text:
    MONTANA-DAKOTA UTILITIES CO., a Delaware corporation, Plaintiff and Appellant, v. MONTANA DEPARTMENT OF PUBLIC SERVICE REGULATION, Montana Public Service Commission, Montana Consumer Counsel, Defendants and Respondents.
    No. 85-488.
    Submitted July 22, 1986.
    Decided Sept. 11, 1986.
    725 P.2d 548.

      Hughes, Kellner, Sullivan & Alke, John Alke argued, Helena, for plaintiff and appellant.
    James C. Paine argued, Mont. Consumer Counsel, Robert A. Nelson argued, Public Service Com’n, Helena, for defendants and respondents.
   MR. JUSTICE SHEEHY

delivered the Opinion of the Court.

I.

On August 24, 1983, Montana-Dakota Utilities Co. (MDU) filed an application with the Montana Department of Public Service Regulation and Montana Public Service Commission (PSC) for rate increases in its revenue for gas service in the State of Montana of $7,917,936. The Montana Consumer Counsel (Counsel) intervened as a party and has participated at all times since in the case.

After extensive hearings and submission of briefs, PSC issued on May 28, 1984, order No. 5020b approving increased rates for MDU. These increased rates were expected to produce additional revenues of $5,701,374.

On June 8, 1984, MDU filed a motion before PSC for reconsideration of PSC findings relating to the treatment of gain on reacquired debt and cost of equity capital as well as its findings on other issues. On June 26, 1984, PSC issued its order No. 5020c, which granted reconsideration of an unrelated issue, but denied reconsideration of the treatment of the gain on reacquired debt, or cost of equity capital.

MDU subsequently filed its petition for judicial review in the District Court, First Judicial District, Lewis and Clark County. For the purposes of the District Court, the parties stipulated to an abbreviated administrative record. That record, together with the District Court’s opinion and order, constitute the record before this Court in this appeal.

The judicial review in the District Court culminated in that court’s final opinion and order of June 24, 1985. Two principal issues in that opinion and order give rise to the appeals now before us. The District Court held that PSC erred in requiring that the unamortized gain realized from reacquisition of a long term debt be deducted from the MDU rate base. The District Court also determined that PSC acted correctly in authorizing MDU a return on equity capital of 13.35%.

PSC and Counsel appealed to this Court the decision of the District Court that it is improper to require MDU to deduct the unamortized gain on reacquired debt from its rate base. On this point of appeal, we reverse the District Court.

MDU appeals from the determination by the District Court that PSC properly assigned a percentage rate of 13.35% as return on equity capital for MDU. On this point of appeal we affirm the District Court.

II.

We first discuss the standard and scope of judicial review both in this Court and in the District Court of an order promulgated by PSC, and the issue of cost of equity capital.

MDU contends that the District Court did not properly review 'PSC’s decision on rate of return for equity capital in that (a) the District Court refused to review whether PSC’s actions were arbitrary and capricious; (b) the District Court improperly assumed the role of PSC and made findings and conclusions where PSC failed to make necessary findings and conclusions; and (c) the District Court misapplied the clearly erroneous standard in its review of PSC’s decision on rate of return.

MDU points to the decision of PSC, nearly contemporaneously, in the Montana Power Company rate increase case, where PSC granted Montana Power Company a rate of return on equity capital of 14.25%. MDU contends that PSC granted the disparate rates without explanation. In the Montana Power Company case, PSC considered updated evidence on such cost of capital from capital markets through the first quarter of 1984. However, PSC refused to consider on MDU’s request for reconsideration, evidence of the cost of such capital after December 31, 1983. MDU claims that PSC has played favorites thereby, and that the error is more egregious because in each case PSC relied on the same witness to approve the different percentages of return.

PSC and Counsel respond to MDU’s contention as follows: The record in MDU’s case was closed at the end of the hearings in January, 1984; the Montana Power Company record was not closed when Dr. Smith testified in May, 1984; MDU made no effort to enlarge the record either under Section 38.2.4805 ARM before PSC, or Section 69-3-404, MCA, before the District Court, and it is improper to base a claim of arbitrariness and caprice on matters outside the record of the instant case. The PSC and Counsel further argue that in any event, the new information which MDU supplied as a part of its motion for consideration consisted of a bond report from a single brokerage house which showed that for the twelve months ending June, 1984, for A-rated utilities, the high yield for long term bonds was 15.13% and the low yield was 11.50%. Such a range, PSC concluded, showed the volatility of the market at the time. Moreover, PSC points out that Section 69-3-302, MCA, requires that a final decision on rate cases be made by PSC within 9 months of the date of application which in the MDU docket meant a deadline of May 24, 1984. In the Montana Power Company case, the parties have waived the deadline because of the more complicated record and the number of intervenors in that case.

We determine that PSC did not act arbitrarily or capriciously on the basis that it found a certain percentage figure for return on cost of equity in the Montana Power Company case and a lesser percentage figure for return on cost of equity in the MDU case. The District Court did not discuss this argument of MDU in its findings and conclusions, but then the District Court was required by law to confine its review to the record. Section 2-4-704; Section 69-3-404, MCA. MDU had the right, which it did not use, to open the record at the District Court level for additional material evidence if good reasons existed for failure to present the evidence in the proceeding before the agency. Section 69-3-404(3), MCA. Of course, the record before the District Court and before us, includes the motion for reconsideration made by MDU after the final order of May 18, 1984. With the motion for reconsideration MDU had presented to PSC a bond chart from a brokerage company. As PSC found, the bond chart was insufficient to require an increase in the percentage of the cost of equity because it mostly showed the volatility of such percentage rates at the time. Moreover, as the Court said in Washington Gas Light Company v. Public Service Commission of the District of Columbia (D.C. App. 1982), 450 A.2d 1187, while it may be an abuse of discretion for an agency to ignore the most recent data in the record of a proceeding, the same cannot be said as easily for evidence submitted after the record has been closed and a final opinion issued.

The platitude that one cannot compare apples to oranges is worn thin, but it applies here. The two different percentage figures do not spring from the same record; they are not comparable. As MDU contends, the District Court acted properly in not considering whether the PSC decision was arbitrary and capricious because it approved two different percentage figures for return on cost of equity.

In the second phase of this issue, MDU contends that the District Court improperly assumed the role of PSC and made findings and conclusions in areas where the PSC itself failed to make necessary findings and conclusions.

The source of MDU’s contention is that the District Court discussed two economic theories of Dr. Smith in her assessment of a proper rate of return on equity capital, whereas PSC in its final order did not discuss those theories. Thus, MDU contends, the District Court made findings and conclusions outside the record not made by the PSC and so acted out of the scope of its power of judicial review.

It is, of course, the duty of PSC to make explicit findings on material issues raised in the administrative proceedings. Northern Plains Resource Council v. Board of Natural Resources (1979), 181 Mont. 500, 522-23, 594 P. 2d 297, 310. The findings must be sufficient to permit thorough judicial review, State ex rel. Olsen v. Public Service Commission (1957), 131 Mont. 104, 113, 308 P.2d 633, 638, and the findings on material issues should be sufficient to permit a reviewing court to follow the reasoning process of the agency and determine whether that process conforms to law. Northern Plains Resource Council, supra; Public Service Commission of Montana v. District Court (1973), 162 Mont. 225, 511 P.2d 334. Upon judicial review, the validity of the decision must be judged on the grounds and reasons set forth in the order, and no other grounds should be considered. Burlington Truck Lines, Inc. v. U.S. (1962), 371 U.S. 156, 169, 83 S.Ct. 239, 246, 9 L.Ed.2d 207, 216.

MDU contends that the District Court assumed the role of PSC and analyzed Dr. Smith’s theories that “investors discount outliers” and her theory of a “negative risk premium.” The District Court, argues MDU, approved the acceptance of these theories by PSC, but PSC did not accept them nor acknowledge their existence in its final order.

In determining the rate of return of 13.35% for equity capital, PSC relied on a combination of factors. It determined the current dividend yield for MDU at 9.2%. On that determination there appears to be no issue between the parties. It is the expected growth of that yield as perceived by prospective investors that is controversial. MDU had a compound growth rate of 12% in its dividends for the past 5 years. Dr. Smith, in her analysis, calculated expected growth according to three formulae: Single best growth rate, most important growth rates (growth in book value and growth in earnings); and all growth rates. For these she calculated 2.27%, 2.92% and 5.39% respectively. PSC rejected the “single best growth rate,” as an extreme low based on a single growth factor, and adopted the other two growth rates because of “the strong statistical correlation of the two growth rates to dividend yields.” The said growth rates averaged 4.15, which added to the established dividend rate of 9.2, gave PSC a proper cost of common equity at 13.35%.

In explaining why investors in MDU equity did not include in their expectations a continued growth in dividends of 12%, Dr. Smith stated, “investors discount outliers.” An “outlier,” it might be explained, in the case of MDU, is a company that is outstripping other companies in the gas utility business in the annual growth of its dividends. Dr. Smith’s testimony also included this statement:

“That investors do not rely upon historical dividend growth as an important proxy for future dividend growth is reasonable on their part, as dividend growth has been greater than both earnings or book value growth over much of the past decade. If dividend growth were to remain in excess of earnings growth, payout ratios would reach and remain greater than unity and utilities would eventually pay out all previously-retained earnings as dividends. As previously-retained earnings are paid out, book value growth will turn negative and the earnings base for future dividend payments will be diminished further. In fact, the observed decline in utility book value growth is attributable, in part, to higher payout ratios.”

The District Court concluded that the “outlier” theory and the “negative risk premium” theory were not clearly wrong, and PSC was free to embrace them.

In the hearing before PSC, MDU brought Ian B. Davidson, chairman of a brokerage house in Great Falls, to refute Dr. Smith’s comment about outliers. He testified that her opinion about expected growth of dividends for MDU had little relation to what investors were in fact expecting. He contended that investors would in fact look at the growth of dividends experienced by MDU and that they would expect MDU to gross significantly above the industry average of 5% to 6% and probably in the range of 8% to 10% growth.

In its findings, PSC agreed with Dr. Smith’s analysis of MDU versus industry risk, and further stated that it agreed with Dr. Smith’s risk analysis as an accurate representation of MDU’s risk in relation to that of the utility industry as a whole. With respect to the expected future dividend growth rate, PSC concluded that “maintaining such a level in the long run seems unrealistic, especially considering [counsel’s] cross examination of Mr. Davidson concerning earned return five years in the future while experiencing high levels of compound growth.”

While PSC did not expressly refer in its final order of May 18, 1984 to “outliers” or to “negative risk premium” it is patent from its findings and conclusions that it had in mind the whole of Dr. Smith’s testimony in adopting her evaluation of a perception of investor’s risk for MDU in the future. We find no substance therefore in MDU’s contention that the District Court usurped the role of PSC in commenting upon the explanations utilized by Dr. Smith in determining the expected dividend growth of MDU equity capital.

Thirdly under this heading, MDU contends that the District Court misapplied the clearly erroneous standard in its review of PSC’s decision on rate of return.

MDU’s argument here essentially is that proper judicial review requires a review of the whole record, not only the evidence purporting to support the PSC decision, but also that which would tend to detract from it, and although the Court must not reweigh the evidence, the District Court cannot ignore the effect of clearly contrary evidence. So, MDU points again to Dr. Smith’s testimony, and contends that her theory that “investors discount outliers” was not substantiated in discovery before the hearing nor at the hearing, and as unsubstantiated, is entitled to little evidentiary weight. Montana Citizens Freight Rate Association v. Board of Railroad Commissioners (1954), 128 Mont. 127, 134, 271 P.2d 1024, 1027.

Section 69-3-402, MCA, provides that a party in interest dissatisfied with an order of PSC may proceed in District Court to vacate such order on the grounds that the order is unlawful and unreasonable. The burden of proof is upon the party attacking or resisting the order of PSC to show that the order is unlawful or unreasonable, as the case may be. Section 69-3-402(4), MCA.

Under the Montana Administrative Procedure Act (MAPA), a person who has exhausted all administrative remedies available within the agency and is aggrieved by a final decision in a contested case is entitled to judicial review under Section 2-4-702, MCA, et seq. Section 2-4-702 is careful to state that it does not limit utilization or judicial review available under other statutes. In setting the standards of review, Section 2-4-704, MCA, provides that the District Court may reverse or modify the decision if substantial rights of the appellant have been prejudiced because the decision, among other reasons, is “clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record.”

If a party contends that the order of PSC is unreasonable, it is creating a fact issue, and under Section 69-3-402(4), MCA, that party has the burden of proof before the reviewing court on the issue. If it is contending that the order or decision of PSC is unlawful, the appealing party has the burden to show PSC abused its discretion. Thus we stated in City of Billings v. Billings Firefighters Local No. 521 (Mont. 1982), [200 Mont. 421,] 651 P. 2d 627, 632, 39 St.Rep. 1844, 1849:

“Pursuant to that statute, (Section 2-4-704, MCA) findings of fact by an agency have been subject to a ‘clearly erroneous’ standard of review by the courts. Wheatland County v. Bleeker (1978), 175 Mont., 478, 575 P.2d 48. Conclusions of law are subject to ‘an abuse of discretion review.’ These standards differ due to the agency’s expertise regarding the facts involved, and the court’s expertise in interpreting and applying the law . . .”

MDU argues that an agency decision is not sustainable just because there is some evidence in the record to support it. It contends that “the scintilla of evidence” standard has been rejected as an abdication of the court’s responsibility to insure due process of law, citing Billings Utility Company v. Public Service Commission (1921), 62 Mont. 21, 35, 203 P. 366, 368. Nevertheless, with PSC, as with other agencies, what we said in City of Billings, supra, at 632, still pertains:

“. . . the factual findings of the BPA (Board of Personnel Appeals) will be upheld if supported by substantial evidence. Section 39-31-409(4), MCA. MAPA allows factual findings to be overturned when they are ‘clearly erroneous in view of the reliable, probative and substantial evidence on the whole record.’ Section 2-4-704(2)(e), MCA. We find these tests to be harmonized. If there is substantial credible evidence in the record, the findings are not ‘clearly erroneous.’ Under either statute the scope of judicial review is the same. If the record contains support for the factual determinations made by the agency, the courts may not weigh the evidence. They are bound by the findings of the agency.”

On this point, MDU contends that since Dr. Smith’s opinions are unsubstantiated, and since their witness, Mr. Davidson, who deals with thousands of investors every year, testified that investors do not believe as Dr. Smith testified, the “outlier” theory should have been rejected by us. What is lost in this argument is that both Dr. Smith and Mr. Davidson were each trying to predict the future and what it holds for MDU. The District Court noted that the “outlier” theory seemed to be substantiated by its proponents’ unchallenged statistics. The PSC, faced with the task of determining the future from the evidence of opinions before it, chose the conservative side, setting forth in its findings its reasons for adopting the rationale it followed. MDU, before the District Court, and before us, has the burden to show that PSC abused its discretion in this regard so as to have acted unlawfully or unreasonably. We find no abuse of discretion by PSC. Substantial credible evidence supports its findings, which are therefore not clearly erroneous.

We affirm the District Court on this point of appeal.

III.

MDU issues and sells to investors long-term bonds to finance plant. Under sinking fund provisions, MDU must reacquire and retire some of such bonds before maturity. If the reacquisition occurs at periods of higher interest rates, the bonds are reacquired at a discount from face value. The discount represents a gain to the utility.

PSC ordered that the gain on reacquired debt be amortized over the remaining life of the indebtedness, the amortized amount to reduce interest expense to the utility. PSC further ordered that the unamortized amount be treated as a rate base reduction.

MDU objected to the reduction of rate base by the unamortized gain, and the District Court agreed, holding that such reduction has the effect of confiscation without due process. The District Court held that the gain should be reflected in the periodic reduction of the utilities’ cost of debt, as a “subtraction on the cost of service side of the ledger resulting in a saving to the consumer.”

All parties agree that since the debt represented by such bonds and their interest cost during the existence of the bonds must be paid by the rate payer, any reduction of the bonded debt should be passed on to the rate payer, and not to the shareholders. All parties agree that at the least, the amortized portion of the gain over the life of the remaining indebtedness had the bonds not been reacquired should be used to reduce the utilities’ interest costs (the reference by the District Court to the “cost of service” undoubtedly refers to debt service).

Of course, it would not be improper accounting to recognize the full amount of the gain in the year of acquisition. The parties point out that some regulatory bodies permit that for rate purposes. However, in Re Manufacturers Light and Heat Company (1970), 84 P.U.R.3d 511, the Federal Power Commission (now the Federal Energy Regulatory Commission) found that amortization of such gain over the remaining life of the indebtedness was required to pass the gain on to the consumers. Otherwise, recognizing the full gain in the year of acquisition could result in not passing the benefits to the consumers. The FERC subsequently adopted regulations for accounting which require utilities regulated by it to amortize such gain (or loss) equally on a monthly basis over the remaining life of the respective security issues reobtained. When amortization of the gain is utilized, the amortized amount is subtracted from the test period interest expense in determining the utility’s cost of debt. Consolidated Gas Supply Company v. FERC (4th Cir. 1981), 653 F.2d 129, 135.

In a prior rate case involving MDU, stipulated as part of the record here, PSC accepted the testimony of Dr. Smith on the subject which follows:

“. . . All of the reacquired bonds are sinking fund bonds which must be retired on an annual basis over the life of the debt, according to the sinking fund requirements for each bond. Because of this, the reacquisition and retirement of the debt before its maturity debt is necessary. At the same time, the gain should be credited to customers, just like the interest expense on these bonds has been charged to them while they were outstanding. MDU has not credited the gain to customers . . . The unamortized gain is included on the balance sheet as a deferred credit, just like deferred income taxes, and can be accounted for as a zero-cost capital structure item or as a rate base reduction. I have included it as a zero-cost capital structure item.”

The PSC in that case noted that a rate base reduction was the equivalent of treating the gain as a zero-cost capital item. It stated:

“26. The Commission agrees with Dr. Smith that the unamortized gain has some similarity to deferred taxes for rate making purposes. In previous decisions, the Commission has treated deferred taxes as a rate base reduction rather than as a zero-cost capital item (example: Order No. 4928a in Docket No. 82.4.28). Including deferred taxes and capital structure as zero-cost produces about the same result as deducting the amount from rate base.”

In the case at bar, the rationale of PSC in determining its treatment of the unamortized gain may be found in its finding No. 67, where PSC stated:

“. . . In past cases, when the Commission has treated deferred taxes as a rate base reduction because it is a deferred credit and has no return requirement. Unamortized gain is also a deferred credit. The Commission finds that because of the reacquisition of the debt at a discount, a cash savings to MDU results which is accounted for as a gain. By deducting the unamortized portion of the gain from rate base, the Commission is precluding the Company from earning a return on the unamortized balance of the gain, and, therefore, allowing the consumer to realize full benefit from the transaction. The Commission finds that the unamortized gain is a deferred credit, similar to deferred taxes, for rate making purposes. The Commission determines, therefore, that the unamortized gain on reacquired debt should be treated as an allocated deduction from rate base in the amount of $218,562, using the approved allocation factors.”

It is important to know the reasons given by the District Court for holding PSC decision on unamortized gain confiscatory. Most obviously, the District Court was disturbed that the amortized portion of the gain was treated to reduce interest expense (cost of borrowing) while concurrently the unamortized gain was used to reduce rate base. The court noted ample authority for amortizing the gain as against interest costs, but noted no authority for concurrent rate base reductions. Moreover, the District Court found that the unamortized gain represented a liability that must be discharged over the remaining life of the original obligations; that reacquired bonds were probably replaced by new bonds; that the actual investment in plant was not reduced; and the District Court distinguished between unamortized gain and deferred income taxes, saying that on the one hand deferred income taxes result from monies paid in by consumers, but the gain on reacquired debt comes from investors. A gain on reacquired debt does not represent money actually received by the utility. The District Court determined that to deduct the unamortized gain (the phantom profit) from the rate base while at the same time applying the amortized gain to reduce interest expense compounded the reduction in consumer rates and provided an unjustified windfall for the rate payer at the expense of the utility’s stockholders. MDU relies on these contentions in this appeal.

The arguments of PSC and Counsel on appeal negative the determinations of the District Court and the contentions of MDU. They point to the MDU balance sheet which lists unamortized gain on reacquired debt under the heading of deferred credits. They point out, as did PSC, that deferred credits are routinely subtracted from the rate base. They contend that since all parties agree under Manufacturer’s Light and Heat Company, supra, the gain should be fully refunded to the rate payer, full compensation cannot be accomplished without deduction of the unamortized gain from the rate base.

Counsel cites the example of a utility which reacquires its $1000 bond for $900. The original $1000 received from the investor was presumably utilized by the utility for plant. Counsel argues that unless some adjustment is made to the rate base of the unamortized portion of the gain during the amortization, the utility receives the benefit of a $1000 rate base before it has paid for one.

The question presented to us on this point of appeal appears to be one of first instance. Although substantial authority exists for the application of such gain to the cost of interest amortized over the remaining life of the reacquired debt, neither we nor counsel are able to point to another court wherein the question of amortizing the gain to interest expense has been concurrently ordered with a reduction of rate base by the unamortized gain. We have been informed in the brief of Counsel that the regulatory agency of North Carolina in the Matter of Application of Piedmont Natural Gas Company, in an order dated December 11, 1985, determined that the proper rate-making treatment to be afforded to gain from reacquired debt is to

“(1) amortize the gain from the defeasance as a reduction to the cost of service, over the remaining life of the defeased debt; (2) reduce the company’s rate base by the unamortized gain.”

We do not perceive that the order of PSC on unamortized gain is confiscatory in nature. All agree that the objective must be to return the full amount of gain to the rate payer. Unless a reduction is made to rate base during the period of amortization, the rate payer will be required to pay in that period a return calculated on a rate base which is in fact larger than the cost to the utility, because of the repurchase of the debt at less than face value.

Using the example cited to us in brief, if MDU issued a $1000 bond, and reacquired it for $900 when it had a remaining life of five years, these results under PSC order would follow: In the first year $20 would be deducted from interest expense, and $80 would be reduced from the utility rate base. In the second year, another $20 would be deducted from interest expense, and the rate base reduction would be $60. At the end of five years, the utility would have regained its rate base and the rate payer would have received the full benefit of the $100 gain. In the meantime, during the period of amortization, the rate payer would not be charged with the rate of return on gain not yet refunded to him. The shareholder is not undercompensated during the period of amortization because his rate of return is based on the actual cost of his investment.

By analogy, our statutes command this result. Under Section 69-3-108, MCA, the rate base for utility property can be valued at no more than its original cost.

The PSC order does not mean that MDU must revise its rate base in its regular accounts. An item may be treated differently for accounting and rate-making purposes. Public Systems v. FERC (D.C. Cir. 1979), 606 F.2d 973.

If the gain were recognized and used to reduce interest expense in the year the gain was realized, there would be no need, of course, for treatment of the unamortized gain. It is because good rate-making practice requires the gain to be amortized over the remaining life of the indebtedness, and the amortized amount subtracted from the test period interest expense (Consolidated Gas Supply Company v. FERC, supra), that it then becomes necessary to consider the proper method of treating the unamortized gain.

The difference between our view and that of the District Court, and the intensity of positions taken by the parties in their briefs to this Court all indicate strong arguments that can be made for both sides of this issue. In such a case, it behooves courts to defer to the expertise of the regulatory commission whose duty is the fair protection of all the parties, the rate payers, the investors, and the shareholders of the utility. We remind ourselves that:

“It follows that the responsibilities of a reviewing court are essentially three. First it must be determined whether the commission’s order, viewed in light of the relevant facts and of the commission’s broad regulatory duties, abused or exceeded its authority. Second, the court must examine the manner in which the commission has employed the methods of regulation which it has itself selected, and must decide whether each of the order’s essential elements is supported by substantial evidence. Third the court must determine whether the order may reasonably be expected to maintain financial integrity, attract necessary capital, and fairly compensate investors for the risks they have assumed, and yet provide appropriate protection to the relevant public interests, both existing and foreseeable. The court’s responsibility is not to supplant the Commission’s balance of these interests with one more nearly to its liking, but instead to assure itself that the Commission has given reasoned consideration to each of the pertinent factors. Judicial review of the Commission’s orders will therefore function accurately and efficaciously only if the Commission indicates fully and carefully the methods by which, and the purposes for which, it has chosen to act, as well as its assessment of the consequences of its orders for the character of future development of the industry . . . .”

Permian Basin Area Rate Cases (1968), 390 U.S. 747, 792, 88 S.Ct. 1344, 1372-73, 20 L.Ed.2d 312, 350.

We determine that PSC’s order is not in fact confiscatory as to the utility or its shareholders and is an order reasonably devised to produce an equitable result for the rate payers. In the circumstances, therefore, we reverse the order of the District Court on this point of appeal.

IV.

A final issue raised by MDU is that this Court should order a refund or surcharge to make MDU whole. The issue, of course, depends on the success of MDU’s appeal. In view of our holdings here, we withhold any comment on the propriety of the issue.

Affirmed in part and reversed in part.

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


source: Caselaw Access Project

author: MR. JUSTICE WEBER MR. JUSTICE HARRISON,

license: Public Domain

text:
    RALPH BAERTSCH; Terry A. Browne and Susan G. Browne, husband and wife; Ingram-Clevenger, Inc., a Montana CORPORATION; NORMA J. Andriolo; Clinton H. Jenks and Victoria J. Jenks, husband and wife; George Randall Fraser and Mary E. Fraser, husband and wife; Gerald Vern Evans and Yvone J. Evans, husband and wife; George A. Algard and Susan E. Algard, husband and wife; Harold R. Cranmer and Janet Cranmer, husband and wife; Charles J. Kassner; Carl Samuel Peil and Pamela A. Peil, husband and wife; Forrest A. Baertsch; McHugh Land & Livestock Co., a Montana corporation; Peter J. McHugh, Jr. and Mary J. McHugh, husband and wife; David B. Hahn and Carol W. Hahn, husband and wife, Appellants, v. COUNTY OF LEWIS AND CLARK, a political subdivision of the State of Montana, and all other persons unknown, claiming or who might claim any right, title, estate or interest in, or lien or encumbrance upon, the real property Described in the Complaint, or any thereof, adverse to appellants’ ownership, or any cloud upon appelants’ title thereto, whether such claim or possible claim be present or contigent, including any claim or possible claim of dower, inchoate or accrued, respondents.
    No. 85-360.
    Submitted on Briefs Aug. 7, 1986.
    Decided Sept. 12, 1986.
    Rehearing denied Nov. 25, 1986.
    727 P.2d 504.

      MR. JUSTICE HARRISON dissented and filed opinion, in which MR. JUSTICE HUNT joined.
    Smith Law Firm, P.C., Robert J. Sewell, Jr., Helena, for appellants.

      Mike McGrath, Co. Atty., Peter Funk, Deputy Co. Atty., Helena, for respondents.
   MR. JUSTICE WEBER

delivered the Opinion of the Court.

This is an appeal from the judgment of the District Court of the First Judicial District, in which the court dismissed the landowners’ complaint and declared Lewis and Clark County the owner of the 100 foot right-of-way which constitutes McHugh Drive near Helena, Montana. We reverse and remand.

The controlling issue is whether the District Court erred in dismissing the action as barred. The other issues remain to be decided by the District Court on remand.

The facts in the present case are basically set forth in the recent case of Ingram-Clevenger, Inc. v. Lewis and Clark County (Mont. 1981), 636 P.2d 1372, 38 St.Rep. 1696. In Ingram-Cleuenger, all of the landowners whose property is adjacent to McHugh Drive petitioned the Commissioners of Lewis and Clark County to abandon 40 feet of the right-of-way, that being 20 feet on either side of the Drive. The landowners contended that the statutory provision for abandonment of county roads was mandatory where all property owners petitioned. The County Commissioners refused to abandon any part of the Drive. The landowners were granted a writ of mandamus by the District Court which directed the County Commissioners to partially abandon McHugh Drive. We concluded that the authority to abandon on the part of the County Commissioners was discretionary and that mandamus did not lie. As a result, in IngramCleuenger, no part of McHugh Drive was abandoned. The judicial portion of the proceedings in Ingram-Cleuenger were brought for judicial review of the administrative actions of the Lewis and Clark County Commissioners under the Montana Administrative Procedures Act, and for a peremptory writ of mandamus directed to the Commissioners. In the court proceedings, a petition was filed by the landowners, the administrative record was submitted by stipulation, and briefs and oral argument were presented by the parties. No answer or response was filed by the County and no evidence was submitted by the landowners on the question of ownership of the Drive. The only issues in Ingram-Cleuenger were the propriety of the decision by the County Commissioners not to abandon a portion of McHugh Drive, and the appropriateness of mandamus.

After Ingram-Cleuenger came down, essentially the same landowners filed their .complaint in the present action. Their basic contentions were that McHugh Drive in its entirety was never properly dedicated as a county road, the County abandoned all that portion of the road right-of-way not actually used for roadway and borrow pits, the landowners have obtained title to the disputed portion of the right-of-way by adverse possession, and the County’s claim was barred by equitable estoppel. The County raised the defense of res judicata as well as other theories of defense. The District Court concluded that res judicata was applicable, and denied the prayer of the landowners, quieting title in the County to the 100 foot right-of-way. The landowners appeal.

I.

Did the District Court err in dismissing the action as barred?

The District Court held that Ingram-Clevenger barred this action and that the affirmative defenses of res judicata, the doctrine of merger, the rule against splitting causes of action, and collateral estoppel were well taken. This Court has previously held that:

“Both the rule against splitting causes of action and the doctrine of merger are inextricably related to the principles of res judicata; and the application of either to bar a subsequent action depends upon the existence of a ‘valid and final’ prior judgment. As was stated in Mervin v. F.T.C. (D.C. Cir. 1978), 591 F.2d 821, 830:
“ ‘Principles of res judicata prevent relitigation not only on the grounds or theories actually advanced, but also on those which could have been advanced in the prior litigation.’ (Citations omitted.)” Hughes v. Salo (Mont. 1983), [203 Mont. 52,] 659 P.2d 270, 274, 40 St.Rep. 289, 295. Counsel and the trial judge did not specifically address the defenses of merger, rule against splitting causes of action, and collateral estoppel separate from the defense of res judicata. As indicated in the foregoing quotation, we conclude that the doctrine of merger and the rule against splitting causes of action are inextricably related to the principles of res judicata. So far as collateral estoppel is concerned, no facts have been presented suggesting a basis for estoppel separate from the other affirmative defenses.

We have applied a four element test in determining whether or not a second action is barred under these circumstances, and we consider the same at the present time with regard to all of such affirmative defenses: first, the parties or their privies must be the same; second, the subject matter of the action must be the same; third, the issues must be the same; fourth, the capacities of the persons must be the same in reference to the subject matter and to the issue between them. See State ex rel. Sullivan v. School District (1935), 100 Mont. 468, 50 P.2d 252; Smith v. County of Musselshell (1970), 155 Mont. 376, 472 P.2d 878; S-W Co. v. John Wight, Inc. (1978), 179 Mont. 392, 587 P.2d 348; Harris v. Harris (Mont. 1980), 616 P.2d 1099, 37 St.Rep. 1696.

The key element here is whether the issues are the same. In Bran-non v. Lewis and Clark County (1983), 143 Mont. 200, 387 P.2d 706, this Court approved the following language from Phoenix Mutual Life Insurance Co. v. Brainard (1928), 82 Mont. 39, 44, 265 P. 10, 12:

“ ‘Unless it clearly appears that the precise question involved in the second case was raised and determined in the former, the judgment is no bar to the record action.’ “

Brannon, 143 Mont. 200, 207, 387 P.2d 706, 710-11.

In Ingram-Clevenger, the fundamental issue was whether or not all landowners could compel the County to partially abandon McHugh Drive. This Court concluded that the controlling statutes were discretionary and affirmed the denial of abandonment by the County Commissioners. As a result, the District Court decision in IngramClevenger granting mandamus to the landowners was vacated.

In the present case the essential claims of the landowners are that: (1) the instruments granting a 100 foot right-of-way to the County in 1890 were conveyances and were not properly recorded or indexed; (2) the County Commissioners failed to follow the statutory procedure in granting the petition for roadway in 1890; (3) the County abandoned all of that portion of the right-of-way not actually used for the roadway and borrow pits; (4) the landowners have obtained the disputed portion of the right-of-way by adverse possession; (5) the doctrine of equitable estoppel bars the County’s claim to the 100 foot right-of-way; and (6) the doctrine of res judicata bars the claim of the County as to some of the landowners.

We conclude that the issues in the two cases are not the same. In Ingram-Clevenger the request of the landowners was for the vacation of a portion of McHugh Drive under the statutory authority granted to the County Commissioners. The title or ownership to the Drive was not in any manner involved in that proceeding. In contrast, the essential claims in the present case are issues relating to the title to the McHugh Drive roadway itself. Such issues could not have been properly presented as a part of the proceeding for vacation of McHugh Drive. The Board of County Commissioners has no authority to adjudicate title. Under the Administrative Procedures Act, as stated in Ingram-Clevenger, the authority of the District Court is limited to a consideration of the proceedings before the County. We conclude that the issues of the present action are not the same issues as in Ingram-Clevenger. As a result the present action is not barred under a theory of res judicata, merger, the rule against splitting causes of action or the doctrine of equitable estoppel.

We reverse the District Court and remand for trial of the issues on the merits.

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

MR. JUSTICE HARRISON,

dissenting.

I dissent.

In Ingram-Clevenger we were asked to decide whether county commissioners are statutorily mandated to abandon county roads when petitioned by landowners, pursuant to Section 7-14-2601 et seq., MCA. We found the authority discretionary. The commissioners concluded abandonment of 40 feet of the right-of-way of McHugh Lane was not in the best interests of the county roads and the county road districts.

Regrettably the county did not move for summary judgment based on the doctrine of res judicata. It did, however, raise the doctrine as a defense, which I believe is well taken. Certainly access to the courts to pursue a lawful claim is central to our constitutional system. Of equal importance to the functioning of the system, however, is the notion that at some point litigation must come to an end. In this case, that point was reached when we decided IngramClevenger.

The practice of relitigation is condemned by the United States Supreme Court. U.S. v. California and Oregon Land Co., (1904), 192 U.S. 355, 24 S.Ct. 266, 48 L.Ed. 476, and Grubb v. Public Utilities Commission of Ohio (1930), 281 U.S. 470, 50 S.Ct. 374, 74 L.Ed. 972. In the Oregon Land case, the United States brought an action claiming certain patents it had granted to the California and Oregon Land Co. were void because of a statute. The court ruled against the United States. On the second try it claimed the statutes were void because some of the property was on Indian Tribal land. Mr. Justice Holmes, writing for the majority, stated:

“The whole tendency of our decisions is to require a plaintiff to try his whole cause of action and his whole case at one time. He cannot even split up his claim, [citing cases] and, a fortiori, he cannot divide the grounds of recovery.”

Oregon Land, 192 U.S. at 358, 24 S.Ct. at 267, 48 L.Ed. at 479.

In the Grubb case the plaintiff unsuccessfully sought to restrain, through the state courts, enforcement of an order allowing a license to operate a bus on all but a tiny portion of a bus route. Plaintiff then brought suit in federal district court alleging the order violated the Commerce Clause of the United States Constitution. The suit was dismissed. The United States Supreme Court, in upholding the dismissal said:

“[A] judgment on the merits in one suit is res judicata in another where the parties and subject-matter are the same, not only as respects matters actually presented to sustain or defeat the right asserted, but also as respects any other available matter which might have been presented to that end.”

Grubb, 281 U.S. at 479, 50 S.Ct. at 378, 74 L.Ed. at 979.

The case at bar parallels Grubb. The appellants here seek to gain title to the land bordering McHugh Lane. That was the objective in Ingram-Clevenger. The parties in this case were also parties in Ingram-Clevenger. All theories of recovery should have been raised in the first action.

We consistently have applied a four element test to determine whether or not a second action is barred:

“First, the parties or their privies must be the same; second, the subject-matter of the action must be the same; third, the issues must be the same, and must relate to the same subject-matter; fourth, the capacities of the persons must be the same in reference to the subject-matter and to the issues between them . . .”

State ex rel. Sullivan v. School District (1935), 100 Mont. 468, 472, 50 P.2d 252, 253. See also Harris v. Harris (Mont. 1980), 616 P.2d 1099; S-W Co. v. John Wight, Inc. (1978), 179 Mont. 392, 587 P.2d 348; Smith v. County of Musselshell (1970), 155 Mont. 376, 472 P.2d 878.

Merely a cursory examination of the four elements shows the parties or their privies are the same. Certainly the subject matter, a 20 foot-wide strip of land on either side of McHugh Lane, is the same. The capacity of the persons in reference to McHugh Lane is unchanged. The only element of controversy is whether the issue is the same.

A careful analysis shows the justicible issue to be the same. Appellants contend McHugh Lane was never properly dedicated a county road, despite Ingram-Clevenger, which says, “McHugh Lane was a properly dedicated county road with a width of 100 feet”, 636 P.2d at 1373. Judge Loble’s well-phrased order is equally clear:

“The statutes concerning abandonment of county roads, Section 7-14-2601 et seq., MCA, contemplate that there must be a county road in existence before it can be abandoned. How can it be otherwise? A justicible controversy could not have existed in Ingram-Clevenger if McHugh was not an actual county road, 100 feet wide.”

Clearly there is a road, 100 feet wide.

Undaunted, the landowners now attempt to cloak themselves in a different theory of recovery, arguing the facts and purposes for which the first action was brought constitute separate claims and res judicata does not apply. This seems like a case of deja vu.

The facts are these: In 1980 the landowners petitioned the county commissioners to abandon 20 feet on either side of McHugh Lane. The county commissioners refused. An action for mandamus was issued wherein the district court directed the county commissioners to abandon part of the road. We reversed, holding the statutes under which abandonment is accomplished are discretionary, precluding mandamus. The question is, what was the purpose or objective of the landowners’ first action? Certainly it was to force the county commissioners to abandon 20 feet on either side of McHugh Lane, not to have a determination of whether an action by the county commissioners was discretionary or mandatory.

In 1982, the same property owners brought an action claiming there really was no properly dedicated road, and even if there were a properly dedicated road, 20 feet on either side should have been declared not to be part of that road. Notwithstanding the issues are phrased differently this time around, the substance of the landowners’ contention is they want the county commissioners to abandon 20 feet on either side of McHugh Lane. A cause of action cannot be split in an attempt to prevail under a different theory the second time around. Hughs v. Salo (Mon. 1983), [203 Mont. 52,] 659 P.2d 270, 275, 40 St.Rep. 289, 295-96.

I would affirm.

MR. JUSTICE HUNT joins in the foregoing dissent of MR. JUSTICE HARRISON.


author: MR. JUSTICE WEBER MR. JUSTICE SHEEHY, MR. JUSTICE GULBRANDSON,

text:
    STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff and Respondent, v. GRAHAM STUART TAYLOR, David Allen Callaway, Susan Johanna Hanson, Personal Representative of the Estate of Scott Erland Hanson, deceased and Timothy E. Moss, Defendants and Appellants. STATE FARM FIRE AND CASUALTY COMPANY v. SUSAN JOHANNA HANSON, Personal Representative of the Estate of Scott Erland Hanson, Deceased, and Timothy E. Moss, Defendants and Appellants.
    No. 86-03.
    Submitted July 30, 1986.
    Decided Sept. 12, 1986.
    Rehearing Denied Oct. 21, 1986.
    725 P.2d 821.

      MR. JUSTICE SHEEHY filed specially concurring opinion.
    MR. JUSTICE GULBRANDSON filed dissenting opinion.
    Poore, Roth & Robinson, C. Richard Anderson and Robert Poore both argued, Butte, for defendants and appellants.
    Morrow, Sedivy & Bennett, Terry Schaplow argued, Bozeman, for plaintiff and respondent.
   MR. JUSTICE WEBER

delivered the Opinion of the Court.

Appellants were involved in an automobile accident. The District Court for the Eighteenth Judicial District granted the motion of State Farm Fire and Casualty Company (State Farm) for summary judgment. It held that State Farm insurance policies held by Mr. Taylor and Mr. Hanson did not provide uninsured motor vehicle coverage for this accident. We reverse.

The issues are:

1. Did the State Farm policies provide uninsured motor vehicle coverage under the circumstances of this case?

2. Is State Farm absolved of liability because the insured violated the “no consent to settlement” exclusion of the insurance policies?

Mr. Hanson and Mr. Taylor were insured under State Farm automobile liability insurance policies. Mr. Taylor was driving a vehicle in which Mr. Hanson and Mr. Callaway were passengers. Their vehicle was rearended at a high rate of speed by Mr. Moss, who was driving a truck owned by yet another person. As a result of the accident, Mr. Hanson died and Mr. Callaway and Mr. Taylor were severely injured. Mr. Callaway, Mr. Taylor, and Mr. Hanson’s family sued Mr. Moss, and judgments were rendered. The vehicle Mr. Moss was driving was uninsured, but he personally had liability insurance. The victims settled with Mr. Moss’ insurer, which paid to his policy limit, but the judgments remain partially unsatisfied.

In this action, State Farm obtained a judgment that it was not required to apply Mr. Taylor’s and Mr. Hanson’s uninsured motor vehicle coverage to the unsatisfied portions of the judgments. The District Court held that the State Farm uninsured motor vehicle coverage did not apply where the offending vehicle was uninsured but its driver had insurance.

I.

Did the State Farm policies provide uninsured motor vehicle coverage under the circumstances of this case?

Uninsured motor vehicle insurance coverage must be offered by insurers in Montana under Section 33-23-201, MCA:

“No automobile liability . . . policy ... for bodily injury . . arising out of the ownership, maintenance, or use of a motor vehicle shall be delivered ... in this state, with respect to any motor vehicle registered ... in this state, unless coverage is provided [in limits of $25,000 per person as set forth in Section 61-6-103, MCA,] for the protection of persons insured . . . who are legally entitled to recover damages from owners or operators of uninsured motor vehicles . . .” There is no statutory definition of uninsured motor vehicle. Montana also requires by statute that vehicles registered and operated in the state have liability insurance coverage. Section 61-6-301, MCA.

The State Farm policy provision at issue is:

“Sec. Ill — Uninsured Motor Vehicle - Coverage U. We will pay damages for bodily injury an insured is legally entitled to collect from the owner or driver of an uninsured motor vehicle. The bodily injury must be caused by accident arising out of the operation, maintenance or use of an uninsured motor vehicle.
“Uninsured Motor Vehicle — means:
“1. a land motor vehicle, the ownership, maintenance or use of which is:
“a. not insured or bonded for bodily injury liability at the time of the accident . . .”

State Farm argues that the plain meaning of the policy is that when the use of an offending motor vehicle is insured (as was Mr. Moss’ use of the offending vehicle), the uninsured motorist coverage does not apply. State Farm has cited a number of cases in which it has been held that a vehicle is not an uninsured motor vehicle for purposes of insurance coverage if either the driver or the owner has insurance. See, e.g. Sorbo v. Mendiola (Minn. 1985), 361 N.W.2d 851; Stordahl v. Government Emp. Ins. Co. (Alaska 1977), 564 P.2d 63; Citizens Ins. Co. of America v. Povey (Mich.App.1982), 319 N.W.2d 341. In none of these cases was the policy provision the same as the provision in this case. Since we conclude the language of this policy is critical, the cases cited by State Farm are not decisive.

The appellants contend that under the policy, a motor vehicle is uninsured if the ownership, maintenance or use is not insured for bodily injury. In this instance, the ownership was not insured. As a result there is a reasonable contention that under the express provision of the policy, because the ownership was not insured for bodily injury, this is an uninsured motor vehicle. The first sentence of the provision says that State Farm will pay damages an insured is legally entitled to collect from the owner or driver of an uninsured motor vehicle. If this is an uninsured motor vehicle because of the absence of insurance covering ownership, then the first sentence requires State Farm to pay its uninsured coverage because the driver of the uninsured motor vehicle caused the damages.

The Washington courts have examined an insurance policy provision comparable to this one. That policy defined an uninsured motor vehicle as one “with respect to the ownership, maintenance or use of which there is ... no bodily injury insurance . . .” Finney v. Farmers Ins. Co. (Wash. App. 1978), 586 P.2d 519, aff’d, 600 P.2d 1272. The court held that the policy was ambiguous and the provision was subject to more than one interpretation because of the use of the disjunctive “or,” and that the clause could be interpreted to mean that a “vehicle is uninsured if there is no insurance as to either its ownership or its maintenance or its use.” Finney, 586 P.2d at 526. We agree with that rationale.

“An ambiguous provision in an insurance policy is construed against the insurance company. A clause in an insurance policy is ambiguous when different persons looking at it in the light of its purpose cannot agree upon its meaning, [citation omitted.] If the language is unambiguous, and subject to only one meaning, there is no basis for the interpretation of policy coverage under the guise of ambiguity.”

Bauer Ranch v. Mountain W. Farm Bur. Mut. Ins. (Mont. 1985), [215 Mont. 153,] 695 P.2d 1307, 1309, 42 St.Rep. 255, 257. This policy does not clearly state whether it provides uninsured motor vehicle coverage when the driver is insured but the ownership of the vehicle is not. We conclude that the policy is ambiguous. We therefore interpret the policy to provide coverage. We hold that the State Farm policies provided uninsured motor vehicle coverage under the circumstances of this case.

II

Is State Farm absolved of liability because the insured violated the “no consent to settlement” exclusion of the insurance policies?

State Farm argues that even if this Court concludes the insurance policies provided coverage under the uninsured motor vehicle provisions, there is no insurance coverage because the appellants settled with Mr. Moss’s insurance company without State Farm’s consent. State Farm cites the policy provision that:

“THERE IS NO COVERAGE:
“1. FOR ANY INSURED WHO, WITHOUT OUR WRITTEN CONSENT, SETTLES WITH ANY PERSON OR ORGANIZATION WHO MAY BE LIABLE FOR THE BODILY INJURY.” This Court has held that an insurance policy clause which prohibited the insured from obtaining a judgment against liable parties is void. In Dominici v. State Farm Mutual Automobile Ins. Co. (1964), 143 Mont. 406, 408 and 411-12, 390 P.2d 806, 807 and 809, this Court stated:
“The insurance contract further contained an exclusion whereby the above-mentioned coverage would not apply “(a) to bodily injury to an insured . . . with respect to which such insured, his legal representative or any person entitled to payment under this coverage [if he or they] shall, without written consent of the company, make any settlement with or prosecute to judgment any action against any person or organization who may be legally liable therefor; . . . (Emphasis supplied.)
“The problem to be resolved here is what effect, if any, did the judgments taken by each plaintiff have upon the rights and obligations of the insured and insurer in light of the ‘no judgment’ clause of the insurance contract? State Farm contends that no action can now lie against them because there has not been full compliance with the terms of the policy. Plaintiffs rely upon the prohibition contained in R.C.M. 1947, Section 13-806. This statute states:
“ ‘Every stipulation or condition in a contract by which any party thereto is restricted from enforcing his rights under the contract, by the usual proceedings in the ordinary tribunals ... is void.’
“It is plaintiffs’ position that State Farm agreed to pay all sums plaintiffs were legally entitled to recover (up to and including the limits of the policy coverage) from an uninsured motorist; and, the ‘no judgment’ clause would restrict plaintiffs from enforcing these rights. Therefore, this clause in the policy would be void under section 13-806.
“We hold with the contentions of plaintiffs . . . .”

State Farm argues that the no-consent-to-settlement clause does not restrict insureds’ access to the courts and thus does not violate the Dominici rule. Instead, State Farm argues, it protects the insurer’s right of subrogation. It is technically correct that the holding in Dominici was that the ‘no judgment’ provision unlawfully restricted the plaintiffs access to the courts. A ‘no settlement’ clause does not directly limit access to the courts. However, the rationale in Dominici was that the ‘no judgment’ clause would restrict the insureds from enforcing their rights under the insurance contract.

“This Court does not support provisions placed on uninsured motorist coverage which restrict or thwart available liability coverage that the insured would be entitled to in an accident.” Guiberson v. Hartford Cas. Ins. Co. (Mont. 1985), [217 Mont. 279,] 704 P.2d 68, 74, 42 St.Rep. 1196, 1203. In Guiberson, this Court nullified an insurance policy provision which would have denied uninsured motor vehicle coverage where the uninsured driver did not have the insured’s consent to operate the vehicle. We conclude that enforcement of the no-consent-to-settlement clause here would result in a backing away from the mandatory offering requirement of the uninsured motor vehicle statute. It would also place control of efforts to collect from the responsible party in the hands of the insurer.

The central purpose of the clause is to provide uninsured motor vehicle coverage for which the insured has paid a premium. The insurance company is obligated to furnish uninsured motor vehicle coverage, whether it can obtain subrogation or not. While we do not deny the insurer’s right to subrogation, we will not allow the right to subrogation to negate the required offering of uninsured motor vehicle coverage. Under these circumstances, we conclude that the no-consent-to-settlement clause is void.

We therefore reverse the decision of the District Court.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, MORRISON and HUNT concur.

MR. JUSTICE SHEEHY,

specially concurring:

I concur in the foregoing opinion and wish to add other reasons for my concurrence in the result.

There are two types of uninsured motor vehicle statutes. One type is called the mandatory insured motorist statute, wherein it is required that every motor vehicle policy of insurance includes such coverage. Seventeen states have this type of coverage. The other type of uninsured motorist coverage is the “mandatory offerings statute” of which Montana’s statute is typical. According to 1 Widiss, Uninsured and Underinsured Motorist Insurance Section 2.5 (2d ed. 1985), there are thirty-three states which mandate that uninsured motorist coverage be offered in every policy of liability insurance in the state.

The second thing to note is that there is a significant difference between most of the statutes requiring uninsured motorist coverage and the statute that is provided in Montana. Most of the statutes of the other states refer to the “uninsured motorist” but Montana’s statute refers to the uninsured motor vehicle. The pertinent language in Section 33-23-301, MCA is:

“No automobile liability . . . policy shall be delivered or issued for delivery in this state . . . unless coverage is provided therein or supplemental thereto ... for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles because of bodily injury, sickness or disease, including death, resulting therefrom.” (Emphasis supplied.)

The term “uninsured motor vehicles” is unqualified in the statute, is unambiguous, and needs no interpretation. It is a matter of public policy that such coverage be mandatorily offered and if the coverage offered is less than what is mandated by our statute, the public policy requirement has not been met. Section 33-23-201, MCA.

An example of a different kind of uninsured motorist statute can be found in Kansas. There, the provisions of Kan. Stat. Ann. Section 40-284(a) (Supp. 1985) state:

“No automobile liability insurance policy . . . shall be delivered or issued for delivery in this state . . . unless the policy contains or has endorsed thereon, a provision ... for payment of part or all sums which the insured or the insured’s legal representative shall be legally entitled to recover as damages from the uninsured owner or operator of the motor vehicle because of bodily injury, sickness or disease, including death, resulting therefrom, sustained by the insured, caused by accident and arising out of ownership, maintenance or use of such motor vehicle . . (Emphasis supplied.)

It requires no great intellectual skill to determine that the Kansas statute is directed to the status of the driver or operator as uninsured, whereas the Montana statute is directed to the status of the uninsured motor vehicle. The difference is critical in this case, because although the use of the uninsured motor vehicle in this case was insured by the driver’s separate insurance policy, and thus would qualify under the Kansas statute, the Montana statute has no reference to ownership, maintenance or use and such terms cannot be used to diminish the mandated offered coverage that Montana requires under Section 33-23-201, MCA.

As to the application of the statute therefore, I would hold in this case that under a Montana statute, if the motor vehicle itself is uninsured, then the uninsured motor vehicle coverage of the other vehicles attaches and coverage is extended to its insureds under the uninsured motor vehicle coverage.

There are other results commanded by our decision here which are not discussed for the reason that they have not yet been before the Court. For reasons that should appear clear to counsel on remand, it seems to me that the medical payments coverage should be reduced by the amount recovered under the liability insurance policy that was issued to the driver to the extent that such reduction does not reduce the recovery from State Farm below the sum of $55,000. In other words, the $100,000 received from the insurance on the driver would be used to reduce the medical payments coverage in this State Farm policy.

MR. JUSTICE GULBRANDSON,

dissenting.

I respectfully dissent.

The majority cite only a Washington Supreme Court opinion wherein a comparable insurance policy provision was held to be ambiguous. Finney v. Farmers Ins. Co. (Wash. 1979), 600 P.2d 1272.

The majority agreed with the rational expressed therein, and I perhaps would do the same if this case were to be decided under Washington law. The author of Finney clearly indicated that that opinion does not cover the factual situation before this Court:

“ . . . nor are we confronted with a factual situation in which the only responsible party was insured under a policy which extended coverage for the accident in question. Here there are two responsible parties, one of which was uninsured, the other underinsured. The use of the word ‘or’ is disjunctive. 1A C. Sands, Sutherland Statutory Construction Section 21.14 (4th ed. 1972). Childers v. Childers, 89 Wash.2d 592, 575 P.2d 201 (1978). We are persuaded that the legislature intended to provide uninsured motorist protection where either one of the responsible parties lacks insurance coverage. (Emphasis added.)
“Under Washington law, where the ownership of an automobile is admitted and the owner is a passenger, there arises a presumption that, at the time of the accident, the driver was operating the vehicle as the agent or servant of the owner. (Citing cases.) The owner is vicariously liable for the driver’s negligence. Moffitt v. Krueger, supra; Coins v. Washington Motor Coach Co., 34 Wash.2d 1, 208 P.2d 143 (1949).”

Finney, 600 P.2d at 1275-1276.

Finney cited Allstate Ins. Co. v. Chastain (Fla. 1971), 251 So.2d 354, as authority for its position, but correctly stated that in that case the uninsured owner was liable under Florida’s dangerous instrumentality doctrine.

In this case, there is no suggestion that the uninsured owner was a responsible party and I therefore consider the Finney citation to be inadequate authority.

The trial judge, in granting summary judgment for the respondent, relied upon the rationale expressed in Sorbo v. Mendiola (Minn. 1985), 361 N.W.2d 851, and stated:

“I frankly have been tempted by the plight of the defendants to hold that the policies in question are ambiguous, thereby granting the benefit of the doubt to the defendants. But I find it is sufficiently clear that the liable person, the driver Moss, has insurance and the defendants were not struck by an uninsured motorist.”

In my view, the policy definition of “uninsured motor vehicle” as a land motor vehicle, the use of which is not insured, is not ambiguous and I would affirm the order of the trial judge.


author: MR. JUSTICE HUNT

text:
    STATE OF MONTANA, Plaintiff and Respondent, v. PHYLLIS CRUMLEY, Defendant and Appellant.
    No. 86-09.
    Submitted on Briefs July 10, 1986.
    Decided Sept. 16, 1986.
    725 P.2d 214.
    O’Brien & Conrad, Barbara J. Conrad, Missoula, for defendant and appellant.
    Mike Greely, Atty. Gen., Kathy Seeley, Asst. Atty. Gen., Helena, Robert L. Deschamps, III, Co. Atty., Missoula, for plaintiff and respondent.
   MR. JUSTICE HUNT

delivered the Opinion of the Court.

This is an appeal from a conviction for felony theft of food stamps by making false representations. After a trial in the District Court of the Fourth Judicial District, Missoula County, the defendant was sentenced to five years in prison, and the sentence was suspended on condition she pay $1,808.00 in restitution to SRS. She appeals. We affirm.

Appellant raises two issues:

1. Whether or not there is sufficient evidence to conclude beyond a reasonable doubt that the defendant did not maintain a “separate household” in accordance with the governing regulations?

2. Even if it is concluded that the defendant did not in fact maintain a “separate household” as defined, was there sufficient evidence to conclude beyond a reasonable doubt that the defendant knowingly made a false statement or representation that she maintained a “separate household”?

The District Court found that from October 12, 1982 through May 31, 1983, the defendant applied for and received and used food stamps in excess of $300 from the Montana Department of Social and Rehabilitation Services. To receive these food stamps, the defendant represented that she, her husband David, her child, her sister-in-law Cindy Heminger and her child maintained a separate household in the form of an upstairs apartment in her parent’s home. These representations enabled the defendant to receive $50 a month more in food stamps than they would have been entitled to if they were living in their parent’s household. The District Court found the defendant and her parents were not in separate households because: they all lived in a single family dwelling containing one kitchen located downstairs, the area defendant claimed was an upstairs apartment were upstairs bedrooms, with no tables, dishes, pots, pans or appliances, defendant and her family never paid rent for the bedrooms, when defendant and her sister-in-law learned of a planned home visit to verify that a separate household existed they withdrew their application for further food stamps, and when the home visit occurred SRS employees found no evidence of a separate apartment but only two bedrooms and a hallway.

As to the first issue, defendant argues there is insufficient evidence to show defendant did not maintain a “separate household” as required by SRS regulations. Defendant maintains that she purchased her own food and prepared her own meals, separate from those of their parents. She alleges that she used an electric frying pan, a crockpot, a popcorn popper, and a coffee pot and ate on folding chairs. She maintains that the appliances she used were not immediately noticeable because the items were unplugged and stored away when not in use because of the children. She contends she was maintaining a separate household within the SRS definition.

We begin with the test to determine if there is sufficient evidence to support the verdict: whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt. Jackson v. Virginia (1979), 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560, 573; State v. McHugh (Mont.1985), [215 Mont. 296,] 697 P.2d 466, 469, 42 St.Rep. 371, 374. The elements of the crime here are set out in Section 53-2-107, MCA and Section 45-6-301(4)(a), MCA.

Section 53-2-107, MCA, provides:

“Whoever knowingly obtains by means of a willfully false statement, representation, or impersonation or other fraudulent devise public assistance to which he is not entitled is guilty of theft as provided in 45-6-301.”

Section 45-6-301(4)(a), MCA, provides:

“(4) A person commits the offense of theft when he purposely or knowingly obtains or exerts unauthorized control over any part of any public assistance provided under Title 53 by a state or county agency, regardless of the original source of assistance, by means of:
“(a) a knowingly false statement, representation, or impersonation

As we review this issue, we must accept the version of the facts as found by the District Court judge. We cannot consider disputed questions of fact on appeal, nor can we weigh the credibility of the witnesses or their testimony. State v. Green (Mont. 1984), [212 Mont. 20,] 685 P.2d 370, 371-72, 41 St.Rep. 1562, 1564; State v. Shurtliff (1981), 195 Mont. 213, 215-16, 635 P.2d 1294, 1296; State v. Crockett (1966), 148 Mont. 402, 406-07, 421 P.2d 722, 724. The food stamp regulation which defined household stated:

“[A] household may be composed of any of the following individuals or groups:
“1. an individual living alone;
“2. an individual living with others but who customarily purchases food and prepares meals for home consumption separate and apart from the others;
“3. a group of individuals who live together and customarily purchase food and prepare meals together for home consumption.
“SEPARATE HOUSEHOLD STATUS CANNOT BE GIVEN — in no event shall separate household status be granted to:
“1. Children under 18 years of age under the parental control of a member of the household;
“2. Either parents living with their children or children living with their parents unless at least one parent is 60 years of age or older;”

The record shows the defendant’s parents with whom she lived were at that time, 47 and 45 years old.

The record shows that several SRS employees reviewed the regulations with the defendant and explained that parents and children must live in totally separate apartments to be certified separately.

In light of the evidence in the record, we hold there was sufficient evidence to conclude beyond a reasonable doubt that defendant did not maintain a separate residence.

Second, defendant argues that there was not sufficient evidence to conclude that she made a knowing false statement. She contends that Cindy Heminger, her sister-in-law, and Katherine Fairbanks, her mother, were responsible for creating the impression that there was a separate household. She also contends she did not know what a separate household was, therefore she could not make an intentionally false statement about how her living situation falls within the concept.

Intent is normally inferred from conduct and surrounding circumstances. State v. Pierce (1982), 199 Mont. 57, 647 P.2d 847; State v. Weaver (1981), 195 Mont. 481, 637 P.2d 23. In this case there is evidence in the record that several SRS employees explained the concept to her and interviewed her as to whether there was indeed a separate household. There is also in the application for food stamps signed by the defendant, a section which asks the applicant to list all members of the household. In a large box, in capital letters is the following statement: “INCLUDE AS HOUSEHOLD MEMBERS, THE FOLLOWING PEOPLE WHO LIVE TOGETHER: Parents and children under age 60.” (Emphasis in original.)

Given the evidence in the record, we find there was sufficient evidence to conclude the defendant knowingly made a false statement in order to obtain public assistance.

We affirm the conviction and sentence below.

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


author: MR. JUSTICE HARRISON

text:
    THOMAS J. HELEHAN, Plaintiff and Appellant, v. O.M. UELAND, Defendant and Respondent.
    No. 86-15.
    Submitted on Briefs July 10, 1986.
    Decided Sept. 16, 1986.
    Rehearing Denied Oct. 21, 1986.
    725 P.2d 1192.

      John Leslie Hamner, Butte, for plaintiff and appellant.
    Maurice A. Maffei, Butte, for defendant and respondent.
   MR. JUSTICE HARRISON

delivered the Opinion of the Court.

This is an appeal from an order of the District Court of the Second Judicial District in and for the County of Silver Bow, Montana. Plaintiff brought the action seeking determination that his survey correctly established the true boundary and asking for trespass damages. Defendant counterclaimed requesting similar relief. Following a bench trial, the District Court accepted defendant’s survey and off-set damages. We affirm in part and remand in part.

This case concerns a dispute between two adjacent landowners over the exact location of their boundary. Plaintiff, Thomas J. Helehan, owns two patented mining claims in Silver Bow County, several miles west of Butte. He also has interests in four unpatented mining claims located on public domain just north of his patented claims. Defendant, O.M. Ueland, owns the property immediately to the west of Helehan’s patented claims.

The dispute between the two men apparently began in the early 1960’s. Horses which Helehan permitted to graze on his land began to wander off his land onto Ueland’s. At the time, the only semblance of a division line was an old dilapidated wooden fence which ran roughly north and south between the parties’ properties. This fence had evidently been built long before either party had acquired his property and neither felt obligated to repair or maintain it. Consequently, it had long since ceased to function as a barrier.

Ueland complained to Helehan of the horses, but Helehan replied that their properties were open range and that he therefore had no responsibility to fence in the animals. So in 1969, Ueland decided to fence out the horses and built a new fence over the site of the old wooden one. Also, in an effort to more fully fence out the horses, Ueland added to his fence an additional segment on the public domain north of Helehan’s patented claims. This segment, running generally east and west, was apparently placed between Helehan’s patented and unpatented claims.

Helehan objected to Ueland’s fence, claiming first that it was located east of the true boundary and therefore encroached upon his land and second, that it barred access to his unpatented claims. In 1970 he hired a licensed surveyor, Jack Hendrickson, to determine the exact line of the boundary. Hendrickson’s survey supported Helehan’s allegations that the fence intruded upon Helehan’s property; it indicated that the true border was located west of the fence.

Helehan filed this action in 1975, seeking a determination of the boundary as established by Hendrickson’s survey, removal of Ueland’s fence and trespass damages. Ueland counterclaimed, seeking grazing damages caused by the horses stationed on Helehan’s land and one-half the cost of the fence.

In 1976, before the case was heard, Ueland hired his own licensed surveyor, Walter Everly. Everly’s survey, in direct contrast to Hendrickson’s, indicated that the fence was entirely within Ueland’s property and that the boundary line was in fact well to the east of the location of the fence. Ueland accordingly dismantled his fence and rebuilt it along the line shown by Everly’s survey.

Helehan responded by hiring Matt Vranish to resurvey the boundary lines in 1983 or 1984 and by hiring David Albert to retrace Jack Hendrickson’s 1970 survey. Both these licensed surveyors generally confirmed Hendrickson’s findings.

The parties finally brought the case to trial in 1985. As to the proper location of the boundary between Ueland’s land and Helehan’s patented claims, the court held for Ueland, establishing the border line in conformance with Everly’s survey. As to the stretch of fence separating Helehan’s patented and unpatented mining claims, the District Court held that since the fence was located on public domain, Helehan first had to exhaust his administrative remedies with the proper agency. As to damages, the court held that Helehan was liable for grazing damages but that Ueland was not entitled to any reimbursement for the cost of his fence. The court concluded, however, that the grazing damages and the fence construction were off-setting.

We face three issues on appeal:

(1) Whether the District Court erred in establishing the boundary in accordance with Everly’s survey.

(2) Whether the District Court erred in ruling that plaintiff had failed to exhaust his administrative remedies as to the alleged trespass of his unpatented claims.

(3) Whether the District Court’s damage awards were correct.

Issue 1: The tracts of property in question were originally surveyed in 1877 by official United States surveyors. Pursuant to the practices of the time, the government surveyors often marked section corners and quarter corners by embedding a large stone in the ground and surrounding it with smaller stones. The large stone was then usually engraved with an appropriate identification. These original monuments remain important for they still determine exact locations of section corners and lines. Indeed, the true corner of a government section is where the original surveyor in fact established it, whether such location is right or wrong as shown by subsequent surveys. Vaught v. McClymond (1945), 116 Mont. 542, 550, 155 P.2d 612, 616. So when surveyors use corner sections and lines to base measurement and plot tracts, it is essential that they properly identify and authenticate the original monument.

In the course of their survey, appellant’s surveyors Hendrickson and Vranish located what they perceived to be a stone monument. This unmarked “monument” was located in roughly the same area as the southeast corner of Section 24. Hendrickson and Vranish ultimately accepted this stone as the survey marker for the southeast corner and included this location in their measurement.

Surveyor Everly also spotted this stone but rejected it as the southeast corner marker. Everly had had occasion to survey the same section line in 1949 and, according to his map and notes of that time, had failed to find any monument marking the southeast corner despite a considerable search. Everly further testified that the stone marker relied upon by Hendrickson and Vranish was not present in 1949. He stated that given his lengthy search for this corner in 1949 and the marker’s highly visible location in the same general area as the southeast corner, he could not but have noticed the marker had it been present. Instead, Everly placed the southeast corner in the same location he had placed it in 1949 — early two hundred feet to the east of the stone marker. This discrepancy is the principal basis for the conflicting surveys.

Defendant also introduced into evidence a 1929 highway map which indicated that the southeast corner had likewise not been found at that date.

Upon review of this evidence, we hold that the District Court did not err in establishing this boundary in accordance with Everly’s survey. The scope of this Court’s review when considering the findings and conclusions of a district court sitting without a jury is by now well settled. We are confined to determining whether there is substantial credible evidence to support the District Court’s findings and conclusions. General Mills, Inc. v. Zerbe Bros., Inc. (Mont. 1983), [207 Mont. 19,] 672 P.2d 1109, 1111, 40 St.Rep. 1830, 1832. In so determining, we must view the evidence in the light most favorable to the prevailing party. Cameron v. Cameron (1978), 179 Mont. 219, 228, 587 P.2d 939, 944. Further, the evidence may conflict with other evidence and still be deemed “substantial.” Cameron, at 587 P.2d at 945.

We find that the District Court had substantial credible evidence to support its ruling. Walter Everly was not only an experienced surveyor but also an experienced surveyor of the property in question. His detailed testimony, in connection with the highway map, lend sufficient support to the court’s decision. A trial judge’s finding based on substantial though conflicting evidence will not be disturbed unless there is a clear preponderance of evidence against such a finding. Cameron, supra at 944. This has not been shown.

Issue 2: Appellant argues that the District Court erred in ruling that if Ueland’s fence interfered with Helehan’s enjoyment of his unpatented mining claims, he must first exhaust his administrative remedies through the proper agency. Though Helehan stated that this was an issue on appeal, his counsel has failed to present a persuasive argument in the two paragraphs addressing the issue. We find no merit in this issue.

Issue 3: The District Court ruled that Helehan was liable for overgrazing damages caused to Ueland’s property by the horses allowed on Helehan’s land. The court estimated this damage at $3,000. The court further ruled that Ueland was not entitled to any reimbursement from Helehan for the cost of the fence, the total cost of which was also estimated at $3,000. The court then off-set these amounts.

We note initially that these costs do not off-set. There are damages flowing from Helehan to Ueland but none flowing from Ueland to Helehan. The correct award, consistent with the court’s findings, would have been a damage award in favor of Ueland.

We find, however, that this error is harmless, as we find no evidence in the record supporting the lower court’s award to defendant for grazing damages. Montana has long recognized an open range law whereby landowners must fence out intruding livestock. See Jenkins v. Valley Garden Ranch, Inc. (1968), 151 Mont. 463, 443 P.2d 753; Bartsch v. Irvine Co. (1967), 149 Mont. 405, 427 P.2d 302; Thompson v. Mattuschek (1959), 134 Mont. 500, 333 P.2d 1022.

The record is barren of any evidence indicating grazing damages done to defendant’s property after 1969, the date Ueland built his fence. Before 1969, Helehan could not be legally obligated to restrain the horses and cannot be held liable for damages occurring during this time. Because we so hold, we decline to discuss Helehan’s liability for trespassing horses which he neither owns nor agisters. We therefore remand this case and instruct the District Court to enter judgment consistent with this opinion.

In conclusion, we affirm the District Court’s determination of the true boundary line and remand the damage awards.

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

        FOOTNOTES

      1. Appellant’s third surveyor, David Albert, undertook merely a retracement of Hendrickson’s survey. We find Albert’s results to be of little probative value.


text:
    In re the MATTER OF M.E.M., Jr.
    No. 86-61.
    Submitted on Briefs June 20, 1986.
    Decided Sept. 16, 1986.
    725 P.2d 212.
    Carol Johns, Wolf Point, D. Michael Eakin, Montana Legal Services, Billings, Vivian Marie, Montana Legal Services, Great Falls, Steven L. Bunch, Montana Legal Services, Helena, for appellant.
    John F. Iwen, Great Falls, Leslie C. Taylor, Dept. SRS, Helena, for respondent.
    Andrew W. Small, for Gros Ventre & Assiniboine, Billings, amicus curiae.
   MR. JUSTICE HUNT

delivered the Opinion of the Court.

Nellie Silk, the aunt of M.E.M., Jr., appeals the decision of the. Cascade County District Court denying her motion to intervene in adoption proceedings concerning M.E.M., Jr., and dismissing her petition for adoption.

In her appeal, Silk raises two issues:

1. Does Silk have the right to intervene in the adoption proceedings?

2. May Silk petition for adoption?

We reverse the judgment of the District Court and remand the cause for hearing pursuant to this opinion.

M.E.M., Jr. (hereinafter M.E.M.) is an enrolled member of the Gros Ventre and Assiniboine Tribes of the Fort Belknap Indian Community. He was born in Havre, Montana, in March, 1981. His parents were acute alcoholics. Prior to M.E.M.’s birth, Nellie Silk, M.E.M.’s paternal aunt, expressed her interest in caring for the child because she was aware of her brother and sister-in-law’s parenting problems. M.E.M.’s father verbally agreed to that arrangement.

However, following M.E.M.’s birth, Hill County Department of Social and Rehabilitative Services (SRS) placed him in foster care immediately upon his release from the hospital. Temporary custody of M.E.M. was awarded to SRS on April 22, 1981.

Upon learning that SRS had taken the child into foster care, Silk wrote to SRS requesting that M.E.M. be placed in her custody. She also contacted Montana Legal Services, who wrote in her behalf to SRS.

SRS responded that because of SRS’s efforts to reintegrate the family, placement of M.E.M. with Silk would be inappropriate. Silk is a member of the Standing Rock Sioux Tribe and resides on the Fort Peck Reservation. Visitation between Havre and Fort Peck was considered too difficult. SRS indicated M.E.M. was not being placed for adoption at that time but stated, “We [SRS] are aware of the implications of the Child Welfare Act and she [Silk] of course, as a member of the family would be considered if any adoption does take place.”

In May of 1983, M.E.M.’s parents’ parental rights were terminated. That termination was subsequently upheld on appeal. In the Matter of M.E.M., Jr. (Mont. 1984), [209 Mont. 192,] 679 P.2d 1241, 41 St.Rep. 636.

SRS notified the Fort Belknap Tribes of the termination. Silk, however, was not informed by either SRS or the Tribes about the termination proceedings nor was she notified of M.E.M.’s availability for adoption or his preadoptive placement with a non-Indian family. In June of 1984 Silk learned through informal contacts that M.E.M. had been placed for adoption. She went to the Fort Belknap Tribal Judge to inquire. He informed her the child had been placed, but he did not know where. Silk, then through Legal Services, contacted SRS to inquire about M.E.M. SRS did not respond.

Because the termination of parental rights had taken place in Hill County, Silk petitioned the Hill County District Court for adoption and moved to intervene in any previously instituted adoption proceeding. The District Court refused Silk’s filings because there was no action concerning M.E.M. pending in that court. SRS continued to withhold information concerning M.E.M. from Silk.

Later, by chance, Silk learned that adoption proceedings had been initiated by the foster family in Cascade County. She then filed a petition for adoption and a motion to intervene in the Cascade County District Court on October 12,1984. Subsequently, Silk negotiated for an open adoption arrangement. Those negotiation efforts failed and SRS opposed her motions. The District Court denied her motion and petition. It also denied her later motion to amend or alter that judgment.

In support of her motion to intervene, Silk argues that she meets the requirements of Rule 24(a), M.R.Civ.P. which governs the right to intervene. She further argues that in denying her motion the District Court denied her due process of law guaranteed by our Montana Constitution and the federal Constitution. Because we hold Silk does have a statutory right to intervene we need not discuss the constitutional question.

Rule 24(a), M.R.Civ.P. provides:

“Upon timely application anyone shall be permitted to intervene in an action: ... (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant’s interest is adequately represented by existing parties. (Emphasis added.)”

We find that Silk has just such an interest in the adoption proceedings concerning M.E.M. Her interest stems from the provision of the Indian Child Welfare Act of 1978, 25 U.S.C. Section 1901 et seq. (ICWA). The ICWA expresses Congress’ intention that Indian children be placed for adoption with Indian families where that is possible. Section 1915(a) of the Act states:

“Adoptive placements: preferences. In any adoptive placement of an Indian child under State law, a preference shall be given, in the absence of good cause to the contrary, to a placement with
“(1) a member of the child’s extended family;
“(2) other members of the Indian child’s tribe; or
“(3) other Indian families.”

As we have previously noted:

“The Act represents Congressional recognition of the concomitant cultural interests of Indian tribes and Indian children; interests fundamental to the perpetuation and preservation of their mutual and valuable heritage. Congress found ‘that an alarmingly high percentage of Indian families are broken up by the removal, often unwarranted, of their children from them by nontribal public and private agencies and that an alarmingly high percentage of such children are placed in non-Indian foster and adoptive homes and institutions . . .’ 25 U.S.C.A. Section 1904(4). We share that concern.”

In the Matter of M.E.M. (1981), 195 Mont. 329, 333, 635 P.2d 1313, 1316 (a different case than the instant case).

We have also noted in the context of proceedings under the ICWA that the State of Montana has a strong and independent commitment to the principles embodied in the ICWA. As we stated in the Matter of M.E.M., supra.

“. . . Our constitution recognizes ‘the distinct and unique cultural heritage of the American Indians and is committed in its education goals to the preservation of their cultural integrity’. 1972 Mont. Const., Art. X, Section 1(2). Preservation of Indian culture is undoubtedly threatened and thereby thwarted as the size of any tribal community dwindles. In addition to its artifacts, language and history, the members of a tribe are its culture. Absent the next generation, any culture is lost and necessarily relegated, at best, to anthropological examination and categorization. In applying our state law and the Indian Child Welfare Act we are cognizant of our responsibility to promote and protect the unique Indian cultures of our state for all future generations of Montanans. (Emphasis added.)”

In light of these federal and Montana statutory and constitutional provisions we turn to Silk’s right to intervene. Silk is an “extended family member” within the meaning of the ICWA Section 1915(a). She has an interest created by the preferences listed in that same section. And clearly, the present parties to the adoption do not adequately represent her interest. Therefore Silk meets all of the requirements laid out in Rule 24(a), M.R.Civ.P. for intervention. However, the District Court ruled that Silk’s motion was not timely. Given the ignorance in which Silk was kept, we can not see how Silk could have been more diligent or any earlier in her petition or motion.

Therefore, we hold Silk’s motion to intervene must be granted.

Further, the paramount consideration in an adoption proceeding is the best interests of the child involved. The absence of SRS consent to the adoption in these circumstances may not be found to bar Silk’s claim if, in the court’s discretion, this lack of agency consent would not promote the child’s best interests.

Because we remand the case to allow Silk to intervene, she may again file her petition for adoption to be considered along with the foster parents’ petition in the action. We, of course, do not decide the adoptive placement of the child. However, these competing petitions are to be considered in light of the ICWA preferences which must be followed absent a showing by the foster parents that good cause exists for not following them.

Reversed and remanded.

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