

I would affirm the District Court.