Rae Ann Rumery v. Maria baier/doug Ducey

SUPREME COURT OF ARIZONA
En Banc

RAE ANN RUMERY; JOHN SKARHUS; ) Arizona Supreme Court
and CARTWRIGHT ELEMENTARY SCHOOL ) No. CV-11-0358-PR
DISTRICT, )
) Court of Appeals
Plaintiffs/Appellees, ) Division One
) No. 1 CA-CV 10-0807
v. )
) Maricopa County
MARIA BAIER, in her capacity as ) Superior Court
Arizona State Land Commissioner, ) No. CV2010-012871
)
Defendant/Appellant, )
)
and ) O P I N I O N
)
DOUG DUCEY, in his capacity as )
State Treasurer, )
)
Defendant. )
__________________________________)

Appeal from the Superior Court in Maricopa County
The Honorable Gary E. Donahoe, Judge (Ret.)

AFFIRMED
________________________________________________________________

Opinion of the Court of Appeals, Division One
228 Ariz. 463, 268 P.3d 1120 (2011)

VACATED
________________________________________________________________

ARIZONA CENTER FOR LAW IN THE PUBLIC INTEREST Phoenix
By Timothy M. Hogan
Joy E. Herr-Cardillo
Attorneys for Rae Ann Rumery, John Skarhus, and Cartwright
Elementary School District

THOMAS C. HORNE, ARIZONA ATTORNEY GENERAL Tucson
By David F. Jacobs
Attorney for State Land Commissioner Maria Baier
THOMAS C. HORNE, ARIZONA ATTORNEY GENERAL Phoenix
By Rex C. Nowlan, Assistant Attorney General
Eryn McCarthy, Assistant Attorney General
Attorneys for State Treasurer Doug Ducey

LASOTA & PETERS PLC Phoenix
By Donald M. Peters
Attorney for Amici Curiae Arizona School Boards Association
and Arizona Association of School Business Officials

FENNEMORE CRAIG, P.C. Phoenix
By Timothy Berg
Theresa Dwyer-Federhar
Michael J. Phalen
Meredith K. Marder
Attorneys for Amici Curiae Valley Partnership, Arizona Chapter
of Associated General Contractors of America, Arizona Chamber of
Commerce and Industry, Arizona Mining Association, Arizona Rock
Products Association, County Supervisors Association of Arizona,
Greater Phoenix Leadership, International Council of Shopping
Centers, and League of Arizona Cities and Towns

OFFICE OF THE GOVERNOR Phoenix
By Joseph Sciarrotta, Jr.
Attorney for Amicus Curiae Governor Janice K. Brewer

MARISCAL, WEEKS, MCINTYRE & FRIEDLANDER, P.A. Phoenix
By Gary L. Birnbaum
Michael S. Rubin
Attorneys for Amicus Curiae Superintendent of Public
Instruction John Huppenthal

ARIZONA EDUCATION ASSOCIATION Phoenix
By Samantha E. Blevins
Attorney for Amicus Curiae Arizona Education Association
________________________________________________________________

B A L E S, Vice Chief Justice

¶1 Arizona’s Constitution directs that “whenever any

monies shall be in any manner derived from” state trust lands,

the monies “shall be deposited” into a permanent fund to serve

the purpose for which the land was granted. Ariz. Const. art.

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10, § 7(A). We hold that A.R.S. § 37-527 (Supp. 2012) violates

this provision by diverting up to ten percent of certain trust

land proceeds to a management fund rather than depositing them

into a permanent fund.

I.

A.

¶2 In 1910, Congress passed the New Mexico-Arizona

Enabling Act, granting Arizona more than ten million acres of

land to be held in trust for designated public purposes,

including some eight million acres for the “support of common

schools.” Act of June 20, 1910, ch. 310, §§ 24, 25, 36 Stat.

557; Lassen v. Arizona ex rel. Ariz. Highway Dep’t, 385 U.S.

458, 460 n.2 (1967). To ensure that the beneficiaries derive

the full benefit of the land grants, the Enabling Act imposes

detailed restrictions on the sale of trust lands and the use of

trust funds. Lassen, 385 U.S. at 466-68; see Enabling Act § 28.

¶3 By ratifying our state constitution, Arizona’s voters

accepted the land grants and incorporated the Enabling Act into

“the organic law of this state.” Kadish v. Ariz. State Land

Dep’t, 155 Ariz. 484, 486, 747 P.2d 1183, 1185 (1987), aff’d

sub. nom. ASARCO Inc. v. Kadish, 490 U.S. 605 (1989). Article

10, Section 1 of Arizona’s Constitution declares that the lands

received shall be “held in trust” and disposed of only as

provided in the Enabling Act and the Arizona Constitution, and

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that “[t]he natural products and money proceeds of any of said

lands shall be subject to the same trusts as the lands”

themselves.

¶4 Additional restrictions on the use of proceeds from

state trust lands are contained in Article 10, Section 7, which

provides in part:

A. A separate permanent fund shall be established
for each of the several objects for which the said
grants are made and confirmed by the enabling act to
the state, and whenever any monies shall be in any
manner derived from any of said lands, the same
shall be deposited by the state treasurer in the
permanent fund corresponding to the grant under
which the particular land producing such monies was,
by the enabling act, conveyed or confirmed.

B. No monies shall ever be taken from one permanent
fund for deposit in any other, or for any object
other than that for which the land producing the
same was granted or confirmed.

Sections 7(A) and (B) restate provisions from Section 28 of the

original Enabling Act. Although this language was later deleted

from the Enabling Act, Act of Aug. 28, 1957, Pub. L. No. 85-180,

71 Stat. 457, it has remained in our constitution since

statehood.

¶5 Monies deposited into a permanent fund “shall be

invested in safe interest-bearing securities and prudent equity

securities.” Ariz. Const. art. 10, § 7(C). Based on the

earnings from assets in a particular permanent fund, annual

distributions are made to promote the fund’s objectives. See

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id. § 7(G) (authorizing distributions based on five-year

averages for annual rates of return, reduced by an inflation

index, and fund’s average market value); Ariz. Const. art. 11,

§§ 8, 10 (establishing permanent state school fund and

authorizing use of earnings for maintenance of state educational

institutions).

¶6 Trust lands granted for the support of common schools

also are governed by statutory provisions. See A.R.S. § 37-521.

The statute directs that proceeds from trust lands and the sale

of natural products from such lands, such as timber, minerals,

or gravel, shall be deposited into the permanent state school

fund. Id. § 37-521(A). The statute declares that the fund

“shall be and remain a perpetual fund.” Id. at (B). As amended

by a 2002 referendum, the statute specifies how expendable

earnings from the fund shall be used and directs that certain

excess amounts shall be deposited into a classroom site fund for

use by school districts to fund operations. Id. § 37-521; see

id. § 15-977.

¶7 The State Land Department is responsible for

administering the trust lands, Forest Guardians v. Wells, 200

Ariz. 255, 257 ¶ 2, 34 P.3d 364, 366 (2001), but neither the

Enabling Act nor Arizona’s Constitution identifies how the

administrative costs associated with managing the lands will be

funded. For nearly 100 years, the legislature appropriated

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monies from the state’s general fund to pay the costs for

generally administering the trust lands. In 2009, however, the

legislature altered the funding scheme by enacting A.R.S. § 37-

527. 2009 Ariz. Sess. Laws, ch. 5, § 9 (3d Spec. Sess.).

¶8 Section 37-527 allows the costs of administering the

state trust lands to be paid from a newly established trust land

management fund. The statute provides that, at the discretion

of the State Land Commissioner, up to ten percent of the annual

proceeds from “[e]ach beneficiary’s trust lands” and “[a]ll

sales of timber, mineral, gravel or other natural products or

property from each beneficiary’s trust lands” are to be

deposited into the management fund. A.R.S. § 37-527(A). Monies

in this fund are subject to legislative appropriation and are to

be “used exclusively to manage trust lands.” Id. at (C). The

legislature also amended § 37-521 to provide that the permanent

state school fund would consist of proceeds from state school

trust lands “[a]fter any appropriation pursuant to section 37-

527.” 2009 Ariz. Sess. Laws, ch. 5, § 4 (3d Spec. Sess.).

¶9 Monies designated for the management fund are

separated from trust land proceeds before the remaining proceeds

are placed into a permanent fund. For fiscal year 2010,

$9,773,500 was diverted to the management fund and appropriated

to the State Land Department. Id. § 18. For fiscal year 2011,

the State Land Commissioner directed that the full ten percent

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of proceeds, or $10.5 million, be deposited into the management

fund to pay for the operations of the State Land Department.

B.

¶10 In 2010, Rae Ann Rumery, John Skarhus, and the

Cartwright Elementary School District sued the Commissioner and

the Treasurer, alleging that § 37-527 violates Section 28 of the

Enabling Act and Article 10, Section 7 of the Arizona

Constitution. They further contended that the statute violates

the voter-protection provisions in Article 4, Part 1, Section

1(6) of the Arizona Constitution because it alters the

distribution of monies under § 37-521 and was not approved by a

three-quarters vote in each house of the legislature. The

Commissioner defended § 37-527 by arguing that common law

principles allow trust assets to be used to fund trust

management and that the new statute does not alter A.R.S. § 37-

521’s formula for distributing expendable earnings from school

trust lands.

¶11 On cross-motions for summary judgment, the trial court

ruled that § 37-527 violates both Article 10, Section 7 and the

voter-protection provisions of Arizona’s Constitution. The

court enjoined the Commissioner from designating state trust

land proceeds for deposit into the management fund, ordered the

Treasurer to deposit all state trust land proceeds into the

appropriate permanent fund, and ordered the Commissioner to

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repay to the permanent funds all amounts previously diverted.

The Commissioner appealed. (The Treasurer did not join the

Commissioner’s cross-motion or appeal the trial court’s ruling.)

¶12 The court of appeals affirmed, agreeing with the trial

court that § 37-527 violates Article 10, Section 7 by diverting

trust land proceeds from the permanent state school fund.

Rumery v. Baier, 228 Ariz. 463, 465 ¶ 1, 268 P.3d 1120, 1122

(App. 2011). The court of appeals did not address the trial

court’s ruling that the statute also violates the voter-

protection provisions. Id. at n.3.

¶13 We granted review because whether the Arizona

Constitution allows the costs of managing state trust lands to

be paid from trust land proceeds is an issue of statewide

importance. The Court has jurisdiction under Article 6, Section

5(3) of the Arizona Constitution and A.R.S. § 12-120.24 (2009).

II.

A.

¶14 Our resolution of this case turns on Article 10,

Section 7(A)’s directive that “whenever any monies shall be in

any manner derived from” any of the state trust lands, “the same

shall be deposited by the state treasurer” into the permanent

fund corresponding to the particular land grant.

¶15 “The ‘Constitution should be construed so as to

ascertain and give effect to the intent and purpose of the

8
framers and the people who adopted it.’” Brewer v. Burns, 222

Ariz. 234, 239 ¶ 26, 213 P.3d 671, 676 (2009) (quoting State ex

rel. Morrison v. Nabours, 79 Ariz. 240, 245, 286 P.2d 752, 755

(1955)). We do so by fairly interpreting the language used and,

unless the context suggests otherwise, giving words “their

natural, obvious and ordinary meaning.” Id.

¶16 By its terms, Article 10, Section 7(A) requires

proceeds from the sale of state trust lands and of natural

products from such lands to be deposited into a permanent fund.

The language does not permit diverting proceeds instead to a

management fund. Nor does the context suggest that Section

7(A)’s language should be interpreted to mean something other

than what it says.

¶17 In interpreting Article 10, Section 7(A), we are

guided by decisions construing the Enabling Act. Cf. Kadish,

155 Ariz. at 486, 747 P.2d at 1185 (noting that interpreting

restrictions on disposition of trust lands requires “an

understanding of the historical process from which [the Act]

evolved”). The Act’s restrictions regarding state trust lands

reflect “Congress’ concern both that the [land] grants provide

the most substantial support possible to the beneficiaries and

that only those beneficiaries profit from the trust.” Lassen,

385 U.S. at 467. Consistent with this purpose, the United

States Supreme Court has refused to allow the disposition of

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trust assets or proceeds for purposes other than those specified

in the Enabling Act, even when the proposed use arguably would

benefit the trust overall.

¶18 The Supreme Court long ago held that the Enabling Act

prevented New Mexico from using income from its trust lands to

promote the state and its resources generally. Ervien v. United

States, 251 U.S. 41, 47-48 (1919). New Mexico argued that such

payments were appropriate for administering the trust estate

because they would foster the sale and leasing of trust lands.

Id. at 47. Rejecting this argument, the Supreme Court noted

that the Enabling Act specifically enumerated the purposes for

which the trust lands had been granted, “and to make assurance

doubly sure it was provided that the natural products and money

proceeds of such lands should be subject to the same trusts as

the lands producing the same.” Id. The Court held that the

Enabling Act precluded “any license of construction or liberties

of inference” that would allow the use of trust land proceeds

for purposes other than those recognized in the Enabling Act

itself. Id.

¶19 In 1967, the Supreme Court reaffirmed Ervien’s

interpretative approach in Lassen. 385 U.S. at 467. There the

Court held that the Enabling Act barred Arizona’s long-standing

practice of allowing the State Highway Department to take

material sites and rights of way from state trust lands without

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compensating the trusts. Id. at 466. The rationale for this

practice, which our Court had approved, was that the highways

constructed across trust lands would enhance the remaining trust

lands by at least the value of the property taken. See id. at

460. Without questioning this premise, the Supreme Court held

that “[t]he Enabling Act unequivocally demands both that the

trust receive the full value of any lands transferred from it

and that any funds received be employed only for the purposes

for which the land was given.” Id. at 466. To ensure that the

beneficiaries “derive the full benefit of the grant,” the Court

held that “Arizona must actually compensate the trust in money

for the full appraised value of any material sites or rights of

way which it obtains on or over trust lands.” Id. at 469

(footnotes and internal quotations omitted).

¶20 We have similarly recognized, in dealing with state

trust lands, that “all doubts must be resolved in favor of

protecting and preserving trust purposes.” Kadish, 155 Ariz. at

495, 747 P.2d at 1194. Applying this principle, Kadish held

that a state statute mandating flat-rate royalties for certain

mineral leases violated the requirements in the Enabling Act and

Arizona Constitution that trust lands be leased for their true,

appraised value. Id. at 495-97, 747 P.2d at 1194-96. Although

those defending the statute argued that it would promote mineral

exploration and development and thereby increase payments to the

11
state, we held that this prospect could not justify departing

from the Enabling Act’s requirements. Id. at 496-97, 747 P.2d

at 1195-96.

¶21 The Commissioner correctly observes that cases such as

Ervien, Lassen, and Kadish did not involve Article 10, Section

7(A) of Arizona’s Constitution or the use of trust assets to pay

the costs of managing trust lands. Those cases, however, are

relevant for what they teach about interpreting the

constitutional restrictions on the disposition of trust assets:

courts may not permit use of trust lands or their proceeds in

ways not expressly authorized, even if doing so would benefit

the trust. As Kadish observed, “we must strictly apply the

Enabling Act’s restrictions regarding disposal of school trust

assets.” 155 Ariz. at 488, 747 P.2d at 1187; see also Murphy v.

State, 65 Ariz. 338, 353, 181 P.2d 336, 346 (1947) (noting that

“every act of the legislature that in any manner circumvents the

plain provisions of the Enabling Act is struck down as

unconstitutional and void”).

¶22 Because Article 10 retains certain restrictions that

were later deleted from the Enabling Act, the latter “merely

sets out the minimum protection for our state trust land.” Deer

Valley Unified Sch. Dist. v. Superior Court, 157 Ariz. 537, 541,

760 P.2d 537, 541 (1988). Thus, consistent with the approach

taken in Ervien, Lassen, and Kadish, we apply Article 10,

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Section 7 according to its terms and decline to infer unstated

exceptions to its restrictions on the use of state trust land

proceeds.

B.

¶23 In defending A.R.S. § 37-527, the Commissioner notes

that the Enabling Act and the Arizona Constitution are silent on

how the costs of managing the state trust lands will be funded.

She also observes that spending trust proceeds on trust land

management directly benefits the trust and its beneficiaries,

that the common law generally allows trust assets to be used for

trust administration, and that other courts have approved the

use of proceeds from state trust lands to pay for trust

management, citing United States v. Swope, 16 F.2d 215 (8th Cir.

1926), Betts v. Comm’rs of the Land Office, 110 P. 766 (Okla.

1910), and State ex. rel. Greenbaum v. Rhoades, 4 Nev. 312

(1868).

¶24 The Constitution’s silence on the payment of the costs

of trust management and the fact that such expenditures might

benefit the trusts are not sufficient grounds for reading

exceptions into our Constitution and Enabling Act. As

explained, supra ¶¶ 16-22, when the Constitution or the Enabling

Act specifies a particular disposition of trust assets, we may

not infer exceptions to the stated requirements, even if doing

so arguably could benefit the trust overall. Here, Article 10,

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Section 7(A) explicitly directs that monies derived from state

trust lands be deposited into the relevant permanent fund.

¶25 The language of Article 10, Section 7(A) also answers

the argument based on the common law of trusts. Such law is

relevant in defining the Commissioner’s powers and duties. See,

e.g., Forest Guardians, 201 Ariz. at 262 ¶ 20, 34 P.3d at 371.

The common law generally allows a trustee to use trust assets to

pay trust administration costs. Restatement (Third) of Trusts

§ 38 (2003) (“A trustee is entitled to indemnity out of the

trust estate for expenses properly incurred in the

administration of the trust.”). But a trustee’s common law

powers may be limited by the terms of the trust. See id. § 85

(2007) (providing that a trustee’s powers can be “limited by

statute or the terms of the trust”). Here, Article 10, Section

7(A) directs the state treasurer to deposit trust proceeds into

a permanent fund. This constitutional language, not being

subject to implied exceptions, controls over the common law of

trusts. Cf. Ervien, 251 U.S. at 47-48 (noting that the United

States, as grantor of lands under Enabling Act, had “impose[d]

conditions upon their use”).

¶26 For similar reasons, we are not persuaded by the out-

of-state cases. In Swope, the United States Court of Appeals

upheld a New Mexico statute that allocated twenty percent of the

income from state trust lands to a maintenance fund for paying

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the costs of the state land office. 16 F.2d at 216, 219. Swope

held that such payments were not prohibited by the Enabling Act,

noting the common law principle of allowing the payment of the

costs of trust administration from trust assets. See id. at

217. Swope also cited the 1868 Nevada decision in Rhoades and

the 1910 Oklahoma decision in Betts as other cases approving the

use of monies derived from trust lands to pay the expenses of

managing the lands. Id. at 217-18.

¶27 Although Swope interpreted language in the Enabling

Act identical to that in Arizona’s Constitution, the federal

decision is neither binding nor persuasive here. Swope gives

insufficient weight to the explicit language in Article 10,

Section 7(A) directing that “whenever any monies shall be in any

manner derived” from state trust lands, such monies “shall be

deposited” into a permanent fund. Even less persuasive are

Rhoades and Betts, cases that involved enabling acts and state

constitutions with language different from that in Article 10,

Section 7. Rhoades compared the state to an “ordinary trustee”

in allowing the expenses of the state land office to be paid

from trust proceeds, see 4 Nev. at 317, and Betts approved only

the payment of trust expenses from the “net income” from leasing

certain trust lands. 110 P. at 767-68. Neither case supports

allowing this Court to disregard Article 10, Section 7(A)’s

requirement for the disposition of proceeds from Arizona trust

15
lands. Cf. Murphy, 65 Ariz. at 350-53, 181 P.2d at 344-46

(noting that out-of-state cases are of little precedential value

for interpreting Arizona’s Enabling Act because the latter

“marked a complete and absolute departure from the enabling

acts” of other states).

III.

¶28 We hold that A.R.S. § 37-527 violates Article 10,

Section 7(A) of Arizona’s Constitution by diverting proceeds

from state trust lands to a management fund. We affirm the

trial court’s entry of summary judgment for Appellees and vacate

the opinion of the court of appeals. We also grant Appellees’

request for an award of attorney’s fees, as the Commissioner

conceded below that Appellees would be entitled to a fee award

under the private attorney general doctrine if they prevailed.

__________________________________
Scott Bales, Vice Chief Justice

CONCURRING:

__________________________________
Rebecca White Berch, Chief Justice

__________________________________
A. John Pelander, Justice

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__________________________________
Robert M. Brutinel, Justice

__________________________________
Virginia C. Kelly, Judge*

*Pursuant to Article 6, Section 3 of the Arizona Constitution,
the Honorable Virginia C. Kelly, Judge of the Arizona Court of
Appeals, Division Two, was designated to sit in this matter.

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