author: JUSTICE GRAY DISTRICT JUDGE RAPKOCH JUSTICE WEBER

text:
    EDMUND F. SHEEHY, CATHERINE N. SHEEHY, JUNIUS CHADWICK, LILLIAN PAUL, and BEN JOHNS, on behalf of themselves, and all other similarly situated taxpayers, Plaintiffs and Appellants, v. PUBLIC EMPLOYEES RETIREMENT DIVISION, TEACHERS RETIREMENT DIVISION, DEPARTMENT OF ADMINISTRATION; STATE OF MONTANA; and DEPARTMENT OF REVENUE, STATE OF MONTANA, Defendants and Respondents, v. ASSOCIATION OF MONTANA RETIRED PUBLIC EMPLOYEES, et al., Defendants and Respondents.
    No. 92-499.
    Heard on April 28, 1993.
    Submitted on July 27, 1993.
    Rehearing Denied Dec. 23, 1993.
    Decided November 23, 1993.
    50 St.Rep. 1477.
    262 Mont. 129.
    864 P.2d 762.

      For Plaintiffs and Appellants: Edmund F. Sheehy, Jr. (argued); Cannon & Sheehy, Helena.
    For Defendants and Respondents: David W. Woodgerd, Dep’t of Revenue, R. Bruce McGinnis (argued), Tax Counsel, Brenda Nordlund (argued), Dep’t of Administration; Leo Berry, Browning, Kaleczyc, Berry & Hoven, (Association of Montana Retired Public Employees), Helena.
   JUSTICE GRAY

delivered the Opinion of the Court.

This is an appeal from the grant of summary judgment to defendants by the First Judicial District Court, Lewis and Clark County. We affirm in part and reverse in part.

We consider the following issues on appeal:

1. Did the District Court err in concluding that no contractual right existed in certain state retirees to continued exemption from taxation of state retirement benefits, and that Ch. 823,1991 Mont. Laws, does not violate Article II, Sec. 31 of the Montana Constitution?
2. Did the District Court err in concluding that the provision of Ch. 823, 1991 Mont. Laws, phasing out the $3,600 exemption does not violate 4 U.S.C. § 111?
3. Did the District Court err in concluding that the retirement adjustment payment contained in Ch. 823, 1991 Mont. Laws, does not violate 4 U.S.C. § 111?
4. Are the retirement adjustment payment and related implementation provisions severable from Ch. 823,1991 Mont. Laws?

For many years, the State of Montana exempted from income taxation all retirement benefits paid through its various retirement systems to teachers and state government retirees, while taxing retirement benefits paid by the United States to federal retirees. In 1989, the United States Supreme Court decided Davis v. Michigan Dep’t of Treasury (1989), 489 U.S. 803, 109 S.Ct. 1500, 103 L.Ed.2d 891. The Supreme Court determined that 4 U.S.C. § 111 waives the immunity retired federal employees otherwise would enj oy from state taxation of retirement benefits received as a result of their employment with the federal government, except to the extent such state taxation discriminates on the basis of the source of the retirement benefits. Because the Michigan tax at issue favored retired state employees based on the source of their retirement benefits, the Supreme Court concluded that the tax violated principles of intergovernmental tax immunity. Davis, 489 U.S. at 810, 817, 109 S.Ct. at 1505, 1509, 103 L.Ed.2d at 901, 906.

Although Davis was decided during Montana’s 1989 legislative session, the legislature did not amend Montana’s tax laws in response to Davis prior to adjourning. As a result, a group of federal retirees filed a declaratory judgment action to have the existing taxation scheme declared unconstitutional; they also sought a retroactive application of Davis for purposes of entitlement to a refund of taxes illegally collected by the State. By the time that case reached this Court, the district court had adopted the parties’ stipulation that the tax was invalid for tax years beginning after December 31,1988; only the issue of retroactive application ofDavis was before us. See Sheehy v. State, Dep’t of Revenue (1991), 250 Mont. 437, 820 P.2d 1257.

The Montana legislature subsequently passed Chapter 823,1991 Montana Laws, which, according to its title, restructures the income tax on pension benefits by equalizing the taxation of all pension benefits. In lieu of extending the total exemption from taxation previously available to state retirement income to federal retirement income, the legislature opted in Chapter 823 to bring all retirement income — including both state and federal pensions — within the Montana income tax. Chapter 823 does exempt from taxation the first $3,600 of all pension and annuity income received, except that the exemption is reduced or phased out by $2 for every $1 of federal adjusted gross income in excess of $30,000. In addition, section 5 of Chapter 823 grants to state retirees who are Montana residents, and who now were to be taxed in response to Davis, an annual retirement adjustment payment.

Appellants, who are primarily federal retirees but who include one or more state and teacher retirees (hereafter Taxpayers), filed the instant declaratory judgment action against two state retirement divisions of the Montana Department of Administration and the Montana Department of Revenue (hereafter the State), challenging Chapter 823 on a number of grounds. The Association of Montana Retired Public Employees was allowed to intervene. The parties entered into an agreed statement of facts and submitted the case to the District Court on cross motions for summary judgment.

The District Court granted summary judgment to the State on all issues. Taxpayers appeal from portions of that judgment.

I

Did the District Court err in concluding that no contractual right existed in certain state retirees to continued exemption from taxation of state retirement benefits, and that Ch. 823, 1991 Mont. Laws, does not violate Article II, Sec. 31 of the Montana Constitution?

Taxpayers argue that as to state employees who retired on or before the effective date of Chapter 823 and began receiving retirement benefits at a time when those benefits were fully exempt from taxation, Chapter 823 violates Article II, Section 31 of the 1972 Montana Constitution, which prohibits the legislature from passing any law impairing the obligation of contracts. The thrust of the argument is that, by taxing these retirees’ state pensions, Chapter 823 impairs private contractual rights codified at §§ 19-4-706 and 19-3-105, MCA (1989), that exempted their pensions from taxation.

The State counters that the pre-Chapter 823 statutes did not create private contractual rights, and could not create a right in state retirees never to be taxed because it is prohibited from surrendering or contracting away its taxing power by Article VIII, Section 2 of the 1972 Constitution. Thus, the State contends, Article II, Section 31 is inapplicable here.

The District Court correctly relied on Wage Appeal v. Board of Personnel Appeals (1984), 208 Mont. 33, 676 P.2d 194, in concluding that §§ 19-4-706 and 19-3-105, MCA (1989), constituted current policy statements regarding public employment, rather than a contract providing that state retirement benefits would never be taxed. In Wage Appeal, a statewide pay plan was challenged on the basis that it impaired employment contracts entered into before it took effect. We stated:

[WJhen the Legislature enacts a statute fixing certain terms and conditions of public employment, such as salaries and compensation, it is presumed that the statute does not create contractual rights, but is intended merely to declare a policy to be pursued until the Legislature declares otherwise.

Wage Appeal, 676 P.2d at 199 (citations omitted). While recognizing the “presumption” language in Wage Appeal, Taxpayers rely on additional language therein:

If contractual rights are to be created by statute, the language of the statute and the circumstances must manifest a legislative intent to create private rights of a contractual nature enforceable against the State.

Wage Appeal, 676 P.2d at 199 (citations omitted). Taxpayers assert that the provisions of §§ 19-4-706 and 19-3-105, MCA (1989), clearly manifest legislative intent to create private contractual rights enforceable against the State. We disagree.

Notwithstanding their bald assertion of clearly manifested legislative intent, Taxpayers offer no analysis of the statutes to support the assertion. Thus, it is necessary only to point out that § 19-4-706, MCA (1989), provides that state retirement benefits are exempted from state tax. The use of the present tense “are” indicates that the statute is a statement of current policy regarding public employment. The statute contains no manifestation of legislative intent to create private and enforceable contractual rights as contemplated in Wage Appeal’, nor does it make or imply any promises regarding ongoing or future tax treatment of state retirement benefits. Taxpayers have not met their burden under Wage Appeal.

Moreover, Taxpayers’ reliance on Clarke v. Ireland (1948), 122 Mont. 191, 199 P.2d 965, and State ex rel. Sullivan v. State (1977), 174 Mont. 482, 571 P.2d 793, as support for their theory that §§ 19-4-706 and 19-3-105, MCA (1989), created a contract right to continued exemption from taxation of state retirement benefits is misplaced. Both cases involved an effort to deny the plaintiffs therein an actual retirement benefit provided by the Teachers’ Retirement Act at the time the plaintiffs became members of the teachers’ retirement system; our conclusions in Clarke and Sullivan that contract rights existed were based on those facts.

Here, we have no issue concerning efforts to deny or limit state retirees’ actual retirement benefits. The question before us relates to a taxation provision entirely separate from state retirement programs and entitlements thereunder. Furthermore, the taxation characteristic which distinguishes this case from Clarke and Sullivan also brings into play Article VIII, Section 2 of the 1972 Constitution, which prohibits the state from surrendering or contracting away the power to tax. Under that constitutional provision, the state cannot promise any group of taxpayers that it will never tax them.

We hold that the District Court correctly concluded that state employees retiring prior to the effective date of Chapter 823 did not have a contractual right to continued exemption from taxation of their state retirementbenefits. On that basis, the District Court also correctly determined that Chapter 823 does not violate Article II, Section 31 of the Montana Constitution.

II

Did the District Court err in concluding that the provision of Ch. 823, 1991 Mont. Laws, phasing out the $3,600 exemption does not violate 4 U.S.C. § 111?

Prior to adoption of the Public Salary Tax Act of 1939 (the Act), compensation of both state and federal employees generally was thought to be exempt from taxation by another sovereign under the doctrine of intergovernmental tax immunity. The purpose of the Act was to impose federal income tax on the salaries of all state and local government employees. In order to ensure that federal employees did not remain immune from state taxation while state employees were being required to pay federal income taxes, Congress enacted § 4 of the Act — now 4 U.S.C. § 111 — waiving immunity which might otherwise have shielded federal employees from state taxation, but retaining immunity from discriminatory taxation based on the source of the income:

The United States consents to the taxation of pay or compensation for personal service as an officer or employee of the United States, a territory or possession or political subdivision thereof, the government of the District of Columbia, or an agency or instrumentality of one or more of the foregoing, by a duly constituted taxing authority having jurisdiction, if the taxation does not discriminate against the officer or employee because of the source of the pay or compensation.

4 U.S.C. § 111 (emphasis added).

In 1989, the United States Supreme Court decided Davis, which involved a Michigan income tax system discriminating in favor of state retirees and against federal retirees by exempting only state retirement benefits from taxation. The Supreme Court determined that the discriminatory tax was based on the source of the retirement benefits and was not justified by significant differences between the two classes of retirees. Davis, 489 U.S. at 817,109 S.Ct. at 1509,103 L.Ed.2d at 906.

When Davis was decided, it became clear that Montana’s income tax statutes regarding state versus federal retirement benefits also violated federal law. In responding to Davis and restructuring the taxation of pension benefits in Chapter 823, the Montana legislature provided a $3,600 exemption from taxation to all retirees; the exemption is phased out beginning at the $30,000 income level. Taxpayers contend that the phase-out violates 4 U.S.C. § 111 by discriminating against federal retirees based on the source of their income. This is so, they contend, because federal pensions are larger than state pensions and, as a result, federal retirees will lose all or part of the exemption. The State contends that the phase-out exemption treats state and federal retirees’ pensions equally and that any difference is based on amount, not source, of income.

As discussed above, the controlling federal statute does not prohibit all differences in state taxation of state and federal pensions. Rather, it precludes taxation which discriminates against federal retirees because of the source of the pension. 4 U.S.C. § 111. Here, the phase-out exemption is neutral on its face; it applies to all taxpayers equally. Any difference in impact on federal and state retirees is based entirely on the amount of income received by each individual taxpayer, without regard to the source of that income.

Indeed, the Supreme Court in Davis tacitly approved differences in taxation such as the phase-out exemption before us:

A taxation exemption truly intended to account for differences in retirement benefits would not discriminate on the basis of the source of those benefits ...; rather, it would discriminate on the basis of the amount of benefits received by individual retirees.

Davis, 489 U.S. at 817, 109 S.Ct. at 1508, 103 L.Ed.2d at 906 (emphasis added). The phase-out exemption contained in Chapter 823 treats individual retirees differently based on differences in the amount of retirement income received. Taxpayers’ strained interpretation that because federal pensions generally are larger than state pensions and, thus, that the phase-out discriminates as to source rather than amount, simply does not square with Davis.

We conclude that the phase-out exemption does not discriminate as to source of income. Therefore, we hold that the District Court correctly concluded that the provision of Chapter 823 phasing out the $3,600 exemption does not violate 4 U.S.C. § 111.

Ill

Did the District Court err in concluding that the retirement adjustment payment contained in Ch. 823,1991 Mont. Laws, does not violate 4 U.S.C. §111?

Observing that Davis does not limit the State’s ability to set the terms and conditions of public employment, the District Court concluded that the adjustment constitutes a legitimate increased retirement benefit to state retirees. It relied primarily on Clark v. United States (7th Cir. 1982), 691 F.2d 837.

Taxpayers argue that the adjustment is part of the taxation scheme and that it impermissibly discriminates against them. They also argue that Clark is inapplicable. The State contends that the adjustment is unrelated to the tax and that, pursuant to Clark, it is a valid retirement benefit.

Davis requires a two-pronged analysis of the legislation at issue here: 1) Does it constitute discriminatory taxation against federal retirees or in favor of state retirees on the basis of source of income? and 2) If so, is the different treatment “directly related to, and justified by, ‘significant differences between the two classes’ ”? Davis, 489 U.S. at 816,109 S.Ct. at 1508,103 L.Ed.2d at 905 (citation omitted). Application of Davis to the case before us mandates our conclusion that the retirement adjustment payment (hereafter adjustment) contained in section 5 of Chapter 823 violates 4 U.S.C. § 111.

It is clear that the revenue, equalization and adjustment provisions of Chapter 823 are related parts of a comprehensive income tax program encompassing all pension income. The provisions were all included in and part of the same bill, originally introduced as Senate Bill 226 in the 1991 Montana legislature. The title of the bill, subsequently enacted as Chapter 823, reads in pertinent part:

An Act to Restructure the Income Tax on Pension Benefits by Equalizing the Taxation of All Pension Benefits; To Provide an Exemption of $3,600 from Taxation of Benefits from Federal, State, and Private Retirement, Annuity, Pension, and Endowment Plans or Systems; To Provide That the Amount of the Exemption be Reduced by $2 for Every $1 of Federal Adjusted Gross Income Received by the Taxpayer in Excess of $30,000; To Provide for an Adjustment Payment to Retirees of State, Local, and Teacher Retirement Systems Who are Montana Residents....

Reading the title makes it clear that the overall purpose of this bill was to tax state and federal pensions in a manner that does not violate 4 U.S.C. § 111 as interpreted in Davis. Rather than comply with 4 U.S.C. § 111 by extending the total exemption from state income taxation previously granted to state retirement benefits to include federal retirement benefits, the legislature chose to equalize the burden by taxing all retirement benefits, subject to the phase-out exemption discussed above. Within the same legislative enactment, the legislature provided for an adjustment payment to state retirees who are Montana residents. The State’s argument that the two portions of the bill are not related defies logic.

Moreover, the relationship between the tax equalization provisions of the bill, with their negative impacts on state retirees, and the adjustment intended to make up, in part, for that equalization cannot be gainsaid. The adjustment — while purporting to be an adjustment to state retirement benefits — is, in fact, an adjustment to the equalization achieved via the first sections of Chapter 823. This conclusion is inescapable given the inclusion of the adjustment in, and as part of, the tax equalization program. No other interpretation of these two portions of Chapter 823 comports with our duty to construe statutes in a reasonable manner.

It is clear that the adjustment is not an actual and legitimate pension or retirement benefit. If it were a pension benefit, the State would have provided it to all of its retirees in recognition of their years of public service rather than just those living in Montana. There was no need to do so because the sole purpose of the adjustment was to partially recompense state retirees living in Montana for the tax they now must pay under the equalizing provisions of Chapter 823.

Further evidence that the adjustment is not an actual increased retirement benefit for retired state employees is the fact that the funding of the section 5 adjustment bears no resemblance to the funding of actual state retirement benefit adjustments previously enacted by the legislature. Such actual retirement adjustments as those contained in the Public Employees’ Retirement System at § 19-3-1603, MCA, and in the Teachers’ Retirement System at § 19-20-713, MCA, are funded by investment income produced by the retirement fund made up of employee and employer contributions. See §§ 19-3-1602 and 19-20-712, MCA. Here, the handing for the so-called retirement adjustment payment is statutorily appropriated from the general fund pursuant to section 4 of Chapter 823 — that is, from the taxes collected from all Montana taxpayers. The money to pay the adjustment never goes into the state retirement funds, but is simply paid by the state treasurer to the retirement boards, to be distributed by the boards in accordance with the provisions of Chapter 823. While this evidence is not conclusive as to the nature of the adjustment at issue here, it undercuts any notion that the adjustment is a legitimate increase in retirement benefits for state retirees.

We conclude that the adjustment is a partial tax rebate denominated otherwise in an attempt to evade the requirements of federal law. The discriminatory aspect of the adjustment is clear: the adjustment favors state retirees living in Montana based solely on the source of their retirement income; that is, those retirees living in Montana and receiving state retirement income receive the adjustment, while federal retirees living in Montana and receiving federal retirement income do not. Thus, the adjustment constitutes discriminatory taxation based solely on the source of the respective retiree’s income, in violation of 4 U.S.C. § 111.

The State’s reliance on Clark for the proposition that the adjustment is merely an allowable increased retirement benefit is misplaced. Clark involved a cost-of-living adjustment provided to all federal retirees as an actual and legitimate pension adjustment. Clark, 691 F.2d at 841. Here, the adjustment was provided not to all state retirees, but only to state retirees who are Montana residents. Further, the adjustment provided in Clark was entirely independent of, and unrelated to, any tax provisions. Here, it is part of a tax equalization scheme mandated by federal law.

Because the adjustment contained in section 5 of Chapter 823 violates 4 U.S.C. § 111, the disparate tax treatment of state and federal retirement income is justified only if it is “directly related to, and justified by, ‘significant differences between the two classes.’ ” Davis, 489 U.S. at 816, 109 S.Ct. at 1508, 103 L.Ed.2d at 905. Application of this test mandates the conclusion that the adjustment contained in Chapter 823 cannot stand.

The State makes no real argument that significant differences in fact exist between the two classes of retirees that justify the discriminatory adjustment. Perhaps this is to the State’s credit, since it is clear that no such articulable differences exist which could withstand Davis scrutiny. The most obvious contention to be made regarding differences between the classes is the State’s interest in inducing and retaining qualified state government workers. While this position is not asserted here, it is precisely the argument made by the state of Michigan in Davis to justify the preferential treatment of its retired employees, and is the argument squarely rejected by the Davis Court:

This argument is wholly beside the point, however, for it does nothing to demonstrate that there are “significant differences between the two classes” themselves; rather, it merely demonstrates that the State has a rational reason for discriminating between two similar groups of employees. The State’s interest in adopting the discriminatory tax, no matter how substantial, is simply irrelevant to an inquiry into the nature of the two classes receiving inconsistent treatment.

Davis, 489 U.S. at 816, 109 S.Ct. at 1508, 103 L.Ed.2d at 905 (emphasis added).

Moreover, no reasonable argument can be made that the adjustment is necessary or intended (a) to retain retired residents in Montana in order to provide a critical mass of retired people to use those services and facilities that are important to retired people; or (b) to entice other retired people into the state. Such arguments would apply to all retired people and would support the similarities between state and federal retirees rather than establishing any significant differences between the two classes.

Here, as noted, the State does not address or attempt to meet the Davis requirement that it justify disparate treatment on the basis of significant differences between the two classes of retirees. The reason is clear: the “adjustment” is not based on any difference in the nature of the two classes before us. The disparate treatment is based entirely on the State’s desire to continue to provide an advantage to those of its own retirees losing a pr e-Davis advantage — namely, state retirees who reside in Montana and whose state pensions are now subject to income tax pursuant to Chapter 823. While the desire is understandable and perhaps even laudable, it is legally insufficient under Davis as a justification for taxation which discriminates against federal retirees.

We conclude that the adjustment contained in section 5 of Chapter 823 constitutes discriminatory taxation which is not related to, or justified by, significant differences between state and federal retirees. We hold that the District Court erred in determining that the retirement adjustment payment does not violate 4 U.S.C. § 111.

IV

Are the retirement adjustment payment and related implementation provisions severable from Chapter 823,1991 Mont. Laws?

Having concluded that the adjustment provision contained in section 5 of Chapter 823 violates 4 U.S.C. § 111, it is necessary to determine whether that provision and related implementing provisions can be severed from Chapter 823, or whether the entirety of Chapter 823 must be stricken. We conclude that the invalid provisions can be severed.

Section 20 of Chapter 823 provides that if a part of the legislation is invalid, all valid parts that are severable from the invalid part remain in effect. We previously have concluded that the inclusion of a severability clause is an indication that the drafters desired judicial severability policy to apply. Montana Automobile Assoc. v. Greely (1981), 193 Mont. 378, 399, 632 P.2d 300, 311. Thus, we begin our analysis with stated legislative intent favoring sever-ability. We then apply severability principles in determining whether the invalid provisions can be severed or whether the entire legislative act must be stricken:

If an invalid part of a statute is severable from the rest, the portion which is constitutional may stand while that which is unconstitutional is stricken out and rejected.... A statute “is not destroyed in toto because of an improper provision, unless such provision is necessary to the integrity of the statute or was the inducement to its enactment.”... If, when an unconstitutional portion of an act is eliminated, the remainder is complete in itself and capable of being executed in accordance with the apparent legislative intent, it must be sustained.

Greely, 632 P.2d at 311 (citations omitted).

Here, the income tax provisions of Chapter 823 clearly are not destroyed in toto by striking the adjustment provisions contained in sections 4 and 5; indeed, they are not impacted in any way. The income tax still may be imposed and the exemption may be given effect without the adjustment for state retirees living in Montana. Nor was the adjustment the inducement for enacting the legislation; the “inducement” for Chapter 823 was 4 U.S.C. § 111 and the Supreme Court’s Davis decision.

The income taxes and exemption contained in Chapter 823 remain complete in themselves and capable of being executed in accordance with the overall legislative intent, which was to equalize taxes. Granted, the legislature also intended to continue an advantage for certain state retirees through the adjustment. But where we have invalidated the adjustment portion of Chapter 823, it is clear that the legislature intended, through the severability clause it included in Chapter 823, to preserve all valid parts.

Our earlier determination that the revenue, equalization and adjustment provisions of Chapter 823 are related parts of a comprehensive income tax program encompassing all pension income does not negate our conclusion here regarding severability. The fact that the provisions are related from the standpoint of whether they can withstand 4 U.S.C. § 111 and Dae is scrutiny does not mean that they are not, and cannot be, separate and independent from a severability standpoint. From an administrative and operational perspective, it is clear that sections 4 and 5 are segregable from the income tax and exemption provisions.

Finally, and returning again to the legislature’s specific intent that invalid portions of Chapter 823 be severed, we note that, absent a severability clause:

[T]he presumption is against the mutilation of a statute, and that the legislature would not have enacted it except in its entirety. The incorporation of a provision such as section 20 [severability clause] creates a presumption to the contrary; namely, that the legislature would have enacted the law without its invalid portions being incorporated therein.

State v. Holmes (1935), 100 Mont. 256, 291, 47 P.2d 624, 636 (citation omitted). See also Ingraham v. Champion Int'l (1990), 243 Mont. 42, 49, 793 P.2d 769, 773. The presumption operates here in support of the legislature’s intent that the remainder of Chapter 823 remains valid even where the adjustment provisions are determined to be invalid. Nothing in Chapter 823 indicates any intent that the tax and exemption provisions are dependent on the validity of the adjustment for state retirees living in Montana; thus, no inconsistency between such a provision and the contrary and clearly-stated severability clause exists in Chapter 823 which might require us to depart from the plain language used by the legislature and delve into the legislative history to resolve the issue before us.

We conclude that sections 4 and 5 are severable from Chapter 823, 1991 Montana Laws. We hold that those sections are severed and excised from Chapter 823 and, with those invalid and severed provisions excepted, Chapter 823,1991 Montana Laws, remains valid and in full force and effect.

Affirmed in part and reversed in part.

CHIEF JUSTICE TURNAGE, DISTRICT JUDGE ROBB, sitting for JUSTICE HARRISON, and DISTRICT JUDGE WARNER, sitting in the seat vacated by the retirement of JUSTICE McDONOUGH concur.

DISTRICT JUDGE RAPKOCH

specially concurring in part and dissenting in part.

I concur in the majority opinion on Issue I, that state employees retiring before the effective date of Chapter 823, 1991 Laws of Montana, did not have a contractual right to continued exemption from taxation of their state retirement benefits.

I also agree that the provision of Chapter 823 phasing out the $3600 exemption does not violate 4 U.S.C. § 111 (1966).

Nor do I disagree with the majority that the adjustment contained in section 5 of Chapter 823 constitutes discriminatory taxation and therefore violates 4 U.S.C. § 111 (1966).

It is, however, my opinion that the adjustment payment provision is not severable from the rest of Chapter 823, and therefore, I dissent from the majority’s opinion on that point.

Section 20 of Chapter 823 is the severability provision here. The incorporation of that provision raises a presumption that the Legislature would have enacted the law without its invalid portions. Williams v. Standard Oil Co. (1929), 278 U.S. 235, 241-42, 49 S.Ct. 115, 116-17, 73 L.Ed. 287; State v. Holmes (1935), 100 Mont. 256, 291, 47 P.2d 624, 636; Ingraham v. Champion Int’l. (1990), 243 Mont. 42, 49, 793 P.2d 769, 773.

That is a rebuttable presumption though, and a weak one at that; rebuttable by the nature of the statute being considered: its purpose manifested by its provisions before severance as compared to its apparent purpose, as manifested by the provisions remaining after amputation. Can it be said that the purpose is the same after surgery as it was before?

The majority cites and quotes Montana Automobile Association v. Greely (1981), 193 Mont. 378, 399, 632 P.2d 300, 311 as follows:

A statute “is not destroyed in toto because of an improper provision, unless such provision is necessary to the integrity of the statute or was the inducement to its enactment.” If, when an unconstitutional portion of an act is eliminated, the remainder is complete in itself and capable of being executed in accordance with the apparent legislative intent, it must be sustained. [Citation omitted; emphasis added].

This cannot be done here. “Apparent legislative intent” must be that intent manifested by the language of the statute before severance. It is true that neither the income tax provisions nor the equalization parts are not themselves destroyed or affected by striking the adjustment provisions. But the former cannot in this case be considered separate and apart from the amputated adjustment provision. And “amputated” is the right word. What remains and will be enforced under the majority opinion will not be the same as what clearly appears to be the intent of the Legislature in the original enactment. The Legislature did not, in enacting Chapter 823, set out to do no more than equalize the income tax on all retirees. It went on and set out, by the adjustment provision, to remove or lessen that impact on resident Montana retirees.

The general statement of the severability rule in Greely is an accurate statement. Portions of a statute are severable if:

(1) the invalid part is not necessary to the integrity of the statute; or
(2) the invalid part was not the inducement to its enactment;
(3) the remainder of the statute is complete in itself; and (conjunctive)
(4) the remainder is capable of being executed in accordance with the apparent legislative intent. Greely, 632 P.2d at 311.

I submit that the surgery here performed on Chapter 823 fails to meet condition 1 above in that sections 4 and 5, the adjustment provisions, are necessary to the integrity of the entire Chapter 823 as originally enacted. It is correct that the equalization provisions may be imposed and the exemption given effect without the adjustment to income for Montana resident retirees. But what would then be imposed and given effect would be a law completely different from what is clearly intended in the original act. It may even be a better law, but that is not our business; such would be judicial legislation.

It also seems that the adjustment provision is part of an enactment that is a byzantine effort to avoid Davis v. Michigan Department of Treasury (1989), 489 U.S. 803, 109 S.Ct. 1500, 103 L.Ed.2d 891. I stand in awe and admiration of such effort, but we are subject to 4 U.S.C. § 111 (1966) and Davis and must apply logic to the premises therein set forth. I, therefore, believe that the adjustment provision is an inseparable inducement to the enactment of Chapter 823, thereby failing the second condition above.

The remainder of the statute, after eliminating the adjustment provision is complete in itself, but only in ¿¿self. It is not what the Legislature enacted or intended. There go conditions 3 and 4 above.

What remains after our decision is not, as stated ad nauseam above, capable of being executed in accordance with the apparent legislative intent. We cannot cut out a third of the legislation where that third completely changes the effect of the whole enactment and say that what is left is what the Legislature started with.

Greely is not on point. There the purpose of the Act was to regulate lobbying. The Legislature indulged in overkill by, for instance, defining the proscribed practice so a person of normal intelligence could not figure out what he could not do. Several sections were therefore held void; others, because the subject matter of some of the sections was not embraced in the title of the Initiative, contrary to Article V, Section 11, Clause 3, of the Montana Constitution.

This Court stated:

The Initiative, while being lengthy, is basically amendatory in nature. Its purpose was to expand Chapter 7, Title 5, of Montana’s Lobbying Act, to provide for the disclosure of money spent to influence action of public officials and to require elected officials to disclose their business interests. This purpose is not frustrated by our limitations of the Initiative. Even after our excisions, Chapter 7, Title 5, as amended by the Initiative is complete in itself and capable of being executed in accordance with the intention of the people of Montana. [Emphasis added].

Greely, 632 P.2d at 311-12.

The legislation there considered is of a different nature than Chapter 823, where the parts are meaningful only in internal conjunction with each other. The whole of Chapter 823 was enacted as a unit.

I must disagree with the view expressed that the legislative intent is clearly expressed in section 20, Chapter 823, which is the sever-ability clause, and provides that if a part of the Act is invalid, all invalid parts of the Act are severable, and valid parts remain in effect. This is not the legislative intent that is relevant here. In fact, it is not the legislative intent at all that the act is severable; the intent is that if the act is severable... By use of the word “if’ the Legislature recognizes the fact that severance, or declaration of severability is a judicial act, not legislative. If the Legislature had intended the severed statute, it could and should and would have legislated accordingly.

This may, as is stated and shown earlier, raise a presumption that the Legislature would have enacted the law without its invalid portions being incorporated. But that presumption is, I believe, a rebuttable presumption, here rebutted. Also, the inclusion of a sever-ability provision is to seek a judicial act. Before it can be given effect, the judicial branch must do the severing.

The relevant intent for the judiciary to look at in considering severability is not the legislative intent to provide for severability, but the legislative intent in enacting the statute, the purpose of the statute, as indicated by its provisions. The intent to make portions severable is an interim intention, a procedural means, not the end. This Court has stated:

The inclusion of a severability clause in the Initiative is an indication that its drafters and the voters desired this judicial policy [the severability rule] to be applied to the Initiative. [Emphasis added].

Greely, 632 P.2d at 311.

Lastly, section 20, Chapter 823, reads as follows:

Severability. If a part of [this act] is invalid, all valid parts that are severable from the invalid part remain in effect. If a part of [this act] is invalid in one or more of its applications, the part remains in effect in all valid applications that are severable from the invalid applications. [Emphasis added].

That language, I think, is clear. That section speaks not of physical parts of provisions. It speaks of applications of those parts. To apply the equalization portions without the adjustment portion is to apply the former portions at a divergence of 180 degrees, more or less, from the application intended by the Legislature as the act is presently constituted. A severability clause is an appeal to the judiciary.

It is, therefore, my opinion that the whole of Chapter 823 is invalid and the adjustment provisions are not severable.

JUSTICE TRIEWEILER joins in the foregoing concurrence and dissent.

JUSTICE WEBER

specially concurs and dissents as follows:

I concur with issues I and II of the majority, but dissent on issues III and IV. Issue III asks if the District Court erred in concluding that the retirement adjustment payment contained in Chapter 823,1991 Montana Laws, violates 4 U.S.C. § 111. I do not find such discrimination.

The majority states:

It is clear that the revenue, equalization and adjustment provisions of Chapter 823 are related parts of a comprehensive income tax program encompassing all pension income.

I agree that Chapter 823 is a comprehensive income tax program; however, this does not preclude this statute from encompassing other issues. The majority quotes verbatim the “pertinent” part of the bill’s title. The first part of the title of the restructuring plan indicates that the legislature attempted to “equalize” the taxes on all pension benefits. Although, listed after this in sequence, the provision indicating the legislature’s intent to provide the adjustment payment to State retirees living in Montana is an integral part of the Act as seen by the title’s wording:

.... To Provide for an Adjustment Payment to Retirees of State, Local, and Teacher Retirement Systems Who are Montana Residents ....

It is not necessary to rely upon the title to determine the intent of the legislature. The chapter starts with the following list of seven WHEREAS’S, and with the exception of the taxation of benefits referred to in the first WHEREAS, all of the remaining WHEREAS’s set forth an intent directly relating to the adjustment payment and the reasons for the adjustment payment:

WHEREAS, the State of Montana desires to tax federal, state, and private retirement benefits equally; and
WHEREAS, the State of Montana has in the past provided its employees with a benefit of employment through its tax system; and
WHEREAS, the Legislature desires and encourages qualified employees to enter and remain in public service; and
WHEREAS, it is the policy of the State of Montana to encourage public employees who become superannuated or incapacitated to retire and, to that end, to provide sufficient benefits to provide for retirement; and
WHEREAS, the Legislature wishes to encourage all retired persons to remain within Montana to provide a critical mass of retired persons who use certain services and facilities that are important to retired persons and that may keep and perhaps entice other retired persons into the state; and
WHEREAS, the Legislature has in the past granted increases in retirement benefits in a manner designed to provide relatively greater increases to those retirees who were employed during the years of low wages and whose benefits are relatively small; and
WHEREAS, the Legislature therefore grants an increase in benefits to its former public employees who are residents of the state to provide compensation to encourage them to remain in Montana. (Emphasis added.)

The above statement of intent was added because the legislature knew that the Davis decision mandated that all pension holders must be taxed equally. The Act does that. At the same time, the legislature knew that such an increase in taxes on State pensions could create a situation where many retirees would leave the State. Acting through its legislature and governor, Montana as a sovereign and as an employer expressed a desire to provide an incentive for Montana retirees to remain in the State. Without subterfuge of any type the legislature declared this intent. Unfortunately, that openness appears to have been a basis for the majority to conclude there was discrimination.

If the same adjustment payment provided in the Act were provided in another act in some future year, and denominated a cost of living, no one would even raise the discrimination argument. I do not find a basis to condemn the adjustment merely because it is included with the tax.

The adjustment payment is paid to State retirees who already are receiving retirement benefits. I find nothing in the record which demonstrates a corresponding obligation by the State of Montana to make some sort of payment to federal retirees whose retirement benefits are paid by the United States. I do not understand how the payment by the State to its retirees can lead to a “clear” determination of discrimination, as compared to a federal increase to federal retirees which would not be such discrimination.

The fact that federal retirees do not get this adjustment is not discrimination as to source. The same adjustment is not given to private retirees either.

The basic intent of 4 U.S.C. § 111 has been lost. That intent is that the income taxation of Montana should tax federal and State retirement benefits at the same rates. The Act does that. An increase in pay to encourage State retirees to remain in the state is not discrimination as contemplated in § 111. An incentive to stay is not discrimination as to source. There is a recognition on the part of the legislature that the new tax on Montana public employee pensions might cause them to leave the State. Such a recognition, stated up front and in the open, does not equal the discrimination that the majority characterizes as “clear.”

The fact that this adjustment payment comes from the general fund is also of no consequence. Any other cost of living increase for State public employees comes from the same source. This adjustment payment is no different than any other benefit which the State as an employer has a right to offer a group of its retirees.

The majority refers to § 19-20-713, MCA, which provides a cost of living increase for teachers in the Teachers’ Retirement System. The title of Chapter 658 of Montana Laws 1985 shows that only “certain” teachers within the retirees from this system would be benefitted by the increase. I do not understand how the majority condemns the 1991 Act because it is made applicable to “certain” retirees and yet refers to the Teachers’ Retirement Act as nondiscriminatory where it also benefits only “certain” teacher retirees.

In addition, the Teachers’ Retirement Act uses the “general fund” as the source of funds with which to pay teachers who retired from the various units of the University System and other schools, stating:

If the employer is the superintendent of public instruction, a public institution of the state of Montana, a unit of the Montana university system, or the Montana state school for the deaf and blind, the legislature shall appropriate to the employer an adequate amount to allow payment of the employer’s contribution. (Emphasis added.)

Section 3, amended § 19-20-605(3), MCA With this annuity type system, the employers’ part of the cost of living increase for “certain” retirees is paid by the State of Montana. How is that different from the present Act?

I conclude there is no discrimination “as to source” within the 1991 Act. As a matter of policy, Montana provides its own retirees an “incentive” without an intention to discriminate in any manner.

The Davis test of significant differences between the classes is not even reached here. One only has to determine the significant difference between classes if discrimination has occurred. Here, there is no agreement as to even what the appropriate classes are. The only classes that are pertinent to 4 UCS § 111 are “state retirees” and “federal retirees.” Both of these classes are taxed equally under this Act. It is only the segment of State retirees that receive the benefit.

While the majority merely mentions that the discrimination is “clear” it does not go on to explain how the “incentive” or “adjustment” is discriminatory. Nor does it explain how the Davis quote applies to what we have before us:

Under our precedents, “[t]he imposition of a heavier tax burden on [those who deal with one sovereign] than is imposed on [those who deal with the other] must be justified by significant differences between the two classes.” (Emphasis added.)

Davis, 489 U.S. at 815-816,109 S.Ct. at 1508. The federal retirees have no heavier “tax burden” than do State retirees. The tax burden on both State and federal retirees is identical. The exemption of $3,600 is identical as are the tax rates applicable to both State and federal retirees. The range at which the exemption begins is $30,000 for both State and federal retirees. The only difference is that State retirees who reside in Montana are given an “incentive” to stay within the State that has employed them and from whom their pensions are derived. I point out here that the “incentive” is still subject to tax at the same rates as any amounts received by the retirees.

The District Court determined that the adjustment was part of a policy decision on the part of the State toward its employees. I would affirm the court on this analysis. The State acting as an employer has every right to act in concert with the sovereign and the legislature to provide an incentive to retired public employees to stay within the State that has been their home for years. This policy decision does not constitute discrimination against the retirees of any other sovereign or any other group of retirees. In this case, the other sovereign’s retirees are taxed identically with those of the State sovereign. I conclude that instead of condemning the legislature and the governor for their openness in enacting the Act, they should be commended for the forthright way in which this was done.

I also disagree with the conclusion that the adjustment is severable from the Act. Both the title and the statement of intent make it obvious that the adjustment or incentive to stay in Montana is an integral part of this Act. The incentive, based upon the fact that public retirees will now be receiving less money because of the mandatory taxation, should not be divorced from the tax plan itself. The tax plan explains why the employer State of Montana is granting this incentive. I do not believe the intention of granting some additional monies can be divorced from the taxation which applies to the retiree benefits and the adjustment. As demonstrated clearly in the WHEREAS clauses at the beginning of the Act, the taxation and the granting of the adjustment are not severable. The action of the majority is punitive in nature, taxing all benefits equally while eliminating the additional benefit awarded under the Act.

I also concur in the portion of Judge Rapkoch’s concurrence and dissent in which he concludes that the adjustment payment is not severable from the rest of Chapter 823.


source: Caselaw Access Project

author: JUSTICE WEBER JUSTICE GRAY

license: Public Domain

text:
    KARL NYSTROM and RUTH NYSTROM, Plaintiffs and Appellants, v. ROBERT C. MELCHER; DUANE SCHNITTGEN; MORRISON, YOUNG, MELCHER, BROWN & RICHARDSON, an entity of assumed name; ROBERT D. MORRISON; CHRIS R. YOUNG; STEPHEN R. BROWN, JR.; and KATHLEEN H. RICHARDSON, Defendants and Respondents.
    No. 93-024.
    Submitted on Briefs September 9, 1993.
    Decided November 23, 1993.
    50 St.Rep. 1488.
    262 Mont. 151.
    864 P.2d 754.

      For Plaintiffs and Appellants: Mort Goldstein, Goldstein Law Firm, Havre.
    For Defendants and Respondents: Stuart C. MacKenzie, Bums, Solem & MacKenzie, Chinook (for Duane Schnittgen); Neil E. Ugrin, Ugrin, Alexander, Zadick & Slovak, Great Falls.
   JUSTICE WEBER

delivered the Opinion of the Court.

Plaintiffs appeal from the order of the District Court of the Twelfth Judicial District, Hill County, dismissing their complaint with prejudice for their repeated failure to plead in conformity with the Montana Rides of Civil Procedure. We affirm.

The sole issue for review is whether the District Court erred in dismissing the plaintiffs’ complaint with prejudice because of their failure to comply with the Montana Rides of Civil Procedure and failure to comply with an order of the court.

This case stems from prior litigation between Karl and Ruth Nystrom (the Nystroms) and respondent Duane Schnittgen (Schnittgen), in which Schnittgen was represented by respondent Robert C. Melcher (Melcher). This litigation was an action upon a contract covering real and personal property; it was initiated by Schnittgen and culminated in a trial before District Court Judge Peter L. Rapkoch. Judge Rapkoch denied relief on all claims and counterclaims. After the completion of and in response to that action, the Nystroms filed a complaint, subsequently amended, against Schnittgen, Melcher and the law firm of Morrison, Young, Melcher, Brown & Richardson.

The Nystroms’ amended complaint asserted claims for “malicious fraudulent prosecution,” “intentional abuse of process,” and “unlawful intentional infliction of emotional distress.” The amended complaint contained 76 paragraphs in 26 pages of allegations. The District Court determined that “the form and substance of this pleading was vindictive, argumentative, and repetitive” and “not within the contemplation of the Montana Rules of Civil Procedure and was not a pleading to which the defendants should or could reasonably be expected to respond.” The respondents Melcher and the law firm of Morrison, Young, Melcher, Brown & Richardson filed a motion to strike the amended complaint or, in the alternative, for a more definite statement and were joined by Schnittgen in their motion. Judge Robert J. Boyd issued an order strikingthe Nystroms’ amended complaint and ordered them to make their complaint conform to Rules 8(a), 8(e)(1) and 12, M.R.Civ.P.

The Nystroms filed a second amended complaint, this time alleging “intentional malicious fraudulent prosecution,” “intentional abuse of process,” “unlawful intentional infliction of emotional distress,” and “interference with business relation” and also purported to state a claim for “conspiracy.” The second amended complaint contained 130 paragraphs of allegations plead in 13 counts over 43 pages. It essentially repleaded the claims alleged in the first complaint and included claims distinct from and not indicated by the first amended complaint. Judge Boyd also found that the second amended complaint remained “vindictive, argumentative, and repetitive in form and substance.”

In response to the second amended complaint, respondents filed a motion to dismiss the complaint pursuant to Rule 41(b), M.R.Civ.P., based on the Nystroms repeated failure to plead in conformity with the Montana Rules of Civil Procedure and for failing to obey the District Court’s order directing them to “strictly observe” Rules 8 and 12, M.R.Civ.P., in any subsequent amended complaint. The District Court heard oral arguments on the motion and subsequently dismissed the Nystroms’ second amended complaint with prejudice. Although the court concluded that the plaintiffs’ “abusive pleading tactics” had needlessly protracted litigation and added to its cost, it declined to grant the respondents’ request for sanctions under Rule 11, M.R.Civ.P. Specifically, the District Court concluded:

7. The second amended complaint is parallel to, or more egregious than, the violation of the rules committed by plaintiffs in their first amended complaint. The second amended complaint is in direct violation of the Court’s order of January 3,1992, as well as the Montana Rules of Civil Procedure. The second amended complaint does not strictly observe the requirements of Rules 8 and 12, Mont. R. Civ. R, and, as such, dismissal with prejudice is warranted under Rule 41(b), Mont. R. Civ. P.
8. Plaintiffs’ motion for leave to amend the second amended complaint is without merit. Plaintiffs’ seek to amend their second amended complaint in order to more particularly plead fraud allegations. Fraud and fraud-related allegations were pleaded without particularity in the first amended complaint, and plaintiffs demonstrated no effort to plead these allegations with greater brevity, clarity, or particularity in the second amended complaint, despite the admonition of the Court. A farther request to replead is not warranted under the circumstances herein. In addition, the plaintiffs seek leave to amend the second amended complaint to more clearly plead their conspiracy count. The conspiracy count was not pleaded in the first amended complaint. Given the prior admonition of the court, and in light of the specious manner in which this count was pleaded in the second amended complaint, the Court concludes that leave to amend is not warranted.

In the first action, Judge Rapkoch concluded that Schnittgen had alleged an oral contract which was “for all intents and purposes a subterfuge.” In this action, the Nystroms’ complaint attempted to state a cause of action against defendants for deliberately fabricating a fraudulent suit to deceptively obtain property belonging to the Nystroms. The Nystroms argue that there were other alternatives available to the District Court in lieu of the drastic and unprecedented measure of dismissal with prejudice.

Did the District Court err in dismissing the plaintiffs’ complaint with prejudice because of their failure to comply with the Montana Rules of Civil Procedure and failure to comply with an order of the court?

The District Court dismissed the second amended complaint with prejudice under Rule 41(b), M.R.Civ.P, because it did not strictly observe the requirements of Rules 8 and 12, M.R.Civ.P. Rule 41(b), M.R.Civ.P, provides in pertinent part:

Rule 41(b). Involuntary dismissal — effect thereof. For failure of the plaintiff to ... comply with these rules or any order of court, a defendant may move for dismissal of an action or of any claim against the defendant. Unless the court in its order for dismissal otherwise specifies, a dismissal under this subdivision ... operates as an adjudication upon the merits.

Rule 41(b), M.R.Civ.R, has no application to a motion to dismiss for failure to state a claim under Rule 12(b), M.R.Civ.R; we therefore do not need to address the sufficiency of the claim in stating a cause of action.

At the time Judge Boyd ordered the first amended complaint stricken, he allowed the Nystroms 30 days in which to file a second amended complaint “strictly observing the requirements of Ride 8(a) and 8(e)(1), as well as the mandates of Rule 12, M.R.Civ.P.” These rules provide in pertinent part:

Rule 8(a). Claims for relief. A pleading which sets forth a claim for relief, whether an original claim, counterclaim, cross-claim or third-party claim, shall contain (1) a short and plain statement of the claim showing that the pleader is entitled to relief
Rule 8(e). Pleading to be concise and direct — consistency. (1) Each averment of a pleading shall be simple, concise, and direct. No technical forms of pleading or motion are required....
Rule 12(e). Motion for more definite statement. If a pleading to which a responsive pleading is permitted is so vague or ambiguous that a party cannot reasonably be required to frame a responsive pleading, the party may move for a more definite statement before interposing a responsive pleading. ... If the motion is granted and the order of the court is not obeyed within 10 days after notice of the order or within such other time as the court may fix, the court may strike the pleading to which the motion was directed or make such order as it deems just.
Rule 12 (f). Motion to strike. ... upon motion made by a party within 20 days after the service of the pleading upon the party or upon the court’s own initiative at any time, the court may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.

Rule 12(e), M.R.Civ.P., clearly allowed the District Court to strike the first amended complaint in this action and also to order that the second amended complaint be dismissed with prejudice as contemplated under Rule 41(b), M.R.Civ.R

Dismissal under Rule 41(b), M.R.Civ.P., however, is a harsh remedy. This Court has previously stated that because the result is severe, district courts should refrain from thus dismissing an action “unless there is no other adequate remedy available” and “the facts sufficiently call for such a result.” Chisholm v. First Nat’l Bank of Glasgow (1988), 235 Mont. 219, 220, 766 P.2d 868, 869. In Chisholm, 766 P.2d at 872, we quoted Von Poppenheim v. Portland Boxing and Wrestling Comm’n (9th Cir. 1971), 442 F.2d 1047, 1049, cert. denied 404 U.S. 1039, 92 S.Ct. 715, 30 L.Ed.2d 731, reh’g denied 405 U.S. 999, 92 S.Ct. 1246, 31 L.Ed.2d 469:

Because a dismissal under Rule 41(b) is such a harsh remedy, and because such dismissals are frequently occasioned by inattention of counsel rather than by plaintiff’s own wrongdoing, courts are rightfully reluctant to employ 41(b) sanctions for failure to comply with an order of the court ... It is equally clear, however, that aggravated circumstances may make dismissal under 41(b) appropriate ... In those cases the district judge will be reversed only if he has abused his discretion in dismissing the action.

Montana Rule 41(b), M.R.Civ.P., parallels the federal rule and also places a decision to involuntarily dismiss a pleading within the sound discretion of the district court.

We emphasize again that a Rule 41(b) dismissal of a complaint is not determined by whether or not the complaint can withstand a Rule 12(b)(6) motion to dismiss for failure to state a claim for which relief can be granted.

Under the identical federal rule, the Ninth Circuit Court of Appeals has held that the court is not required to exhaust all possible sanctions prior to dismissing a case with prejudice. Nevijel v. North Coast Life Ins. Co. (9th Cir. 1981), 651 F.2d 671, 674. In Nevijel, the original complaint was “verbose, confusing and almost entirely conclusory’ and consisted of 48 pages with 23 pages of addenda and exhibits. The plaintiffs were ordered to file an amended complaint. The amended complaint was 23 pages long with 24 pages of addenda, named additional defendants without leave of the court and was equally as verbose, conclusory and confusing as the first version of the complaint. The plaintiffs contended on appeal that they should be granted leave to amend the complaint. The Ninth Circuit affirmed the lower court’s dismissal with prejudice, holding that the district court did not abuse its discretion, although there were numerous other sanctions available. Nevijel, 651 R2d at 674.

The Eighth Circuit similarly affirmed a district court’s dismissal with prejudice, concluding that the plaintiff’s deliberate persistence in refusing to conform his pleadings to the requirements of Rule 8 justified dismissal with prejudice. Michaelis v. Nebraska State Bar Ass’n (8th Cir. 1983), 717 F.2d 437, 439.

Our standard of review in discretionary trial court rulings is whether the court abused its discretion. Steer Inc. v. Department of Revenue (1990), 245 Mont. 470, 475, 803 P.2d 601, 604. We encourage the cautious exercise of that discretion in involuntary dismissal actions, but will reverse the district court only if the court has abused its discretion in dismissing the action. Chisholm, 766 P.2d at 872. Chisholm further held that the district court has discretion to dismiss the entire action and is not bound to dismiss only those claims which are related to the court order with which plaintiff failed to comply. Chisholm, 766 P.2d at 872. As stated above in the quote from Von Poppenheim, frequently a failure to comply with an order of the court for failure to plead according to the rules is attributable to the attorney rather than the party. However, “it is entirely clear that the party cannot avoid the consequences of the acts or omissions of his freely chosen attorney.” 9 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 2369 (1971).

In this case, the District Court ordered the Nystroms to comply with Rule 8(a) and (e), M.R.Civ.P., in any repleading of their complaint. These rules require a short and plain statement that is simple, direct and concise. The Nystroms responded with an amended complaint which was even more confusing, vague and redundant than the first amended complaint and nearly twice as long.

This Court has stated that an important factor to consider in reviewing a dismissal of a complaint under Rule 41(b), M.R.Civ.P., is whether the offending party had a prior warning that such conduct could result in dismissal. Doug Johns Real Estate, Inc. v. Banta (1990), 246 Mont. 295, 299, 805 P.2d 1301, 1304. See also Becky v. Norwest Bank Dillon, N.A. (1990), 245 Mont. 1, 798 P.2d 1011. In dismissing a complaint for failure to prosecute, this Court stated in Cox v. Myllymaki (1988), 231 Mont. 320, 322-23, 752 P.2d 1093, 1095, that another important factor in such an action was the availability of alternative sanctions.

The Nystroms were given prior warning and allowed to replead their complaint, provided they comply with the Montana Rules of Civil Procedure. They now contend that they should be allowed to further amend their complaint and that dismissal with prejudice was inappropriate. In dismissing the second amended complaint in this case, the District Court stated:

5. Plaintiffs’ second amended complaint is needlessly long, confusing, redundant, scandalous, onerous, and harassing. Plaintiffs’ second amended complaint does not comply with the letter nor spirit of Rule 8 and 12, Mont.R.Civ.R, despite the Court’s admonition to strictly observe the requirements therein. Plaintiffs’ second amended complaint is not a simplification of the first amended complaint. The verbose, derogatory, and imprecise nature of the pleading, as well as the intermingling of claims and parties therein, does not permit the defendants to respond responsively, nor should the defendants be expected to frame a responsive pleading. The second amended complaint is an abuse of the rules of civil procedure and this Corut’s order. The plaintiffs’ persistent refusal to conform their pleading to the Montana Rules of Civil Procedure and the order of this Court warrants dismissal of the second amended complaint, with prejudice.

An example of the Nystroms’ pleading in the first amended complaint is as follows:

16. Defendant “Melcher” had the ulterior purpose of concealing that he had been an active participant in Schnittgen’s deliberately false and fraudulent ulterior scheme and Corut allegations. Melcher knew and was convinced that his client’s claim was sham, unmeritorious and unfounded. Melcher knew that no probable cause for the trial of Schnittgen’s false and fraudulent claims existed. “Melcher” not only believed his client’s claims were not meritorious, prior to and during the trial concerning Hill County Cause No. DV-88-248, but Melcher knew that the only way that Schnittgen’s claims could have succeeded was if Schnittgen and Melcher were successful in intentionally deceiving the Corut by presenting manufactured false testimony.

This is essentially the same as, although shorter than the following paragraph taken from the second amended complaint:

109. Defendant Melcher had the ulterior purpose of concealing that he had been an active knowing participant in Schnittgen’s deliberate, false and fraudulent ulterior scheme and falsified Corut allegations. Melcher knew and was convinced that his client’s claim was sham, unmeritorious and unfounded and that there was no substantial purpose in presenting or alluding to Schnittgen’s false “value” claim in the District Corut. Melcher did not believe his client’s claims to be meritorious, under any honest presentation of facts. Melcher knew that the only way that Schnittgen’s claims could have possibly succeeded was if Schnittgen and Melcher were successful in intentionally deceiving the Department of State Lands, as well as the Hill County District Court through the presentation of manufactured false testimony and or testimony having no actual bearing on the relevant 1987 “value” of the property that was the subject of Hill County Cause No. DV-88-248.

This is representative of the second amended complaint when compared to the first amended complaint. In general, the paragraphs of the second amended complaint are organized in a different manner and are more verbose than in the first amended complaint. Not only are statements redundant within the same paragraph, they are reiterated throughout the complaint.

Further, the second amended complaint contains the same vituperative tone throughout as did the first amended complaint. Respondents contend that the allegations in the second amended complaint are needlessly long, repetitive, confusing and vitriolic. Respondents further contend that they failed to comply with the order of the court. We agree.

This Court has previously stated that a party displaying an attitude of unresponsiveness to judicial process warrants imposition of sanctions, including dismissal. Landauer v. Kehrwald (1987), 225 Mont. 322, 325, 732 P.2d 839, 841. In Landauer, we restated our policy of following the recent trend of cases intent upon punishing transgressors of Rule 37, M.R.Civ.P., discovery abuses rather than patiently trying to encourage their cooperation. Landauer, 732 P.2d at 840-41. This Court has held further that where plaintiff’s complaint was essentially the same as an earlier complaint dismissed by another judge, differing from the earlier complaint only in its sweeping alternative conclusions of law, the complaint was properly dismissed. Sovey v. Chouteau County Dist. Hosp. (1977), 173 Mont. 392, 395, 567 P.2d 941, 943. Further, the district court is in the best position to know which parties callously disregard the rights of their opponents and other litigants and to determine which sanction is most appropriate. Dassori v. Roy Stanley Chevrolet Co. (1986), 224 Mont. 178, 180, 728 P.2d 430, 431. The district court judge is also in the best position to assess whether a party has made a good faith effort to comply with a court order and whether a lesser sanction would be appropriate.

In this case, the plaintiffs were warned. After the first amended complaint was stricken, Judge Boyd ordered the Nystroms to comply with procedural rules. They were given 30 days in which to replead and ordered to comply with specified rules of procedure. Despite the court’s order to strictly comply with Rules 8 and 12, M.R.Civ.P, the Nystroms’ second amended complaint is even more egregious than, albeit strikingly similar to, the complaint previously stricken. There is no indication that the plaintiffs made a good faith effort to comply with the court’s order to tailor their complaint to Rules 8 and 12, M.R.Civ.P. The District Court reasonably could have concluded that there was no other adequate remedy available and the facts of this case sufficiently called for involuntary dismissal, according to the standard set forth in Chisholm.

In Von Poppenheim, 442 F.2d at 1054, the court stated:

The exercise of [the court’s] discretion to dismiss requires only that possible and meaningful alternatives be reasonably explored, bearing in mind the drastic foreclosure of rights that dismissal effects. Here the district judge made such reasonable opportunities and alternatives available to plaintiff that the dismissal was not an abuse of discretion. Somewhere along the line, the rights of the defendants to be free from costly and harassing litigation must be considered. So too must the time and energies of our courts and the rights of would-be litigants awaiting their turns to have other matters resolved. The exact point on that line is incapable of exact definition, but we are satisfied that the present case went beyond it.

In this case, we are convinced that Judge Boyd granted the plaintiffs a reasonable opportunity to amend their complaint after the first amended complaint was stricken. They failed to comply with his order and the pleading requirements of Rule 8, M.R.Civ.P., despite Judge Boyd’s order.

The Nystroms did not strictly observe Rules 8 and 12; they re-pleaded in the same repetitive and vituperative fashion. We conclude that the Nystroms were adequately warned that their first amended complaint was inadequate, they were informed of its faults and they were given sufficient time to correct them. We further conclude the Nystroms did not comply with the court’s order and did not conform their second amended complaint to Rules 8 and 12, M.R.Civ.P.

We hold the District Court did not abuse its discretion in dismissing the Nystroms’ complaint with prejudice based on their failure to comply with the Montana Rules of Civil Procedure and failure to comply with an order of the court.

AFFIRMED.

CHIEF JUSTICE TURNAGE, JUSTICES HARRISON and HUNT concur.

JUSTICE GRAY

dissenting.

I respectfully dissent from the Court’s opinion. While I understand the frustration of both the District Court and this Court over the pleadings at issue here, I cannot agree that dismissal with prejudice is appropriate. In particular, it is my view that the Court overstates when it characterizes as “repeated” appellants’failure to plead in conformity with the Montana Rules of Civil Procedure; the record is clear that one repleading occurred prior to dismissal. Because I believe that a fair reading of the record and the amended complaint reflects that appellants’ counsel made a good faith effort to comply, I conclude that the District Court abused its discretion in dismissing the amended complaint at issue here with prejudice pursuant to Rule 41(b).

This action arises out of an underlying suit by Duane Schnittgen, a defendant herein, against Karl and Ruth Nystrom, plaintiffs/appellants herein. It is predicated on the defendants’ conduct in initiating and prosecuting the previous litigation against the Nystroms.

The Nystroms’ original complaint was filed on September 11,1991, and contained “Doe” defendants. Prior to any responsive pleading, the Nystroms filed an amended complaint. The 28-page complaint was captioned “Amended Complaint and Jury Demand for Intentional Malicious Fraudulent Prosecution, Intentional Abuse of Process, and Unlawful Intentional Infliction of Emotional Distress.” It contained 76 numbered allegations by both Nystroms jointly, followed by a prayer for relief. No separate claims or counts were provided.

Defendant Robert C. Melcher moved to strike “superfluous allegations” in the amended complaint or, in the alternative, to order the Nystroms to submit a more definite statement. The other defendants joined in the motion. While it is clear from their supporting brief that the defendants were concerned with the tone and tenor of the amended complaint, the defendants clearly and repeatedly expressed concerns that the complaint was vague and ambiguous in that it “does not segregate or specify the purported claims by individual, corresponding counts.” In essence, the defendants could not ascertain which allegations were urged in support of which theory set forth in the caption of the complaint. The motion also related to the verbosity and redundancy in the pleading.

The District Court granted the defendants’ motion to strike, allowing the Nystroms 30 days to replead “strictly observing the requirements of Rule 8(a) and 8(e)(1), as well as the mandates of Rule 12, M.R.Civ.P.” No further direction or specification to the rules was provided.

In response to the court’s order, the Nystroms timely filed a second amended complaint. The 43-page complaint set forth a total of thirteen separate counts covering the two plaintiffs and the seven named defendants: four counts by Ruth Nystrom against Schnittgen, four counts by Karl Nystrom against Schnittgen, two counts by both Nystroms against the other named defendants except Melcher; and three counts by both Nystroms against Melcher individually. The prayer for relief also was separately stated by plaintiff, defendant and count.

The defendants responded to this amended complaint by filing a motion to dismiss pursuant to Rule 41(b) for failure to plead in conformity with the Montana Rules of Civil Procedure and as ordered by the court. The thrust of the motion was the rambling, invective nature of the amended complaint; the defendants asserted that the complaint was not the “short and plain statement” of claim or the “simple, concise, and direct” averment of pleading required by Rules 8(a) and 8(3)(1) and the court’s earlier order. The District Court dismissed the complaint in its entirety with prejudice, based primarily on the Rule 8 requirements of precision, clarity and brevity and the Rule 12 requirements that pleadings not be ambiguous and be free of impertinent and scandalous matter.

As stated above, both the District Court and this Court are understandably frustrated by the length and rambling nature of the amended complaint. However, I cannot agree that the complaint should be dismissed with prejudice. A careful reading of (1) the original motion to strike or for a more definite statement; (2) the District Court’s order to replead; and (3) the amended complaint, suggests to me that appellants made a good faith effort to comply with the court’s order and the thrust of the defendants’ first motion. Because there are two appellants and seven named, defendants, the restructuring into separate counts by plaintiff and defendant necessarily resulted in a lengthier amended complaint. Thus, while the amended complaint was lengthier than would have been necessary had counsel dropped his unfortunate habit of tedious and repetitive adjectival phrases or simply incorporated allegations by reference in later counts, I cannot conclude that — under these circumstances — length alone is an appropriate basis for a result as severe as dismissal with prejudice. To my knowledge, we have set no page limit for complaints involving nine separate parties and thirteen separate counts. On the basis of this record, the amended pleading reflects a sufficient good faith effort to avoid the harsh and final remedy of dismissal with prejudice.

Landauer, on which the Court relies, is inapposite on both the law and the facts. First, it involved Rule 37(b), rather than 41(b); it was a discovery abuse case. Landauer, 732 P.2d at 840. Second, the plaintiff’s actions in Landauer, which supported the dismissal sanction for discovery abuses, were much more egregious than those of appellants here. There, counsel was dilatory in filing his client’s discovery and twice failed to obey the clear mandates of court orders to produce tax returns. Landauer, 732 P.2d at 841. Here, appellants were never dilatory; in addition, the court’s order was nowhere near as clear as the disobeyed mandates in Landauer. Thus the “attitude of unresponsiveness” present in Landauer simply does not appear here.

Nor are Sovey and Dassori persuasive precedent. Here, unlike in Sovey, appellants did not refile essentially the same complaint; they laboriously separated each claim against each named defendant in response to the defendants’ complaint that they did not “segregate or specify the purported claims by individual, corresponding counts.” Their reward for this effort to meet the defendants’ concerns is dismissal with prejudice. In this same regard, a fair reading of the record does not result in a conclusion that the appellants “callously disregard[ed] the rights of their opponents,” as the Court suggests by its reliance on Dassori.

I agree that the amended pleading is far less than the ideal. I also agree that this counsel’s vituperative tone and approach does not exemplify the ideals of practice by members of the legal profession in Montana. I cannot agree, however, that dismissal with prejudice — which results in a total inability of the Nystroms to have their dispute considered by the courts of Montana — was appropriate here. I would reverse the District Court.

JUSTICES TRIEWEILER and NELSON concur in the foregoing dissent.


author: JUSTICE TRIEWEILER

text:
    G.K. MURPHY and MARGARET K. MURPHY, Plaintiffs and Respondents, v. E.A. ATKINSON, in her personal capacity, ANN LEWIS, the personal representative of the ESTATE OF JOSEPH ROSCOE LEWIS, in her official capacity, B.A. HUEBNER, RIVERSIDE INVESTMENT, and DEEP WATER INVESTMENT, LTD., Defendants and Appellants.
    No. 93-084.
    Submitted on Briefs August 5, 1993.
    Decided November 23, 1993.
    50 St.Rep. 1495.
    262 Mont. 164.
    864 P.2d 273.

      For Defendants and Appellants: Karl Knuchel, Livingston.
    For Plaintiffs and Respondents: Joe C. Maynard, Crowley, Haughey, Hanson, Toole & Dietrich, Billings.
   JUSTICE TRIEWEILER

delivered the Opinion of the Court.

On July 1,1988, G. K. Murphy and Margaret K Murphy filed an action in the District Court for the Fourteenth Judicial District in Musselshell County seeking to set aside certain transfers of real property by Joseph Lewis based on fi-aud. Both parties moved for summary judgment. On November 24, 1992, the District Court granted the Murphys’ motion and entered judgment in their favor. Defendants appeal the order of the District Court.

We affirm.

The issue on appeal is whether the District Court erred when it granted the Murphys’ motion for summary judgment.

This appeal arises out of a failed real estate transaction between the Murphys and Joseph Lewis. In 1979, the Murphys sold ranch property to Lewis under a contract for deed. Lewis defaulted on the payments due the Murphys, and a dispute ensued regarding the contract’s payment provisions. After Lewis initiated a number of lawsuits and caused extensive damage to the property prior to vacating it, the Murphys counterclaimed on November 14,1984, seeking actual and punitive damages. On June 27, 1988, judgment was entered in favor of the Murphys and they were awarded damages in the amount of $196,959.93.

In order to execute on the judgment, the Murphys immediately filed an action in the District Court to set aside a number of conveyances of real property by Lewis as fraudulent. Because the facts and litigation surrounding these land transfers are pertinent to this appeal, a brief description follows.

During the pendency of the numerous lawsuits between Lewis and the Murphys, Lewis purchased a different piece of property known as the MN Ranch, which is the property at issue in this appeal. He bought this property with his nephew and business partner, Robert O’Connor. Lewis provided the funds for the purchase of the MN Ranch, but the deed was recorded in O’Connor’s name.

During the course of the next few years, Lewis and O’Connor made approximately $350,000 worth of improvements to the MN Ranch. In 1983, Lewis and Riverside Investment entered into a promissory note and agreement granting Riverside a mortgage in the amount of $492,000 against the MN Ranch. The Murphys allege that this was a fraudulent encumbrance and name Riverside, as well as its successor in interest, Deep Water Investment, Ltd., as defendants in this appeal.

In 1984, a disagreement arose concerning the status of the MN Ranch. After a series of negotiations, Lewis and O’Connor executed a dispute settlement agreement on May 14, 1984. The agreement provided that Lewis was to pay O’Connor a total of $75,000 in exchange for a quitclaim deed to the MN Ranch. Upon receipt of the deed, Lewis immediately conveyed the MN Ranch to his future wife, E. A. Atkinson, also a defendant in this appeal, purportedly for a consideration of $10. This transfer of title was recorded on the same day that the agreement was signed.

Pursuant to the agreement, Lewis made the first $20,000 payment to O’Connor. However, Lewis defaulted on the remainder of the obligation, and O’Connor brought suit to recover the $55,000 which was still due under the agreement. O’Connor also sought to set aside the transfer of the MN Ranch to Atkinson as a conveyance to defraud creditors. On March 13,1988, the District Court ordered Lewis to pay O’Connor $55,000 plus interest and costs, but concluded that the transfer of the MN Ranch from Lewis to Atkinson was not fraudulent. This conclusion was based on its finding that O’Connor failed to produce evidence demonstrating that the “transfer was made for the purpose, or had the effect, of rendering the Defendant J.R. Lewis insolvent.” This Court affirmed that decision in O’Connor v. Lewis (1989), 238 Mont. 270, 776 P.2d 1228.

While O’Connor’s suit was pending, Atkinson, who had since married Lewis, transferred title to the MN Ranch to her daughter, B. A. Huebner. This transfer was also purportedly made for a consideration of $10. One month later, however, Huebner transferred the property back to Atkinson, again for a $10 consideration, in light of her anticipated marriage in California, which is a community property state.

The District Court issued its opinion and order in November 1992, granting summary judgment in favor of the Murphys and concluding that, with regard to the Murphys, the transfers of the MN Ranch were fraudulent. From this judgment, defendants appeal.

Did the District Court err when it granted the Murphys’ motion for summary judgment?

The District Court first noted that the defendants had not contested any of the significant facts set forth by the plaintiffs nor did they raise any other material issue of fact which would preclude summary judgment. Therefore, the court concluded that there were no genuine issues of material fact and, in the absence of such a factual dispute, the issue was solely legal. Based on its application of the law, the court concluded that the conveyance of the MN Ranch from Lewis to Atkinson was fraudulent as a matter of law pursuant to the Fraudulent Conveyances Act found at §§ 31-2-301 through -325, MCA (1989). That statute provides as follows:

Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration.

Section 31-2-311, MCA (1989). After considering the evidence, the court determined that the Murphys satisfied each element to demonstrate a fraudulent conveyance. It concluded that the Murphys were creditors pursuant to § 31-2-301(3), MCA (1989), because they were persons “having any claim, whether matured or unmatured, liquidated or unliquidated, absolute, fixed, or contingent” at the time of the conveyance. Furthermore, the Murphys offered uncontested evidence that Lewis was insolvent at the time of the transfer, and finally, the court determined that the conveyance, reciting a consideration of $10, had been made without fair consideration as required under § 31-2-303, MCA (1989).

The court also set aside Atkinson’s transfer of the MN Ranch to her daughter because Huebner had not been a bona fide purchaser of the property. The court noted that neither Riverside Investment nor Deep Water Investment, which were allegedly sham mortgage companies, appeared to defend the mortgage interests which they held against the MN Ranch. Therefore, it ordered that all of Lewis’s conveyances of the MN Ranch be set aside and annulled.

The court further determined that the statute of limitations for an action based on fraud had not run, and that the Murphys’ claims were not barred by res judicata, collateral estoppel, the collateral attack doctrine, or the “law of the case” doctrine.

On appeal, the defendants do not challenge the sufficiency of the evidence or the court’s application of the law concerning fraudulent conveyances. Rather, they contest the court’s summary judgment order in favor of the Murphys on the bases that the “law of the case” doctrine precluded a determination that the transfer of the MN Ranch from Lewis to Atkinson was fraudulent and that the Murphys’ claim was barred by the statute of limitations.

Defendants contend that the Murphys are bound by the District Court’s determination, which was affirmed by this Court in O’Connor, 776 P.2d at 1233, that the May 14,1984, conveyance of the MN Ranch from Lewis to Atkinson was not intended to defraud creditors. In State v. Burlingame (1980), 185 Mont. 183, 605 P.2d 176, we clarified that the law of the case doctrine applies when this Corut decides an issue involving the same parties in the same case. Whether that decision is right or wrong, it is binding on the parties and cannot be relitigated in a subsequent appeal. Burlingame, 605 P.2d at 177. In In re Marriage of Gies (1985), 218 Mont. 433, 709 P.2d 635, we reiterated that the doctrine applies when the same parties and the same case are involved. In this instance, the Murphys were not parties to the O’Connor v. Lewis litigation, and the Murphys’ cause of action was litigated in an entirely different case. The District Court correctly concluded that the doctrine did not apply and that it was free to reach its own decision with respect to the Murphys’ allegations based on the evidence presented.

Defendants next contend that the applicable statute of limitations for bringing an action based on fraud is two years pursuant to § 27-2-203, MCA. They assert that the transfer from Lewis to Atkinson was recorded on May 14,1984, and the Murphys did not file their action to set aside the transfer until July 1988, four years later. It is their contention that the recording of the deed gave constructive notice of the transfer and that is when the Murphys’ cause of action accrued. The Murphys, however, contend that the statute did not begin to run until their claim was reduced to judgment in 1988, and that this case was instituted immediately thereafter. Requiring them to file suit within two years of the recording of the transfer would have required that suit be filed before they had a right to do so.

In Finch v. Kent (1900), 24 Mont. 268, 279, 61 P. 653, 658, this Court addressed a similar situation. We made clear that under circumstances such as this, where an alleged fraudulent transfer occurs prior to the time that a judgment is obtained against the transferor, a cause of action does not accrue, and the statutory period does not begin to run, until the judgment is obtained. Therefore, we conclude that the two-year statute of limitations did not begin to run until June 27,1988, and the filing of this action on July 1,1988, was timely.

We hold that the District Court did not err when it granted summary judgment in favor of the Murphys. The order of the District Court is affirmed.

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


author: JUSTICE HUNT JUSTICE TRIEWEILER

text:
    WADE E. and BARBARA A. WOITH, et al., Plaintiffs and Appellants, v. CASCADE COUNTY TREASURER; MONTANA DEPARTMENT OF REVENUE, Defendants and Respondents.
    No. 93-155.
    Submitted on October 13, 1993.
    Decided November 23, 1993.
    50 St.Rep. 1498.
    262 Mont. 170.
    864 P.2d 752.
    For Plaintiffs and Appellants: Robert P. Goff (argued) and Kristen G. Juras, Church, Harris, Johnson & Williams, Great Falls.
    For Defendants and Respondents: Lawrence G. Allen, Tax Counsel (Argued), and David W. Woodgerd, Chief Legal Counsel, Montana Department of Revenue; Patrick Paul, Cascade County Attorney, Great Falls.
   JUSTICE HUNT

delivered the Opinion of the Court.

Appellants, Wade and Barbara Woith (Woiths), appeal from an order of the Eighth Judicial District Court, Cascade County, denying them summaiy judgment and granting summary judgment to respondents, Cascade County Treasurer and Montana Department of Revenue (DOR). Woiths are a certified class of Cascade County taxpayers affected by real property tax appraisal adjustments implemented by DOR in 1990.

We reverse and remand.

The issue is whether Woiths were barred from proceeding under §§ 15-1-406 through -408 and 15-2-307 through -310, MCA (repealed 1993) in 1990 with a declaratory judgment action to protest House Bill 703’s tax assessment method?

The District Court found that because Woiths failed to file administrative appeals from their 1989 property tax assessments pursuant to § 15-15-102, MCA (1989), they did not successfully preserve their appeal. The court relied on Department of Revenue v. Barron (1990), 245 Mont. 100, 799 P.2d 533.

In Barron, we held that portions of House Bill 703 (ch. 636,1989 Mont. Laws 1628) relating to stratified-sales assessment ratio studies (codified at § 15-7-111, MCA (1989)) were unconstitutional, and that the values arrived at by using such procedures are invalid. Further, we held that the effect of our ruling would be applied prospectively (after December 31, 1990) and in limiting language denied relief to taxpayers except as to:

those cases now pending on appeal, or properly appealed by the property owners. (This means those cases heretofore appealed within the time provided for taxpayer appeals at the local or state level and now pending on the grounds of unconstitutionality found to exist in this proceeding, and includes those previously appealed on those grounds and denied at the county or state level; but, no other appeals on the grounds covered herein shall be recognized.)

Barron, 799 P.2d at 542.

Woiths claim that before the deadline for filing appeals pursuant to § 15-15-102, MCA (1989), had passed, they chose not to utilize that remedy. Instead, Woiths claim that in June 1990 they had chosen to oppose DOR’s tax assessment pursuant to the alternative remedy in §§ 15-1-406 through -408 and 15-2-307 through -310, MCA (1989). Section 15-1-406, MCA, provided in pertinent part:

Alternative remedy — declaratory judgment. (1) An aggrieved taxpayer may, in lieu of proceeding under 15-1-402, bring a declaratory judgment action in the district court seeking a declaration that a tax levied by the state or one of its subdivisions was illegally or unlawfully imposed or exceeded the taxing authority of the entity imposing the tax.

Similarly, § 15-2-307, MCA, provided:

Challenge to assessment rules or procedures. An aggrieved taxpayer may, in lieu of proceeding under Title 15, chapter 15, part 1, bring a declaratory judgment action in the district court seeking a declaration that a method or procedure of assessment of property adopted or utilized by the department of revenue is illegal or improper.

Woiths claim that the District Court inaccurately applied Barron to them. We agree. In the Barron case, on August 3, 1990, we accepted DOR’s petition for an original proceeding which requested a writ of review, a writ of supervisory control, or other appropriate emergency writ for relief from an order of the State Tax Appeal Board. That order, upon the protest of Ms. Barron, declared portions of HB 703 unconstitutional. Nowhere in that proceeding, or in our later discussion in Barron, did we either consider taxpayers like those in Woiths’ situation, or rule on the availability or unavailability of alternative statutory remedies. Although in Barron we denied relief to all taxpayers except as to those who had filed administrative appeals before October 12, 1993, we did not limit taxpayers’ alternative statutory remedies then granted by the Montana Legislature.

In November 1990, in lieu of using the administrative appeal process suggested to all taxpayers by DOR and available in § 15-15-102, MCA (1989), Woiths permissibly contested HB 703 property tax assessments through alternative statutory remedies. Therefore, we hold that Woiths were not barred from utilizing alternative statutory remedies by our decision in Barron.

We reverse and remand to the District Court for further proceedings in accordance with the provisions of this opinion.

CHIEF JUSTICE TURN AGE, JUSTICES HARRISON, GRAY, NELSON and WEBER concur.

JUSTICE TRIEWEILER

specially concurring.

I concur with the result of the majority opinion, but not with its method of arrival.

I disagree with the majority’s conclusion that our decision in Department of Revenue v. Barron (1990), 245 Mont. 100, 799 P.2d 533, did not bar refunds for taxpayers like the plaintiffs who chose to proceed pursuant to §§ 15-1-406 and 15-2-307, MCA (1989).

In language with which I strongly disagree, this Court made very clear that while the appraisal method provided for in House Bill 703 was unconstitutional, its ruling would be applied prospectively except for taxpayers who had objected to the assessment by administrative appeal pursuant to § 15-15-102, MCA (1989).

In language that could not be more clear, this Court held that:

Because of the statewide effect of this decision, because of the short period of time remaining for state and county offices to perform their duties in connection with the collection of property taxes for the year 1990, and the extenuating exigencies which would otherwise be created by an immediate effect of this decision, we hereby delay the effective date of this decision, and make its effect prospective only to December 31,1991, except for those cases now pending on appeal, or properly appealed by the property owners. (This means those cases heretofore appealed within the time provided for taxpayer appeals at the local or state level and now pending on the grounds of unconstitutionality found to exist in this proceeding, and includes those previously appealed on those grounds and denied at the county or state level; but, no other appeals on the grounds covered herein shall be recognized.) The effect of this prospective stay is that as to all property affected by the stratified sales assessment ratio studies, except those herein stated, the values for tax purposes for the tax year 1990 shall be those found and applied by the DOR under said studies. [Emphasis added].

Barron, 799 P.2d at 542.

The taxpayers who brought this action had not commenced administrative appeals at the time of this Court’s decision in Barron. They clearly were among that class of people whose property values for tax purposes during the year 1990 were to be based, according to our opinion, on the stratified sales assessment ratio studies.

However, I would reverse that part of the Barron decision which limited the constitutional protection afforded by that decision to those taxpayers identified in that decision.

By affording the protection of our Constitution to those who challenged the DOR’s method of assessment pursuant to one statutorily authorized procedure, and denying the Constitution’s protection to those who chose to challenge the same assessment method by an equally valid statutory procedure, I conclude that the above quoted portion of the Barron decision denied the plaintiffs in this case full legal redress in violation of Article II, Section 16, of the Montana Constitution, denied them due process in violation of Article II, Section 17, of the Montana Constitution, and denied them equal protection of the law in violation of Article II, Section 4, of the Montana Constitution.

Furthermore, by its “selective prospective” application of our constitutional protections, this Court, in Barron, violated the principles for application of constitutional law set forth by the United States Supreme Court in James B. Beam Distilling Company v. Georgia (1991), 111 S. Ct. 2439, 115 L. Ed. 2d 481.

The DOR’s position on appeal is that we can afford the protection of Montana’s constitutional rights to those who seek enforcement of those rights by one allowable statutory method, and deny those same rights to people who seek their protection through an equally allowable, but different, statutory method. This argument exalts form over substance, and if accepted, would make a sham of the Constitution, which must prevail over all statutory enactments. The fundamental fault with the Barron decision is the notion that constitutional rights can be selectively applied. Those rights belong to everyone by virtue of their citizenship in the State of Montana.

Therefore, while I concur in the result of the majority opinion, I disagree with its reasoning. I would reverse that part of the Barron decision which made its application prospective except for those people who had filed appeals through the administrative process, and would hold, as we are required to by the U.S. Supreme Court’s decision in James B. Beam, 111 S. Ct. at 2448, that “when the court has applied a rule of law to the litigants in one case it must do so with respect to all others not barred by procedural requirements or res judicata.”