Opinion ID: 1239050
Heading Depth: 4
Heading Rank: 3

Heading: The set-off

Text: The issue of the set-off goes to the heart of the nature of the trust created by the AMHEA. In Weiss, we stated: To the extent that former mental health lands have been sold since the date of the conveyance [redesignation legislation] the trust must be reimbursed for the fair market value at the time of sale. In calculating the total amount owed, the trial court should grant a set-off for mental health expenditures made by the state during the same period. In the event that expenditures exceeded the value of lands sold, the state need not furnish cash as part of the reconstitution. 706 P.2d at 684. The superior court considered the setoff ... a very significant litigation risk with the potential to negate any cash recovery to the trust resulting from the State's obligation to pay for `sold' land. It reasoned that neither we nor the United States Supreme Court would be likely to review and reverse our decision in Weiss. It also noted that the language of the AMHEA supports its assessment of the risk created by the set-off because it appears to allow the proceeds of [land] sales to be used for the necessary expenses of the mental health program. Weiss counters that our statement in Weiss allowing the set-off was merely the product of a dubious and unauthorized stipulation made by plaintiff's original counsel. Weiss argues that the making of such a stipulation amounted to inadequate representation by class counsel and that class members will therefore not be bound by the resulting settlement agreement. Weiss's argument rests on the assumption that the set-off, at least as understood by the superior court, is an erroneous interpretation of Weiss and the AMHEA. Relying on our holding in Weiss that the State, by passage of the 1978 redesignation legislation, breached its duty to preserve the corpus of the trust, Weiss, 706 P.2d at 683, he concludes that we rejected the State's view that it had the power to spend trust principal to fund the mental health care program. He argues that the superior court should have interpreted Weiss as endorsing his position that the State has a duty to preserve the trust corpus against diminution. We disagree. The AMHEA provides that trust lands may be sold, leased, mortgaged, exchanged, or otherwise disposed of in such manner as the Legislature of Alaska may provide in order to obtain funds or other property to be invested, expended, or used by the Territory of Alaska. AMHEA § 202(e). The superior court reasonably interpreted this language as expressly permitting the State to fund mental health programs by selling trust assets. Thus the trial court did not err in reasoning that the AMHEA probably does not require that the State preserve the corpus of the trust in perpetuity. Nor is this reasoning contradicted by any duty under basic trust law principles. Trustees have a duty to preserve trust property for the uses of the trust, [21] but they do not necessarily have a duty to maintain the corpus of the trust forever. [22] In light of the provisions of the AMHEA, general trust principles, and our approval of a set-off in Weiss, the superior court did not err in concluding that plaintiffs would face a significant risk that a set-off for the State's mental health expenditures has the capacity to destroy any affirmative cash recovery regardless of how many lands are determined to have been `sold.'