REVISED OCTOBER 5, 2001

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 00-60245

J. RANDOLPH LIPSCOMB, on behalf of himself and all

others similarly situated; MAYOR, CITY OF COLUMBUS;

CITY COUNCIL OF THE CITY OF COLUMBUS, MISSISSIPPI,

as the statutorily designated successors in office

to the Trustees of Franklin Academy,

Plaintiffs-Appellees,

versus

THE COLUMBUS MUNICIPAL SEPARATE SCHOOL DISTRICT,

etc.; ET AL.,

Defendants,

versus

STATE OF MISSISSIPPI; ERIC CLARK,

In his capacity as Secretary of State,

Defendants-Appellants.

Appeal from the United States District Court

For the Northern District of Mississippi

October 3, 2001

Before REYNALDO G. GARZA, HIGGINBOTHAM, and SMITH, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Thi s case requires us to examine a collision between the

Contract Clause of the United States Constitution and Mississippi’s

effort to escape rent and renewal terms of leases of sixteenth1 Act of March 3, 1803, 2 Stat. 233-34. Sixteenth sections

were not set aside in northern Mississippi until 1817, see Act of

March 3, 1817, 3 Stat. 37 5, and “lieu lands” were provided for

sixteenth sections that were unavailable for various reasons. S ee,

e.g., Act of July 4, 1836, 5 Stat. 116 (Chickasaw Cession Lieu

Lands). The creation of sixteenth section lands and lieu lands is

discussed in Papasan v. Allain , 478 U.S. 265, 268-73 (1986).

2 Act of Jan. 9, 1815, 3 Stat. 163 (providing for leasin g

certain lands reserved for the support of schools in the

Mississippi territory).

2 section land in Columbus, Mississippi dating back to the early

nineteenth century. The Secretary of State of Mississippi and the

State maint ain that the rental and renewal terms are invalid

because their perpetuation of rents that are now nominal violate a

provision of the 1890 Miss i ssippi Constitution forbidding the

donation of public property to private parties. Lipscomb sues for

a declaration that the efforts of the Secretary of State to

invalidate these leases violates the Contract Clause. The district

court held that invalidating the leases would violate the Contract

Clause. We affirm.

I

Before Mississippi became a state, the United States Congress

set aside the sixteenth section of every township in the

Mississippi Territory to be used for the benefit of schools. 1

Congress then authorized the leasing of the sixteenth section land

to raise funds to finance public schools in the Mississippi

Territory. 2 Upon granting statehood to Mississippi in 1817,3 Papasan , 478 U.S. at 271.

4 See Miss. Const. of 1817, art. 6, § 20; Act of Feb. 10,

1821, 1821 Miss. Laws, 4th Sess., Ch. XLVI (authorizing a lease of

certain Town Lots therein named, and for other purposes).

5 Act of Dec. 13, 1830, 1830 Miss. Laws, 14th Sess., Ch. II.

6 Miss. Const. of 1890, art. 4, § 95 (“Lands belonging to, or

under the control of the state, shall never be donated directly or

indirectly, to private corporations or individuals, or to railroad

companies.”).

3 Congress gave the sixteenth section land to the new state for the

benefit of its schools. 3 Thereafter, the Mississippi legislature

authorized the leasing of the school lands, the proceeds of which

would finance public schools. 4

During the nineteenth century, various persons leased

sixteenth section land from the school board of Columbus,

Mississippi. These leases were to last 99 years from February 10,

1 821, or thereabouts (regardless of when actually made), and

contained “renewable forever” provisions authorized by an 1830

Mississippi statute. 5 Many of the leases—often after being

assigned or subdivided—were renewed in 1920 under their renewable

forever provisions. The rental rates paid on the Columbus leases

have remained unchanged for 180 years. Leaseholders of lots of

property in downtown Columbus pay pennies in rent per year, a small

fraction of their fair market rent.

In 1890, Mississippi ratified its current constitution.

Section 95 of the 1890 constitution prohibits the donation of state

lands to private parti es. 6 Mississippi courts subsequently7 See, e.g., Hill v. Thompson , 564 So. 2d 1, 9 (Miss. 1989).

8 Id. at 12.

9 U.S. Const. Art. I, § 10, cl. 1.

10 Lipscomb alleged that, in response to the State’s declared

intention to void the leases, HUD had declared the leased lands

“uninsurable,” thereby causing the leaseholders harm.

11 The School District has since been realigned as a plaintiff,

and HUD remains only as a “nominal” defendant. We will refer here

often to the remaining defendants collectively as the State.

4 interpreted section 95 to prohibit leases or sales of land for

grossly inadequate considerati on. 7 A lease that violates section

95 is voidable. 8 Following these rulings, the State and individual

school board s began asserting that sixteenth section leases for

nominal consideration were void and renegotiating the leases. The

leases in Columbus, Mississippi, however, occupy a unique position:

because the “renewable forever” lea ses in Columbus were signed

before the ratification of the 1890 Mis s issippi Constitution,

voiding the leases implicates the Cont ract Clause of the United

States Constitution. 9

J. Randolph Lipscomb brought a declaratory judgment action in

federal court seeking certification of a class of leaseholders and

a declaration that the State’s threatened action to void the leases

and renegotiate would violate the Contract Clause. He originally

named the Secr etary of State of Mississippi, the State of

Mississippi, the Columbus School Board, and the U.S. Department of

Housing and Urban Development 10 as defendants. 1112 See Lipscomb v. Columbus Mun. Separate Sch. Dist.

, 145 F.3d

238, 240-42 (5th Cir. 1998) ( Lipscomb I ). The broader history of

the leasing of state lands for the benefit of schools is discussed

below, in the context of the Contract Clause analysis. S e e Part

IV.A.

5 T he district court certified the class, but then abstained

under the Pullman and Burford doctrines. This Court reversed the

ruling on abstention and remanded. 12 The district court redefined

the class and ultimately granted summary judgmen t in favor of

Lipscomb, declaring, in relevant part, that (1) “renewable forever”

in the Columbus sixteenth section leases means all rental

covenants, including the lease rate, are renewable forever, (2) the

Contract Clause of the United States Consti tution applies to the

leases in this case, and (3) voiding the leases under section 95 of

the Mississippi Constitu tion would violate the Contract Clause.

The Secretary of State and the State of Mississippi appeal that

ruling.

II

The State challenges federal jurisdiction on several grounds,

and we turn first to that question.

A. Subject Matter Jurisdiction

The State argues that the district court lacked subject matter

jurisdiction because there is no federal question and the federal1 3 The State contends that the leases are in fact taxes, and

thus the federal courts are barred by the Tax Injunction Act, 28

U.S.C. § 1341, from entertaining a challenge to the State’s actions

to collect on the leases. This contention is without merit. The

lease obligations are a creature of contract, not a man datory

obligation imposed by the state as taxes are. S ee New Jersey v.

Anderson

, 203 U.S. 483, 492 (1906). Although the determination of

what is a “tax” is ultimately a question of federal law, Neinast v.

State of Texas

, 217 F.3d 275, 278 (5th Cir. 2000), we note that the

Mississippi Supreme Court has characterized the leases as leases

rather than taxes. See Street v. City of Columbus

, 23 So. 773, 774

(Miss. 1898). The appellants also note that the lease payments are

collected by the taxing authorities. This court has previously

rejected this reasoning: “This formalism is unhel pful.... [T]he

question is not where the money is dep osited, but the purpose of

the assessment.” Neinast , 217 F.3d at 278.

14 344 U.S. 237, 248 (1952).

15 Louisville & Nashville R.R. v. Mottley

, 211 U.S. 149 (1908).

6 defendant, HUD, has no case or controversy with the pl aintiffs. 1 3

Specifically, the State claims that the Supreme Court’s decision in

Public Service Commission v. Wycoff 14 precludes federal jurisdiction

under 28 U.S.C. § 1331 and the well-pleaded complaint rule. 1 5 We

disagree.

In Wycoff , the plaintiffs sought a declaratory judgment that

their activities constituted interstate commerce so as to insulate

them from state regulation. The Court held that, when “the

complaint in an action for declaratory judgment seeks in essence to

assert a defense to an impending or threatened state court action,

it is the character of the thre atened action, and not of the

defense, which will determine whether there is federa l-question16 Wycoff , 344 U.S. at 248.

17 See infra note 34.

18 209 U.S. 123 (1908).

7 jurisdict ion in the District Court.” 1 6 The State contends that

Lipscomb has similarly attempted to evade the well-pleaded

complaint rule, by anticipating the Secretary of State’s judicial

action. Since the state legislative action giving rise to

Lipscomb’s claim is the Mississippi C onstitution of 1890,

Lipscomb’s complaint does not anticipate a state judicial action,

it seeks redress for an existing har m. 17 To the point, the

threatened action is legislative impairment of contract.

B. Eleventh Amendment Immunity

The State for the first time seeks a dismissal on grounds of

sovereign imm unity. Lipscomb counters that the State has waived

its Eleventh Amendment immunity and, in the alternative, t hat E x

parte Young 18 saves the claim for declaratory relief against the

Secretary of State, even if the State of Mississippi must be

dismissed. We address these contentions in reverse order.

Ex parte Young of course offers an exception to the State’s

Eleventh Amendment immunity. That is, state immunity is no bar to

enj o ining a proper state official from unconstitutional acts.

Lipscomb seeks not damages but a declaration tha t voiding the

leases would viol ate the Contract Clause. In function, this19 521 U.S. 261 (1997).

20 Id. at 281-83.

21 Id. at 282-87.

22 Id. at 281-82.

8 requested relief is indistinguishable from a suit to enjoin the

Secretary from declining to abide the challenged lease terms.

While such a declaration will not support coercive, retrospective

relief or money damages when confronted with the Eleventh

Amendment, it will support injunctive relief.

The Secretary of State argues, however, that the suit

implicates the State’s ownership of land in a manner that takes it

outside the Ex parte Young exception, as in Idaho v. Coeur d’Alene

Tribe of Idaho. 19 In Coeur d’Alene, the Supreme Court held that a

claim to the ownership of submerged waters brought against the

State is barred by the Eleventh Amendment, even though no damages

were sought. The Court emphasized that the requested declaration

wou ld strip the State of its jurisdiction and regulatory control

over the land s. 20 The Court also noted that state control over

submerged lands was a special incident of sovereignty wi th deep

historical roots. 21

We are not persuaded that Coeur d’Alene controls here. The

Supreme Court relied on two interrelated factors: First, the Court

noted that the Eleventh Amendment bars a quiet title action in

feder al court absent the State’s consent. 2 2 The Tribe claimed23 Id. at 282 ( “[T]he far-reaching and invasive relief the

Tribe seeks . . . go[es] well beyond the typical stakes in a real

property quiet title action.”). The majority opinion treated these

two factors in tandem. Justice O’Connor’s concurring opinion

distinguishes these factors and discusses them at greater length.

See id. at 288-91 (O’Connor, J., concurring).

9 ownership and exclusive occupancy of the lands and was seeking

invalidation of all state laws regulating the land. It conceded

that its suit was the functional equivalent of a quiet title

action. Second, the Court emphasized that the relief sought would

have been an affront to the State’s sovereignty. Because the Tribe

was a distinct sovereign, not only would quieting title in the

Tribe divest the State of ownership over the land, it would strip

the State of all of its jurisdiction and power over the land. 23

We find our case distinguishable. Lipscomb did originally

seek to quiet title, but he abandoned that claim. His amended

complaint seeks only a declaration that the invalidation of the

price terms of the leases is prohibited by the Contract Clause of

the Constitution. The contention that the requested relief would

be an affront to state sovereignty is not convincing. Mississippi

would retain jurisdiction over the leased lands; indeed, title to

the lands would remain in Mississippi. The State’s basic police

and taxing power would not be affected.

The Tenth Circuit found similar distinctions from C oeur

d’Alene in a case resembling this one. In E lephant Butte24 160 F.3d 602 (10th Cir. 1998).

25 Id. at 608-09, 611-12.

26 See id. at 612.

10 Irrigation District of New Mexico v. Department of Interi or

, 24 it

denied an Eleventh Amendment challenge to a suit over the

distribution of profits f rom land leases to various governmental

bodies. The court acknowledged that the suit involved property

interests of the State, but noted that it was not a suit to quiet

title, and the “special sovereignty interest s” present in C oeur

d’Alene did not exist. 25 Instead, the Tenth Circuit noted, the only

interest of the State at stake was its relatively mundane interest

in the distribution of lease income. 26

In sum, Lipscomb’s suit is not to quiet title, nor would the

granting of relief strip the State of any of its juri sdiction or

authority to regulate the land. While it would prevent the State

from charging current market rates for rent on renewal, it does

nothing to frustrate state taxation of the leasehold—a reality to

which we will return . As such, the E x parte Young doctrine

applies, and the Eleventh Amendment does not deprive federal courts

of jurisdiction to entertain this suit against the Secretary of

State. This renders moot the claim for the same relief asserted

directly against the State, and we need not address that claim

further.27 A state statute allowed lessees to subdivide their leases.

Act of January 28, 1846, 1846 Miss. Laws, Ch. CXLIII.

11 III

Before turning to the question of whether the Contract Clause

bars invalidation of the lease terms, we must examine a preliminary

question of whether refusing to honor the renewal and price terms

implicates the Contract Clause at all. The alleged violation of

the Contract Clause rests on the assertion that the current leases

were in place b efore the 1890 Mississippi Constitution. The

Secretary argues that renewals of the leases in 1920 changed the

contract terms to the extent that they were new contracts rather

than renewals. The Secretary’s argument is that the price terms on

the contracts have changed—that the contracts were altered, not

merely renewe d. If so, the Secretary concludes, there can be no

Contract Clause violation, because the plaintiffs do not hold

leases with price terms that preexist ed the 1890 Mississippi

Constitution.

Lipscomb replies that cha nges in the price terms reflected

subdivision of the land, and lower price terms for contracts for

smaller plots represented pro rata division of the original lease

price. 27 Lipscomb also notes that the leases were labeled

“renewals” and thus we may conclude that they were in fact

renewals.

We agree with the district court that the defendants failed to

create a genuine issue of m aterial fact on this issue. Lipscomb28 Act of Dec. 13, 1830, 1830 Miss. Laws, 14th Sess., Ch. II.

The State claims that this statute only authorized the creation of

leases that were renewable forever and that it did not make

previously created leases renewable forever or allow those leases

to be terminated and then renegotiated with renewable forever

provisions. The State argues that the statute provides that the

only way a prior lease can be renewed forever is at the end of its

lease term. The State misreads the statute. It states: “ A nd be it

further enacted

, That the Trustees of said Franklin Academy

... be,

and are hereby authorized to make out a ll leases for the lots of

[sixteenth section land in Columbus], for ninety nine years, dating

from the first leasing of lots in said town of Columbus, renewable

forever.... [ A]nd that all leases heretofore made of lots, by the

said Trustees, be renewable at the expiration of the time for which

they were leased, in like manner as above, provided for, in cases

of lots to be leased hereafter .” Id

. (emphasis added). The statute

is silent on the surrender or termination of pre-existing leases.

As the defendants note, the statute may well have induced holders

of pre-1830 leases to surrender them, so as to gain the benefits of

the renewable forever provisions that were now author ized. The

simple fact remains that the leases here at issue contain renewable

forever terms authorized by this statute.

12 presented evidence that the leases were labeled “renewals.” This

view is consistent with t he 1830 statute that authorized the

trustees of Franklin Academy to make all the leases at issue in

this case renewable forever. 28 Further, although the leases were

divided and re-divided, increasing the difficulty of determining

whether their rents changed over time, Lipscomb presented evidence

that the aggregate rentals on the lands in question did not change

before and after 1920. The State responded only with evidence that

the per-acre rents changed over time. This is not relevant, since

allocation of rentals on sub-divided pieces of leased lan d could

rest on the quality of each lot rather than its area. For example,

a two-acre lot rented for $ 2.00 a year could be divided into two29 Miss. Const. of 1890, art. 4, § 95.

13 one-acre lots, one of which rented for $ 1.20 and one of which

rented for $ 0.80. Even though the rent-per-acre went up in one

lot and down in the other, the rental rate of two dollars for two

acres did not change. The difference in rent between the two lots

could reflect the value of each lot’s location, the quality of its

soil, access to water or roads, or other differences. The precise

reasons for such differences in valuation are irrelevant. The

State thus has failed to create a gen uine issue of material fact

that subdividing or releasing lands changed their rental rates. We

accept the district court’s conclusion that the 1920 leas es were

renewals and at last reach the ques tion of the limits imposed by

the Contract Clause.

IV

A

The 1890 Mississippi Constitution, section 95, states, “Lands

belo nging to, or under the control of the state, shall never be

donated directly or indirectly, to private corporations or

individuals, or to railroad companies.” 29 Mississippi courts have

consistently construed this to forbid transactions for

consideration so inadequate that they are the equivalent of30 See, e.g., Hill, 564 So. 2d at 9(reviewing cases).

31 564 So. 2d 1 (Miss. 1989).

32 See id. at 9.

33 See id. at 12.

34 U.S. Const. Art. I, § 10, cl. 1. The defendants argue that

the Contract Clause is not implicated by this lawsuit because the

14 donations. 30 The Mississippi Supreme Court, in H ill v. Thompson

, 31

held that a sale or lease of sixteenth section land that violates

section 95 is voidable. 32 However, the Mississippi Supreme Court,

in interpreting section 95 to make certain sixteenth section land

leases voidable, invoked equity and held that, even when a lease is

voided, the leaseholder retains the right of first refusal after

the land is appraised for fair rental value. 33

In sum, the Secretary of State has sought, under section 95,

the invalidation of l eases of sixteenth section lands throughout

Mississippi. The sixteenth section land leases in Columbus,

Mississippi, however, are renew als of leases signed before the

ratification of sec tion 95 of the 1890 Mississippi Constitution.

Thus, Lipscomb argues for a declaration that this effort to

invalidate the leases in Columbus violates the Contract Clause of

the United States Constitution.

B

Article I, section 10 of the Constitutio n states, “No State

shall

... pass an y ... Law impairing the Obligation of

Contracts....” 34 The Supreme Court has emphasized, however, thatalleged impairment of the leases was not caused by the legislative

act of enacting the 1890 Mississippi Constitution, but by the

judicial act of the Supreme Court of Mississippi in deciding Hill

. The defendants are correct in cla iming that only legislative

actions, not judicial actions, can create a viable Contract Clause

claim. See Tidal Oil Co. v. Flanagan

, 263 U.S. 44 4, 451 (1924);

Frazier v. Lowndes County, Mississippi, Bd. of Educ.

, 710 F.2d

1097, 1099 (5th Cir. 1983). But the impairment stems from the “no

donations” clause of the 1890 Mississippi Constitution that the

Hill court i nterpreted, not from the H ill decision itself, which

merely engaged in constitutional construction. Our prior opinion

in Lipscomb said as much. L ipscomb v. Columbus Mun. Separate Sch.

Dist. , 145 F.3d 238, 243 n.4 (5th Cir. 1998).

35 Energy Reserves Group, Inc. v. Kansas Power & Light Co.

, 459

U.S. 400, 410 (1983).

36 See West River Bridge Co. v. Dix

, 47 U.S. (6 How. ) 507

(1848).

15 the absolute language of the Contract Clause does not create an

absolute prohibition; a State must be given some accommodation in

passing laws “to safeguard the vital interests of its people.” 35

The Supreme Court has developed a three-part test to balance the

S tate’s obligation not to impair contracts with the State’s

interest in public welfare. This test is applied against the

backdrop of legislative power to exercise eminent domain. That a

state legislature has by statute given assurance that it would not

d o so does not mean that the legislature cannot later take th e

property by eminent domain or paying just compensation. 36 That is,

we address a claim of pol ice power to regulate—without

compensation. And while impairment of contract analysis has an air

of due process about it, our analysis is distinct.37 Id. at 411 (internal quotations omitted).

38 S ee Chrysler Corp. v. Kolosso Auto Sales, Inc. , 148 F.3d

892, 894 (7th Cir. 1998).

39 See Energy Reserves Group , 459 U.S. at 410.

40 Id

.

41 Cf. Allied Structural Steel Co. v. Spannaus , 438 U.S. 234,

245-47 (1978) ( describing example of a severe impairment of

contractual rights).

42 See Energy Reserves Group , 459 U.S. at 411.

16 First, “[t]he threshold inquiry is whether the state law has,

in fact, operated as a substantial impairment of a contractual

relationship.” 37 In considering whether an impairment to contract

is substantial, the court should consider the expectations of the

parties with respect to changes in the law. 38 Particularly relevant

to this inquiry is whether the subject matter of the contracts had

been subject to regulation at the time t he contracts were made. 3 9

A “regulation that restricts a party to gains it reasonably

expected from the contract does not necessarily constitute

substantial impair ment.” 4 0 The court should also consider what

terms of the contract are affected and the duration of the

effects. 41

Second, if we find a substantial impairment of contractual

rights, we must consider the justification offered by the State for

its impairment of the contract. 42 A State can only justify a

substantial impairment of contracts with a “si gnificant and

legitimate public purpose behind the regulation, such as the43 Id. at 411-12.

44 Id. at 412.

45 Id.

46 Id.

47 See Spannaus

, 438 U.S. at 234 (“The severity of t h e

impairment measures the height of the hurdle the state legislation

must clear.”). In S pannaus

, the Supreme Court noted that the

challenged legislation “worked a severe, permanent, and immediate

change in [the contractual] relationships—irrevocably and

retroactively.” I d. at 250. The Court had little hesitation in

striking down such legislati on when it (1) interfered with a

previously unregulated field, (2) was directed at a small subset of

employers, rather than business in general, and (3) did not even

purport to be a necessary step in remedying a social or economic

problem. See id. at 247-50.

17 remedying of a broad and general social or economic problem.” 43 The

problem need not be “an emergency or temporary situation,” 44 and

“the elimination of unforeseen windfall profits” is a legitimate

state interest sufficient to justify state impairment of

contracts. 45 The requirement that the problem be “broad and

general” ensures “that the State is exercising its police power,

rather than providing a benefit to special interests.” 46 The

scrutiny to which the court subjects the state law is proportional

to the degree of impairment. 47

Third, if the State presents a legitimate justification for

the impairment, we determine whether the impairment is reasonable

and necessary. “Legislation adjusting the rights and

responsibilities of c ontracting parties must be upon reasonable

c onditions and of a character appropriate to the public purpose48 United States Trust Co. of New York v. New Jersey

, 431 U.S.

1, 22 (1977); see also Energy Reserves Group , 459 U.S. at 412.

49 Energy Reserves Group , 459 U.S. at 412.

50 United States Trust Co. , 431 U.S. at 25-26.

51 Id. at 23.

52 Id.

53 See id. The Supreme Court has held that “any substantial

alteration by subsequent legislation of the rights of a purchaser

at tax sale, accruing to him under laws in force at the time of his

purchase, is void as impairing the obligation of contract.” Wood

v. Lovett , 313 U.S. 362, 369 (1941).

18 justifying its adoption.” 48 In cases involving impairment of

contracts between private parties, the court does not independently

review the reasonab leness of the legislation; it should defer to

the judgment of the legislature. 49

However, when the State is a party to the contracts, the court

cannot defer to the State because the State’s self-interest as a

party is implicated. 50 Instead, the court must engage in a two-part

inquiry. First, the court should determine whether the contracts

surrender “an essential attribute of [the State’s] sovereignty.” 51

If so, the Contract Clause does not prevent the State from

impairing such an obligation, because “the legislatu r e cannot

bargain away the police power of a State.” 5 2 Purely financial

obligations, however, do not surrender aspects of the State’s

sovereignty, and thus are subject to the Contract Clause. 53 Second,

even if the impairment is subject to the Contract Clause, the court54 United States Trust Co. , 431 U.S. at 25-26.

55 See, e.g., City of El Paso v. Simmons

, 379 U.S. 497 (1965).

This case is discussed at length in Part IV.E.

56 See, e.g., Spannaus , 438 U.S. at 234.

19 must determine whether the impairment is “reasonable and

necessary,” without giving “complete deference” to the

legislature’s judgment. 54

In sum, the court must first determine whether the impairment

of the contract is substantial and the degree of that impairment.

If the impairment is not substantial, there is no claim under the

Contract Clause. 55 The court must next assess the strength of the

State’s justification for the impairment. The justification must

identify a public purpose that is significant and legitimate. If

the State fails to provide such a justification, the impairment

violates the Contract Clause. 56 Finally, the court must compare the

impairment and the justification to de termine whether the

impairment is “reasonable and necessary.” The degree of deference

shown the legislature’s judgment on t his question depends on

whether the government has impaired contracts to which it is a

party.

C

We begin by asking whe ther section 95 substantially impairs

the contractual rights of the leaseholders. To determine the

effect of a law on a contract, we must identify which contractual

rights are being affected by the law, and then consider the extent57 Bec ause the Mississippi Supreme Court has held that the

leases are voidable, rather than void, the State has no right to

seek foregone rent from past years. See Hill , 564 So.2d at 9.

58 The Mississippi legislature passed numerous statutes

regulating the leasing of sixteenth section land in the years after

the creation of the State. Legislation in 1821 and 1830 authorized

the leases in this case. See Miss. Const. of 1817, art. 6, § 20;

Act of Feb. 10, 1821, 1821 Miss. Laws, 4th Sess., Ch. XLVI; Act of

Dec. 1 3, 1830, 1830 Miss. Laws, 14th Sess., Ch. II. The

Mississippi legislature altered the regulation of Mississippi

sixteenth section lands throughout the 19th century. See, e.g., Act

of Feb. 10, 1830, 1830 M iss. Laws, Ch. XXIV; Act of December 16,

1830, 1830 Miss. Laws, 14th Sess ., Ch. II. Indeed, since the

ni neteenth century, the Mississippi legislature has continued to

place a great importance on the manageme nt of sixteenth section

lands. See Act of March 20, 1914, 1914 Miss. Laws, Ch. CDLXII .

20 to which the law has contravened the reasonable expectations of the

parties. Section 95 affects the renewal rent term. As read by the

Mississippi Supreme Court sectio n 95 makes voidable the current

lease price, allowing the State to seek a fair market rate, but

giving the current leas eholder the right of first refusal. 5 7 The

actual im pairment to the leases is the invalidation of the

“renewable forever” clauses that guaranteed a continuation of the

original price term to the present da y. Section 95 thus impairs

the contract term that freezes the rents at prices that the State

contends have become grossly inadequate with the passage of time.

Given that section 95 affects the renewal price term, we must

ask what the reasonable expectations of t he contracting parties

were with respect to that contract term. The renewable forever

clauses are authorized by state statute. 58 Additionally, the leases

were made in furtherance of the State’s duty to preserve the value21

of the school trust lands. The leases in this case were signed in

the 1820s, 1830s, and 1840s, against a backdrop of the State’s

binding trust obligations.

D

The nature of the trust is here relevant in two ways: first,

the extent of the State’s trust obligations in the management of

the sixteenth section lands affects the strength of Mississippi’s

interest in regulating those lands; second and relatedly, the

fetters of trust obligations bear on the reasonable expectations of

the parties to the leases on their execution

– the strength of the

facially unqualified obligation to renew.

Since its earliest days, Mississippi has held sixteenth

section lands in trust for the benefit of the schools of the State.

Although courts often refer to “the” trust, there are in fact two

trusts—one state, one f ederal—in which Mississippi holds its

sixteenth section lands. Detailing this duality is necessary to

understanding Mississippi’s trust obligation. We turn first to the

federal trust.

Beginning with the Northwest Territory in 1785, Congress set

aside public lands in most of the territories of the United States

to be used for the benefit of territorial schools. The lands set

aside were composed of the sixteenth section of each township; in

later years, additional sections were set aside as well. As states

were formed out of territories, Congress, in the enabling act of59 Thus, almost every state aside from the original thirteen

has sixteenth section lands. See Andrus v. Utah

, 446 U.S. 500, 522

(1980) (Powell, J., dissenting); see also P. Gates, History of

Public Land Law Development 287-88 (1968).

60 For a more extensive discussion of the history of sixteenth

section lands, see Papasan

, 478 U.S. at 268-70; Andrus

, 446 U.S. at

522-24 (Powell, J., dissenting); Semmes Luckett, Mississippi’s

Sixteenth Section School Lands , 23 Miss. L. J. 281 (1962).

61 See, e.g., Act of March 3, 1817, 3 Stat. 375 (“[S]ection No.

16, in each township, [ ] shall be reserved for the support of

schools therein.”) (Mississippi enabling act); Ac t of Feb. 14,

1859, 11 Stat. 383 (“[S]ections numbered sixteen and thirty-six in

every township of public lands ... shall be granted to said State

for the use of schools.”) (Oregon enabling act).

62 Cooper v. Roberts , 59 U.S. 173, 181-82 (1855).

63 See Alabama v. Schmid t , 232 U.S. 168, 173-74 (1914). The

Fifth Circuit long ago held that the statute creating Louisiana’s

sixteenth section land, Act of March 3, 1811, 2 Stat. 662 (the

sixteenth section “shall be reserved in each township, for the

22 each new state, granted the school lands to the state. 5 9 These

grants contain language that the land is being given to the state

for the benefit of its schools. This is the source of the claim

that the states hold the school lands in a federally created

trust. 60

In defining the character of any federal trust, we then first

turn to the language of the statute granting the sixteenth section

lands to the State and their interpretation. Earlier grants of

sixteenth section land did not contain any lang uage creating

specific obligations on the part of the states. 61 The Supreme Court

long ago held that such grants gave the sixteenth section lands to

the states in fee simple; 62 the federal trust was purely honorary. 63support of the schools within the same”), created only an honorary

trust. S ee Louisiana v. William T. Joyce Co.

, 261 F. 128, 130, 133

(5th Cir. 1919).

64 S ee Lassen v. Arizona ex rel. Arizona Highway Dept. , 385

U.S. 458, 470-74 (1967) (reprinting statutory language of the land

grants).

65 See id. at 460-61, 466-67; see also Papasan

, 478 U.S. at 270

(“[T]he most recent grants are phrased not as outright gifts to the

state for specific use but instead as express trusts.”).

66 Madison County Bd. of Educ. v. Illinois Central R. R. Co.

, 939 F.2d 292, 305 (5th Cir. 1991).

67 Morrow v. Vinson

, 666 So. 2d 802, 805 (Miss. 1995); see also

Mississippi Gaming Comm’n v. Bd. of Educ.

, 691 So. 2d 452, 461

(Miss. 1997).

68 See Morrow

, 666 So. 2d at 805-06; Hill v. Thompson

, 564 So.

2d 1, 7 (Miss. 1990); Turney v. Marion County Bd. of Educ.

, 481 So.

23 Some later land grants—those to Arizona and New Mexico, for

example—were worded to create very specif ic rights and duties of

the Un ited States and the state. 6 4 The Supreme Court has treated

these grants as binding trusts. 65

The grant of sixteenth section land to Mississippi was one of

the earliest trusts created, and contained no language establishing

a binding trust. We remain convinced then that the federal trust

in which Mississippi holds its sixtee nth section lands is purely

honorary and that Mississippi holds absolute title to the land

without federal restriction. 66 We now turn to the matter of trust

obligations imposed by the law of Mississippi.

“An overwhelming body of law” 67 in Mississippi holds that the

lands are held in a binding trust. 68 The Mississippi Supreme Court2d 770, 776-77 (Miss. 1985); Bragg v. Carter , 367 So. 2d 165, 167

(Miss. 1978); Tally v. Board of Supervisors

, 323 So. 2d 547, 549-50

(Miss. 1975); Edwards v. Harper

, 321 So. 2d 301, 303 (Miss. 1975);

Holmes v. Jones

, 318 So. 2d 865, 868 (Miss. 1975); Keys v. Carter

, 318 So. 2d 862, 864 (Miss. 1975); State ex rel. Coleman v. Dear

, 55

So. 2d 370, 373-74 (Miss. 1951); Koonce v. Bd. of Supervisors , 32

So. 2d 264, 265-66 (Miss. 1947); Pace v. State ex rel. Rice

, 4 So.

2d 270, 272, 274, 276 (Miss. 1941); Washington County v. Riverside

Drainage Dist.

, 131 So. 644, 645 (Miss. 1931); Jefferson Davis

County v. James-Sumrall Lumber Co. , 49 So. 611, 612 (Miss. 1909).

69 See Hill

, 564 So. 2d at 7. One case, P ace v. State ex rel.

Rice

, 4 So. 2d 270, 272, 274, 276 (Miss. 1941), has applied the

trust obligation to a lease beginning in 1847. The court stated

that “the state cannot abdicate its duty as trustee of property in

which the whole people are interested, any more than it can

surrender its police powers ....” Id. at 277.

70 Som e cases suggest that the obligation is a creature of

state st atute. S ee Broadhead v. Bonita Lakes Mall, Ltd.

Partnership

, 702 So. 2d 92, 105 (Miss. 1997); Holmes v. Jones

, 318

So. 2d 865, 868- 69 (Miss. 1975). Other cases appeal to the

Mississippi Constitution of 1890, see Morrow, 666 So. 2d at 805-06;

Koonce, 32 So. 2d at 265-66, or the public trust doctrine, see

Secretary of State v. Wiesenberg

, 633 So. 2d 983, 987 (Miss. 1994);

Cinque Bambini P’ship v. State , 491 So. 2d 508, 511 (Miss. 1986).

71 In addition to the state-law so urces of the trust cited

above, a few cases suggest that the trust is a federally

enforceable creation of Congress, See Hill, 564 So. 2d at 6;

Turney v. Marion County Bd. of Educ.

, 481 So. 2d 770, 776 (Miss.

1985). Since the Mississippi Supreme Court has adhered to H ill in

the face of federal precedent reaffirming that the federal trust is

honorary, however, it is clear that the binding trust is grounded

in state law. See Morrow , 666 So. 2d at 805.

72 “[W]e interpret the state statute the way we believe the

state Supreme Court would, based on prior precedent, legislation,

24 has said the trust dates back to the creation of the state. 69

A lthough the source of this trust obligation is obscure, 7 0 the

Mississippi Supreme Court has declared its existence as a matter of

state law, 71 and that is the end of the matter. 72and relevant commentary.” V ielma v. Eureka Co.

, 218 F.3d 458, 461

(5th Cir. 2000). Of course, the significance of this trust to the

Contract Clau se is a question of federal law. We note that an

earlier Fifth Circuit case, Madison County Bd. of Ed. v. Illinois

Central Railroad Co.

, 939 F.2d 292, 305-06 (5th Cir. 1991), had

held that Mississippi state law created no binding trust obligation

for sixteenth section lands. This holding was superseded by the

Mississippi Supreme Court’s decision in Morrow

, 666 So. 2d at 805.

In any case, the narrow holding of Madi son County , that no trust

obligation prevented the sal e of sixteenth section land in 1882,

remains good law; the Mississippi Supreme Court has held that the

trust, as modified by the state constitution, did not prevent the

sale of sixteenth section land between 1869 and 1890. S ee Lambert

v. State , 51 So. 2d 201, 203 (Miss. 1951). We in no way question

the validity of sales of sixteenth section land made prior to 1890.

73 See Hill v. Thompson , 564 So. 2d 1, 6 (Miss. 1990).

74 See Secretary of State v . Wiesenberg , 633 So. 2d 983, 987

(Miss. 1994) (“Since [1817], the common law of this State has

adhered to the doctrine of public trust, applying it in both

sixteenth section lands as well a s tidelands.”); C inque Bambini,

491 So. 2d at 511 (describing the State’s tidelands and navigable

waters and the sixteenth section lands as “two great public

tru sts”); P ace

, 4 So. 2d at 276-77. That grants of land held in

public trust are revocable is discussed in Illinois Central R. Co.

v. Illinois

, 146 U.S. 387, 453-54 (1892). S ee also 63C Am. Jur. 2d

Public Lands § 7 (1997). Courts also note that common law rules

applying to trusts also apply to the maintenance of the sixteenth

section lands trust. Hill , 564 So. 2d at 6, 9; Bragg , 367 So. 2d

at 167. Even contracts made in good faith are voidable if

violating the trust. S ee State ex rel. Kyle v. De ar , 46 So. 2d

100, 105 (Miss. 1950); Koonce v. Bd. of Supervisors

, 32 So. 2d 264,

265-66 (Miss. 1947).

25 The State holds title t o the land for the benefit of its

schools; the common law rules applicable to private trusts apply to

the tr ust in which Mississippi holds its school lands. 7 3 and any

action taken by the State in violation of this trust is voidable. 74

The Mississippi Supreme Court has stated that the State ’s trust

obligations are the equivalent of its police powers, and cannot be75 State ex rel. Coleman v. Dear

, 55 So. 2d 370, 373-74 (Miss.

1951); Pace 4 So. 2d at 276.

76 Elements of this trust are embodied in the Mississippi

Constitution of 1890. S ee Miss. Const. of 1890, art. 4, § 95

(forbidding the donation of public lands to private parties); Miss.

Const. of 1890, art. 8, § 211 (governing the legislature’s

regulation of sixteenth section lands). The Mississippi Supreme

Court has noted that the Mississippi legislature has discretion in

executing its obligations under the trust, at least between 1869

and 1890. S ee Lambert, 51 So. 2d at 203. L ambert involved a lease

made under the Mississippi Constitution of 1869, which, unlike the

Constitution of 1890, place d no express limitation upon the

alienation of sixteenth section lands.

77 See Hill

, 564 So. 2d at 7. The Mississippi Supreme Court

in Hill emphasized that section 95 of the 1890 Constitution did not

create the state law trust obligation, but merely made it “more

concrete.” Id.

26 contracted away. 75 The exact requirements of the trust have been

n arrowed at times by statute and state constitution, 7 6 but the

binding nature of the obligation has existed since 1817. 77

When the leases were signed more than 100 years ago, the

parties did not have the benefit of the body of law on school lands

trusts that we have today. The relevant inquiry here is into the

trust obligations that were the backdrop to the execution of the

leases. We must repair then to the understanding of the trust at

that time in order to a ssess what the parties to the original

leases reasonably expected the State’s duties and powers with

respect to the land were. While the parties would undoubtedly have

understood that the leases were being signed subject to some sort

of a binding trust obligation, the source of the trust obligations

was far less clear then than now.78 See Act of May 19, 1852, 10 Stat. 6. In 1829, the

Mississippi legislature petitioned the U.S. Congress for authority

to sell sixteenth section land. S ee Memorial of Feb. 5, 1829, 1829

Miss. Laws, Ch. CI.

79 See Act of Feb. 1, 1826, 4 Stat. 138 (a u thorizing the

legislature of the state of Ohio to sell the lands heretofore

appropriated for the use of schools in that state); Act of March 2,

1827, 4 Stat. 237 (Alabama); Act of May 24, 1828, 4 Stat. 298

(Indiana); Act of Feb. 15, 1843, 5 Stat. 600 (Illinois, Arkansas,

Louisiana, and Tennessee).

80 Hester v. Crisler , 36 Miss. 681, 1859 WL 3619 at *2 (Miss.

Err. & App. 1859), hel d that the United States held title to

Mississippi’s s ixteenth section lands until the passage of a

federal statute in 1852. Before then, the court held, the State

had no authority over the lands. In 1895, the Mississippi Supreme

Court recognized that its decision was contrary to the weight of

authority and reversed Hester

. S ee Jones v. Madison County

, 18 So.

87, 92 (Miss. 1895); see also Cooper v. Roberts

, 59 U.S. 173, 181-

82 (1855) (holding that the grant of sixteenth section land to

Michigan, which was virtually identical to the Mississippi grant,

created only an honorary trust); Street 23 So. at 773 (Miss. 1898)

(expressing the view that Mississippi took title to lands when it

was admitted into the union). An 1841 Mississippi case did not

reach the question of the nature of the trust but sugge sted that

Mississippi did have authority over the lands. S ee Connell v.

27 At the same time the leases were signed, there was warrant for

believing that any trust was federal. It was generally believed in

Mississippi that the Mississippi legislature did not have the

a uthority to sell sixteenth section land until Congress passe d a

law authorizing its sale in Mississippi in 1852. 78 Indeed, Congress

regularly passed laws altering states’ control over sixteenth

section land prior to 1852. 79 For virtually all of the nineteenth

century, the Mississippi Supreme Court labored under the b elief

that the United States did not transfer title to the lands to

Mississippi until 1852. 80Woodard

, 6 Miss. 665, 1841 WL 1865 at *5 (Miss. Err. & App. 1841).

81 See Miss. Const. of 1817, art. VI, § 20 (“That the general

assembly shall take measures to preserve from unnecessary waste or

damage such lands as are or may hereafter be granted by the United

States for the use of schools . . . and apply the funds which may

be raised from such lands, by rent or lease, in strict conformity

to t he object of such grant; but no lands granted for the use of

such township schools shall ever be sold by any authority in this

State.”). Congress had authorized the leasing, but not sale, of

Mississippi sixteent h section land in 1815. S ee Act of Jan. 9,

1815, 3 Stat. 163.

82 See Miss. Const. of 1832, Schedule, § 4.

83 Lipscomb I, 145 F.3d at 246.

28 Thus, the concept of a state law trust obligation was then

perceived to be weaker. The Mississippi Constitution of 1817

contained a provision that appeared to create a trust obligation,

and the Mississippi legislature regularly passed statutes

regulating the leasing of sixteenth section land. 81 The Mississippi

Constitution of 1 832, however, did not contain such a provision,

stating only that “[a]ll laws now in force in this State, not

repugnant to this Constitution, shall continue to operate.” 82

Lipscomb appeals to our prior opinion in this case, which

stated that “the t rust under which Mississippi operated at best

created an honorary, not a mandatory, obligation on the part of the

state to administer the lands for the benefit of schoolchildren.” 83

This statement responded to the State’s argument that the 1830

statute authorizing the “renewabl e forever” clauses violated the

State’s trust obligations. Lipscomb argues that the law of the

case doctrine requires that we reject the appellants arguments that84 See id. (citing Madison County

, 939 F.2d at 305-06 , and

Schmidt , 232 U.S. at 173-74).

29 the State is bound by its trust obligation to maximize the value of

the sixteenth section lands.

As should be clear, Mississippi’s sixteenth section lands are

held in two trusts: one state, one federal. Our prior opinion did

not address the existence of a state-law trust obligation and

relied only on fe deral law in reaching its conclusion. 8 4 As the

prior opinion did not expressly or by necessary implication rule on

the nature of the state-law trust, there is no law of the case on

the state-law trust.

With increasing state regulation, regulated private parties’

expectations of being freed from future regulations by contract

with the state becomes less reasonable. The Mississippi statutes

of the nineteenth century, however, acted to facilitate the

transfer of state land to private parties, not to limit the

activities of private parties. The statute authorizing the

renewable forever leases in Columbus reflects the State’s interest

in e ncouraging the development of land in that township – as we

will explain, not in derogation of trust obligations but in their

discharge.

E

In discharging its obligations to administer the lands for the

benefit of education, Mississippi faced certain realities.

Unsettled land generates no rev enue for the State; yields no85 See Papasan, 478 U.S. at 271-72.

30 agricultural bounty; supports no population; and generates no

commerce. Both sales and long-term leases at low rates encourage

settlement and private investment in new lands.

But a lease t hat is renewable forever is here superior to a

land sale . By retaining title to the land, the State protects

itself against default. A lease ensures a perpetual stream of

income, however small , that guarantees that misfortune or

mismanagement of sales proceeds cannot completely dissipat e the

income from the lease. Selling land for a lump-sum risks such a

loss. Such a judgment is born out in Mississippi’s history and the

sad story of the Chickasaw lieu lands. 85 In 1836, Congress conveyed

some 174,555 acres of land from the Chickasaw Cession to

Mississippi in lieu of sixteenth section land. In 1856,

Mississippi sold this land and invested the proceeds in 8 percent

loans to Mi ssissippi’s railroads. Within ten years, this entire

investment was rendered worthless when Mississippi’s railroads were

destroyed during the Civil War.

Thus, to th is day Mississippi continues to receive its

bargained-for benefit from these leases, just as the leaseholders

reap the benefit of (now) extremely favorable rental rates. The

leases have generated a constant stream of revenue that is secured

by the State’s continuing ownership in the land. For the first 50

years or so this rental income sustained the schools. The86 Dear

, 55 So. 2d at 373-74 (“[T]he ex ercise of the police

power of the State is inherent in the existence of a government and

is not the subject of a waiver, barter , forfeiture or sale. The

State cannot abdicate its duty as trustee of property in which the

whole people are interested, such as sixteenth section land held by

the State as trustee for sc hools, any more than the State can

surrender its police power in the administration of government and

in the preservation of peace and order.”).

31 guarantee of perpet ual low lease rates attracted settlement in

Columbus, and the leaseholders improv ed the land they held,

increasing the gene ral wealth of the community and enlarging the

tax base for later property taxes to support schools. Upsetting

this balance by inv alidating the renewal lease rates would

substantially impair the contracts.

The State identifies a significant, legitimate, public

interest in the leased sixteenth sect ion lands. The Mississippi

courts have stated that preservation of the trust lands for the

benefit of the schools is a central governmental power and duty,

comparable to the police powers. 86 As we have explained,

Mississippi case law has repeatedly emphasized the significance of

the State’s interest in preserving the value of the sixteenth

section lands.

Of course, this interest in protecting the school lands trust

is a valid reason for the State’s action. Funding schools and

avoiding the dissipation of state assets are classic police

functions, and section 95 of the Mississippi Constitution is a law

of “broad and general” application that does not single out any87 Energy Reserves Group , 459 U.S. at 412.

88 United States Trust Co. , 431 U.S. at 25-26.

89 Id. at 23.

90 Of course, whether state powers are legitimate

justifications for im pairment of contracts is a question of

federal, not sta te, law. We need not decide the extent to which

the State’s trust obligations are like a police power, however, for

its obligations under the trust are not diminished by the renewal

rental rates of the Columbus school lands.

32 subset of leasehold ers. 8 7 All this is a given—but it does not

respond to the reality that the original structure of the leases

has not frustrated the state’s obligation. To the contrary, it has

rather done the opposite.

We now turn to the final step of the analysis. The State is

a party to the contracts, so we cannot defer in the manner of due

process to the State’s judgment of the reasonableness of its

threatened actio n. 88 Instead, we first ask whether the contracts

surrender “an essential attribute of [the State’s] sovereignty.” 89

If not, we judge the reasonableness and necessity of the

impairment.

The lea ses do not surrender any essential attribute of the

State’s sovereignty. The leases do not limit the ability of the

State to exercise its jurisdiction or police powers over the land.

Mississippi courts have stated that the State’s duty to the school

lands trust is like a police power that cannot be contracted away. 90

But the State has not contracted away its stewardship over the

school lands. As we explained, the leases themselves represent the91 See Street 23 So. at 774.

33 State’s fulfillment of its obligation to ensure the funding of

schools.

It is instructive that the Mississippi Supreme Court has noted

that renewable forever leases are, for tax purposes, practically

identical to lands sold by the State. 9 1 Thus, although the State

received the benefit of retaining title to the leased lands, taxes

can be levied against the leasehold ers. The State has had the

benefit of being able to tax the leas ed land—at the market value

swelled by the incentive to develop created by the renewal and

price terms—as if it had been sold, while retaining the protection

of the collateral that leasing provides. The leases brought rental

income and en couraged development that allowed the imposition of

property taxes for the benefit of schools.

The leases exercise the State’s power to serve the trust, they

do not limit that power . The State seeks to escape a purely

financial obligation—its agreement to accept fixed rent terms for

the Columbus school lands while reaping the benefits of the land’s

development

– an arrangement that proved to be a hedge against

infla tionary erosions of rental income, inevitably attended by

increasing land “values.”

In sum, invalidating the renewal rental rates of the leases is

not reasonable and necessary to protect the State’s interest in its

school lands. Mississippi might have followed the familiar path of92 379 U.S. 497 (1965).

93 See id. at 498.

94 See id. at 498-99.

34 granting fee title to land in exchange for its development—a common

practice in the American West and the Mississippi Territory. It is

fair to ask whether in such circumstances the state could now

exercise its police power to alter an incident of fee ownership to

charge market rent s in addition to school taxes without

compensating the landowner. In actual fact, the state constructed

a hedge.

The State insists, nonetheless, that the Supreme Court’s

decision in City of El Paso v. Simmons 92 requires that we re verse

and find no violation of the Contract Clause. We disagree.

Simmons involved a land purchase contract entered into in 1910. At

that time, the Texas State Land Board was authorized to sell state

lands for the benefit of the State’s Permanent Free School Fund.

The sales had generous terms and in practical effect the buyers of

the land had only to pu t down one-fortieth of the purchase price

a nd pay interest on the remaining principal in order to keep the

property. But upon failure to pay interest, the statutes

authorized forfeiture of the property back to the State. 93 A buyer

retained a perpetual right of reinstatement, however, if he paid

all of the back-interest due. 9 4 In 1941, the legislature changed

the reinstatement law to allow reinstatement only within five years95 See id. at 499.

96 See id. at 500.

97 See id. at 509-13.

98 See id. at 515.

99 See id.

35 of forfeiture. 95 A buyer who failed to gain reinstatement within

five years brought suit, alleging tha t the 1941 legislation

violated the Contract Clause. 96

The S upreme Court held that the 1941 legislation did not

violate the Contract Clause. The Court emphasized that the measure

was enacted to remedy a substantial abuse of the prior law:

speculators would enter into contracts to purchase land and then

immediately default. If oil was discovered on their land, they

would exercise their right to reinstatement; otherwise, they would

remain in default. 97 In essence, the buyers purchased an option of

infinite duration, obtaining all of the benefits of any substantial

appreciation in the value of the property, while leaving Texas with

the risk that the land would decline in value. This situation

undermined the purpose of the lan d sale contracts–the funding of

schools. 98 Further, it did not serve the purpose of the

reinstatement clause, which was to protect bona fide purchases who

fell behind on payments, not to subsidize speculators. 99

The Supreme Court noted that the right to reinstatement “was

not the central undertaking of the sell er nor the primary100 Id. at 514.

101 Id.

102 Id.

103 Id. at 515.

104 Id. at 516.

36 consideration for the buyer’s undertaking.” 100 The Court reasoned

that the right to reinstatement could not have reasonably been

intended to create “an endless privilege” since such a construction

“would render the buyer’s o bligations under the contract quite

illusory.” 101 The fact that Texas was seeking to sell as much land

as possible at the time of the sales did not undermine the validity

of its change of policy. 1 02 Most importantly, the Court stated,

“[l]aws which restrict a party to those gains reasonably to be

expected from the contract are not subject to attack under the

Contract Clause, n otwithstanding that they technically alter an

obligation of the contract.” 103 It then went on to note “the

State’s vital interest in administering its school lands to produce

maximum revenue,” and concluded that given this interes t and the

p rior abuses of the law, “a statute of repose was quite clearly

necessary.” 104

This case differs substantially from S immons

. The

reinstatement clause in Simmons operated to frustrate the purpose

of the land sale contract by allowing speculators to buy an option

on the land. An indefinite reinstatement provision, as the Court37

noted, re ndered the buyer’s obligations “illusory.” Under this

construction Texas would depend on the buyer’s discretion in making

payments. Thus, the purpose of the plan was frustrated from the

outset.

A s we have explained, in this case the leasing arrangements

guaranteed Mississippi a steady str eam of income, which in fact

supported the public school in Columbus for many years. The

renewable forever provisions created incentives for substantial

investment in the development of leased lands and a growing tax

base to further sustain the schools. Moreover, the state was left

with remedies should the lessee default. The state got exactly

what it needed, and the purpose of the contract was fulfilled, not

frustrated.

V

To summarize: We have jurisdiction over this case. The

current leases are renewals of the original leases executed before

the ratification of the 1890 Constitution. Thus, section 95 of the

1890 Constitution impairs the renewal terms of the lease contracts.

Because voiding the current lease rates on the school lands

substantially impairs the contract rights of the leaseholders, and

the State’s threatened action is not reasonable and necessary, we

affirm the en try of summary judgment against the Secretary

declaring that vo iding the Columbus school land leases would38

violate the Contract Clause, a declaration that may be enforced by

injunctive relief.

We AFFIRM and REMAND to the district court for further

proceedings including any necessary resolution of disputes over the

entitlement of individual class members to the relief declared by

the district court and today affirmed by this court. We do not

suggest that there will be such dis putes. Rather we here make

clear that our mandate does not foreclose their resolution by the

district court.

AFFIRMED and REMANDED.