Campana v. Arizona State Land Dept.

Decision Date05 October 1993
Docket NumberCA-SA,No. 1,1
Citation176 Ariz. 288,860 P.2d 1341
PartiesRichard V. CAMPANA, Petitioner, v. ARIZONA STATE LAND DEPARTMENT; M. Jean Hassell, Arizona State Land Commissioner, Respondents, NORTHEAST PHOENIX PARTNERS, Real Party in Interest. 93-0190.
CourtArizona Court of Appeals
OPINION

GERBER, Judge.

FACTS AND PROCEDURAL HISTORY

The Commissioner (Commissioner) of the Arizona State Land Department (Department) scheduled two public auctions for land in Northeast Phoenix. The land in question, held in trust pursuant to the Enabling Act, was part of an undeveloped residential community called Desert Ridge, which was planned in cooperation with the City of Phoenix pursuant to the Urban Lands Act, Ariz.Rev.Stat.Ann. ("A.R.S.") section 37-331 et seq. To realize maximum value of the land, the Department devised a mechanism for the installation of infrastructure (water, sewer, garbage, streets and bike paths) via a land sale, because neither the Department nor the City of Phoenix had the financial resources to install the infrastructure.

To accomplish its goal, the Department scheduled two auctions. One auction was for three leases for a total of 563 acres: (1) 332 acres of commercial core land, (2) 52 acres of resort land and (3) 179 acres of golf course land. The second auction was for the sale of 781 acres of residential land and 58 acres of public roadway/utilities, totaling 839 acres. The Department structured the auctions so that each could be bid on separately.

The successful bidder for the leases of the 563 acres would become the master developer in charge of the development of Desert Ridge. The Department envisioned the commercial lease bidder as master developer because this bidder would have a long term commitment to the community as the holder of the 99-year lease. As a condition to developing the land, the successful bidder for the sale of the residential land was required to post a bond for the installation of the infrastructure. Article 27 of the lease contains a paragraph regarding rental reduction and a separate paragraph regarding severability of any invalid provisions.

Campana, the petitioner here, filed a protest to the scheduled auctions. He requested that they be canceled, that the lands be re-appraised and that the auctions be re-configured so that all prospective bidders would be on equal footing. After a hearing at the Department, the hearing officer determined that Campana's protest was meritless. The Department held the auctions as scheduled. Respondent Northeast Phoenix Partners was the sole bidder at both auctions. Campana did not bid.

After the auctions, Campana filed this special action pursuant to A.R.S. section 37-301(C), which makes our appellate jurisdiction mandatory. He raises five issues which we discuss in sequence.

DISCUSSION
I. WAS BIDDING AT THE AUCTION CHILLED?
A. THE ENABLING ACT

In 1910, the Arizona-New Mexico Enabling Act authorized people of the two territories to form state governments. The Enabling Act confirmed prior land grants to the Arizona Territory and granted more land to the new state. In 1911, the Arizona electorate accepted land grants by ratifying article 10, section 1 of the Arizona Constitution. Provisions of the Enabling Act then became part of Arizona law. Kadish v. Arizona State Land Dept., 155 Ariz. 484, 486, 747 P.2d 1183, 1185 (1987).

The federal government granted four sections of land in each township to the State of Arizona (10 million acres total), which could only be used for support of the common schools of the state (school trust lands) and for internal state improvements. Id. Section 28 of the Enabling Act prohibits sale, conveyance or encumbrance of any part of school trust lands except to the "highest and best bidder" at a public auction after public notice. The State can dispose of this school trust land only if it obtains the true value as determined by an appraisal. Id. at 487, 747 P.2d at 1186.

B. THE BIDDING ISSUE

Campana argues that the bidding was chilled by the relationship of the commercial leases to the land sale. He claims that as a general rule, "... any act of the auctioneer, or of the party selling, or of third parties as purchasers, which prevents a fair, free, and open sale, or which diminishes competition and stifles or chills the sale, is contrary to public policy and vitiates the sale." 7A C.J.S. Auctions and Auctioneers § 14 (1980). He claims that the totality of the auction circumstances unfairly discriminated between a potential core lessee bidder and a residential bidder, because the core lessee as master developer is preferred over the residential developer. He claims that this difference stifled competition and chilled the bidding process.

The Department and Northeast Phoenix Partners (collectively Northeast Phoenix Partners) argue that there is no evidence the bidding process was so chilled. We agree.

Pursuant to Berry v. Arizona State Land Dept., 133 Ariz. 325, 651 P.2d 853 (1982), the Commissioner is obligated to manage trust lands for the benefit of the trust and its beneficiaries. Id. at 327, 651 P.2d at 855. He has the duty to maximize revenue to the trust. Gladden Farms, Inc. v. State, 129 Ariz. 516, 520, 633 P.2d 325, 329 (1981). However, immediate revenue is not the sole consideration in determining the best interests of the trust. Havasu Heights v. Desert Valley Wood, 167 Ariz. 383, 392, 807 P.2d 1119, 1128 (App.1990), review denied, April 23, 1991. The Commissioner has great discretion concerning the disposition of trust lands and has authority to devise detailed plans for the sale, lease, and use of state land. These decisions will not be overturned absent illegal action, an abuse of discretion, or an unfair bidding. Id. at 391-92, 807 P.2d at 1127-28.

In a recent decision of this court, Martori v. Arizona State Land Dept., 176 Ariz. 420, 861 P.2d 1182 (App.1993), we found a distinction between terms of sale that are in the best interest of the trust, although discouraging certain bidders, and terms that improperly limit the universe of potential bidders to one. Id. at 425, 861 P.2d at 1187. The Martori standard for evaluating whether bidding was chilled is as follows:

[a]s long as the proposed sale terms are justified by the best interests of the state trust, do not include conditions that would exclude eligible bidders, are not intended to favor a particular bidder, and are not otherwise contrary to law, the Commissioner has discretionary authority to determine the structure of a proposed sale.

Id. at 426, 861 P.2d at 1188. There is no evidence in the record of any illegal deals or preferential negotiations of any sort occurring prior to the auctions. Nor is there any evidence showing that one bidder was encouraged or favored over other potential bidders. There is no evidence that the Department showed any preference to the Northeast Phoenix Partners before or during the auction process. The fact that only one entity bid at the auction is irrelevant and explainable by a host of reasons from lack of interest to lack of money.

We conclude that the record supports the hearing officer's ruling that the bidding was not chilled.

II. WAS THERE AN APPRAISAL OF THE LAND?

Campana argues that pursuant to A.R.S. sections 37-236(A) and -237, the Department must sell trust lands to the "highest and best bidder" at public auctions after giving notice to potential bidders. He argues that section 28 of the Enabling Act requires that all lands "shall be appraised at their true value" before sale. He claims that there was no current appraisal performed. He states that a 1990 appraisal recommended that the land sell for $30,000 per acre. In 1992, Mark Wirth, an appraiser, recommended that the land sell for $11,000 per acre cash and $13,199 per acre on terms. Campana contends that the Commissioner merely concurred with Wirth's appraisal without conducting the required separate appraisal.

Northeast Phoenix Partners argues that pursuant to A.R.S. section 37-132(A)(5), the Commissioner becomes an appraiser under the language stating that "[t]he Commissioner shall ... [c]lassify and appraise all state lands ... for the purpose of sale, [or] lease...."

We agree with Northeast Phoenix Partners. In setting the value of land, the Commissioner in effect makes an appraisal even if he relies on prior data. Bettwy v. Black Canyon Greyhound Park, Inc., 119 Ariz. 227, 580 P.2d 365 (1978), review denied, June 13, 1978. The Commissioner has both the power and the duty to appraise. His appraisal here set values midway between the Wirth values, which appears a reasonable rather than random determination. The fact that Campana disagrees with the appraised values does not suggest that the required appraisal was ignored. We do not find any abuse of discretion.

III. WAS THE APPRAISAL PERFORMED WITHIN 180 DAYS?

A.R.S. section 37-102(G) requires that the Department issue an appraisal within 180 days prior to a sale or lease. Campana argues that Wirth used 1991 comparables that invalidated the appraisal because the 1991 data predated the auction by considerably more than 180 days. He claims that the Commissioner's failure to do a further independent appraisal before setting the land values violated A.R.S. section 37-102(G).

Northeast Phoenix Partners argues, as above, that A.R.S. section 37-132(A)(5) makes the Commissioner an appraiser.

We agree with Northeast Phoenix Partners for the reason stated immediately above. When the Commissioner set the pre-auction value, he did an appraisal by that very act. The record reveals that the Commissioner set...

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