Lazy Y Ranch Ltd. v. Behrens, 07-35315.

• Decision Date: 26 September 2008
• Docket Number: No. 07-35315.,07-35315.
• Citation: 546 F.3d 580
• Parties: LAZY Y RANCH LTD, Plaintiff-Appellee, v. Tracy BEHRENS; Marilyn Howard; Keith Johnson; Jim Risch; Lawrence Wasden; Winston Wiggins; Ben Ysursa; Does 1-20; George Bacon, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

546 F.3d 580

LAZY Y RANCH LTD, Plaintiff-Appellee, v. Tracy BEHRENS; Marilyn Howard; Keith Johnson; Jim Risch; Lawrence Wasden; Winston Wiggins; Ben Ysursa; Does 1-20; George Bacon, Defendants-Appellants.

No. 07-35315.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted August 7, 2008.

Filed September 26, 2008.

Clay R. Smith, Deputy Attorney General, Boise, ID, for the defendants-appellants.

Laurence J. Lucas, Boise, ID, for the plaintiff-appellee.

Appeal from the United States District Court for the District of Idaho; Mikel H. Williams, Magistrate Judge, Presiding. D.C. No. CV-06-00340-MHW.

Before: HARRY PREGERSON, WILLIAM C. CANBY, JR., and CYNTHIA HOLCOMB HALL, Circuit Judges.

HALL, Circuit Judge:

I. INTRODUCTION

This case arises from Lazy Y Ranch's attempt to lease grazing lands from the State of Idaho. The leases were auctioned by the State and although Lazy Y was the high bidder, the leases ultimately were awarded to other parties. Lazy Y filed a complaint under 42 U.S.C. § 1983, alleging that various state officials violated the Equal Protection Clause when they rejected its bids. In particular, Lazy Y alleged that the officials discriminated against Lazy Y because it (1) has perceived ties to conservationists; and (2) is a Washington corporation that was attempting to enter the Idaho grazing market.

Defendants moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), contending that Lazy Y failed to state an Equal Protection claim and, alternatively, that they were entitled to qualified immunity. Defendants' motion relied on various documents indicating they had articulated a legitimate reason for rejecting Lazy Y's bids — namely, that leasing to Lazy Y would involve increased administrative costs because the lands were unfenced and cattle could wander onto adjoining property. The district court struck most of Defendants' extraneous documents and ultimately denied their motion to dismiss. This interlocutory appeal followed, with Defendants relying on the collateral order doctrine as a basis for appellate jurisdiction.

As we explain below, Lazy Y has properly alleged that Defendants violated its rights under the Equal Protection Clause, and also that they violated clearly established law. We therefore affirm.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. The Complaint and Unchallenged Extraneous Documents

The following facts come from allegations in Lazy Y's first amended complaint and the few extraneous documents that the district court considered as part of Defendants' motion to dismiss.

1. Overview of Idaho Endowment Lands

The lands Lazy Y tried to lease are known as "endowment lands." Endowment lands are controlled by the Idaho State Board of Land Commissioners, also called the "Land Board." Idaho Const., Art. IX § 7. The Land Board must "carefully preserve[ ]" the endowment lands and manage them "in such manner as will secure the maximum long-term financial return to the institution to which [the land is] granted." Id. § 8. The Land Board has designated the lands at issue here to be leased to private entities for the benefit of public schools.

Under state law, leases on public school endowment lands may not exceed 10 years (subject to exceptions not relevant here). Idaho Code § 58-307(1). At the beginning of every calendar year, the Idaho Department of Lands ("IDL") gives public notice of all 10-year leases that are expiring on December 31 of that year and offers new 10-year leases to qualified members of the public. When the IDL receives more than one qualified application for the same lease, the IDL "shall ... auction off and lease the land to the applicant who will pay the highest premium bid therefore." Id. § 58-310(1). The IDL's auction is not necessarily final, however, as the Land Board has the power to overturn it. See id. § 58-310(4).

2. Lazy Y's Bids

In response to an IDL notice in early 2005, Lazy Y applied for leases on nine grazing lands. With one exception, the prior lessees also applied for the new leases, as did some third parties. Given the competing applications, Defendant Tracy Behrens, who was then the IDL Range Program Manager, notified applicants that auctions would be held and that they should submit management proposals addressing various environmental concerns. Lazy Y obtained a "resource assessment" from the IDL to ensure that its proposals were consistent with IDL's concerns, and timely submitted the proposals. The proposals indicated that Lazy Y would improve environmental conditions on the land.

Lazy Y alleges that it first experienced unfair treatment on June 1, 2005, when Behrens told it that its management proposals did not adequately address IDL's concerns and would need to be modified. According to Lazy Y, the IDL had routinely leased endowment land to other parties without requiring more specific grazing management proposals than Lazy Y's. Lazy Y also alleges that the proposals of existing lessees would have led to land damage that IDL sought to avoid and that Lazy Y's proposals addressed. Behrens singled out Lazy Y's proposals, Lazy Y says, because the IDL and Land Board believed that Lazy Y was connected to conservationists who have sought to improve state land management.

After Lazy Y submitted new proposals, the parties further disputed their adequacy, and Behrens at one point suggested that Lazy Y might not be familiar with the applicable procedures because it was "not from Idaho." Lazy Y responded that its president was an Idaho resident and that it was fully licensed to do business in Idaho. Eventually, IDL accepted the proposals as complete.

In August 2005, the IDL scheduled auctions for five of the leases.¹ Lazy Y was the high bidder for all five. According to Lazy Y, however, an agent for prior lessees named Wally Butler orchestrated efforts to deprive Lazy Y of the leases by appealing the auctions.² The appeals allegedly were on the verge of being denied by IDL staff, but before staff could act, Defendant and IDL Director Winston Wiggins unilaterally invalidated the auctions. Wiggins said he did so because — as a result of an administrative error — IDL staff had inadvertently failed to circulate Lazy Y's management proposals to competing bidders before the auctions. Lazy Y alleges that Wiggins's justification was a pretext, again to cover discrimination based on Lazy Y's perceived connection to conservationists and out of a desire to protect prior lessees from competition.³

After a delay of several months, during which the prior lessees continued to use the grazing lands, the Land Board ultimately approved Wiggins's decision to void the auctions. In February 2006, the Land Board scheduled new auctions for the five leases, as well as a sixth for which no auction had previously been conducted because of disputes over improvements on the land. The six auctions were held in June 2006, and Lazy Y was again the high bidder on each one. Lazy Y's winning bids totaled $5,825.

This time, none of the competing bidders appealed the auction results. However, Wiggins put the leases on the Land Board's agenda for August 8, 2006. Six days before the Land Board met, Behrens recommended that it deny Lazy Y's leases because taking them from the prior lessees would present a "significant increase in administrative costs." As stated in an IDL staff memo provided on August 2, 2006, the increased costs would result because the lands covered by the leases "constitute only a portion of larger grazing allotments" that were not divided by fences, and the previous lessees — in each case the second highest bidders — had grazing rights on the adjacent land. The memo cited increased costs associated with inspecting the sites to ensure that cattle from adjacent lands would not "drift" onto the unfenced endowment lands. The memo estimated that Lazy Y's plans would entail increased administrative costs of approximately $45,000 over the ten-year terms of the six leases. This purported increase would dwarf the $675 total by which Lazy Y's bids exceeded the bids of the second highest bidders.

The August 2, 2006 memo was the first time the IDL had ever mentioned increased administrative costs associated with new lessees. According to Lazy Y, this justification was pre-textual, and suggested that Defendants should never have opened the leases for public bidding since the only parties who could avoid increased management costs were the prior lessees. In attacking the assertion of increased administrative costs, Lazy Y claims:

(1) Defendants failed to establish their prior administrative costs;

(2) Defendants failed to establish that additional inspections would really be required;

(3) Defendants' assertion of increased costs for staff time was belied because they were not planning to hire additional staff;

(4) The vast majority of endowment lands leased for grazing are isolated parcels within larger grazing allotments, so Defendants' management costs already reflect that fact;

(5) Other than in connection with past efforts by conservationists to obtain state grazing leases, Defendants have rarely if ever cited similar concerns to deny a state lease;

(6) The IDL regularly loses money on endowment lands because its administrative costs outstrip the modest revenues from leases;

(7) The IDL rarely undertakes the supervision necessary to ensure that other grazing lessees comply with management requirements for land preservation;

(8) Defendants ignored the possibility that the denial of Lazy Y's lease would lead to litigation costs.

Lazy Y also alleges that the "administrative costs" rationale appeared after Behrens, Wiggins, and IDL Assistant Director George Bacon spoke with representatives of the local livestock industry in meetings that excluded Lazy Y.

In response to the eleventh-hour assertion of administrative costs, Lazy Y wrote to Wiggins on August 3, 2006, offering to "provide additional fencing and/or pay for...