Kadish v. Arizona State Land Dept., CV-86-0238-T

• Decision Date: 10 December 1987
• Docket Number: No. CV-86-0238-T,CV-86-0238-T
• Parties: , 44 Ed. Law Rep. 701 Frank and Lorain KADISH; Marion L. Pickens; and the Arizona Education Association, a non-profit corporation, Plaintiffs-Appellants, v. ARIZONA STATE LAND DEPARTMENT, an agency of the State of Arizona; Joe T. Fallini, in his capacity as the State Land Commissioner; and Cyprus Pima Mining Company, on behalf of itself and others similarly situated, Defendants- Appellees, ASARCO Incorporated, a New Jersey corporation; Magma Copper Company, a Delaware corporation; James P.L. Sullivan, Esq.; Eisenhower Mining Company, a partnership; and Can-Am Corporation, an Arizona corporation, Intervenors- Appellees.
• Court: Arizona Supreme Court

Page 1183

747 P.2d 1183

155 Ariz. 484, 44 Ed. Law Rep. 701

Frank and Lorain KADISH; Marion L. Pickens; and the Arizona Education Association, a non-profit corporation, Plaintiffs-Appellants, v. ARIZONA STATE LAND DEPARTMENT, an agency of the State of Arizona; Joe T. Fallini, in his capacity as the State Land Commissioner; and Cyprus Pima Mining Company, on behalf of itself and others similarly situated, Defendants- Appellees ASARCO Incorporated, a New Jersey corporation; Magma Copper Company, a Delaware corporation; James P.L. Sullivan, Esq.; Eisenhower Mining Company, a partnership; and Can-Am Corporation, an Arizona corporation, Intervenors- Appellees.

No. CV-86-0238-T.

Supreme Court of Arizona.

Dec. 10, 1987.

Reconsideration Denied Feb. 2, 1988.

Arizona Center for Law in the Public Interest by David S. Baron, Amy J. Gittler, Tucson, for plaintiffs-appellants.

Robert K. Corbin, Atty. Gen. by James T. Skardon, Asst. Atty. Gen., Phoenix, for defendants-appellees Arizona State Land Department and Fallini.

Lewis and Roca by Tom Galbraith, Phoenix, for defendant-appellee Cyprus Pima Mining Co.

Kaufman, Apker & Nearhood, P.C. by Burton M. Apker, Phoenix, for intervenors-appellees ASARCO Inc. and Eisenhower Mining Co.

Twitty, Sievwright & Mills by Howard A. Twitty, Phoenix, for intervenor-appellee Magma Copper Co.

James P.L. Sullivan, pro se.

Molloy, Jones, Donahue, Trachta, Childers & Mallamo, P.C. by Mark S. Sifferman, Phoenix, for intervenor-appellee Can-Am Corp.

New Mexico State Land Office by Arthur J. Waskey, Louhannah M. Walker, Santa Fe, for amicus curiae New Mexico Com'r of Public Lands.

FELDMAN, Vice Chief Justice.

Frank and Lorain Kadish, Marion Pickens, and the Arizona Education Association, petitioners, brought a taxpayers' action against the Arizona State Land Department and others. The issue raised is whether the fixed royalty provisions of A.R.S. § 27-234(B), permitting the land department to lease minerals on a flat rate royalty, violate the appraisal and true value provisions of the Arizona Enabling Act and the comparable provisions of the state constitution.

FACTS AND PROCEDURAL BACKGROUND

The individual petitioners are taxpayers who allege that their taxes support public education in Arizona. The Arizona Education Association represents approximately 20,000 public school teachers throughout the state. All petitioners contend that the provisions of A.R.S. § 27-234(B), ¹ fixing a The defendants originally named were the Arizona State Land Department, the State Land Commissioner, and Cyprus Pima Mining Company, a mineral lessee. The trial court allowed other mineral lessees of state school trust lands (Magma Copper Company, ASARCO, Inc., James Sullivan, Eisenhower Mining Company, and Can-Am Corporation) to intervene as defendants. (Original and intervenor defendants are hereafter referred to as "respondents.") The trial court eventually certified the case as a defendant class action pursuant to Rule 23, Ariz.R.Civ.P., 16 A.R.S. The class consists of all present and future mineral lessees of state lands.

[155 Ariz. 486] flat rate, five percent royalty on minerals extracted from leased state school trust land impermissibly result in the extraction of minerals without payment of full value to the school trust. Petitioners claim that such a limitation of income is contrary to the appraisal and true value requirements of the Enabling Act and the Arizona Constitution. They seek a declaration that A.R.S. § 27-234(B) is void and ask for appropriate special action relief. ²

The parties filed cross motions for summary judgment. The trial court granted respondents' summary judgment motions, and held A.R.S. § 27-234(B) did not violate the Arizona Enabling Act or the Arizona Constitution. Petitioners timely moved for an order transferring the case from division one of the court of appeals to this court. We granted the motion because the issues in this case are matters of first impression and substantial statewide importance. See Rule 19, Ariz.R.Civ.App.P., 17A A.R.S. We have jurisdiction pursuant to Ariz. Const. art. 6, § 5, A.R.S. §§ 12-102, -2103, and Rules 8 and 9, Ariz.R.P.Spec.Act., 17A A.R.S. We now reverse the judgment below, and remand with instructions to enter summary judgment in favor of petitioners.

HISTORICAL BACKGROUND OF THE ARIZONA ENABLING ACT

The issue before us can neither be understood nor resolved without an understanding of the historical process from which it evolved. In 1910, the Arizona-New Mexico Enabling Act became law, authorizing the people of the territories of Arizona and New Mexico to form state governments. Act of June 20, 1910, Pub.L. No. 219 (ch. 310), 36 Stat. 557. Sections 19 through 35 of the Act referred exclusively to the proposed state of Arizona. ³ The Enabling Act included provisions that confirmed prior land grants to the Arizona Territory and granted still more land to the new state. In 1911, the Arizona electorate accepted the land grants by ratifying art. 10, § 1 of the Arizona Constitution. The full provisions of the Enabling Act became part of the organic law of this state. Ariz. Const. art. 20, p 12. See also Gladden Farms, Inc. v. State, 129 Ariz. 516, 518, 633 P.2d 325, 327 (1981). Because federal law is supreme in this field, neither this court, nor the legislature, nor the people may alter or amend the trust provisions contained in the Enabling Act without congressional approval. Murphy v. State, 65 Ariz. 338, 181 P.2d 336 (1947).

Pursuant to the Enabling Act, the United States granted four sections of land in each township to Arizona. Almost ten million acres were granted. 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. See generally Dunipace, Arizona's Enabling Act and the Transfer of State Lands for Public Purposes, 8 ARIZ.L.REV Section 28 of the Enabling Act prohibited the sale, conveyance, or encumbrance of any part of the school trust land "except to the highest and best bidder at a public auction" after notice "duly given by advertisement." The state could dispose of the land or its products only if it obtained "true value" as determined by a prior appraisal. No disposal could be made "for a consideration less than the value so ascertained." Finally, § 28 provided that every disposition of the land or its products "not made in substantial conformity with the provisions of this Act [would be] null and void, any provisions of the constitution or laws of the said State to the contrary notwithstanding." Except for several matters irrelevant to the case before us, art. 10 of the Arizona Constitution is "practically a rescript of section 28 of the Enabling Act." Murphy, 65 Ariz. at 348, 181 P.2d at 342.

[155 Ariz. 487] 133 (1966). The school land trust now encompasses approximately nine and one-half million acres. AUDITOR GENERAL, A PERFORMANCE AUDIT OF THE STATE LAND DEPARTMENT, at 2 (1987).

Murphy capsulizes the historical reasons for the stringent provisions of the Enabling Act. Land grant acts similar to our Enabling Act previously had authorized the formation of other state governments. These acts had given the new states authority to determine how school trust lands were to be sold and the proceeds preserved for trust purposes. The result of this largess was highly unsatisfactory:

The sad experience of Congress with the handling by these twenty-three states of the granted lands, the sale thereof, and the investment of monies derived from a disposition of the granted lands, brought about a new policy which found expression in the Enabling Act for New Mexico and Arizona. The dissipation of the funds by one device or another, sanctioned or permitted by the legislatures of the several states, left a scandal in virtually every state, and these granted lands and the monies derived from a disposition thereof were so poorly administered, so unwisely invested and dissipated, that Congress concluded to make sure, in light of experiences of the past, that such would not occur in the new states of New Mexico and Arizona.

Murphy, 65 Ariz. at 351, 181 P.2d at 344.

To ensure that Arizona and New Mexico would not dissipate the assets granted, Congress required that they hold the granted land in trust and enacted the restrictive provisions of § 28 of the Enabling Act noted above. 65 Ariz. at 351-52, 181 P.2d at 344-45, citing the report of Senator Beveridge, Chairman of the Committee on Territories, S.Rep. No. 454, 61st Cong., 2d Sess. (1910). See also 45 Cong.Rec. 8227 (1910) (explanation by Senator Beveridge in floor debate concerning strict safeguards on land transferred to the state of Arizona).

Congress's concerns were well-founded. New Mexico's experience was sadly typical. Despite the stringent trust restrictions of its Enabling Act, the New Mexico legislature enacted laws permitting the disposition of trust assets in a manner that breached the trust. See, e.g., Ervien v. United States, 251 U.S. 41, 40 S.Ct. 75, 64 L.Ed. 128 (1919). In Arizona, the legislature authorized the investment of school trust funds in first mortgages upon supposedly valuable reclaimed farm land. These speculative expenditures were at best "non-beneficial." See Murphy, 65 Ariz. at 357, 181 P.2d at 348. The legislature eventually had to compensate the trust fund for the resulting losses by appropriating money out of the general fund. See Udall v. State Loan Board, 35 Ariz. 1, 273 P. 721 (1929); Laws of 1929, ch. 94.

Thus, the 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. See generally County of Skamania v. State, 102 Wash.2d 127, 685 P.2d 576 (1984) (when managing and administering the trust lands, the state must...