(HELENA) The Montana State Fund’s board of directors has decided to withdraw a lawsuit seeking to stop the state from putting a $30 million charge on some of the fund’s investment holdings.

During an emergency meeting Wednesday afternoon, the board voted 5-2 to pull out of the lawsuit, filed earlier this month in district court in Lewis and Clark County.

The Montana State Fund is the state’s worker’s compensation fund, a quasi-governmental body that insures about 26,000 businesses against on-the-job injuries.

State lawmakers approved a temporary management fee on the fund’s investments during this month’s special legislative session, as a way to help close Montana’s $227 million budget gap. The proposal immediately drew criticism from State Fund president Laurence Hubbard, who argued state law requires the fund’s money be used only for workers’ compensation purposes.

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During a meeting on Nov. 10, before the special session started, the State Fund board voted unanimously to oppose the bill and authorize Hubbard to take any “legal means necessary” to prevent the charge. But now that the proposal has become law, board chair Lance Zanto argued Wednesday that the fund is obligated to abide by it.

Board member Jim Molloy said the fund’s financial situation is strong, so this fee won’t be a long-term threat for the fund, its policyholders or injured workers. He said this wasn’t the right time to continue with a suit.

“I don’t believe this legislation creates the kind of emergency situation that warrants the risk that we fight this battle and lose,” said Molloy.

Supporters of continuing the lawsuit argued the management fee was simply another name for transferring money out of the fund. They said that money was paid in by policyholders, and the Legislature doesn’t have the right to use it for any purpose it wants.

Board member Jan VanRiper said, if the fund has any money beyond what it needs to remain stable, it should be returning it to business owners through a dividend.

“I don’t see how now we can say we have plenty of money, to fork over $30 million for other than the policyholders,” she said.

A number of business owners and industry representatives also testified in support of the lawsuit. Several said, if this charge goes through, lawmakers will make more attempts to take money out of the State Fund.

“How big does it need to get before we tell the Legislature enough’s enough?” asked Rep. Greg Hertz, a Republican and business owner from Polson who has been a vocal opponent of the fee.

Hertz also said proceeding with the suit would provide a definitive answer to questions about how the State Fund’s money can be used.

District Judge Mike McMahon had scheduled a hearing on Dec. 4 to consider the State Fund’s motion for a preliminary injunction on the management fee, but the fund’s attorney said they had already agreed to cancel that hearing. McMahon had previously denied the fund’s request for a temporary restraining order to block the transfer.

Hubbard said he didn’t believe the judge’s decision was an indication of how he would rule on the rest of the suit. He said the facts had not substantially changed since the board took its initial vote on opposing the charge.

Two of the board members who supported withdrawing the lawsuit, Molloy and Cliff Larsen, were not on the board for that initial vote. Gov. Steve Bullock appointed both men on the day the lawsuit was initially filed.

After the board made its decision Wednesday, Hertz said he expected a group of State Fund policyholders to organize and file a lawsuit of their own over the management fee in the coming weeks.

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