280 P.3d 693 (Idaho 2012), 39084, Wasden v. State Bd. of Land Com'rs

Docket Nº:39084.
Citation:280 P.3d 693, 153 Idaho 190
Opinion Judge:J. JONES, Justice.
Party Name:Hon. Lawrence G. WASDEN, in his capacity as Attorney General of Idaho, ex rel. State Endowment Land Beneficiaries, Plaintiff-Appellant-Cross-Respondent, v. STATE BOARD OF LAND COMMISSIONERS, and George Bacon, in his official capacity as Director of the Idaho Department of Lands, Defendants-Respondents-Cross-Respondents, and Gladys Babcock, et al.,
Attorney:Hon. Lawrence G. Wasden, Attorney General, Boise, appellant-cross-respondent and for cross-respondents Idaho Board of Land Commissioners and George Bacon. Clive J. Strong argued. Farley Oberrecht West Harwood & Burke, P.A., Boise, for respondent cross-appellant. Phillip S. Obrerrecht argued. Char...
Judge Panel:Chief Justice BURDICK, and Justices EISMANN and HORTON, and Justice Pro Tem TROUT concur.
Case Date:June 29, 2012
Court:Supreme Court of Idaho
 
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Page 693

280 P.3d 693 (Idaho 2012)

153 Idaho 190

Hon. Lawrence G. WASDEN, in his capacity as Attorney General of Idaho, ex rel. State Endowment Land Beneficiaries, Plaintiff-Appellant-Cross-Respondent,

v.

STATE BOARD OF LAND COMMISSIONERS, and George Bacon, in his official capacity as Director of the Idaho Department of Lands, Defendants-Respondents-Cross-Respondents,

and

Gladys Babcock, et al., Defendants-in-Intervention-Respondents-Cross Appellants,

and

Priest Lake State Lessees Association, Inc., Defendant Intervenor-Respondent-Cross-Respondent.

Gladys Babcock, as Trustee of the Babcock Trust, et al., Plaintiffs-Cross-Appellants,

v.

Idaho Board of Land Commissioners and George Bacon, In his official capacity as Director of the Idaho Department of Lands, Defendants-Cross-Respondents.

No. 39084.

Supreme Court of Idaho, Boise

June 29, 2012

Page 694

Hon. Lawrence G. Wasden, Attorney General, Boise, appellant-cross-respondent and for cross-respondents Idaho Board of Land Commissioners and George Bacon. Clive J. Strong argued.

Farley Oberrecht West Harwood & Burke, P.A., Boise, for respondent cross-appellant. Phillip S. Obrerrecht argued.

Charles B. Lempesis, Chtd., Coeur d'Alene, for respondent Priest Lake State Lessees Association, Inc. Charles B. Lempesis argued.

J. JONES, Justice.

This is a consolidation of two actions relating to residential leases on State endowment lands. In one action, the Attorney General sought a declaratory ruling that

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I.C. § 58- 310A, which exempts so-called " cottage site" leases from conflict auctions, is unconstitutional in light of Article IX, § 8 of the Idaho Constitution. The district court determined that I.C. § 58-310A was not violative of the Idaho Constitution, and, thus, dismissed the Attorney General's complaint. The Attorney General appeals that decision. In the other action, Gladys Babcock and several others who lease cottage sites on Payette Lake (collectively " Payette Lake Lessees" ) filed an action against the State Board of Land Commissioners and the Idaho Department of Lands Director. The Payette Lake Lessees alleged that the Board breached their lease agreements when it declined to renew the expiring leases for an additional ten years. The district court granted summary judgment to the Board, finding the Payette Lake Lessees had failed to exhaust their administrative remedies. The Payette Lake Lessees filed a cross-appeal challenging that decision. We reverse the district court's ruling on the Attorney General's claim because I.C. § 58-310A is unconstitutional. We vacate the district court's holding with respect to the Payette Lake Lessees' claim and remand for further proceedings.

I.

BACKGROUND

The State Board of Land Commissioners is composed of the Governor, the Secretary of State, the State Controller, the Attorney General, and the Superintendent of Public Instruction. Idaho Const. art. IX, § 7. The Board members are trustees of about 2.5 million acres of lands that the United States granted in trust to the State to support public schools and certain other public institutions. Idaho Watersheds Project v. State Bd. of Land Comm'rs, 133 Idaho 55, 56 n. 1, 982 P.2d 358, 359 n. 1 (1999). The State's endowment trust lands include 354 residential lots on Priest Lake in northern Idaho and 168 lots on Payette Lake in central Idaho. These residential lots are commonly known as " cottage sites."

In 2001, the Payette Lake Lessees, or their predecessors in interest, signed ten-year leases for cottage sites on Payette Lake. The leases expressly stated that they terminated on December 31, 2010. Annual rent for the lease term between 2001 and 2011 was " two and one half [percent] (2.5%) of current fee simple value ... as determined by valuation administered by the [Board] or by valuation as determined by the assessor." Id.

In 2007, the Board initiated proceedings to set a new rental rate for cottage site leases. In March 2010, the Board determined that market rent for the cottage sites was 4% of the ten-year average value of the land and adopted that rate for all new or renewed leases, to be phased in over the course of five years. The Department of Lands subsequently notified the Payette Lake Lessees of the new terms that would govern cottage site leases beginning in 2011.

The Payette Lake Lessees filed their action against the Board in October 2010, alleging, among other things, that the Board's decision to increase rent breached the terms of the existing leases. The Payette Lake Lessees contended they had a contractual right to renew their leases for another ten years under terms identical to those in the expiring leases.

In December 2010, the Attorney General filed an action to enjoin the Board from implementing the new lease rate1 and to challenge the constitutionality of I.C. § 58-310A. In most circumstances, when two or more people seek to lease State endowment land, the Department of Lands is required to hold an auction and award the lease to the highest bidder. See I.C. § 58-310(1). But I.C. § 58-310A exempts cottage site leases from this " conflict auction" requirement. I.C. § 58-310A(2). The Attorney General averred that the exemption of cottage sites from conflict auctions violates the Board's

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trust obligations as defined by Article IX, § 8 of the Idaho Constitution. The Attorney General also requested a preliminary injunction to prevent the Board from implementing the new lease rate, based on the alleged constitutional infirmity of I.C. § 58-310A. The district court granted the preliminary injunction on December 17, 2010.2

Shortly after issuance of the injunction, the Board met and voted to extend for one year the terms of the existing cottage site leases, including the 2.5% rental rate. The Board also superseded its March 2010 decision with a new plan— beginning in 2012, cottage site leases would be offered at a rate of 4% of current market value for a ten-year term.

Both the Payette Lake Lessees and the Board moved for summary judgment on the Payette Lake Lessees' contract claim. The district court concluded that the Payette Lake Lessees should have filed a petition for judicial review to challenge the Board's decision, rather than bringing a contract action. The court thus concluded that the Payette Lake Lessees failed to exhaust their administrative remedies and granted the Board summary judgment. The Attorney General moved for summary judgment on his claim challenging I.C. § 58-310A. 3 The court determined that I.C. § 58-310A did not conflict with Article IX, § 8 of the Idaho Constitution. It therefore denied the Attorney General's motion for summary judgment and ultimately dismissed his complaint. The Attorney General and the Payette Lake Lessees timely appealed to this Court. On appeal, the Priest Lake State Lessees Association, Inc. (" Priest Lake Lessees" ) is participating as a respondent, opposing the Attorney General's claim. The Priest Lake Lessees have not weighed in on the Payette Lake Lessees' contract action.

II.

ISSUES ON APPEAL

I. Does the Attorney General have standing to pursue his claim that I.C. § 58-310A is unconstitutional?

II. Is I.C. § 58-310A violative of Article IX, § 8 of the Idaho Constitution?

III. If I.C. § 58-310A is unconstitutional, must the entire statute fail, or are the constitutionally infirm portions severable?

IV. Did the district court err in holding the Payette Lake Lessees were required to exhaust administrative remedies on their contract claim?

III.

ANALYSIS

A. Standard of Review.

In appeals from a summary judgment, this Court employs the same standard as the district court. Cnty. of Boise v. Idaho Counties Risk Mgmt. Program, Underwriters, 151 Idaho 901, 904, 265 P.3d 514, 517 (2011). The court must grant summary judgment when " the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." I.R.C.P. 56(c). " This Court exercises free review over questions of law, including jurisdictional and constitutional issues." Allied Bail Bonds, Inc. v. Cnty. of Kootenai, 151 Idaho 405, 409, 258 P.3d 340, 344 (2011).

B. The Attorney General's action.

The Attorney General claims the district court erred in failing to find I.C. § 58-310A violative of Article IX, § 8, which sets out the Board's trust responsibilities with regard to endowment lands. The Attorney General contends that Article IX, § 8, requires a public auction for any " disposal" of endowment land and that a lease of endowment land is a disposal within the meaning of the

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provision. The district court ruled that disposal only relates to a fee interest and, therefore, the Legislature was acting within its authority in exempting cottage site leases from the public auction requirement. The Respondents agree, contending that the Board's only constitutional obligation is to maximize the long-term financial return from the cottage sites.

Before addressing the merits of the Attorney General's action, we consider an issue raised by the Priest Lake Lessees—...

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