Propst v. Board of Educational Lands and Funds of Neb., Civ. No. 39-51.

• Decision Date: 04 December 1951
• Docket Number: Civ. No. 39-51.
• Citation: 103 F. Supp. 457
• Parties: PROPST v. BOARD OF EDUCATIONAL LANDS AND FUNDS OF NEBRASKA et al.
• Court: U.S. District Court — District of Nebraska

103 F. Supp. 457

PROPST v. BOARD OF EDUCATIONAL LANDS AND FUNDS OF NEBRASKA et al.

Civ. No. 39-51.

United States District Court D. Nebraska, Lincoln Division.

December 4, 1951.

Bruce K. Lyon, Grant, Neb., Henry W. Curtis, Imperial, Neb., and Wm. P. Kelley and James J. Fitzgerald (Matthews, Kelley, Fitzgerald and Delehant), Omaha, Neb., for leaseholders Propst et al.

Clarence S. Beck, Atty. Gen. of Nebraska, and Robert Nelson, Asst. Atty. Gen., for Board of Educational Lands and Funds.

Before WOODROUGH and JOHNSEN, Circuit Judges, and DONOHOE, District Judge.

JOHNSEN, Circuit Judge.

An injunction is sought from a three-judge statutory court, to prevent the Board of Educational Lands and Funds of the State of Nebraska from treating as void some renewal leases on state school lands heretofore issued by the Board to plaintiff, to interveners and to others alleged to be in the same class; from undertaking to offer for the term covered thereby new leases upon such lands at public auction; and from assuming to approve any bids so previously received and executing leases to any purchasers on the basis of such sale proceedings.

The alleged class, which plaintiff and interveners claim to represent, consists of approximately 2300 persons, all residents of the State, who were holders of previous leases upon separate tracts of school lands, which had expired subsequent to the effective date of Chapter 235, Neb. Laws of 1947 (or of Chapter 212, Laws of 1949, making some amendments and additions thereto, not here material) and which had been the subject of renewals issued by the Board under the provisions of that statute.

The previous expired leases had been for 25-year terms. Prior to the enactment of Chapter 235, Laws of 1947, the statute applicable to the renewal of such expiring leases, Neb.R.S.1943, § 72-240, had provided that "All lessees shall have the right, at the expiration of their contracts, to apply for and receive a new lease without a competitive bid." Another provision of the section, however, permitted third parties, if they so desired, to present bids to the Board on any such expiring leaseholds. Reading these provisions together and in the light of the history of the statute, the Nebraska Supreme Court, State v. Platte Valley Public Power & Irrigation Dist., 147 Neb. 289, 23 N.W.2d 300, 301, 166 A.L.R. 1196, had declared that the statute empowered the Board to make renewals of school-land leases without "the requirement of a public offering based on published notice"; that the Board, however, was required to receive any bids which might be presented to it in such a situation by third parties; that the holder of a previous lease thus did not have an absolute right to a renewal of his lease but a preference only; that "if the bid of the lessee was equal to that bid by any other person, the lessee's bid should be accepted, but that if a higher bid were made by some other person, then the higher bid controlled"; and that, in substance therefore, "The lessee then has merely a right to a lease, provided no other person offers a higher bid". State v. Platte Valley Public Power & Irrigation Dist., 147 Neb. 289, 23 N.W.2d 300, 309, 166 A.L.R. 1196.

By the 1947 Act referred to, the Legislature wiped out the provision permitting third parties to present bids to the Board on lease expirations, where the holder sought renewal, and in effect granted to existing leaseholders an automatic right of renewal for a twelve-year term, subject only to the condition of their having cooperated with the Board in the proper care of the premises during their preceding term, having properly utilized the land for the purposes contemplated by the lease, having "followed the standards of soil conservation and good husbandry", and having faithfully performed all the previous lease covenants, including the payment of rent. See R.S.Supp.1949, § 72-240.01.

Following the enactment of this statute, the Board refused to receive any bids from third parties, where the existing leaseholder was qualified and made application for renewal of his lease. Bids were attempted to be presented by third parties upon some of the 2300 tracts that are alleged to be here involved, and on other of such tracts inquiries were made of the Board as to whether they were open to the making of bids. The record does not establish the number of these bids and inquiries but it does suggest that they were substantial. Many of the 2300 tracts, however, including that covered by the renewal lease of plaintiff, were not made the subject of an express bid by a third party or of any specific inquiry as to their openness.

This automatic renewing of leases for twelve-year terms under the 1947 Act went on for about three years, when it was challenged in the Nebraska courts by a third party who had presented to the Board a bonus bid for a lease upon a tract of land, the previous term on which was then expiring, and whose bid the Board refused to receive. The Nebraska Supreme Court held in that case that the 1947 Act of the Legislature, in giving previous leaseholders a special benefit in the school lands in the form of an automatic renewal right, without regard to how much or whether others were willing to pay more, was void as being violative of the State's Constitution. State ex rel. Ebke v. Board of Educational Lands and Funds, 154 Neb. 244, 47 N.W.2d 520; Id., 154 Neb. 596, 47 N.W.2d 520. This holding was followed by other declarations to the same effect in Todd v. Board of Educational Lands and Funds, 154 Neb. 606, 48 N.W.2d 706; Watson Hay Co. v. Board of Educational Lands and Funds, 154 Neb. 613, 48 N.W.2d 711; and Hanna v. Board of Educational Lands and Funds, 154 Neb. 619, 48 N.W.2d 715.

The effect of these decisions, and of the Ebke case in particular, was to leave the Board with the indicated obligation, in the situation which the invalid statute had produced, of putting the lands up for re-leasing at public auction. In recognition of its trust responsibility so pointed out, and basing its action entirely, as its minutes show, upon what the Supreme Court had held, the Board formally declared that all of the renewal leases issued by it under the 1947 Act were void, made vacation of all the orders under which these leases had been executed, and gave notice to the leaseholders that the lands would be offered for re-leasing at public auction.

This public-auction program has been carried into effect as fast as it has been possible for the Board to proceed. Sales of leases upon some lands, including the tracts covered by the renewal leases of the two interveners, have already been conducted. Other tracts are in process of advertising, and the remainder, including that held by plaintiff, will be similarly dealt with as soon as the Board, under the limitations of its man-power and pecuniary facilities, is able to reach them.

In the sales so far held, the previous leaseholders have in many instances been the highest bidders—their bids having been made, of course, under purported legal protest. In other instances, third parties have outbid the previous holders. On 138 tracts thus auctioned during the first month of the Board's re-leasing operations, it is shown that bonus bids were made of $503,303, above the amount which would have been received in rental and in revenue for the school system of the State from the renewal leases issued under the 1947 Act.

Federal jurisdiction is sought to be invoked against the Board's actions, on the ground that the contract-impairment clause of Art. I, sec. 10, of the Federal Constitution, and the due-process and equal-protection clauses of the Fourteenth Amendment, are being violated.

It must be kept in mind that Art. I, sec. 10 of the Constitution is a prohibition only against the impairing of contract obligation by legislation. Such impairment as may be produced by judicial decision alone is not within its ban. Tidal Oil Co. v. Flanagan, 263 U.S. 444, 44 S.Ct. 197, 68 L.Ed. 382; Fleming v. Fleming, 264 U.S. 29, 44 S.Ct. 246, 68 L.Ed. 547; Stockholders of People's Banking Co. v. Sterling, 300 U.S. 175, 57 S.Ct. 386, 81 L.Ed. 586; Morton v. Dardanelle Special School District No. 15, 8 Cir., 121 F.2d 423, 424; 12 Am.Jur. 26 § 398. See also 57 Harv.L.R. 582.

Here it is, of course, not the Legislature which has attempted to affect the rights which plaintiff and interveners contend have become vested in them by their renewal leases. To the contrary, what the Legislature has done is itself the basis of their claimed rights....