GUARDIANS v. Wells, CV-00-0177-PR.

CourtSupreme Court of Arizona
Citation34 P.3d 364,201 Ariz. 255
Docket NumberNo. CV-00-0177-PR.,CV-00-0177-PR.
PartiesForest GUARDIANS, and Jonathan D. Tate, Plaintiffs-Appellants, v. J. Dennis WELLS, in his official capacity as Commissioner of the Arizona State Land Department and the Arizona State Land Department, Defendants-Appellees.
Decision Date21 November 2001

Arizona Center for Law in the Public Interest, by Timothy M. Hogan, Jennifer B. Anderson, Phoenix, Attorneys for Plaintiffs-Appellants.

Janet A. Napolitano, Arizona Attorney General, by Theresa M. Craig, Assistant Attorney General, Attorneys for Defendants-Appellees.

Arizona Education Association, by Susan G. Sendrow, Phoenix, Attorneys for Amicus Curiae Arizona Education Association.

OPINION

FELDMAN, Justice.

¶ 1 The State Land Commissioner (Commissioner) denied the applications of Forest Guardians and Jonathan Tate (collectively Plaintiffs), who were the highest bidders for grazing leases on three parcels of land that are part of the state's school land trust, which is administered by the State Land Department (Department). That denial was premised on the conclusion that the statutory scheme did not permit the issuance of grazing leases for the purpose of restoring the land. The trial court affirmed on review of the agency decision, as did the court of appeals. We granted review and now vacate the court of appeals' opinion and reverse the trial court's judgment.

FACTS AND PROCEDURAL HISTORY

¶ 2 In 1910, Congress passed the Arizona New Mexico Enabling Act (the Enabling Act), which authorized the citizens of the Arizona and New Mexico territories to form state governments. See Act of June 20, 1910, Pub.L. 219 (ch. 310), 36 Stat. 557. By that act, the United States granted the future state of Arizona approximately ten million acres of land to be held in trust and to be used only for the support of the common schools of the state (school trust lands). See Enabling Act § 28. The Department, under the supervision of the Commissioner, an officer appointed by the governor and confirmed by the legislature, administers the school trust lands for the state. See A.R.S. §§ 37-102, 37-132.1

¶ 3 In 1997, Forest Guardians applied for a ten-year lease on approximately 5,000 acres of school trust grazing land in Coconino County. The then-current lessee also applied to renew its lease to graze eighty-five head of cattle on the land for $2,150 per year. Forest Guardians' offer was approximately twice that amount. Forest Guardians also applied for a ten-year lease of approximately 162 acres of land in Santa Cruz County. That land had also been previously leased, and the lessee had applied for renewal at $50.16 per year. Forest Guardians offered to pay five times that amount. Jonathan Tate applied for a ten-year lease on approximately 16,000 acres of trust land in Pinal County, offering to pay twice the amount the then-current lessee offered for renewal of its lease.

¶ 4 Though the Commissioner had classified all the parcels of land at issue as grazing land, Plaintiffs did not intend to graze livestock on any of the parcels in question. Instead, they informed the Commissioner, Forest Guardians by cover letter and Tate in his application, that the land would be rested for the entire term of the ten-year leases. Thus, Forest Guardians requested that the Commissioner permit Forest Guardians to use the land "for purposes other than domestic livestock grazing, as is permitted by [Department regulations]." Forest Guardians' letter explained that non-use for the ten-year term would restore the properties, thus allowing grazing in the future and enhancing the corpus of the trust, while its higher bids would satisfy the Commissioner's other legal obligation to obtain the highest revenue for the school trust lands. Throughout a subsequent administrative proceeding, Plaintiffs argued that by "not stocking the land[, Plaintiffs] will increase [its] value ... to conservationists, prospective livestock interests and trust beneficiaries." See Recommended Decision of Administrative Law Judge (ALJ Decision), Findings of Fact, at ¶ 18 (March 9, 1998) (No. 97F-032-LAN).

¶ 5 The Department notified Plaintiffs that their applications would be rejected because they did not propose to use the land for grazing—the purpose for which it had been classified. It informed Plaintiffs that they would have to file an application to have the lands reclassified for commercial rather than grazing use if they wished to lease trust land for preservation or restoration. Plaintiffs responded that they would neither withdraw their applications nor submit applications for reclassification and issuance of commercial leases. They continued to request the Commissioner to accept their bids and issue leases for resting or non-use of the grazing lands. Id. at ¶¶ 19-21. The Commissioner eventually denied Plaintiffs' lease applications "on the basis" that Plaintiffs "did not intend to range livestock" and asserted that, under the Commission's rules, such non-use would be consistent only with commercial leasing. Id. at ¶ 22. Plaintiffs, however, were unwilling to apply for commercial leases, explaining that they were not willing to pay the higher fees that would be required for commercial leases and rentals. Id. at ¶ 30. According to the Department, Plaintiffs' failure to apply for reclassification for commercial uses would prevent the trust from receiving additional lease income based on the higher, commercial use standard and thus was "not in the best interests of the State Trust." Denial of Application, ¶¶ 3d (No. 146-97/98) and 3 (No. 147-97/98) (October 10, 1997). Accordingly, Plaintiffs' applications were denied.

¶ 6 On Plaintiffs' appeal from the denial, the administrative law judge (ALJ) concluded that the Commissioner did not violate his fiduciary duty by rejecting Plaintiffs' applications because Plaintiffs' intended restorative use of the land did not meet the Department's criteria for a grazing lease and because Plaintiffs declined to apply for issuance of commercial leases. ALJ Decision, Conclusions of Law, ¶ 8. By order, the Commissioner adopted the ALJ's recommended decision. See Decision and Order (April 1, 1998) (No. 447-97/98).

¶ 7 Plaintiffs then sought judicial review by special action filed in the superior court. See A.R.S. §§ 12-901 to 12-914. The trial judge affirmed the Commissioner's decision, and Plaintiffs appealed. The court of appeals' majority held that the land must be used for the purpose for which it was classified and that the use could not be changed unless it was reclassified. Forest Guardians v. Wells, 197 Ariz. 511, 516 ¶¶ 19-20, 4 P.3d 1054, 1059 ¶¶ 19-20 (App.2000). Relying in part on Public Lands Council v. Babbitt, 154 F.3d 1160 (10th Cir.1998), the court concluded that grazing leases could not be issued to conservation groups for the purpose of restoration. Forest Guardians, 197 Ariz. at 517 ¶¶ 22-23, 4 P.3d at 1060 ¶¶ 22-23. The court believed that the proper remedy was for Plaintiffs to request reclassification of the land for recreational or conservation purposes. Id. at 578 ¶ 29, 4 P.3d at 1061 ¶ 29. Finally, the court found that the factual record did not support the conclusion that Plaintiffs' proposals would be in the best interests of the land. Id. at 518 ¶¶ 31-32, 4 P.3d at 1061 ¶¶ 31-32. Dissenting, Judge Gerber argued that the case turned on the Commissioner's fiduciary duties as administrator of the school trust lands. Those duties, he said, were breached by the Commissioner's rejection of the highest bids without first ascertaining the true condition of the land. Id. at 522 ¶¶ 51-52, 4 P.3d at 1065 ¶¶ 51-52.

¶ 8 We granted review because the case has statewide importance with regard to operation of the trust, and we examine the propriety of the denial in light of the Commissioner's fiduciary duty with respect to the administration of that trust. See Rule 23(c)(3), Ariz.R.Civ.App.P. We have jurisdiction under article VI, § 5(3) of the Arizona Constitution.

DISCUSSION
A. The standard of review

¶ 9 The superior court's judgment was rendered on review of an administrative agency's decision. When an agency decision is based on factual determinations, judicial review is limited to determining whether the administrative action was an abuse of discretion. See J.W. Hancock Enter., Inc. v. Registrar of Contractors, 126 Ariz. 511, 513, 617 P.2d 19, 21 (1980)

. A decision is discretionary when it involves determination of conflicting factual claims, including credibility, contested inferences, and the like. See State v. Chapple, 135 Ariz. 281, 297 n. 18, 660 P.2d 1208, 1224 n. 18 (1983). On the other hand, if the administrative decision was based on an interpretation of law, it is reviewed de novo. See A.R.S. §§ 12-901 to 12-914 (Administrative Review Act); see also Mountain States Tel. & Tel. Co. v. Sakrison, 71 Ariz. 219, 220, 225 P.2d 707, 708 (1950).

¶ 10 In the present case, the Commissioner did not make a discretionary decision but, rather, based rejection of Plaintiffs' applications on an interpretation of law. Plaintiffs' lease applications were ruled "inappropriate because [Plaintiffs] did not intend to put the lands to the use for which they are classified." See Denial of Application ¶¶ 3b (No. 146-97/98) and 3c (No. 147-97/98). As the court of appeals acknowledged, the ALJ presiding over Plaintiffs' appeal to the Office of Administrative Hearings

concluded, as a matter of law, that A.R.S. section 37-285(H) "does not allow the Commissioner to waive grazing and authorize nongrazing use for an applicant who has no intention of ever using the lands for ranging livestock." Furthermore, stated the ALJ, [Plaintiffs'] offers to pay more than the existing lessees were paying did not give [Plaintiffs] a superior right to use the lands because the value of the proposed conservation and recreational uses could not properly be established solely by an offer to pay more than the estimate of forage
...

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