Jeffries v. Hassell

3 P.3d 1071, 197 Ariz. 151, 310 Ariz. Adv. Rep. 3, 1999 Ariz. App. LEXIS 209

• Court: Court of Appeals of Arizona
• Decided: December 7, 1999
• Docket: 1 CA-CV 98-0173, 1 CA-CV 98-0495
• Status: Published

Opinion

OPINION

WEISBERG, Judge.

¶ 1 Appellees are Arizona taxpayers with children in Arizona public schools. Their complaint alleged that practices of the State Defendants (the “Department”) regarding grazing leases on state trust lands violated the Enabling Act, the Arizona Constitution, and the State’s duties to maximize revenue for the trust beneficiaries, the public schools of Arizona. Appellees requested declaratory and injunctive relief.

¶ 2 The trial court ultimately granted summary judgment to appellees; it found and declared as follows:

THE COURT FINDS AND DECLARES that the State Defendants’ [sic] have breaehed their duties as trustee of state trust lands in connection with the administration of grazing leases by entering into grazing leases for a term of ten years or less without advertising the availability of those grazing leases, by failing to receive sealed bids, by applying the preferred right to renew in a manner that stifles competition and by failing to obtain any return on subleases executed by grazing lessees on state trust lands, all as more fully set forth in the Court’s minute entry of July 24, 1997 which is incorporated by this reference.

THE COURT FURTHER FINDS that the result of the foregoing breaches of the State Defendants’ dutiés as trustee is a de facto system of long-term leases whereby the State Defendants routinely renew short-term leases without the opportunity for meaningful competition such that grazing leases are effectively executed for a term of more than ten years and are therefore subject to the requirements of the Enabling Act and the Arizona Constitution applicable to the advertising and public auction of such leases.

¶ 3 The trial court implemented its judgment with the following orders:

IT IS FURTHER ORDERED that effective September 1,1998 the State Defendants shall not execute any grazing leases without first complying with the provisions of the Enabling Act and the Arizona Constitution applicable to leases for a term greater than ten years.

IT IS FURTHER ORDERED that effective September 1,1998 the State Defendants shall not approve any grazing subleases unless the State Defendants have acquired or exercised authority to impose reasonable surcharges or otherwise obtain a reasonable return on such subleases.

¶ 4 The Department appealed from both this judgment and a later one awarding attorneys’ fees to appellees. The trial court’s implementing orders were stayed pending appeal. We have jurisdiction pursuant to Arizona Revised Statutes Annotated (“A.R.S.”) section 12-2101(B) (1994). Because we find that genuine issues of material fact exist, and that appellees were not entitled to judgment as a matter of law, we reverse both judgments and remand for further proceedings.

I.

¶ 5 In 1910, Congress passed the Arizona-New Mexico Enabling Act, which authorized the people of the two territories to form state governments. Act of June 20, 1910, Pub.L. No. 219, ch. 310, 36 Stat. 557. Pursuant to the Act, the federal government granted almost 10 million acres to Arizona, with certain conditions. “The land could be used only for the support of the common schools of the state (school trust lands) and for internal improvements to the state.” Kadish v. Arizona State Land Dep’t, 155 Ariz. 484, 486, 747 P.2d 1183, 1185 (1987), aff'd. sub nom., ASARCO v. Kadish, 490 U.S. 605, 109 S.Ct. 2037, 104 L.Ed.2d 696 (1989) (emphasis in original).

¶ 6 The clear intent of the Act is “to produce a fund, accumulated by sale and use of the trust lands, with which the State could support the public institutions designated by the Act.” Larsen v. Arizona ex rel. Ariz. Highway Dep’t, 385 U.S. 458, 463, 87 S.Ct. 584, 17 L.Ed.2d 515 (1967). The Act and the restrictions it imposes “indicate Congress’ concern both that the grants provide the most substantial support possible to the beneficiaries and that only those beneficiaries profit from the trust.” Id. at 467, 87 S.Ct. 584.

[T]he general intent of Congress is clear. It intended the Enabling Act to severely circumscribe the power of state government to deal with the assets of the common school trust. The duties imposed upon the state were the duties of a trustee and not simply the duties of a good business manager____ Thus, to comply with congressional intent, we must strictly apply the Enabling Act’s restrictions regarding disposal of school trust assets.

Kadish, 155 Ariz. at 487-88, 747 P.2d at 1186-87.

¶ 7 Arizona adopted the Enabling Act by ratifying article 10 of the Arizona Constitu tion. The Arizona Land Department manages the state trust lands and classifies their suitable uses. See A.R.S. § 37-212 (Supp. 1998). Of Arizona’s 9.6 million acres of trust lands, 8.4 million acres are classified as suitable for grazing. In 1996, there were about 1,330 grazing leases on state trust lands.

¶ 8 Any lease of trust lands must serve the “best interest of the trust.” A.R.S. § 37-313(A). But the “ ‘best interest standard’ does not require blind adherence to the goal of maximizing revenue at the cost of contracting with an irresponsible lessee or hindering important alternative uses.” Havasu Heights Ranch and Dev. Corp. v. Desert Valley Wood Prods., Inc., 167 Ariz. 383, 392, 807 P.2d 1119, 1128 (App.1990); see also Campana v. Arizona State Land Dep’t, 176 Ariz. 288, 291, 860 P.2d 1341, 1344 (App.1993) (“[I]mmediate revenue is not the sole consideration in determining the best interests of the trust.”). Instead, the “Legislature chose a broader, ‘best interest’ standard that permits other considerations, such as the public benefits flowing from employing state land in uses of higher value than would the applicant for a lease.” See Havasu Heights, 167 Ariz. at 392, 807 P.2d at 1128.

II.

¶ 9 In reviewing a grant of summary judgment, this court considers the facts most favorably to the non-moving party. See Nestle Ice Cream Co. v. Fuller, 186 Ariz. 521, 523, 924 P.2d 1040, 1042 (App.1996). Further, “[wjhen competing reasonable inferences may be drawn from the undisputed facts, summary judgment should not be granted.” Republic Ins. Co. v. Feidler, 178 Ariz. 528, 534, 875 P.2d 187, 193 (App.1993). But the trial court did not apply that test in this case. Instead, it stated that it had “resolved all doubts in favor of protecting and preserving trust purpose,” citing Radish, 155 Ariz. at 495, 747 P.2d at 1194. In Radish, however, the supreme court was merely stating a principle of statutory interpretation. It was not adopting a unique summary judgment standard for trust land cases. We therefore apply the traditional standard of review for summary judgment.

¶ 10 To begin our analysis, we note that all parties here agree that the Department must manage trust lands “in the best interests of the trust.” See A.R.S. §§ 37-132(A)(5), 37-212(C), and 37-314(A) (Supp.1998); see also Williams v. Greene, 95 Ariz. 378, 381, 390 P.2d 907, 909 (1964) (controlling factor in leasing state land is the best interest of the state and its people). And all parties further agree that maximizing short-term lease income is not the Department’s only concern when deciding how to serve those best interests. See Manning v. Perry, 48 Ariz. 425, 432-33, 62 P.2d 693, 695-96 (1936) (discussing other relevant factors). 1

¶ 11 The Department asserted below that, in renewing leases, it considers factors such as ownership of contiguous lands; a parcel’s leasing history; and a lessee’s ranching experience, investment in the land, and range stewardship. It also asserted that its renewal practices benefit the trust by stabilizing the trust’s revenue stream, safeguarding the land by favoring continuity of management, and protecting the lessees’ investments in water, fencing, and other improvements needed to render the land productive.

¶ 12 Appellees responded that other bidders — who would pay higher rent — were being denied an opportunity to do so. Appel-lees also posited that advertising, sealed bid and auctions of leases would generate competition, which would result in more income to the trust, and that the Department wrongfully failed to surcharge sublessees.

¶ 13 The Department countered that competition was limited not by lack of advertising, but by the prevailing checkerboard ownership patterns 2 and the land’s remoteness, limited water, fencing or improvements. The Department further contended that widespread advertising would cause a net loss because its experience showed that competing bidders, when they exist, rarely offer to pay higher rent. In addition, the Department pointed out that a lessee’s willingness to pay higher rent did not necessarily make him the best lessee when all of the trust’s “best interests” were weighed, and that sublease rates were influenced by other benefits provided by the sublessor, such as feed, surveillance or improvements.

¶ 14 Via their point counter-point, each party has raised thoughtful arguments. But because these arguments encompass material factual disputes appellees are not entitled to summary judgment.

III.

¶ 15 In response to the trial court’s judgment, the legislature passed H.B. 2509, which amended the statutes governing trust lands. The State argues that the amended statutes moot this case and provide adequate remedy for appellees. But this argument should first be presented to the trial court, which will be able to review all relevant issues through the prism of the new statute.

IV.

¶ 16 The trial court awarded attorneys’ fees to appellees pursuant to the private attorney general doctrine, which was adopted in Arnold, v. Arizona Dep’t of Health Services, 160 Ariz. 593, 609, 775 P.2d 521, 537 (1989). “The private attorney general doctrine is an equitable rule which permits courts in their discretion to award attorney’s fees to a party who has vindicated a right that: (1) benefits a large number of people; (2) requires private enforcement; and (3) is of societal importance.” Id. Because we have reversed the trial court’s grant of summary judgment, and have remanded the case for further proceedings, we vacate its award of attorneys’ fees.

V.

¶ 17 The judgments are reversed and remanded. Appellees’ request for an award of attorneys’ fees on appeal is denied with leave to later seek those fees from the trial court, if appellees ultimately prevail on the merits.

CONCURRING: NOEL FIDEL, Presiding Judge, and E.G. NOYES, JR., Judge.

1 . In Williams, our supreme court noted that, while "[sjtarting with the premise that in leasing State land the benefits to be received by the State and its people are of primary importance, there are many factors to be considered in addition to the rental value.” 95 Ariz. at 383-84, 390 P.2d at 911. Thus, factors such as the use and development of surrounding lands, the tensions between urban and rural applications in the vicinity, and environmental considerations may be significant variables in assessing what would be in the actual "best interests” of the trust.

2 . "Checkerboard” refers to a mixed pattern of land ownership that may include privately owned land, forest allotment lands, and land leased from the state, all used together for a common purpose but in which the leased parcels, for example, are contiguous only where their corners meet. See Arizona State Land Dep’t v. State ex rel. Herman, 113 Ariz. 125, 127, 129, 547 P.2d 479, 481, 483 (1976).