author: JUSTICE TRIEWEILER JUSTICE GRAY,

text:
    CLAYTON E. DeVOE, Petitioner and Respondent, v. DEPARTMENT OF REVENUE OF THE STATE OF MONTANA, MISSOULA COUNTY, and FERN HART, as MISSOULA COUNTY TREASURER, Respondents and Appellants.
    No. 92-510.
    Submitted on July 29, 1993.
    As Amended on Denial of Rehearing Feb. 3, 1994.
    Decided December 28, 1993.
    50 St.Rep. 1731.
    263 Mont. 100.
    866 P.2d 228.

      JUSTICE GRAY filed a special concurrence in which JUSTICE WEBER joined.
    For Respondents and Appellants: David L. Nielsen (argued), Tax Counsel, Montana Department of Revenue, Office of Legal Affairs, Helena; Michael W. Sehestedt, Deputy Missoula County Attorney, Missoula.
    For Petitioner and Respondent: George C. DeVoe (argued), Missoula.
   JUSTICE TRIEWEILER

delivered the Opinion of the Court.

Petitioner Clayton E. DeVoe petitioned the District Court for the Fourth Judicial District of the State of Montana in Missoula Comity pursuant to § 15-2-303, MCA, for review of an adverse decision by the State Tax Appeal Board (STAB). After considering written and oral arguments of the parties and the record from the STAB, the District Court concluded that the STAB’s decision was not supported by substantial credible evidence, and therefore, was clearly erroneous. The court reinstated the State Department of Revenue’s (DOR) prior appraisals of petitioner’s properties, and ordered the DOR to pay petitioner’s attorney fees. The DOR appeals from the judgment of the District Court. We affirm in part and reverse in part.

On appeal, the DOR raises the following issues:

1. Did the District Court err when it ordered the DOR to assess the value of DeVoe’s property for the appraisal cycle beginning in 1986 based on its assessed value prior to that date?

2. Did the District Court err when it ordered the DOR to apply the assessed value of DeVoe’s property for 1986 to subsequent years during the same appraisal cycle?

3. Did the District Court err when it ordered the Missoula County Treasurer to provide DeVoe with a refund for 1986 and subsequent years during the same appraisal cycle?

4. Did the District Court err when it awarded attorney fees to DeVoe?

FACTUAL AND PROCEDURAL BACKGROUND

Clayton DeVoe owned two pieces of property located in Missoula County. Property No. 1 included a duplex and a 28 unit apartment complex. For the appraisal cycle ending on December 31, 1985, the land and improvements had been appraised at a combined value of $255,360. For the appraisal cycle beginning January 1, 1986, the assessed value was increased by the DOR to $529,800.

Property No. 2 included a 67 unit apartment complex. The DOR’s appraised value for that property for the cycle ending on December 31,1985, was $645,550. However, for the cycle beginning January 1, 1986, the appraised value was increased by the DOR to $1,340,200.

DeVoe appealed these changes in the valuation of his real property to the Missoula County Tax Appeal Board on the grounds that the newly assessed values did not reflect the actual market value of either property as required by § 15-8-111, MCA. He asked that the appraised value be reduced to an amount no greater than the previous appraisals.

In a one-sentence decision, his appeals pertaining to both Property No. 1 and Property No. 2 were denied. The County Board stated that:

Based on testimony and evidence, the Missoula County Tax Appeal Board finds that your taxable valuation has been reduced and your presentation indicates that your complaint has been fairly and equitably addressed and therefore, your appeal is denied. [Emphasis added].

While the County Board referred to the “taxable valuation” of DeVoe’s property, no reference was made in its decision to the “assessed valuation” which was the subject of his appeal.

On July 1, 1986, DeVoe timely appealed the County Board’s decision to the STAB pursuant to § 15-2-301, MCA. Among other things, he contended on appeal that the County Board had not addressed the issue that he raised, which was whether the DOR’s increase in the appraised value of his property was correct.

At the first hearing before the STAB, which was held on August 5, 1986, DeVoe testified on his own behalf, and Jim Fairbanks, who is employed by the DOR as an appraisal assessment administrator in Missoula County, testified on behalf of the DOR. No other witnesses were called.

DeVoe contended through his testimony that the 1986 appraisal did not reflect true market value of his property, based on testimony given by witnesses from the DOR during appeals that resulted from his previous appraisals.

Fairbanks testified that for the appraisal cycle beginning in 1986, the DOR used a target year of 1982 for the class of property to which DeVoe’s property belonged. He did not specifically discuss the method of appraisal that he employed. However, he offered two exhibits (one pertaining to each property) which he said supported the values he had arrived at.

Exhibit A, which pertained to Property No. 1, compared the cost per square foot that Fairbanks had arrived at for DeVoe’s property with appraised values that he or the DOR had arrived at for four other properties which he contended were similar. It also listed four additional properties which he contended were similar, and the cost per square foot at which those properties had sold. For Property No. 2, Fairbanks submitted an exhibit which listed appraisals of three properties he considered similar, and sales of 12 other properties.

On cross-examination by DeVoe, Fairbanks was asked whether he had any records which would document the sale prices of any of the pieces of property listed on the two exhibits he had offered. Fairbanks answered that he had nothing to document the comparable sale values he had relied on, other than his own list of values included in the exhibits. He explained that he had gotten the information about the sales from appraisers, realtors, and principals involved in the sales, but that he had no written documentation of those values.

Based on further questioning, Fairbanks then explained that a lot of the information pertaining to sales was available on realty transfer certificates (RTCs) but that those could neither be disclosed to the STAB nor to DeVoe because they were confidential pursuant to § 15-7-308, MCA. Realty transfer certificates are documents which indicate the consideration paid when real estate is transferred and which must be filed with the county clerk and recorder, along with any instrument or deed evidencing the transfer of real estate. The form of the RTC is established by the DOR, and after filing, the clerk and recorder is required by statute to provide each certificate to the DOR. Section 15-7-305, MCA. They have been required since 1975. Their purpose is to provide sales data to the DOR to further its interest in uniformity of real estate assessments and give a reliable indication of market value. Section 15-7-302, MCA.

DeVoe objected to Fairbanks’ testimony about the value for which other properties had been sold on the grounds that it was hearsay and that without production of the RTCs pertaining to each of those properties, DeVoe could not confirm the accuracy of Fairbanks’ testimony.

At the conclusion of his testimony at the first STAB hearing, when addressing the reliability of his statements regarding comparable sales, Fairbanks testified that:

The sales are authenticated much the same way any appraiser goes out and determines that the sales did, indeed, take place. We know, of course, from deed transfers that the date is accurate and the principals are accurate ... and through realty transfers about the value that they put on the property.... Often that is not always the same and we must confirm before any of that is before this board.

Fairbanks left no doubt that, not only did the DOR depend on RTCs to document the value for which comparable properties had exchanged hands, but that the RTCs were absolutely necessary for that purpose in order to avoid inaccuracy.

On October 15, 1986, the STAB issued its opinion and order in which it concluded that DeVoe had failed to prove that the County Board’s decision was erroneous, and therefore, had failed to sustain his burden on appeal. For that reason, his appeal was denied. No other findings or conclusions were provided.

DeVoe petitioned the District Court in Missoula County to review the STAB’s decision pursuant to § 15-2-303, MCA. On appeal, DeVoe contended that the STAB decision was clearly erroneous and that he was denied a fair hearing when he was not permitted to confirm the accuracy of the DOR’s comparable sales evidence by examining the RTCs which pertained to those sales. In this first appeal, the DOR responded that it had relied on the cost of construction method of appraisal which, in itself, was sufficient evidence to sustain the STAB decision, and that DeVoe did not have a right to examine the RTCs because they were not, in fact, relied on by the DOR to arrive at the consideration paid for comparable sales.

On July 22, 1988, the District Court held that DeVoe was not entitled to examine the RTCs pursuant to our decision in O’Neill v. Department of Revenue (1987), 227 Mont. 226, 739 P.2d 456, because in that case the DOR had actually relied on RTCs to establish the value of comparable sales, whereas in this case, they had not. Since the District Court concluded that the DOR could rely on evidence of comparable sales without producing copies of the RTCs pertaining to those sales, it concluded that there was sufficient evidence to support the decision of the STAB.

Subsequent to the District Court’s decision, on August 9,1988, we decided DeVoe v. Department of Revenue (1988), 233 Mont. 190, 759 P.2d 991, involving the same parties now before the Court. In that case, we held that the DOR did have an obligation to produce the RTC information pertaining to the comparable sales on which it relied when it appraised DeVoe’s property. Based on that decision, DeVoe moved the District Court, with John S. Henson presiding, to alter or amend its previous order. The District Court granted DeVoe’s motion pursuant to Rule 59(g), M.R.Civ.R, and held that without production of the RTCs in question there was not substantial evidence sufficient to sustain the decision of the STAB. The District Court ordered the DOR to disclose to DeVoe the relevant RTCs and remanded this case to the STAB for consideration of whatever RTCs were produced, and to consider whether they formed an appropriate basis for the valuation of DeVoe’s property. The District Court also ordered the STAB to make specific findings of fact regarding the applicability of each RTC which it considered, and to make other specific findings of fact and conclusions of law which were necessary to support its decision.

The second hearing was held before the STAB on July 22,1991. At that hearing, DeVoe pointed out that nine RTCs were produced by the DOR and that only one of them actually pertained to those properties listed by the DOR as comparable sales.

At the second hearing, DeVoe also called Robert Lovegrove, a licensed real estate broker in Missoula, as a witness. He testified that for 13 years he had conducted appraisals of commercial properties in Missoula. He also taught real estate courses offered through the Business School at the University of Montana.

Lovegrove reviewed the RTCs provided by the DOR and agreed that six out of the nine dealt with four- or eight-plex apartment emits. He testified that those were not a valid basis for appraising large apartment complexes like the properties which were the subject of DeVoe’s appeal. He also testified that he had reviewed all of the properties listed on the RTCs, except for one transaction which involved the sale of three four-plexes. Based on his review, it was his opinion that they did not provide a basis for comparison to DeVoe’s property.

Lovegrove also testified that in 1982 (the year in which DeVoe’s property was appraised for the 1986 cycle) Missoula was in a significant recession and property values were not increasing from what they had been in the 1970s. He testified that they had leveled off and begun to decline. Specifically, he testified that the market for large multi-family complexes (like those owned by DeVoe), as opposed to four unit or eight unit buildings, was nonexistent, that no transfers had even occurred during the time frame of the DOR’s appraisal, and that was why no comparable sales had been relied on.

Jim Fairbanks was again called as the DOR’s only witness at the second STAB hearing. He testified that the previous appraisal cycle for DeVoe’s property began in 1978 and ended in 1986, and that the current cycle, which was the subject of DeVoe’s appeal, began in 1986 and would end in 1993. The base year for appraising the property for the cycle beginning in 1978 was 1972. The base year for the cycle beginning in 1986 was 1982.

Fairbanks described three approaches to valuation of real estate. They included the cost approach, the market data approach, and the income approach. He testified, for the first time, that in appraising DeVoe’s property he used the cost approach and then used the market data approach to check the validity of his appraisal. He explained that the cost approach measures the cost of replacing the property and then allows a deduction from that value for wear, tear, and depreciation.

Fairbanks testified that he had been unable to find RTCs for all of the properties he had originally listed as comparable sales. However, he then explained that he had not relied on RTCs when he put together the list of comparable sales in the first place. He testified that he came by that information from others during the normal course of his appraisal activities. He also acknowledged that there were no sales of larger multi-family units, such as those owned by DeVoe, during the early 1980s when he prepared his appraisal of DeVoe’s property.

The second STAB decision was entered on August 7, 1991. The extent of its findings and conclusions entered pursuant to the District Court’s order on remand were as follows:

FINDINGS OF FACT

1. RTCs identified as 1-4,2-10, 3-11,4-12, 5-13, 6-21, 7-24, 8-24, and 9-28A were received in evidence.

2. The taxpayer presented evidence to show that the RTCs in question were not sufficiently similar properties to use as a comparable basis for valuing the taxpayer’s property.

3. The DOR presented evidence to show that the RTCs were used only as a cross-check of the values it had already placed on the subject property and were not used in any way to form a basis for valuing the subject property.

4. The RTCs referred to above were not used to form a basis for valuation of the taxpayer’s property and for that reason are irrelevant to the issue of valuation.

CONCLUSIONS OF LAW

1. The Board will not rely on any of the RTCs referred to above as evidence of the valuation of the subject property.

2. The previous determination of the Board as to the value of the subject property remains unchanged.

On October 7,1991, DeVoe filed a second petition for review in the District Comb for Missoula County. This time his petition was assigned to the Honorable Ed McLean. He alleged that the STAB had rendered a final decision denying his appeal of the appraised valuation of his properties, and that therefore, he had exhausted his administrative remedy for all of the years included in the appraisal cycle to which those valuations applied. He also alleged that the appraised valuation had not changed during any year since his original appeal, which was brought in 1986.

In his petition for review, DeVoe also alleged that he had filed appeals to the Missoula County Board and the STAB from the appraised values of these same properties for the years subsequent to 1986, but that both boards refused to render a decision following those appeals based on administrative rules which provide that final decisions of the STAB are binding on subsequent years during which the same valuations are applicable unless altered by judicial review, change in use of the property, or reevaluation by the DOR.

Finally, DeVoe contended on appeal that because the first STAB decision was reversed and remanded based on insufficiency of the DOR’s evidence, and because no additional relevant evidence was offered by the DOR, that neither is the second STAB decision based on credible evidence. He contended that the DOR value was contrary to the requirements of § 15-8-111, MCA, and asked the District Court to reverse the STAB’s final decision and reinstate an appraised value for his properties equal to the value prior to the DOR’s 1986 reappraisal. He also asked, pursuant to § 15-1-402, MCA, for an order directing the county treasurer to refund those excess taxes which he had paid under protest.

The DOR filed a motion to dismiss DeVoe’s petition on the grounds that it was untimely, but did not otherwise respond by pleading to the allegations of his petition.

On June 25,1992, the District Court entered its opinion, order, and judgment reversing the second decision of the STAB, granting the relief sought by the petitioner, and in addition, awarding DeVoe his attorney fees incurred through this extended appeal process.

The District Court observed that even though the STAB concluded that the RTCs which were ultimately produced were irrelevant to the issue of valuation and could not be relied on as evidence, it did not hear any additional credible evidence to support its original decision, but instead summarily concluded that its original October 15, 1986, decision was correct.

The District Court concluded that Judge Henson’s original order correctly concluded that the STAB’s original decision was not supported by substantial credible evidence, and that since no additional evidence was provided during the remand hearing, the STAB’s decision was clearly erroneous pursuant to § 2-4-704(2)(a)(v) and (vi), MCA. The court concluded that no evidence of multi-family apartment complexes similar to DeVoe’s were produced dining the relevant time period, and that the comparable sales evidence which was offered involved properties which were not really comparable.

In light of the testimony by Robert Lovegrove that large multi-family apartment complexes had not increased in value from the late 1970s to the early 1980s when this appraisal was done, and in the absence of credible evidence to the contrary, the District Court concluded that DeVoe had met his burden of proving that the increased valuation of his property was not based on substantial evidence.

Based on these findings and conclusions, the District Court reversed the decision of the STAB and ordered that the valuation of DeVoe’s property which was in effect prior to 1986 be continued to the present date.

The District Court further held that this result was justified by the STAB’s failure to issue specific findings of fact and conclusions of law which it had been directed to issue by Judge Henson’s original order.

Finally, the District Court expressed concern over the DOR’s inconsistent positions regarding the use of RTCs. It cited the DOR’s original argument that they were confidential and not available; its subsequent production of nine RTCs, most of which were irrelevant; and its final position that RTCs are a nonissue because they were not relied on when the property was originally valued. Based on what the court perceived to be the inconsistency of the DOR’s conduct and the protracted nature of these proceedings which it concluded resulted from that conduct, the court concluded that DeVoe was entitled to an award of costs and attorney fees.

In summary, the DOR’s reappraisal was reversed; it was ordered to reinstate the value of DeVoe’s property as it had been prior to 1986; the Missoula County Treasurer was ordered to refund taxes paid by DeVoe for all years included in that appraisal cycle to the present time; and the DOR was ordered to pay costs and attorney fees to DeVoe which were incurred during the series of appeals from the DOR’s appraisal.

I.

Did the District Court err when it ordered the DOR to assess the value of DeVoe’s property for the appraisal cycle beginning in 1986 based on its assessed value prior to that date?

The DOR’s first contention on appeal is actually two-fold. First, it contends that the District Court’s scope of review of the STAB decision was limited pursuant to § 2-4-704, MCA, to a determination of whether the STAB’s decision was clearly erroneous, and that the District Court may not substitute its judgment for that of the STAB. Second, the DOR contends that even if the STAB’s decision was clearly erroneous, the District Court erred by independently determining the correct valuation for DeVoe’s properties because according to our prior decisions, the STAB is uniquely qualified to perform that fact-finding function.

In support of its contention that the District Court exceeded its proper scope of review when it reversed the decision of the STAB, the DOR contends that it offered substantial credible evidence of the value of DeVoe’s property pursuant to the cost of replacement method, and that since that method of appraisal is specifically authorized by § 15-8-lll(2)(b), MCA, the STAB’s decision based on that evidence was not clearly erroneous.

Before we discuss the merits of the DOR’s argument, we make the following observation regarding the District Court’s scope of review pursuant to § 2-4-704, MCA. That section provides in relevant part that:

(2)... The court may reverse or modify the decision if substantial rights of the appellant have been prejudiced because:
(b) findings of fact, upon issues essential to the decision, were not made although requested.

In this case, the District Court’s reversal of the STAB was justified on the basis of this provision alone. When he first remanded this case to the STAB, Judge Henson instructed the STAB to make specific findings of fact which supported its decision. However, other than those findings which related to realty transfer certificates, the STAB made no findings which supported its decision. After six and one-half years of litigation and still no satisfactory explanation for the STAB’s decision, the District Court was fully justified when it concluded that substantial rights of the taxpayer were prejudiced because of the STAB’s refusal to support its decision factually.

With regard to the DOR’s argument that evidence of cost alone was sufficient to support its appraisal, we note that § 15-8-111(1), MCA, establishes the basis upon which all property must be assessed in Montana. It provides that:

All taxable property must be assessed at 100% of its market value except as otherwise provided.
(2)(a) Market value is the value at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.

It is true that the very next paragraph found at § 15-8-lll(2)(b), MCA, states that the DOR may use “construction costs as one approximation of market value.” However, we hold that evidence of construction costs alone, without consideration of any market factors, does not satisfy the requirement of § 15-8-111(1), MCA, that the assessed value equal market value. To the extent that this holding is inconsistent with our decision in Northwest Land v. State Tax Appeal Board (1983), 203 Mont. 313, 661 P.2d 44, that decision is overruled.

Market value depends on the price that a willing buyer would pay a willing seller, taking into consideration relevant facts. Presumably, relevant facts would include the market and economic conditions prevailing at the time of sale.

Logic tells us that there may not be a buyer willing to purchase every 30-unit apartment complex that contractors in Missoula can build at the cost for which they are constructed. If there was, there would be no reason to ever end construction of new apartment houses.

We further hold that when market data is relied on by the DOR to establish assessed value of real property in Montana, and when the taxpayer whose property is being assessed appeals that assessment and requests copies of the RTCs pertaining to the properties that are being compared, they must be produced according to the procedures set forth in our decision in O’Neill, whether or not they were the source from which the DOR arrived at the values of comparable sales. These documents were created by statute to provide sales price data which would promote uniformity of real estate assessments in an efficient, economic, and reliable manner. The DOR is required by statute to retain the RTCs as records. Because they are the most uniform and efficient way for the DOR to establish market value, they are also the most effective and efficient way for the taxpayer to verify the values relied on by the DOR. There is no other practical way for the taxpayer to verify information informally gathered by the appraiser during the normal course of his duties. Therefore, we conclude that fairness and procedural due process require that where market value is established by the DOR based on sales of comparable property, and because the DOR is required by statute to keep a specific record of the consideration for which real property changes hands in Montana, this information should be provided to a taxpayer who appeals the appraised value of his or her property.

In this case, the STAB concluded that the RTCs provided by the DOR to DeVoe were irrelevant to his appraisal, and for the most part, did not pertain to those comparable sales on which it relied to corroborate the appraisal it arrived at through the cost approach. Furthermore, no other evidence of market value was offered by the DOR to rebut the testimony offered by DeVoe to the effect that his property had not increased in value, but had probably declined in value since the previous appraisal cycle. Therefore, we affirm the District Court’s conclusion that there was not substantial evidence to support the STAB’s decision and that it was, therefore, clearly erroneous.

As the second part of its first argument, the DOR contends, relying on our prior decisions in Department of Revenue v. Paxson (1983), 205 Mont. 194, 666 P.2d 768, and Department of Revenue v. Grouse Mountain Development (1985), 218 Mont. 353, 707 P.2d 1113, that the District Court exceeded its authority when it arrived at the proper valuation of DeVoe’s properties, instead of remanding his appeal to the STAB for that purpose. However, the facts in this case are distinguishable from the facts in the cases relied on by the DOR. In both Paxson and Grouse Mountain, we found fault with district courts which assumed the fact-finding function by resolving factual issues related to taxable valuation. In this case, the District Court did not impose its own opinion regarding taxable valuation. The District Court held that, as a matter of law, the DOR presented no credible evidence to justify increasing the appraised value of DeVoe’s property by an amount in excess of 100 percent from one appraisal cycle to the next. The District Court held that neither did the DOR offer evidence that the appraised value of DeVoe’s property should be increased at any other rate, and therefore, that the appraised value should remain at the amount previously established by the DOR based on its own appraisal.

The approach taken by the District Court is similar to the approach adopted by this Court in Department of Revenue v. Barron (1990), 245 Mont. 100, 115, 799 P.2d 533, 542, where we held that:

(3) The valuation for tax year 1990 of the residential property of Patricia C. Barron in Area 2.1 established by STAB should be and is hereby reversed, and STAB and all agents of the DOR shall fix the appraised value of said residential property of Patricia C. Barron at the valuation which was obtained in the tax year 1989.

We conclude that the District Court did not err when it ordered the DOR to establish the appraised value of DeVoe’s property in the amount at which it had been appraised by the DOR prior to 1986.

II.

Did the District Court err when it ordered the DOR to apply the assessed value of DeVoe’s property for 1986 to subsequent years during the same appraisal cycle?

The DOR contends that because this appeal, which began in 1986 and was finally resolved in 1991, dealt only with the appraised value of DeVoe’s property for that year, that the District Court should not have considered subsequent years during the same appraisal cycle because DeVoe had not fully exhausted his administrative remedies by appeals to the County Board, then to the STAB, then to the District Court for each subsequent year. The DOR relies on our decision in DeVoe v. Missoula County (1987), 226 Mont. 372, 735 P.2d 1115, for the principle that administrative remedies had to be exhausted for each year during which taxes were paid under protest.

DeVoe, however, in the petition which gave rise to the second District Court decision, alleged that he had attempted to appeal assessments for years subsequent to 1986 to the County Board and to the STAB, but that those boards would not consider his appeals because of an administrative rule which made the STAB’s decision affirming the DOR’s appraisal binding for the remaining years of the appraisal cycle. The DOR did not deny this allegation.

We conclude that the prior decision relied on by the DOR is distinguishable on its facts, and that based on the DOR’s administrative rule 2.51.403(2), ARM, the District Court’s conclusion was correct as a matter of law.

In the earlier DeVoe decision, the taxpayer had filed a complaint in the District Court challenging the appraisal of his real property for the year 1985, even though he had not administratively appealed the appraisal of his property for that year. We held that because the complaint did not allege that he had exhausted his administrative appeals, the complaint was inadequate on its face. However, in this case, DeVoe alleged that he had paid taxes under protest for 1986 and each year subsequent thereto, and that his taxes during each year were based on the same appraised valuation which was the subject of his original administrative appeal begun in 1986.

He also alleged that he had filed appeals during subsequent years, but that subsequent to their original decisions, both the County Board and the STAB refused to render a decision in those appeals pursuant to the DOR’s administrative rules which provide that final decisions of the STAB are binding on all interested parties for subsequent years during which the same valuations are applicable.

The administrative rule referred to in DeVoe’s petition for review is 2.51.403(2), ARM, which provides as follows:

With respect to taxable real property and improvements thereon, the decision of the state tax appeal board shall be final and binding unless reversed or modified by the district court upon judicial review. If the decision of the state tax appeal board is not reviewed by a district court, it is final and binding for subsequent tax years unless there is a change in the property itself or other circumstances surrounding the property which affect its value. Statutory reappraisal by the department of revenue pursuant to 15-7-111, MCA, is a circumstance affecting the value of real property and improvements thereon.

In this case, the District Court reversed the STAB’s decision and ordered the DOR to reinstate the appraised value that it had arrived at prior to the appraisal cycle which began in 1986. That, then, became the appraised value of DeVoe’s properties for 1986, and according to the DOR’s own administrative rules, was binding on subsequent years during the same appraisal cycle. The only exceptions were for a change in the property itself which affected its value, or reappraisal by the DOR. However, there was no indication in the record that anything changed about the nature of the property which would have affected its value. The DOR did not deny that the same appraised values applied for each year in question subsequent to 1986, and the DOR’s appraiser, Jim Fairbanks, testified that there would be no reappraisal of DeVoe’s property until 1993.

Therefore, in this case, DeVoe attempted to exhaust his administrative appeals but was unable to do so based upon the DOR’s administrative rule which precluded appeals during the same appraisal cycle. Furthermore, pursuant to that same rule, the appraised value which the DOR was ordered to reinstate by the District Court was applicable to the subsequent years in question, and therefore, applied as a matter of law as a result of the District Court’s decision which we have affirmed. To require DeVoe to exhaust more administrative remedies than he has already exhausted would be a useless act, and neither law nor equity require useless acts.

We affirm the District Court’s application of the 1986 appraisals of DeVoe’s property to subsequent years during the same appraisal cycle.

III.

Did the District Court err when it ordered the Missoula County Treasurer to provide DeVoe with a refund for 1986 and subsequent years diming the same appraisal cycle?

The DOR contends that neither the County Treasurer nor the County was served with a copy of DeVoe’s second petition, and therefore, pursuant to § 15-1-402, MCA, the District Court had no authority to order the County to refund taxes to DeVoe.

DeVoe contends that the County was given notice of his petition for review when it was served with his first petition and that the ultimate decision of the District Court ordering repayment of taxes paid under protest was simply a result of the same appeal process begun in 1986. DeVoe contends that if there was a requirement of notice to the County, it was satisfied when the County was served with his first petition.

Section 15-1-402, MCA, does not require notice to the county or the county treasurer when an appeal is filed pursuant to § 15-2-303, MCA. It requires that a taxpayer who pays taxes under protest must specify to the county treasurer the specific grounds for the protest when the taxes are paid and before the taxes are due. That statute then provides, at § 15-l-402(6)(b), MCA, as follows:

If the action is finally determined adversely to the department of revenue, a county, a municipality, or the treasurer of the county or a municipality, then the treasurer shall, upon receiving a certified copy of the final judgment in the action from the state tax appeal board or from the district or supreme court, as appropriate, if the final action of the state tax appeal board is appealed in the time prescribed, refund to the person in whose favor the judgment is rendered the amount of the protested portions of the property tax or fee deposited in the protest fund, and not released pursuant to subsection (5), as the person holding the judgment is entitled to recover, together with interest from the date of payment under protest....

The only reference in the appeal statutes to notice to the treasurer or the county is found at § 15-2-303(3), MCA, which provides as follows:

If the judicial review involves a taxpayer who is seeking a refund of taxes paid under protest, the appealing party shall provide a copy of the petition to the treasurer of the county in which the taxable property or some portion of it is located, but failure to do so has no effect on the judicial review.

The plain language of the only statute which required DeVoe to provide the County or its Treasurer with notice, provides that lack of notice is not fatal to the relief sought on review.

Therefore, we conclude that even if a second notice to the County was required, DeVoe’s failure to provide that notice did not legally deprive him of the right to a refund of those taxes he paid under protest pursuant to § 15-1-402, MCA.

IV.

Did the District Court err when it awarded attorney fees to DeVoe?

As part of its decision, the District Court concluded that the DOR had acted in bad faith by taking inconsistent positions with regard to the relevance of RTCs, and therefore, that DeVoe was entitled to recover his attorney fees pursuant to § 25-10-711, MCA. That section allows the court to award attorney fees to a successful person in any action against the State if he or she prevails and the court finds that the State’s defense or claim was frivolous or pursued in bad faith.

The DOR contends that by awarding attorney fees the District Court exceeded the issues framed by the parties because DeVoe neither requested attorney fees in his petition nor in any of the written briefs filed with the District Court. Furthermore, the DOR argues that its position could not have been in bad faith when it was upheld by the Missoula County Tax Appeal Board, by the STAB on two separate occasions, and on one occasion by the District Court. The District Court, acting through Judge Henson, only changed its position based upon this Court’s decision in DeVoe v. Department of Revenue, 759 P.2d at 991, which was decided subsequent to the District Court’s original decision.

DeVoe responds that attorney fees under the circumstances in this case are specifically authorized by § 25-10-711, MCA, and were appropriate based upon the DOR’s inconsistent legal and factual arguments. He also contends that the District Court was authorized to impose an award of attorney fees under its equitable power when justice so requires.

We have reviewed the record on appeal and understand the District Court’s frustration with the DOR over what appear to be inconsistent positions at various stages of this appeal, and the incredible delay which has occurred as a result of these seemingly contradictory positions. We also agree that when attorney fees are sought in tax appeals, and the necessary facts are established, they may be awarded pursuant to § 25-10-711, MCA. However, we conclude that when relief that is as substantial as the attorney fees which are at issue in this case is sought by a party to litigation, the other party is entitled to prior notice that such relief is being sought and an opportunity to address the merits of granting such relief. Therefore, based on DeVoe’s failure to notify the DOR that he, in fact, sought an award of attorney fees in either his petition or his arguments to the District Court, and based upon the DOR’s lack of opportunity to address the issue of attorney fees prior to the time they were awarded, we reverse that part of the District Court’s judgment.

We reverse the District Court’s award of attorney fees, and otherwise affirm the order, findings, and judgment of the District Court in all respects. This case is remanded to the District Court for entry of judgment consistent with this opinion.

JUSTICES HARRISON, HUNT, NELSON and DISTRICT JUDGE HONZEL, sitting for CHIEF JUSTICE TURNAGE concur.

JUSTICE GRAY,

specially concurring.

I specially concur in the result reached by the Court on issue one.

I would affirm the District Court on that issue based on § 2-4-704(2)(b), MCA, which allows the reviewing court to reverse a decision of STAB if substantial rights of an appellant have been prejudiced because findings of fact, on issues essential to the decision, were not made, although requested. Here, two hearings were held by STAB. On judicial review after the first hearing, the District Court directed STAB to hold another hearing and, thereafter, to make specific findings of fact and conclusions of law in support of its decision. STAB totally failed to comply with the directive from the court to make specific findings. As a result, DeVoe has been in litigation for more than six years over one tax challenge.

It would be unfair and inequitable to DeVoe to permit this case to drag on any longer because of STAB’s neglect of its duty. Nor should this Court countenance such responses — or failures to respond — to district court orders by any agency or arm of state government, particularly when the adverse impacts would fall on individual Montana taxpayers. Indeed, the conduct of both STAB and the DOR in this case falls far short of the performance Montanans are entitled to expect from their government. I conclude that DeVoe’s substantial rights have been prejudiced because of STAB’s failure to follow the court’s order and would affirm the District Court on that basis.

I also agree with the Court that the District Court correctly determined that the DOR did not produce substantial credible evidence in support of its appraisal, even though I disagree with the Court’s rationale in reaching that conclusion. Here, the DOR contends that it assessed DeVoe’s property using the cost approach outlined in § 15-8-lll(2)(b), MCA. Its assessment included a physical depreciation factor, although no testimony explained or supported the amount of physical depreciation included in that assessment. More importantly, the record does not contain evidence that the DOR considered functional and economic obsolescence in assessing the property at issue, much less that it “fully considered” those factors as required by § 15-8-lll(2)(b), MCA. I conclude that the failure to present evidence that those factors were fully considered requires affirming the District Court on the basis that substantial credible evidence does not support the DOR’s assessment or STAB’s decision upholding that assessment against DeVoe’s challenge. Because the DOR did not comply with the requirements of § 15-8-lll(2)(b), MCA, in assessing DeVoe’s property, I do not believe it is necessary to reach the question of whether the cost approach can be utilized without regard to “market factors.”

Because the Court does so, however, I must state my disagreement with its conclusion that the cost approach — even assuming all statutory requirements are met — is an insufficient method of assessing property. It is my view that § 15-8-lll(2)(b), MCA, does authorize the DOR to use the cost approach on a stand-alone basis in assessing property. To me, enactment of that subsection reflects legislative recognition and approval of the DOR’s long-standing use of the cost approach to market value, while requiring the purely cost approach to be “softened” by reductions in value caused by physical depreciation and functional and economic obsolescence.

Moreover, I am concerned with the Court’s departure from the wisdom of Northwest Land, where we stated that “[i]t is not a judicial function to act as an authority on taxation matters. We will not evaluate the advantages and disadvantages of a particular assessment method as applied to a taxpayer.” 661 P.2d at 45. The Court concludes that the cost approach as defined by § 15-8-lll(2)(b), MCA, does not provide a sufficient basis for property assessments by the DOR. It does not, however, provide any guidance as to how the DOR can properly assess property when faced with circumstances like those in the present case.

As the record before us reflects, the other common valuation methods for properties of the kind at issue here are the income approach and the comparable sales approach. Here, no income approach information is of record; indeed, DeVoe’s own “expert” did not have the information necessary to make an assessment on that basis. Such information generally would be in the hands of the taxpayer and unavailable to the DOR absent voluntary submission of that data by the taxpayer. In addition, the “comparable sales” evidence offered by the DOR in this case was properly rejected as dissimilar and irrelevant by both STAB and the District Court; the record is clear that no truly comparable sales occurred during the applicable time period. I am at a loss to understand how, under these circumstances, the DOR is to meet its duties in periodically assessing property if it cannot rely solely on the cost approach which is, in my view, specifically sanctioned by statute.

Notwithstanding my differences with the Court, however, I do agree that the District Court did not err in reversing STAB on the basis of § 2-4-704(2)(b), MCA, and the lack of substantial credible evidence to support the DOR’s assessment. Thus, I would affirm on those bases.

JUSTICE WEBER joins in the foregoing special concurrence of JUSTICE GRAY.


source: Caselaw Access Project

author: JUSTICE HARRISON JUSTICE NELSON JUSTICE WEBER

license: Public Domain

text:
    TRUSTEES, MISSOULA COUNTY SCHOOL DISTRICT NO. 1, Plaintiff and Respondent, v. PACIFIC EMPLOYER’S INSURANCE COMPANY, a corporation, Defendant and Appellant, and WESTERN STATES INSURANCE AGENCY, INC., a Montana corporation, Defendant and Respondent.
    No. 93-212.
    Submitted on Briefs November 18, 1993.
    Decided December 28, 1993.
    50 St.Rep. 1741.
    263 Mont. 121.
    866 P.2d 1118.

      JUSTICE NELSON filed a dissenting opinion in which JUSTICES GRAY and WEBER concurred.
    For Appellant: Shelton C. Williams, Richard Ranney, Williams & Ranney, Missoula.
    For Respondent: Brian L. Delaney, Mulroney, Delaney & Scott; Patrick Frank, Worden, Thane & Haines, Missoula.
   JUSTICE HARRISON

delivered the Opinion of the Court.

This appeal arose in the Fourth Judicial District, State of Montana, in and for the County of Missoula, the Honorable Douglas Harkin presiding. We affirm in part and remand.

This Court, in the case of Trustees, Missoula County Sch. Dist. No. 1 v. Anderson (1988), 232 Mont. 501, 757 P.2d 1315, set forth the background facts of this case. Therein we found that a teacher, Carol Anderson (Anderson), was improperly dismissed for incompetence based on poor performance following four interviews upon her return to teaching following a sabbatical leave. The opinion of this Court reversed the district court’s decision which set aside the findings of fact and conclusions of law of the State Superintendent and the County Superintendent. We directed the court to reinstate the decision of the State and County Superintendent.

One year after this Court returned the case to the District Court to implement our decision, Anderson and the Trustees entered into a settlement agreement and a release. That settlement agreement involved payments to Anderson as follows:

2. Payments. In consideration of the Release set forth above[,] the District hereby agrees to pay a sum totaling $81,585.07 as negotiated and compromised by Anderson and the District which is the sum of the following amounts:

Total Net Annual Income $64,473.74

Total Interest $12,023.81

Total Medical $ 5,387.81

Receipt of $81,885.36 is expressly acknowledged.

The District further agrees to pay the interest required by [the Teachers’ Retirement System] in addition to the [Teachers’ Retirement System] contribution.

The District agrees to pay the federal income tax, state income tax and FICA deducted from gross salary to the appropriate state and federal agencies.

With these facts, we now consider the problem of who is going to pay the settlement.

In 1984, the Trustees of the Missoula School District No. 1 (Trustees), purchased a School Professional Legal Liability Insurance Policy from an insurance representative of Western States Insurance Agency, Inc. (Western States). The policy came through Pacific Employers Insurance Company (Pacific); the effective dates were from December 1,1984 to December 1,1987. Prior to purchasing the policy, and upon inquiry whether there were any lawsuits outstanding, a trustee informed the Western States representative that a “tenured teacher’s [Anderson] dismissal is being challenged at this time through the regular channels, now in the hands of the County State Superintendent of Schools.”

Upon being presented the above amounts, Pacific denied coverage of the claims on the grounds that the policy provided an exclusion for claims made against the insured for “any amounts due under the terms of any contractual obligation. ...” Pacific characterized the payment agreement between the School District and Anderson as one arising out of a “contractual obligation.” The Trustees argue that the School District’s settlement with the dismissed teacher was based upon negligent firing and, therefore, the clause which provides for coverage for errors, omissions, and claims made “(a) by reason of any act, error, or omission in services rendered in the discharge of the School District....” applies.

Several issues are set forth; two by the respondent Trustees:

1. Whether the District Court erred by holding that the “contract exclusion” provision of the insurance agreement, authored by Pacific, was not applicable to preclude coverage under the insurance agreement.
2. Whether the District Court’s Memorandum and Order of January 12, 1993, (as opposed to its February 19, 1993, entry of Rule 54(b) Judgment) has any effect on the viability of the third and fourth affirmative defenses raised by Pacific’s answer.

Western States responds to the second issue as set forth by the appellants as:

3. Did the District Court properly grant partial summary judgment to the Trustees on the “contract exclusion” issue without addressing several coverage defenses set forth in Pacific’s answer?

Plaintiff Trustees filed an action in District Court naming as defendants Pacific and Western States. The Trustees alleged that they were entitled to declaratory relief and to the benefits of coverage under a Pacific insurance policy issued to the school district. Pacific denied coverage for sums the Trustees paid to Carol Anderson after she successfully appealed her dismissal as a tenured teacher. The Trustees also alleged in the amended complaint that Western States had been negligent in advising them to purchase the Pacific policy.

The parties filed cross-motions for partial summary judgment addressing whether the “contract exclusion” in Pacific’s policy precluded coverage for sums that the Trustees paid to Anderson. The District Court granted partial summary judgment to the Trustees, ruling that the contract exclusion did not apply and that Pacific had breached its obligation to provide coverage under the insurance policy. Pacific and Western States were represented by the same counsel during the summary judgment proceedings and thereafter separate counsel represented Western States which aligned itself with the Trustees for the purpose of this appeal.

This Court uses the same standard in reviewing a denial of summary judgment as the District Court used in denying the motion. Frazier Educ. Ass’n, MEA/FEA v. Board of Trustees, Valley County Elementary Sch. Dist. No. 2 (1993), 256 Mont. 223, 225, 846 P.2d 267, 269; see also Graham v. Montana State University (1988), 235 Mont. 284, 287, 767 P.2d 301, 303. In order for summary judgment to issue, and to be affirmed on appeal, there can be no “genuine issue as to all facts deemed material in light of the substantive principles that entitle [the movant] to a judgment as a matter of law.” Cereck v. Albertson’s Inc. (1981), 195 Mont. 409, 411, 637 P.2d 509, 511; and Rule 56(c), M.R.Civ.P.

I

Whether the District Court erred by holding that the “contract exclusion” provision of the insurance agreement, authored by Pacific, was not applicable to preclude coverage under the insurance agreement.

In the case before us, there is no factual dispute which is material to the determination of the contract exclusion issue. Based on the briefs that have been submitted to the District Court and to this Court, the parties agree that Pacific’s exclusion must be construed in the context of Anderson’s appeal of her dismissal. While the parties may supply differing interpretations of the contextual facts, the facts themselves are undisputed. Thus the real issue on appeal is whether the District Court correctly determined, as a matter of law, that the exclusion did not apply, which entitled the Trustees to partial summary judgment.

In reaching the principal issue in this appeal, we must first decide how to characterize Anderson’s challenge to her dismissal. Appellant Pacific repeatedly characterizes the challenge as one for breach of contract in order to bring it within the ambit of the contract exclusion. Western States argues that Pacific misperceives the nature of Anderson’s claim. “1. Montana authority establishes that Carol Anderson’s claim was for dismissal without good cause in violation of her rights under section 20-4-207, M.C.A.”

Montana school laws generally embody a legislative effort to balance the rights of teachers with those of trustees. Anderson, 757 P.2d at 1318; and Massey v. Argenbright (1984), 211 Mont. 331, 336, 683 P.2d 1332, 1334. The rights of tenured teachers are treated with solicitude because “tenure is a substantial, valuable, and beneficial right which cannot be taken away except for good cause.” Anderson, 757 P.2d at 1318.

Our cases have also looked to the obligation and rights of school trustees in maintaining the integrity of their schools. Anderson, 757 P.2d at 1318. Article X, § 8 of the Montana Constitution provides that “[t]he supervision and control of schools in each school district shall be vested in a board of trustees ....” Section 20-3-324, MCA, enumerates the specific powers and duties of the trustees, including the power to employ and to dismiss personnel. We have held that trustees must exercise discretion in deciding whom they will employ and whom they will dismiss. See Kelsey v. School Dist. No. 25 (1929), 84 Mont. 453, 458, 276 P. 26, 26.

Section 20-4-207, MCA (1983), which governed the dismissal of Anderson, reflected the tension between the competing rights of teachers and trustees. The statute provided:

(1) The trustees of any district may dismiss a teacher before the expiration of his employment contract for immorality, unfitness, incompetence, or violation of the adopted policies of such trustees.
(2) Any teacher who has been dismissed may in writing within 10 days appeal such dismissal to the county superintendent. Following such appeal a hearing shall be held within 10 days. If the county superintendent, after a hearing, determines that the dismissal by the trustees was made without good cause, he shall order the trustees to reinstate such teacher and to compensate such teacher at his contract amount for the time lost during the pending of the appeal.

This statute covers the appellate procedure and established the measure of Anderson’s damages and is conceded by Pacific. However, Pacific insists that her claim was “strictly and solely a claim for breach of the employment contract” and that the damages she received were for breach of that contract. As noted previously, Western States disagrees.

This Court has distinguished the remedial process that is afforded a teacher who is dismissed while under contract from an action for breach of contract. Kelsey, 276 P. at 26-27; see also Wyatt v. Sch. Dist. No. 104 (1966), 148 Mont. 83, 89, 417 P.2d 221, 224. These cases show the differences between a statutory appeal of a dismissal and an action for breach of contract, noting that a teacher is not free to choose between an appeal and an action for contractual damages; the proceedings are not interchangeable. In the absence of exceptional circumstances a teacher must exhaust his or her administrative remedies under Montana school law. See Throssell v. Board of Trustees of Gallatin County Sch. Dist. No. 7 (1988), 232 Mont. 497, 499, 757 P.2d 348, 349-50.

However, under Montana law, the remedies that are available in a statutory appeal of dismissal are not necessarily the same as those available in a breach of contract action. Section 20-4-207(2), MCA (1983), limits the relief that is available to a wrongfully dismissed teacher to reinstatement and to compensation “at his contract amount for the time lost during the pending of the appeal.”

The decision of this Court supports characterizing Anderson’s proceedings as one vindicating her statutory rights as a teacher rather than a breach of contract case. As noted in Western States’s brief an analogy may be drawn with a proceeding to vindicate the rights of a protected person who has suffered a discriminatory termination of employment. See Title VII, Civil Rights Act (1964), 42 U.S.C. § 2000e-2(a)(l); and the Montana Human Rights Act, § 49-2-303(l)(a), MCA. Both types of proceedings are originally consigned to administrative agencies by statute and with limited exceptions, exhaustion is required. Both kinds of proceedings feature remedies prescribed by statute, which may include reinstatement and compensation or back pay. The fact that compensation or back pay is calculated by reference to a contract amount does not convert the proceeding from one for violation of statute to one for breach of contract.

As previously noted, the undisputed facts here establish that Anderson’s claim was for dismissal without good cause in violation of her statutory rights. Her claim establishes that she was dismissed without good cause rather than a breach of contract. Here all the proceedings, both the administrative appeals, and both district court and Supreme Court decisions, are consistent with characterizing Anderson’s claim as one for a violation of the Montana statute that protects teachers -under a contract from dismissal without good cause. Section 20-4-207, MCA (1983). We find that neither the law nor the facts support Pacific’s assertion that Anderson’s claim was “strictly and solely a claim for breach of her employment contract.”

As a general rule, an insurance company must look to the allegations of a complaint to determine if a loss is covered. “Coverage is based upon the act [or conduct that] giv[es] rise to the claims, not necessarily upon the language of the complaint” or other pleading that initiates a proceeding. New Hampshire Ins. Group v. Strecker (1990), 244 Mont. 478, 482, 798 P.2d 130, 132; see Burns v. Underwriters Adjusting Co. (1988), 234 Mont. 508, 510, 765 P.2d 712, 713.

Here, Anderson initiated an administrative proceeding by submitting a form “appeal” to the County Superintendent of Schools, designating § 20-4-207, MCA, as the basis for her appeal. Therefore, § 20-4-207, MCA, must be read into her appeal. The statute and interpretive precedent establish that although trustees may dismiss a teacher who is -under contract, they may not do so without good cause. Johnson v. Beaverhead County High Sch. Dist. (1989), 236 Mont. 532, 534, 771 P.2d 137, 138; Anderson, 757 P.2d at 1318; and Trustees, Lincoln County Sch. Dist. No. 13 v. Holden (1988), 231 Mont. 491, 495-96, 754 P.2d 506, 509.

The conduct that gave rise to Anderson’s claim was an omission — failure of the Trustees to consider and to weigh all of the available evidence before dismissing her. The omission constituted a violation of the Trustees’ statutory obligation to dismiss only for good cause. At the same time, the omission constituted a violation of Anderson’s statutory rights. She filed her appeal to vindicate those rights and to secure reinstatement to her teaching position. The record demonstrates that she did not explicitly seek compensation in the immediate aftermath of her dismissal.

Under the insurance agreement, Pacific promised to pay all sums which the Trustees became legally obligated to pay as damages as a result of claims first made during the policy period “by reason of any act, error, or omission in services rendered in the discharge of School District duties. ...” Clearly, the Trustees became obligated to pay Anderson damages after this Court reinstated the decisions of the State and County Superintendents. There is also no question that Anderson’s claim arose by reason of an omission in services rendered in the discharge of the Trustees’ duties. Thus, for purposes of the issue before this Court, Pacific’s insurance agreement provided coverage for the conduct that gave rise to Anderson’s claim.

While Pacific contends that the damages Anderson “sought and received were Tor... amounts due [her] under the terms of [the School District’s] contractual obligation’ with her,” the exclusion provides that the claim must be for amounts due under the terms of a contractual obligation. Western States argues that Pacific misperceives the nature of Anderson’s claim and that Pacific’s position is untenable if her claim is viewed as anything other than one for breach of contract. We agree.

The facts of this case indicate that Anderson was discharged from her employment from the School District in good faith, but this Court later found that she should not have been. The School District was not acting maliciously in discharging her, as it felt that there were sufficient grounds. As it turned out it was a mistake, but in this case, and many other wrongful discharge cases where a negligent termination occurred, they did not know what they had done was negligent until it was finally determined to be so by a higher court. Under these circumstances, the School District should not be denied the coverage which it had bargained for.

A very similar situation is presented in the case of United Pacific Ins. Co. v. First Interstate Bancsystems (D. Mont. 1987), 664 F. Supp. 1390, where there was an insurance coverage dispute involving a wrongful termination claim. There, in discussing the unique nature of the wrongful discharge claim, the court stated:

Likewise, in wrongful termination, there is an intent to terminate but injuries are not compensable unless a Court or a jury establishes that the termination was wrongful.
An employer may not know that his or her conduct is wrongful until liability is established. Because the purpose of liability insurance is to protect against risk, this Court should not deny employers the protection of insurance coverage ....

United Pacific, 664 F.Supp. at 1394.

We note that in the United Pacific case, the claim for damages was for loss of compensation, loss of future earning capacity, physical and emotional stress and humiliation, loss of benefits, and loss of work life earnings. While the claim obviously involved damages which were tied to the employment contract, nowhere in the United Pacific decision is the claim stated to be a claim arising out of a contractual obligation. There, the court was clearly of the opinion that the claim was for tortious wrongful termination and for personal injury such as emotional stress and humiliation. United Pacific, 664 F.Supp. at 1394.

As is the case here, in United Pacific, First Interstate was seeking reimbursement from its insurer related to a settlement of a wrongful termination claim. In this regard, the court noted:

Although the settlement does not distinguish the grounds for settlement, Schroeder’s complaint provided the potential for damages based on negligence and plaintiff would have a duty to indemnify defendants.

United Pacific, 664 F.Supp. at 1393.

In this case, as in United Pacific, the settlement document does not specifically identify the grounds for settlement in terms of theories of liability (although virtually all of the claims released by Anderson sound in tort). At a minimum, “the potential” for damages based on pure negligence, even though subject to a specific statutory remedy, was there. Thus, there is a clear obligation in this case for Pacific to cover the loss, subject to other defenses which were not at issue here.

It is obvious that the contract exclusion portion of the insurance agreement is ambiguous as applied in this case. Although the exclusion had its purpose, and legitimately could fulfill its purpose in a case where the facts were supportive of that position — this is not one of them. The ambiguity of the exclusionary provision in an insurance agreement should be construed against the facts of the matter presented. Considering the facts in this instance, the District Court’s decision clearly does not have the effect of “eliminating the contract exclusion” from the policy entirely, as alleged by Pacific. In fact, nothing could be further from the case.

From the statement of the facts, the insurance agreement claims to provide a wide range of coverage for negligent acts, errors, or omissions rendered in the discharge of School District duties. It then goes on to exclude coverage for “any amounts due under the terms of any contractual obligation.” As we have noted before, here, the Anderson obligation was not due under the terms of a contractual obligation. In this case, a contractual obligation exclusion is most certainly unclear. It purportedly applies without limitation to construction and demolition contracts and purportedly to other contractual obligations, but as to non-construction or non-demolition contracts, the insurance company agrees to cover fees, costs, etc., resulting from the School District’s failure to perform or breach of contract. Nowhere in this exclusion is it apparent that the exclusion applies in anything other than contracts the School District entered into with third parties outside of the School District for goods and services. There is no specific mention in the exclusion clause for internal contractual obligations within the School District, or more importantly of liability by termination of employment.

If it was the intent of the policy drafters to exclude coverage related to negligence, or even intentional wrongful termination of employment, appropriate language could have been inserted. The policy was very carefully drafted and, as such, the fact that an incident is not specifically excluded, conclusively demonstrates that it was not intended to be. Here the ambiguity was created by the policy and must be construed against the company as a matter of law. The District Court very acutely and properly noted:

The agreement does not address issues such as those presented in this case where damages sustained are a result of errors made by school officials in terminating a contract. Therefore, the terms of the insurance contract need to be construed according to the entirety of its terms and conditions as set forth in the policy. See, § 33-15-316, M.C.A.; and United Pacific .... A particular clause of a[n insurance] contract must always be subordinate to the contract’s general intent. § 28-3-307, M.C.A.
The general intent of the policy in the present case is to insure the School District from liability for errors in the discharge of their duties. The exclusions or words of limitations in the policy must be construed against the insurer; Bauer Ranch v. Mountain West Farm Bureau Mutual Insurance, (1985), 215 Mont. 153, 695 P.2d 1307, 1309, as an insured is entitled to all the coverage he may “reasonably expect” to be provided in a policy under the “reasonable expectation” doctrine subscribed to in this state. [Citation omitted.]

See also, Farmers Union Mut. Ins. Co. v. Oakland (1992), 251 Mont. 352, 356-57,825 P.2d 554, 556-67; and Bauer Ranch v. Mountain West Farm Bureau Mut. Ins. Co. (1985), 215 Mont. 153, 156, 695 P.2d 1307, 1309.

II

Whether the District Comb’s Memorandum and Order of January 12, 1993, (as opposed to its February 19, 1993, entry of Rule 54(b) Judgment) has any effect on the viability of the third and fourth affirmative defenses raised by Pacific’s answer.

Last, but not least, the question of the viability of Pacific’s third and fourth defenses has been raised for discussion. The District Court’s Rule 54(b) Judgment indicated that in ruling on the merits of the partial summary judgment motions which were presented through its memorandum and order of January 12,1993, “there was coverage for the Plaintiffs’ [sic] losses under the subject insuring agreement.” Both the School District and Western States agree with Pacific that the viability of its third and fourth affirmative defenses have not yet been subject to a court determination. The solution to this problem can be resolved by holding that a Rule 54(b) judgment is, in essence, the “judgment to be appealed from here.” The practical effect of the Rule 54(b) judgment is to certify the District Court Judge’s previous memorandum and order adjudicating the partial summary judgment motion of January 12, 1993, as a “final order.” We hold that this is the “judgment appealed from.” We find that the District Court reached the proper result in its memorandum and order of January 12, and in so doing we hold that the contract exclusion had no effect on the coverage under the insurance policy as construed against the background history and the underlying facts of the settlement of Anderson’s claim.

The District Court is affirmed on issue one and the case is remanded to conform to this opinion as to the third and fourth affirmative defenses.

CHIEF JUSTICE TURNAGE, JUSTICES TRIEWEILER and HUNT concur.

JUSTICE NELSON

dissenting:

I respectfully dissent.

This is a difficult case. Notwithstanding, I believe that the more persuasive reasoning supports the position of Pacific Employers Insurance Company (Pacific), and for that reason I would reverse.

The opinion of the Court holds that Carol Anderson (Anderson) was “vindicating” her statutory rights by making a claim for dismissal without good cause in violation of § 20-4-207, MCA. That conclusion ignores the plain language of the statute which leads inevitably to the conclusion that, without a breach of her employment contract, Anderson would have no claim against the Trustees of Missoula County School District No. 1 (School District), nor would she have any rights, statutory or otherwise, to vindicate.

The statute provides in pertinent part that:
The trustees of any district may dismiss a teacher before the expiration of his employment contract for immorality, unfitness, incompetence, or violation of the adopted policies of such trustees, (emphasis added)

Section 20-4-207(1), MCA. The statute does not provide a right against wrongful dismissal separate and apart from the underlying contract. The statute presupposes that there is an employment contract in the first place, and it is the breach of that contract, by firing the teacher for other than good cause — immorality, unfitness, incompetence or violation of adopted policies — that gives rise to a violation of the statute. For that reason, I cannot conclude that Anderson’s claim against the School District was anything but for sums due under her contract. Simply put, she wanted the benefit of her contract. She wanted employment, and she wanted to be paid for her employment in accordance with the terms of her contract.

Here, the exclusion in the insurance policy applies to any claims made against the School District for “any amounts due, under the terms of any contractual obligation.” While Anderson argues that she filed her claim to vindicate her statutory rights, thereby avoiding the exclusionary language in the policy, the exclusion does not limit itself to excluding claims for damages only if presented under a breach of contract theory. The exclusion applies if the claimed damages are in fact “amounts due under the terms of any contractual obligation,” regardless of how the theory of liability is characterized.

Anderson’s rights to employment, compensation and fringe benefits did not arise from the statute. Those rights arose from the contract obligations assumed by the parties, the breach of which gave rise to the very damages claimed by Anderson and the very damages paid by the School District.

In actuality, Anderson was not vindicating her statutory rights; she had none apart from her contract. She was, in truth, vindicating her contract rights under her teacher’s contract and the collective bargaining agreement which incorporated the statute that allowed the School District to dismiss her if she was found to be immoral, unfit, incompetent, or if she violated the trustees’ adopted policies. The only rights Anderson had were those arising out of her contract with the School District. The fact that this particular contract was subject to a special statute which required administrative appeals as opposed to court action as the means of enforcement does not change the essence of the claim itself — one arising out of the contact.

As pointed out in the Court’s opinion, § 20-4-207(5), MCA, limits the relief that is available to a wrongfully-dismissed teacher to reinstatement and compensation “at [her] contract amount for the time lost during the pending of the appeal.” The statute itself makes clear that the amounts due Anderson were amounts due under her contractual obligation with the School District. Here, Anderson received a settlement which included amounts exactly equal to the types and amounts of compensation that she should have received under her contract, with interest.

She received her salary, and she received the medical benefits she would have received under her health insurance policy with the School District. In addition, the School District contributed to the Teachers’ Retirement System, with interest, and paid the federal and state income tax and FICA which would have been deducted from Anderson’s gross salary. The settlement exactly matched what Anderson would have received under her contract, with interest. The settlement agreement and release broke out the amounts paid in precisely the manner that those amounts would have been paid had the School District not breached its agreement with Anderson and had it not wrongfully terminated her employment.

These amounts were due because of Anderson’s employment contract which the School District breached when it discharged Anderson during the term of her contract without good cause. Clearly, even if this action is characterized as one where Anderson was “vindicating her statutory rights,” the amounts the School District paid Anderson were precisely the “amounts due under the terms of [her] contractual obligation,” and are thus excluded from coverage by the terms of the policy with Pacific.

Effectively, this Court has turned a simple breach of contract action, for which there is no insurance coverage, into a tort case for which there is, under the guise of the teacher “vindicating her statutory rights.” This is a breach of contract case and the amounts due and paid arose under the contractual obligation of the School District to Anderson and are, therefore, excluded from coverage under the insurance policy.

Similarly, I cannot agree with the opinion of the Court which characterizes the policy contract exclusion as “ambiguous.” The contract exclusion, while broad, is very specific — it applies to amounts due under any contractual obligation. There are no exceptions to this exclusion. There is no language in the exclusion that limits its application to only third-party contracts, to construction or other special-type contracts, to contracts under which an obligation of indemnity is assumed, or to “internal contractual obligations.” This Court reads into the exclusion limiting language, by the expedient of finding that the limitations are not there. That turns the rules of construction upside down. I do not believe that the policy contract exclusion at issue here even requires construction, much less that it be construed against Pacific on the theory that it is ambiguous. The exclusion may be broad; it is not, however, ambiguous. When the language of a contract is clear and unambiguous, as it is in this case, the contract does not require the application of the rules of construction, and it is this Court’s duly to enforce the contract as made by the parties. Keller v. Dooling (1991), 248 Mont. 535, 539, 813 P.2d 437, 440.

Finally, the potential for mischief which will be generated by the Court’s opinion is disturbing, to say the least. Under this opinion, school districts with similar insurance policies will have free rein to discharge tenured teachers under contract, knowing that their liability insurer will have to pay all attorney’s fees to defend the administrative appeals, and will then have to pay all compensation and fringe benefits ultimately awarded if it turns out that the termination was not for good cause. This is a win-win, no-risk situation for the school district; there is simply no incentive not to roll the dice and fire teachers where good cause might be questionable or, perhaps, lacking altogether.

The School District can breach an employment contract by firing the teacher without regard to whether there is good cause or not. If the teacher loses the administrative appeal, then the teacher is gone and the school district does not have to pay salary and benefits from and after termination. If the teacher wins the administrative appeal, then the teacher is gone or reinstated and the school district does not have to pay salary and benefits from and after termination or, at least from and after termination through the point of reinstatement.

If, as the Court points out, citing United Pacific Insurance Co. v. First Interstate Bancsystems of Montana, Inc. (D. Mont. 1987), 664 F. Supp. 1390, 1394, “the purpose of liability insurance is to protect against risk,” I am hard pressed to discover where, under the facts of this case, the School District assumed or incurred any risk at all. It paid in settlement exactly what it would have paid (interest excluded) had it not breached Anderson’s employment agreement and had it, instead, continued her employment. Pacific is now required to indemnify the School District for the costs, attorney’s fees and damages associated with the improper termination. And, the School District got rid of an unwanted teacher. There is no risk in that for the School District!

Worse, that scenario certainly does not provide any incentive to a school board of trustees and to a school administration to insure that there is good cause before terminating a teacher’s employment. In fact, quite the opposite is true. I cannot believe that it was realistically in the contemplation of either the insured or insurer that the referenced policy exclusion would be interpreted to allow such an absurd result. I do suspect, however, that there may be a few teachers in shaky relationships with their boards and administrations who should now begin looking over their shoulders.

For the foregoing reasons, I would reverse the District Court and hold that the contract exclusion bars the School District’s claim.

JUSTICE GRAY concurs in the foregoing dissent.

JUSTICE WEBER

concurs in the foregoing dissent with the exception that he does not concur in the last four paragraphs of the dissent with regard to the potential for mischief which may be generated by the Court’s opinion.


author: CHIEF JUSTICE TURNAGE

text:
    BOB J. JOHNSON, Plaintiff and Appellant, v. KENNETH D. COLLINS AGENCY, INC., a corporation, Defendant and Respondent.
    No. 93-294.
    Submitted on Briefs November 18, 1993.
    Decided December 28, 1993.
    50 St.Rep. 1749.
    263 Mont. 137.
    865 P.2d 312.

      For Plaintiff and Appellant: Robin A. Wolff and Rodd A. Ham-man, Calton, Hamman & Wolff, Billings.
    For Defendant and Respondent: Loren J. O’Toole, II, O’Toole & O’Toole, Plentywood.
   CHIEF JUSTICE TURNAGE

delivered the Opinion of the Court.

Bob F. Johnson brought this equity action to recover sums he expended toward fulfilling a contract to purchase an apartment complex from Kenneth D. Collins Agency, Inc. (Collins Agency). The District Court for the Sixteenth Judicial District, Custer County, entered summary judgment for Collins Agency. We affirm.

The issue is whether the District Court erred in entering summary judgment on Johnson’s complaint.

The parties entered two agreements in July 1981: a Sale and Purchase Agreement and a Save Harmless Agreement. Under the Sale and Purchase Agreement, Johnson agreed to purchase and Collins Agency agreed to sell an apartment complex to be constructed in Miles City, Montana. Collins Agency had previously obtained a loan commitment from the Farmers Home Administration (FmHA) to build such a complex, but the site Collins Agency proposed was determined unfeasible because it was in a flood plain.

Under the Sale and Purchase Agreement, Johnson would build the complex for Collins Agency on a site selected by Johnson, and would later assume the note and mortgage with FmHA. In addition, he would pay Collins Agency $10,000 when construction was completed and approved. The Sale and Purchase Agreement referred to the Save Harmless Agreement, under which Johnson was to hold and save harmless Collins Agency from any claim, demand, or lawsuit by the architect originally hired to design the project on the original site.

Collins Agency borrowed $570,000 from FmHA. Johnson constructed the apartments and was paid $570,000 for doing so. He made the down payment of $28,025, pursuant to the Sale and Purchase Agreement.

However, FmHA never approved transfer of the note from Collins Agency to Johnson. Johnson did not purchase the apartment complex from Collins Agency, nor was the $10,000 released from escrow. Also, Johnson did not save harmless Collins Agency from a claim by the original architect which resulted in a judgment of $14,658.93.

While the parties were attempting to obtain FmHA approval for the transfer, from 1982 until 1989, Johnson, through several management corporations, was involved in managing the apartment complex. He expended $11,629.18 in operating money during that time and paid attorney fees and other expenses in the lawsuit between Collins Agency and the original architect.

In 1992, Johnson brought this action, alleging that a resulting or constructive trust had arisen in his favor and that he had acquired equitable title to a portion of the apartment complex. He asked for a declaration that he held title to a percentage of the property or, in the alternative, for judgment in the amount of $58,848.45. Collins Agency counterclaimed for legal fees, delinquent property taxes, and other damages.

Collins Agency moved for summary judgment based upon affidavits and depositions filed with the District Court. The court ruled that the clean hands doctrine bars Johnson’s claim. Stating also that Johnson has constructed and owned many FmHA projects and should have been familiar with FmHA requirements, and noting that the Sale and Purchase Agreement was not made contingent upon FmHA approval, the court granted summary judgment for Collins Agency.

Did the District Court err in entering summary judgment on Johnson’s complaint?

Our standard of review of a summary judgment is the same as the trial court’s: Do genuine issues of material fact exist, and is Collins Agency entitled to judgment as a matter of law? See, Rule 56(c), M.R.Civ.R; Knight v. City of Missoula (1992), 252 Mont. 232, 243, 827 P.2d 1270, 1276. This Court will uphold a correct decision, regardless of the reasons given below for the result. Shimsky v. Valley Credit Union (1984), 208 Mont. 186, 190, 676 P.2d 1308, 1310.

The parties do not disagree on issues of fact; instead, their arguments address application of the law to those facts. Therefore, the prerequisite for summary judgment is met.

In analyzing whether Collins Agency is entitled to judgment as a matter of law, we begin by noting that resulting trusts and constructive trusts are involuntary in nature and arise by operation of law. Eckart v. Hubbard (1979), 184 Mont. 320, 326, 602 P.2d 988, 991. They must be established by evidence that is clear, convincing, and practically free from doubt. Hilliard v. Hilliard (1992), 255 Mont. 487, 492, 844 P.2d 54, 57.

Resulting trusts are defined at §§ 72-33-216 through -218, MCA. Neither a resulting trust upon failure of a trust, § 72-33-216, MCA, nor a resulting trust upon full performance of a trust, § 72-33-217, MCA, is possible under the facts of this case. A purchase money resulting trust is created when a transfer of property is made to one person and the purchase price is paid by another. Section 72-33-218, MCA. Here, despite Johnson’s contribution of the down payment on the apartment complex, Collins Agency remains the debtor on the FmHAloan. We conclude that, as a matter of law, no resulting trust has been created.

Under § 72-33-219, MCA, a constructive trust arises when a person holding title to property is subject to an equitable duty to convey it because he would be unjustly enriched if he were allowed to retain it. Johnson argues that Collins Agency would be unjustly enriched if it is allowed to retain the apartment complex, because of Johnson’s contributions to the property and because Collins Agency receives tax benefits from owning the property.

The tax benefits are immaterial. Further, Johnson did not honor the Save Harmless Agreement in that he did not pay the judgment obtained by the original architect against Collins Agency. This obligation was not contingent on sale of the apartment complex; it was a separate contractual obligation. Additionally, while Johnson was involved with managing the apartment complex, the Internal Revenue Service levied on apartment complex funds in Johnson’s possession in the amount of $8,741.66, for payment of income taxes Johnson owed. Further, when Collins Agency resumed management of the complex, there was a $22,000 delinquency in real estate taxes on the property.

In light of these acts and failures to act which are the responsibility of Johnson, we conclude that he has not established by evidence that is clear, convincing, and practically free from doubt that Collins Agency has an equitable duty to convey an interest in the apartment complex to him. We hold that no constructive trust has been established.

Johnson further alleges that the District Comb erred by mentioning that it was “troubled” by the ten-year delay between the contract between the parties and the initiation of this lawsuit. Because the District Court’s comment is not essential to the result, the comment is not reversible error.

Affirmed.

JUSTICES HARRISON, GRAY, HUNT and WEBER concur.