## Facts

- The Montana Legislature closed portions of the upper Missouri River basin, including the Smith River and certain tributaries, to new surface-water appropriations and to groundwater appropriations “immediately or directly connected to surface water.”
- Montana Trout Unlimited and other petitioners were senior appropriators, landowners, and outfitter-related businesses dependent on Smith River flows for irrigation, recreation, and commercial use.
- DNRC issued groundwater permits within the closed basin to applicants associated with Riverside Ranch Co. and the Galt interests.
- Petitioners alleged the permitted groundwater sources were hydrologically connected to the Smith River system and that pumping would deplete closed-basin surface flows.
- DNRC applied an internal interpretation treating many groundwater sources as outside the closure unless they met a narrow conception of “immediately or directly connected,” effectively allowing permits for groundwater that petitioners contended was connected to surface water.

## Issues

1. Whether petitioners were required to exhaust administrative remedies before seeking judicial review challenging DNRC’s permitting decisions and statutory interpretation.
2. Whether DNRC’s interpretation of “immediately or directly connected to surface water” unlawfully narrowed the basin-closure limits on groundwater permitting.

## Decision

- The Montana Supreme Court reversed the district court’s grant of summary judgment for DNRC and the intervenors and remanded.
- The Court held exhaustion of administrative remedies was not required because the dispute primarily presented a legal question of statutory interpretation.
- The Court held DNRC’s restrictive interpretation of “immediately or directly connected to surface water” was legally incorrect and inconsistent with the basin-closure law’s text and purpose.
- The Court directed that further proceedings apply the correct legal standard to determine whether the challenged groundwater appropriations fall within the statutory closure.

## Legal Principles

- Exhaustion of administrative remedies is a prudential doctrine that may be excused when the issues are primarily legal and additional agency proceedings would not materially assist resolution.
- In closed basins, DNRC may not issue new groundwater permits when the groundwater is hydrologically connected to closed surface waters in a manner that depletes those surface flows.
- Statutory construction must give effect to the legislature’s language and purpose; an agency may not adopt an interpretation that functions as an unauthorized exemption from a legislative basin closure.
- The “immediately or directly connected” inquiry requires consideration of hydrologic connection and expected effects on surface-water flows, not a categorical approach limited to a narrow class of aquifers or only to readily observable surface impacts.

## Conclusion

The court held that petitioners could obtain judicial review without exhausting administrative remedies because the dispute turned on statutory interpretation, and it rejected DNRC’s narrow reading of the basin-closure law, requiring DNRC on remand to apply a broader, legally correct standard for hydrologically connected groundwater that depletes closed-basin surface waters.


Mont. Trout Unlimited v. Mont. Dep't of Nat. Res. & Conservation, 331 Mont. 483, 133 P.3d 224 (2006)