Summary of a Recent
Judicial Development in
Agritourism

Voter Initiative to Eliminate Fee Shooting of Alternative Livestock
Was Not a Compensable Categorical or Regulatory Taking

L. Paul Goeringer
National AgLaw Center Research Associate

Summary of Decision

In Buhmann v. Montana, 2008 MT 465 (Mont. 2008), the Montana Supreme Court affirmed the decision of the district court finding no compensable categorical taking or regulatory taking from the impact of I-143 on the alternative livestock industry. The court also affirmed the decision of the district court in granting the state's motion to change venue and denying the plaintiffs' motion to sever claims. Also, the court concluded that the plaintiffs were not entitled to a finding by the jury on whether I-143 constituted a regulatory taking or a categorical taking. Finally, the court found that the Montana Constitution provided no greater constitutional protection against a regulatory taking than the Fifth Amendment of the U.S. Constitution.

Background

Alternative game farms have been legally operated in Montana since 1917 and have been heavily regulated by the Department of Fish, Wildlife, and Parks. Id. In 2000, Montana voters passed Initiative I-143, which created new regulations covering the game farm industry. Id. at 4. The initiative prohibited fee shooting on game farms the transfer of the farms' alternative livestock licenses to others. Id. These prohibitions had a huge impact on game farms and eliminated a large source of income from fee shooting. Id. "I-143 did not, however, eliminate all uses of alternative livestock as it still permitted [game farms] to own herds, harvest the animals for their meat or antlers, or sell them in out-of-state markets where fee-shooting was legal." Id. Numerous parties challenged I-143. Id.

The first game farm involved in this suit, operated by the Buhmanns, began in 1999 as a breeding operation. Id. at 5. The Buhmanns sold mature elk bulls and elk cows to other shooting farms and breeding operations. Id. They also sold Sweet Pro, a mineral supplement for captive deer and elk. Id. The Buhmanns felt the impact of I-143 indirectly; it impacted their breeding operation and their ability to sell Sweet Pro. Id. at 11.

The second game farm, operated by the Wallaces, was a 2000-acre game farm that was licensed since 1992. Id. at 6. The Wallaces had made many improvements to the game farm during its operation. Id. at 6-7. They constructed fences and a lodge, worked to insure that the farm was disease-free, and made other improvements to insure the quality of their elk herd. Id. The Wallaces earned revenues of over one million dollars per year from 1997 to 1999. Id. at 8. The Wallaces felt the impact of I-143 directly because they provided fee-shooting hunts. Id. at 11.

Both plaintiffs suffered huge losses after the passage of I-143. Id. at 9. The Wallaces' customers cancelled planned hunts, and the Buhmanns customers' cancelled animal and feed purchases. Id. The Wallaces tried to sell elk to local Indian tribes, but were denied the proper permits from the state. Id. Also, the Wallaces had unsuccessfully tried to enjoin the state from enforcing I-143, and one of the Wallaces was been convicted for violating I-143's ban on fee shooting. Id.

Both the Buhmanns and the Wallaces jointly filed suit against the state of Montana and officials. Id. at 10. Both sought damages for an uncompensated taking of private property under the Montana Constitution and the Fifth Amendment of the U.S. Constitution. Id. Before trial, the state was granted a motion to change venue to Lewis and Clark County, and the plaintiffs were denied a motion to sever the parties. Id. at 12. The court granted a motion by the state to bifurcate the trial. Id. at 15. Whether a taking had occurred was a question of law to be decided by the trial judge, and if a taking had occurred, the jury would decide the amount of damages. Id. The court denied a motion for summary judgment on the takings issue by the state; however, the court did agree with the state that personal property could not form the basis for a categorical taking under prior precedent, and that the same takings analysis was required by the Montana Constitution and the Fifth Amendment of the U.S. Constitution. Id.

At trial, the court heard expert testimony on the extent of the losses resulting from I-143 by the Wallaces. Id. at 17-18. After examining this expert testimony, the court determined that the Wallaces had suffered a significant, but not a complete, loss of value of their game farm business. Id. at 19. In making this determination, the court took into account the value of the Wallaces' real estate, which had appreciated since the passage of I-143, along with the depreciation of the value of the elk. Id. The court found that the Buhmanns had not originally purchased their land to be a game farm in the 1980s, but had developed their business later. Id. at 20. The court also found that I-143 had not directly affect the Buhmanns' business, but it did affect the market for their breeding stock and their mineral supplement. Id. The court denied the plaintiffs' takings claims, and this appeal followed. Id. at 22.

Arguments

The plaintiffs argued that the district court erred in granting a motion for a change of venue. Id. at 30. The plaintiffs also argued that the district court erred in denying their motions to sever their claims. Id. at 41. Regarding the takings claims, the plaintiffs maintained that the district court erred in not allowing the jury to determine the issue of whether a compensable taking taken place. Id. at 45. The plaintiffs maintained that such a determination was in line with the protections afforded by the Montana State Constitution, and they argued that

their fundamental right to a trial by jury [was] guaranteed as to all class of cases in which the right was enjoyed when the Montana Constitution was adopted in 1889. Appellants argue[d] that this class of cases extends beyond those common-law actions recognized in 1889, and includes modern-day actions that involve rights and remedies of the sort traditionally enforced in an "action at law," such as the takings claims they presented here.
Id.

Next, the plaintiffs argued that the district court erred in deciding that the Montana State Constitution did not provide greater protection in regulatory and categorical takings cases than the Fifth Amendment of the U.S. Constitution. Id. at 61. The plaintiffs' argument hinged on the words "taking and damaging" of property in the state's constitution, which are not found in the Fifth Amendment. Id. at 61-62.

As to the categorical taking of their alternative livestock, the plaintiffs argued that the district court had relied on the wrong precedent. Id. at 78. The district court had relied on the U.S. Supreme Court's opinion in Lucas v. S.C. Coastal Council, which seemed to imply that only real property, and not personal property, can be subject to categorical takings. Id. at 76. The plaintiffs argued that the portion of Lucas relied on by the district court was dicta, and that the district court should have relied on an opinion by the Federal Court of Claims that found that personal property could be the subject to a categorical taking. Id. at 77.

Regarding the regulatory taking claim, the plaintiffs argued that when applying the Penn Central balancing test, the district court should have only evaluated the businesses and not taken into account the value of the real property, which had appreciated after the passage of I-143, when looking at the economic impact factor of the test. Id. at 86. With respect to the character of the governmental action factor, the plaintiffs argued that it also weighed in their favor because I-143 did not regulate the problems associated with a game farm, such as chronic wasting disease, and was nothing more than a price control measure to help the state sell its own hunting licenses. Id. at 87. Finally, as to the investment-backed expectations factor, the plaintiffs argued that I-143 interfered in a manner contrary to their reasonable investment-backed expectations. Id. The initiative interfered with this investment-backed expectation, the plaintiffs asserted, because Montana had "never exercised any regulation over the fees charged for privately shooting alternative livestock." Id. Because of this unexpected interference, the plaintiffs claimed that the investment-backed expectation factor weighed in their favor. Id.

Analysis and Holdings

The court quickly dealt with the issue of the plaintiffs' motion to change venue and sever the claims. Id. at 29. Looking at the statute, the court found that "[t]he proper place of trial for an action against the state is in the county in which the claim arose or in Lewis and Clark County." Id. at 32. Because the plaintiffs were from different counties, Lewis and Clark County was "the only appropriate venue for all parties." Id. at 33. The court found that the district court did not err in transferring venue to Lewis and Clark County. Id. at 38. Finally, court found the plaintiffs "failed to demonstrate good cause to server, as required under M.R. Civ. P. 42(b)." Id. at 41.

The court then turned to the issue of whether the court or the jury should have decided the takings issue. Id. at 42. After examining U.S. Supreme Court takings precedent cited by the plaintiffs, the court disagreed with the plaintiffs' contention that the jury should have decided. Id. at 48. Looking at City of Monterey v. Del Monte Dunes at Monterey, Ltd., 526 U.S. 687 (1999), the court found that the Supreme Court was dealing with an action of liability under 42 U.S.C. § 1983 for the city's repeated denial of a development permit. Id. at 49. "[B]ecause an action under § 1983 sounds primarily in tort, it was of a type of action cognizable under the common law, and thus a cause of action for which the Seventh Amendment provides a trial by jury." Id. at 50. The Supreme Court limited it's holding by stating: "We do not address the jury's role in an ordinary inverse condemnation suit. The action here was brought under § 1983, a context in which the jury's role in vindicating constitutional rights has long been recognized by the federal courts." Id. at 53.

Turning to the Montana cases cited by plaintiffs, the court found that they only "establish[ed] that a right to a jury trial exists for the class of cases which existed at the time the Montana Constitution was adopted." Id. at 55. The court found that none of the cases cited by the plaintiffs established a right to a jury trial on the issue on liability for a categorical or regulatory taking. Id. "The weight of authority tends to support the view that the right to jury trial in inverse condemnation suits-and, by extension, regulatory or categorical takings claims-is limited sole to the issue of damages." Id. at 56. The plaintiffs cited to no authority to the contrary. Id. at 57. "[I]t appears that both state and federal courts are in near universal agreement that whether the facts show that a regulatory or categorical taking has occurred is ultimately a question of law for the court." Id.

On the second issue, the court found no mixed questions of fact and law presented in the plaintiffs' takings claims that could be presented to both the jury and the court. Id. at 58. "In fact, it appear[ed] from the record that there were no factual disputes concerning the effects of I-143 on appellants' businesses and private property. Instead the dispute centered on whether, as a legal matter, I-143 constituted a regulatory or categorical taking." Id. With this in mind, the court upheld the decision to decide the issue of whether a taking occurred before presenting the issue of damages to the jury. Id. at 59.

Turning to the next issue, the court determined that the Montana State Constitution did not provide greater protection than the Fifth Amendment of the U.S. Constitution with respect to regulatory takings. Id. at 64. The plaintiffs argued that because the state constitution protected against "taking and damaging" of property, this required any state law to meet strict scrutiny, and I-143 did not show a compelling interest and was not narrowly tailored. Id. at 62. The court rejected this argument and found that "a takings analysis based on federal law under Penn Central or Lucas is to be applied to takings claims whether brought under the U.S. or Montana Constitutions. This practice is in accord with the overwhelming majority of states that have similar or identical language in their state constitutions." Id. at 64.

Turning to state precedent interpreting the state constitution provision, the court found "that the 'or damaged' language of the provision has been interpreted to apply to eminent domain proceedings, including inverse condemnation proceedings, where private property is taken or damaged for public use." Id. at 67. Other states have also rejected expanding the provision beyond eminent domain or public works. Id. at 68. The California Supreme Court, in interpreting a similar provision in their constitution, found "that the California Constitution of 1879 added the phrase 'or damaged' to the just compensation provision, but this change was not intended to expand the scope of the constitutional compensation provision beyond the ambit of eminent domain and public improvement." Id. (citation and quotation omitted). The court found no precedent to extend the state constitutional takings protections for a regulatory taking beyond that protected by the Fifth Amendment of the U.S. Constitution. Id. at 69.

The court concluded this issue by rejecting the dissent's argument that the state constitutional provision provided greater protection from regulatory takings than the U.S. Constitution. Id. at 70. The court found that "[n]one of these cases applied the 'or damaged' language in the context of a regulatory takings claim even remotely similar to the claim at bar." Id. at 73. The court affirmed the decision of the district court to use the same "analysis based on federal law under Penn Central applied to the regulatory takings claims brought against the State in this case." Id. at 74.

The court then turned to the next issue of the district court's denial of a categorical taking of personal property by I-143. Id. at 75. The district court found that the alternative livestock could not be the subject of a categorical taking under Lucas. Id. at 76. The court found:

A categorical taking occurs when a regulation or state action forces an owner to sacrifice all economically beneficial uses in the name of the common good, leaving the property "economically idle." In Lucas, the United States Supreme Court seemed to imply that such categorical takings claims could apply to land, and not personal property . . . .
Id. (citations omitted).

The plaintiffs urged the court to adopt the reasoning the Federal Circuit Court of Appeals, which seemed to conclude that personal property could be the subject of a categorical taking claim. Id. at 78. The court agreed with the plaintiffs that some courts in the Federal Circuit had found that personal property could be the subject of a categorical takings claim, but the court decided not to address this issue because the plaintiffs' personal property had not lost all economically beneficial use. Id. at 79-80. The court concluded this issue by finding:

Even if a categorical taking of appellants' alternative livestock and related equipment was cognizable, we would nevertheless conclude that their categorical takings claim[s] fail because the alternative livestock still have beneficial uses after the passage of I-143 . . . . The alternative livestock could be sold to out-of-state breeder operations or harvested for their meat and antlers. Granted, this may not be a profitable use of the alternative livestock, but in order to make a claim for a categorical taking, appellants must show that I-143 took all of the property's economically beneficial use.
Id.

The court concluded "that appellants have failed to demonstrate that a categorical taking has occurred." Id. at 81. This decision of the district court on this issue was affirmed. Id.

The court then addressed the final issue "that I-143 did not effect a regulatory taking" of the plaintiffs' personal property under the three factor Penn Central test. Id. at 82-83. The district court concluded that, under the economic impact factor of the test, the "regulatory takings analysis test favored [the plaintiffs]." Id. at 83. Regarding the second factor, the district court explained that investment-backed expectations are judged from an objective standard in terms of reasonableness. Id. at 84. The district court noted precedent which supported holding the plaintiffs' investment-backed expectations to a higher standard when operating a business in a highly regulated field, such as alternative livestock farming. Id. Finally, as to the third prong, the character of the government action, the district court had decided the issue in Montana's favor, finding that "I-143 was a valid exercise of the State's police power to protect health and welfare, and that it affected an industry which was already subject to significant governmental regulation." Id. at 85 (footnote omitted).

In reviewing the district court, the court reaffirmed the view "that businesses themselves cannot to be taken unless the government physically condemns those businesses and runs them itself." Id. at 89. The court held "that [the plaintiffs'] businesses in this case were not taken by I-143." Id.

Next, the court agreed with the district court that, under the economic impact prong, "I-143 had a significant impact on the value of the Wallaces' and Buhmanns' alternative livestock." Id. at 90. This prong did weigh in favor of finding a taking by I-143. Id.

Turning to the investment-backed expectations and the character of the governmental action, the court agreed with the district court that the factors outweighed the finding of a compensable taking. Id. at 91. Under the "character of the governmental action" prong, the court disagreed with the district court's analysis, which examined the purposes behind I-143, but the court agreed with the district court's conclusion that the prong did not favor finding a taking. Id. The court further stated,

while I-143 impaired the profitable use of alternative livestock, it still allowed [plaintiffs] every other use of their alternative livestock; thus, from the perspective of regulatory takings law, the character of the governmental action embodied in I-143 had a minimally intrusive effect on [the plaintiffs] bundle of property interests in the alternative livestock.
Id. (citation omitted).

Looking at the "investment-backed expectations" prong, the court concluded "that [the plaintiffs] could not maintain a reasonable investment-backed expectation that Game Farms, and by extension fee-shooting, would always be legal in Montana." Id. at 92 (citation omitted). The court also agreed with the district court that this case was distinguishable from a case cited by the plaintiffs. Id. at 96. In that case, the claimants had been left with only one market for their breeder turkeys after an unexpected quarantine for an outbreak of Avian Influenza, and the claimants had only learned of the quarantine the day before it took effect. Id. at 92-95.

Based on the district court's record, the plaintiffs could not maintain a reasonable "expectation that the Game Farm industry would be permitted to continue indefinitely." Id. at 97. The court noted that outbreaks of chronic wasting disease had impacted the plaintiffs, leading to moratoriums on out-of-state sales of alternative livestock, and they had impeded the Wallaces ability to sell their ranch. Id. The court agreed that the alternative livestock industry, because of threats from chronic wasting disease, was closer to a line of cases cited by the district court that took into account "the highly regulated nature of the industry," which "must be considered when evaluating the 'reasonableness' of [the plaintiffs'] investment-backed expectations". Id. at 98. The court affirmed the district court's decision denying the plaintiffs' regulatory takings claims. Id. at 99.

Dissent

Justice Nelson first focused on Sportsmen for I-143, the group behind the voter initiative, and its reasons for proposing the initiative. The dissent found that I-143's goal was "protecting Montana's wildlife and hunting heritage from a variety of dangers posed by game farms." Id. at 109 (citation omitted in original). The biggest benefit alleged by I-143's supporters was minimization of the threat of chronic wasting disease poised alternative livestock's contact with other wildlife. Id. at 111. The dissent found that

given these concerns, one would expect I-143 to target the problems related to diseases, perhaps through more stringent fencing and enclosure requirements, additional testing requirements, or even an outright seizure of all alternative livestock along with a prohibition on private ownership of alternative livestock. However, I-143 did none of these things.
Id.

The dissent found that I-143 did nothing to address the concerns related to disease transmission. Id. Initiative I-143 also did nothing to protect the proud heritage of hunting in Montana. Id. at 113. The dissent found,

[t]he only activity on licensed game farms prohibited under I-143, the Sportsmen state, is that allowing a fee-paying individual the opportunity to personally shoot a game farm animal. But anyone who is not a "fee-paying individual" may still participate in penned hunts and personally shoot a game farm animal notwithstanding I-143.
Id.

The dissent found that I-143 did nothing to protect Montana's heritage "of ethical, fair-chase hunting." Id. Finally, the dissent found that I-143 did nothing to provide the public greater access to big game or to prevent the privatization of wildlife. Id. at 114. "I-143 does not provide for [a] less expensive hunting license or greater access to big game on public and private lands." Id.

Finally, the dissent disagreed with the majority's conclusion that I-143 simply added to the existing regulatory system on game farms. Id. at 116. The dissent found,

[i]t is one thing to strengthen fencing, testing, and reporting requirements through "additional restrictions," as the Legislature did over the years. But is quite another to require alternative livestock ranchers to operate with no income through the expedient of prohibiting remuneration for the key economic activity on which their businesses depended . . . .
Id.

The dissent believed that the law was crafted to destroy the game farms. Id.

Next, Justice Nelson rejected the "means-ends" analysis urged by the state of Montana. Justice Nelson state that the "means-ends" analysis under the Fifth Amendment of the U.S. Constitution had been rejected by the U.S. Supreme Court and should be rejected for the Montana state constitution as well. Id. at 123. Montana argued "that it cannot be required to pay compensation where the challenged regulation is a valid exercise of the police power related to a commercial activity. Id. at 125. Justice Nelson found two flaws in this argument. First, precedent cited by Montana did not require the state to pay compensation when the state was exercising its police power to prohibit a public nuisance; however, the game farms where not public nuisances and had operated under express state authority. Id. at 126. Second, other U.S. Supreme Court precedent rejected the idea that a valid use of police power never required compensation. Id. at 127. The Supreme Court had consistently found limits on uncompensable exercises of police power by the state. Id. For these reasons, the dissent rejected the "means-ends" analysis urged by the state and the idea that a valid use of the police power never requires compensation. Id. at 128.

Justice Nelson then addressed whether the game farms had a property interest protected under the state constitution. Based on precedent, the term "property" was not defined at the time the constitution was ratified but should take "its meaning from contemporary understandings." Id. at 139. The dissent did find a property interest held by the game farms. Id. at 141.

Turning to the issue of whether the Montana Constitution provided broader protection than the U.S. Constitution; Justice Nelson determined that it did afford broader protection. Justice Nelson noted that the Montana cases relied on by the majority did not stand for a rejection of the state constitution's recognition of a taking or of a damaging of property caused by a regulation. Id. at 145. Turning to the decisions of other states with similar provisions, the dissent pointed to North Dakota, Washington, and Alaska as states that offered greater regulatory takings protections under their state constitutions than the U.S. Constitution. Id. at 147. Justice Nelson rejected arguments that the "or damaged" language was limited to condemnation cases because there was no way to know the full extent of the loss caused by damage before the damages happened. Id. at 150.

Justice Nelson described a long history of Montana precedent interpreting state constitution provisions more broadly than their federal counterparts. Id. at 153. Justice Nelson also pointed to transcripts from the 1972 Constitutional Convention not appearing to limit takings protection. Id. at 154. Finally, the dissent noted a number of state constitutional provisions that offered broader protections than their federal counterparts. Id. at 155-164. With all this in mind, Justice Nelson would have found broader protection under the state constitution than the federal constitution for damages caused by a regulatory taking. Id. at 164.

Turning to the takings issue, the dissent believed that "when a business is unable to transfer its goodwill and going-concern value to another location (e.g., because the government has taken over the business, or because transfer is prohibited), then compensation is required." Id. at 166. As a result, Justice Nelson would have found a taking of equipment, inventory, fixtures, and facilities, requiring just compensation. Id. at 167. Regarding the livestock, the game farms were not deprived of all economically viable use, but lost close to 95 percent of their value. Id. Justice Nelson would have found a taking for that 95 percent of the value lost. Id. Finally, Justice Nelson explained that he was not required to articulate a general rule to determine when a taking had happened because the court's approach to regulatory takings is case-by-case evaluation. Id. at 170.

The case was decided on December 31, 2008.