Buelow v. Willems , 225 Mont. 225 ( 1987 )

No. 86-174
IN THE SUPREME COURT OF THE STATE OF MONTANA
1987
H. D. BUELOW, d/b/a OLIVE MOTOR INN,
GARDNER GRENZ, d/b/a 600 LOUNGE,
ALVIN L. YOUNG
Plaintiffs and Respondents,
-vs-
JOHN K. WILLEMS and DEPARTMENT OF
REVENUE, STATE OF MONTANA,
Defendants and Appellants.
APPEAL FROM: District Court of the Sixteenth Judicial District,
In and for the County of Custer,
The Honorable A.B. Martin, Judge presiding.
COIJNSEL OF RECORD:
For Appellant:
Michael G. Garrity argued, Tax Counsel, Dept of Revenue,
Helena, Montana
For Respondent:
H. D. Buelow argued, Miles City, Montana
Kenneth R. Wilson, Miles City, Montana
Submitted: October 21, 1986
Decided: F e b r u a r y 3 , 1987
Clerk
Mr. Justice L. C. Gulbrandson delivered the Opinion of the
Court.
The Montana State Department of Revenue (the
Department) and John Willems, a Department investigator,
appeal a Custer County District Court order which grants a
permanent injunction to the plaintiffs (respondents here)
H.D. Buelow, Gardner Grenz, and Alvin Young. The injunction
prevents the Department from seizing respondents Buelow's and
Young's video poker machines and from conducting an
administrative hearing on the ownership and licensing of
those machines. The issues on appeal are:
(1) whether the District Court erred in granting
injunctive relief without a written application or petition
from the respondents;
(2) whether the court erred in ruling that the
machines of respondents Buelow and Young were entitled to
licenses;
(3) whether the issuance of the preliminary injunction
violated S 27-19-103, MCA, and/or S 27-19-201, MCA;
(4) whether the Department's seizure of respondents'
machines was unlawful;
(5) whether an administrative hearing is required
prior to seizure of allegedly illegal video poker machines;
(6) whether the court erred in admitting hearsay
testimony into evidence and relying on that evidence;
(7) whether the court erred in adopting respondent
Grenz's proposed findings of fact. We note that the District
Court found, and Grenz agrees that this appeal is moot as to
him. We affirm.
By way of background, we briefly summarize some of the
facts set forth in our recent decision Montana Tavern
Association v. State of Montana (Mont. 1986) , P.2d I
43 St.Rep. 2180, a case with some bearing on the instant
appeal. In 1985, the Montana Legislature passed the Video
Draw Poker Machine Control Law, $ § 23-5-601 through -615,
MCA, which legalizes the operation of electronic video draw
poker machines in Montana. Section 23-5-606, MCA, provides a
lengthy, detailed list of specifications required to license
video poker machines. Section 23-5-612 (2), MCA, provides a
grandfather clause:
A used video draw poker machine may be
licensed under subsection (1) without
meeting the requirements of 23-5-606
(4)(j), (4)(k), and (4) ( 1
0 if the
applicant for licensure can establish to
the satisfaction of the department that,
on the date of application, he owns or
possesses a machine which was owned or
operated in the state prior to February
3, 1984. A license issued under this
subsection expires 1 year from the date
of issuance or on July 1, 1987, whichever
occurs first.
In June 1985, the Montana Tavern Association and
several tavern owners filed a complaint to enjoin the
Department from enforcing certain emergency administrative
rules which the Department had adopted regarding the poker
machines. The Silver Bow County District Court granted those
plaintiffs a temporary restraining order. The court later
issued preliminary and final injunctions which, along with
the restraining order, had the following effects; (1) agreed
that the grandfather clause could be construed in two ways,
0
7
i.e., as authorizing the licensure of (i) all used poker
machines in operation before February 3, 1984, - (ii) used
or
poker machines in operation before February 3, 1984, and
meeting all the specifications of 23-5-606, MCA, except
subsections (4)(j), (4)(k), and (4)(0); (2) rejected the
second construction listed above; (3) enjoined the
Department from enforcing the video poker machine law and its
administrative rules so as to deny licenses to the plaintiffs
for used machines owned and operated before February 3, 1 9 8 4 ;
( 4 ) ordered that the machines had to meet certain criteria in
the restraining order, along with the statutory provisions
and administrative rules not in conflict with the restraining
order, in order to be licensed; (5) provided that ". . .
county or city license receipts, bills of sale ... will be
sufficient to establish ownership or operation of a used
machine on or before February 3, 1 9 8 4 . "
Each of the respondents owned at least one video poker
machine. Each testified that he had purchased his machine
prior to 1 9 8 4 . The applications for state licenses for poker
machines ask for the serial number of the machine. These
numbers are usually stamped on a metal plate which is affixed
to the exterior of the machine. None of the respondents'
machines had a metal plate with a manufacturer's serial
number. Buelow testified that the distributor removed the
plate and marked a number on his machine with a marking pen.
On his application for a license, Buelow listed the
handwritten number from the machine as the serial number.
Grenz's license application listed a number from the
machine's logic board as the machine's serial number. A
logic board is an internal component of the machine which
carries the electronic program and is easily interchangeable
between different machines. Young's application listed a
number from the inside of his machine as the serial number.
The Department, laboring under the Silver Bow County District
Court injunction, issued state licenses to each of the three
respondents for their poker machines.
Subsequently, the Department determined that the
respondents' applications listed machine serial numbers which
were identical to numbers on other poker machine license
applications. In November 1985, Department officials
traveled to Miles City to investigate the machines of Buelow
and Grenz. On November 4, 1985, the Department officials
seized two of respondent Grenz's poker machines from his
place of business. Grenz showed the officials a 1981 or 1982
city license and a canceled check in an attempt to prove that
he owned the machines prior to 1984. On November 5, 1985,
Department officials seized Buelow's machine at his bar in
Miles City. Buelow testified that he informed the officials
that he had evidence showing he owned the machine prior to
1984. The evidence included past city licenses for the
machine and his canceled check paying for the machine in
1980. Also on November 5, 1985, the officials traveled to
Alzada, Montana and seized respondent Young's poker machine
from his bar. Young was not present and had no opportunity
prior to the seizure to prove that he owned the machine
before 1984.
Shortly after the seizures, each respondent filed an
affidavit with the Custer County District Court swearing that
he had owned his machine or machines prior to February 3,
1984. Each requested the court to issue a temporary
restraining order (TRO). On November 5, and in Young's case
on November 8, the court issued a TRO restraining the
Department from seizing the machines and ordering their
return.
On November 14, 1985, the court held a hearing on
whether to quash or continue the TRO. Buelow, Grenz and
Young all presented evidence (canceled checks, city licenses,
or witness testimony) showing that they owned their machines
prior to 1984. Two witnesses testified, over a hearsay
objection, that a Department employee named Cathy advised
them over the phone that handwritten or "logic board" numbers
would suffice on their license applications. One of these
witnesses had relied on this advice in helping both Buelow
and Grenz fill out their applications.
In December 1985, the court permanently enjoined the
Department from seizing the machines and from conducting a
hearing on the ownership and licensing of the machines.
Among other things, the court found (1) that each of the
respondents owned his machine prior to 1984; (2) that the
seizures of the machines were unlawful; (3) that
administrative hearings were required before the Department
could seize previously licensed poker machines; (4) that the
respondents' machines were entitled to state licenses; ( 5 )
that a Department official advised Grenz he could use a
"logic board" number on his application; and (6) that the
Grenz case had apparently become moot because Grenz obtained
a duplicate serial number from the manufacturer thereby
satisfying the Department's rules on ownership. This appeal
followed.
On December 11, 1986, this Court handed down its
decision in Montana Tavern Association v. State of Montana
(Mont. 1986) , P.2d , 43 St.Rep. 2180. That appeal
involved the Silver Bow County action mentioned previously
wherein the Silver Bow County District Court enjoined the
Department from enforcing its administrative rules so as to
deny the plaintiffs the right to license poker machines owned
and operated before February 3, 1984. We upheld the District
Court's ruling interpreting § 23-5-612(2), MCA,as authorizing
the licensure of used video poker machines in operation
before February 3, 1984. We also specifically affirmed the
court's injunction barring the Department from enforcing its
administrative rules to the detriment of the plaintiffs and
others similarly situated (such as the respondents here).
The Montana Tavern Association case bears heavily upon our
d-ecisiontoday.
The first issue is whether the Custer County District
Court erred in granting injunctive relief without a written
application or petition from the respondents. Section
27-19-301 (I), MCA, states that,
No preliminary injunction may be issued
without reasonable notice to the adverse
party of the time and place of the making
of the application therefor.
We find no Montana statute that requires a party to submit a
formal, written application or petition for an injunction.
Moreover, the record demonstrates that the Department had
notice of the respondents' claims and the nature of the
controversy from the day the machines were seized (also the
day the TRO was issued). Therefore, we find no error under
this issue.
The second issue is whether the court erred in
implicitly finding that the machines of respondents Buelow
and Young were entitled to state licenses. In June 1985, the
Silver Bow County District Court, acting in the Montana
Tavern Association case, set forth the controlling licensing
criteria for the Department to use. The most important
element in that criteria is that the used machine must be a
machine owned or operated in the state on or prior to
February 3, 1984. That element is the bone of contention.
The Department does not contend that the respondents'
machines fail to meet the other requirements. The Department
does complain that the machines do not have a serial number
stamped onto a metal plate and affixed permanently onto the
machine. Under the Montana Tavern Association case, affirmed
by this Court, that complaint is irrelevant. Under that case,
and the Silver Bow County District Court order, the
dispositive inquiry is whether the machines were owned or
operated prior to February 3, 1984. The District Court here
found that the respondents all owned their machines prior to
February 3, 1984. The record reveals substantial evidence to
support that finding. Therefore, we hold that the court did
not err in finding that respondents were entitled to
licenses.
The third issue is whether the court violated
S 27-19-103, MCA, and/or S 27-19-201, MCA, in issuing the TRO
and injunction. The Department first charges that
respondents failed to show they were entitled to an
injunction under $ 27-19-201, MCA. That statute sets forth
certain circumstances which will justify the issuance of an
injunction. The undisputed evidence before the District
Court tended to show that the seizure of the machines would
cause irreparable loss of business to the respondents. The
District Court cited that evidence in its order and, under
S 27-19-201 (2), MCA, that evidence was sufficient to warrant
the issuance of an injunction.
The Department also charges that S 27-19-103 (4) and
(6), MCA, prohibited the court from issuing an injunction in
this case. Those subsections provide that an injunction
cannot be granted:
(4) to prevent the execution of a public
statute by officers of the law for the
public benefit;
(6) to prevent the exercise of a public
or private office, in a lawful manner, by
the person in possession; ...
Our resolution of the second issue is also determinative of
this issue. Given that all the machines here in question
were owned and operated before February 3, 1984, those
machines were entitled to state licenses. Therefore, when
the Department seized those legally licensed machines, the
Department was not executing a public statute nor was it
executing a public office in a lawful manner. Thus, the
issuance of the injunction did not violate § 27-19-103, MCA.
We hold that the District Court did not abuse its
discretion in issuing the injunction. We decline to address
the other issues raised on appeal.
Affirmed.
We concur: