Martori v. Arizona State Land Dept.
| Decision Date | 20 July 1993 |
| Docket Number | No. 1,CA-SA,1 |
| Citation | 176 Ariz. 420,861 P.2d 1182 |
| Parties | Arthur J. MARTORI, Petitioner, v. ARIZONA STATE LAND DEPARTMENT; M.J. Hassell, Arizona State Land Commissioner; and Core North, Inc., an Arizona corporation, Respondents. 93-0025. |
| Court | Arizona Court of Appeals |
This statutory special action 1 raises the issue whether a proposed sale of state trust lands that has the alleged practical effect of soliciting only one bidder is invalid.
Arthur J. Martori filed a petition for special action to request this court to review the order of the Arizona State Land Commissioner (Commissioner) denying petitioner's protest of the terms of a proposed auction for the sale of state trust land. We have jurisdiction pursuant to A.R.S. § 37-301(C).
The Arizona State Land Department (Department) planned a development project involving approximately 2360 acres of state trust land in north Scottsdale known as the Core North Project (the "Project"). In order to obtain the greatest benefit for the trust from the disposition of this property, serious drainage problems that affected the area had to be solved. The plan envisioned that the area would provide residential lots and two golf courses. Based upon advice from an outside consultant, the Department determined that an 18 month "window of opportunity" presented itself in which the Department could dispose of the golf course and residential portions of the Project on favorable terms.
The Department attempted to resolve the drainage issues through negotiations with the City of Scottsdale, but the Department determined that such a resolution would not occur for several years. To solve these problems, the Department decided to dispose of the property in a manner that required others to construct the drainage infrastructure.
The Department first considered selling the property as a whole. This option was rejected for several reasons, one of which was that the Department had an application from Core North, Inc. to lease the golf course parcels, which would allow construction of a portion of the drainage infrastructure to begin more quickly than might otherwise occur. 2 Based upon these considerations, the Department decided to go forward with a two-step program to dispose of the property: (1) first it would auction long-term leases of the golf courses, and (2) it would sell the remaining property in fee. The fee sale would be subject to the golf leases; that is, the purchaser of the fee would step into the position of the state as lessor of the golf courses, but the lease terms did not give the lessor effective control of the golf courses. The bidders would be required to bid an amount equal to or greater than the appraised value of the property, and, in addition to the purchase price, the successful bidder would be required to pay a percentage of the profits realized by subsequent sales of the property.
The drainage problems that affected flood control also affected the value of the property. Under the plan, most of the property north of the Thompson Peak Parkway and west of Hayden Road ("Village 1") may be developed before any drainage improvements are required in Villages 2 and 3. Thus, the 436 acres in Village 1 are considerably more valuable than the remaining property in Villages 2 and 3. To avoid a potential buyer of the fee from "cherry picking," that is, selling off the more desirable Village 1 property and then defaulting on the remaining property, the Department required a substantial premium in order to obtain partial patents. 3 Also, in order to obtain partial patents the fee owner was required to pay into escrow the sum of $20,000 per acre, which was to be used to (1) reimburse up to $4,000,000 incurred by the golf lessee in building drainage improvements, and (2) pay the water development costs in connection with the golf courses. The Department's plan thus involves the golf lessee in helping to prevent the sale of Village 1 and the return of the less desirable Villages 2 and 3, and requires the fee owner to pay 99.9% of the purchase price in order to obtain partial patents in Village 1.
In structuring the lease/sale sequence, the Department considered whether separating the leases of the golf courses from the sale of the fee might make the purchase of the fee less attractive to persons other than the golf course lessees. The Department believed, however, that the method it adopted would allow any interested party to bid at either or both auctions. Moreover, such a plan addressed both the drainage problems and the "cherry picking" concerns. The Department provided notice to the public and the development community of the lease auction to be held in November 1992 and the sale auction to be held in early 1993.
On October 22, 1992, a public auction of the golf course leases was held. Respondent Core North, Inc. was the only bidder, and it was awarded the leases. No protest was filed with the Department regarding this auction, and it subsequently became final.
Approximately two weeks later, the Department gave notice of the sale of the fee for the real property subject to the golf course leases. Petitioner filed a protest to the terms of the proposed auction. The Commissioner appointed a hearing officer to consider the protest, and a hearing was held in December 1992 and January 1993. In the protest, petitioner claimed that the structure of the sale was such that no bidder other than the lessee of the golf course property would be in a position to bid at the public auction. This is so, according to petitioner, because the fee purchaser is given no control over the design of the golf courses, including amenities such as clubhouses, restaurants, etc., the quality of the golf course, the priority of access to the golf course by residential lot owners, or the timing of the development of the course (other than the time limitations imposed by the leases themselves) that would directly affect residential construction. Because of these considerations, petitioner contends that the terms of the proposed auction chilled competitive bidding in violation of the public auction requirements of section 28 of the New Mexico-Arizona Enabling Act of 1910 and Arizona law. See Act of June 20, 1910, Pub.L. No. 219 (ch. 310), 36 Stat. 557 ("Enabling Act"); see also Ariz. Const. art. 20 (adopting Enabling Act).
The hearing officer, in a lengthy decision and order, recommended that the Commissioner deny the protest and hold the scheduled public auction sale. The Commissioner adopted the findings of fact and conclusions of law of the hearing officer, and determined that the public auction sale would proceed as scheduled. Petitioner then filed this special action pursuant to A.R.S. § 37-301(C).
Petitioner's special action focuses on what he perceives to have been an erroneous legal standard applied by the hearing officer in denying the protest to the public auction. In particular, petitioner contends that the hearing officer incorrectly determined that, if the sale terms included no illegal provision and there was no evidence that the Commissioner committed fraud or intentionally stifled or eliminated competitive bidding, the proposed sale was valid.
Petitioner argues that his evidence is uncontradicted that, because of the way the sale was structured, the only entity that would "rationally" have any interest in bidding would be the lessee of the golf courses. From this premise, petitioner argues that, when a proposed auction "is structured so that as a practical matter there can only be one bidder, there is no 'public auction' as required by the Enabling Act."
The responses of the Department and Core North to this argument are somewhat different. The Department argues that the correct legal standard for deciding whether the terms of a public auction sale "chill" the bidding is to determine if the sale contains any illegal provisions and then to determine whether the Commissioner subjectively intended to stifle or eliminate competitive bidding. Because petitioner admits neither of these factors is present in this sale, the Department argues that, as a matter of law, the proposed sale is valid. The Department further argues that petitioner's true complaint is with the terms of the golf course leases, against which no protest was filed. 4
On the other hand, Core North notes that, although neither of the factors identified by the Department exists here, the hearing officer made additional factual findings that the sale was not structured to eliminate bidding and that the sale was in the best interests of the trust. Core North argues that the real issue in this case is whether the Commissioner's structure of the sale was within the sound exercise of his business judgment, and as long as the trust receives the "actual value" of the property sold at the public auction and no provision of the sale is unlawful, petitioner cannot show that the structure of the proposed sale chilled the bidding.
Under the Enabling Act, the Arizona Constitution, and Arizona statutes, any disposition of state trust property must be by public auction, and the state may receive not less than the appraised value of the property. See Enabling Act § 28; Ariz. Const. art. 10, § 3; A.R.S. § 37-236(A). Disposals of public land that are designed to obtain only the appraised value without realizing the greatest return possible violate the Enabling...
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