Opinion ID: 3049593
Heading Depth: 3
Heading Rank: 1

Heading: Breach of trust actions under the Admission Act

Text: Before explaining our conclusion regarding the impact of Gonzaga, we set the scene by describing our existing case law regarding the enforcement of the § 5(f) trust by beneficiaries in some detail. Section 5(f) of the Admissions Act provides that the relevant lands and income from them 8 See Hou Hawaiians v. Cayetano, 183 F.3d 945, 948 (9th Cir. 1999); Price v. Hawaii, 939 F.2d 702, 706 (9th Cir. 1991); Price v. Hawaii, 921 F.2d 950, 954-56 (9th Cir. 1990); Price v. Akaka, 915 F.2d 469, 472 (9th Cir. 1990); Ulaleo v. Paty, 902 F.2d 1395, 1397 (9th Cir. 1990); Price v. Hawaii, 764 F.2d 623, 628 (9th Cir. 1985). 9434 DAY v. APOLIONA shall be held by said State as a public trust for the support of the public schools and other public educational institutions, for the betterment of the conditions of Native Hawaiians, as defined in the Hawaiian Homes Commission Act, 1920, as amended, for the development of farm and home ownership on as widespread a basis as possible for the making of public improvements, and for the provision of lands for public use. Such lands, proceeds, and income shall be managed and disposed of for one or more of the foregoing purposes in such man- ner as the constitution and laws of said State may provide, and their use for any other object shall constitute a breach of trust for which suit may be brought by the United States. 73 Stat. at 6 (emphasis added). [1] Prior to Gonzaga, we twice explicitly held that because it creates a trust, § 5(f) also creates a right enforceable under § 1983 by the trust’s beneficiaries. In Keaukaha II, we reached that conclusion by relying on “a presumption that a federal statute creating enforceable rights may be enforced in a section 1983 action.” 739 F.2d at 1470 (citing Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 51 (1981) (White, J. dissenting in part)). Our primary concern was whether the § 1983 remedy was foreclosed by the statute’s public remedy. Earlier, in Keaukaha I, 588 F.2d 1216, we had concluded that the Admission Act did not create a implied private cause of action in part because the Act allowed the United States to sue for breach of trust. Id. at 1223-24. But in Keaukaha II, we concluded that the public remedy did not foreclose a § 1983 action because of the presumption in favor of a § 1983 remedy where a statute creates enforceable rights. 739 F.2d at 1470. Keaukaha II recognized that “[t]here remains a question . . . whether the Admission Act created a federal ‘right’ enforceDAY v. APOLIONA 9435 able under section 1983.” Id. at 1471. While we observed that “[t]he Admission Act clearly mandates establishment of a trust for the betterment of native Hawaiians,” we did not discuss the question in any detail, because “[t]he defendants [did] not seriously contend that plaintiffs have no enforceable rights.” Id. Our next substantive discussion of the issue was in Akaka I, 928 F.2d at 826-27. Akaka I considered Native Hawaiians’ claim that OHA trustees violated § 5(f) by comingling § 5(f) trust funds with other funds, and by not spending the trust funds to benefit Native Hawaiians or to serve the other § 5(f) purposes. Id. at 826. We did not directly address the question of whether the statute created an enforceable right. But we did discuss the plaintiffs’ rights, in explaining why they had standing even though the trustees could legally spend the § 5(f) funds for purposes other than to benefit Native Hawaiians: We recently considered this very question, and determined that allegations such as those Price has made are sufficient to show an ‘injury in fact.’ See Price [v. State of Hawaii, 764 F.2d 623, 630 (9th Cir. 1985) ]. In addition, allowing Price to enforce § 5(f) is consistent with the common law of trusts, in which one whose status as a beneficiary depends upon the discretion of the trustee nevertheless may sue to compel the trustee to abide by the terms of the trust. Akaka I, 928 F.2d at 826-27. Drawing directly on Akaka I, we explicitly returned in Akaka II, 3 F.3d 1220, to the enforceable rights question identified in Keaukaha II. That case addressed an issue similar to the one at bar: whether Keaukaha II had been effectively overruled by the Supreme Court’s analysis of the “rights” element of § 1983 in Suter v. Artist M., 503 U.S. 347 (1992), which concluded that there was no enforceable right in the 9436 DAY v. APOLIONA provisions of the Adoption Act of 1980 requiring states to meet certain prerequisites before receiving federal reimbursement for certain expenses related to adoption and foster care services. See Akaka II, 3 F.3d at 1224-26. Akaka II held that Keaukaha II had not been so overruled. We explained why § 5(f) created an enforceable right by citing to Akaka I: The instant case involves a public trust, and under basic trust law principles, beneficiaries have the right to “maintain a suit (a) to compel the trustee to perform his duties as trustee; (b) to enjoin the trustee from committing a breach of trust; [and] (c) to compel the trustee to redress a breach of trust.” Restatement 2d of the Law of Trusts, § 199; see also id. § 200, comment a. We have accordingly held that “allowing Price to enforce § 5(f) is consistent with the common law of trusts, in which one whose status as a beneficiary depends upon the discretion of the trustee nevertheless may sue to compel the trustee to abide by the terms of the trust.” Akaka I, 928 F.2d at 826-27. Our decisions in Keaukaha II, 739 F.2d at 1472, and Akaka I, 928 F.2d at 828, holding that beneficiaries of the public trust created by Congress may bring a § 1983 claim are consistent with the Supreme Court’s decision in Suter. Congress enacted the Admission Act, a federal public trust, which by its nature creates a federally enforceable right for its beneficiaries to maintain an action against the trustee in breach of the trust. As a beneficiary, Price may therefore bring a § 1983 action under the Hawaii Admission Act against the trustees. Id. at 1224-25 (internal parenthetical omitted). DAY v. APOLIONA 9437 [2] Akaka II’s reliance on trust law was not unique. Unifying most of our § 5(f) case law is the understanding that because they are designated as a “public trust,” § 5(f) funds are governed by a set of trust law principles that have procedural as well as substantive implications. Akaka I’s discussion of standing, quoted earlier, drew on the funds’ status as a trust.9 See Akaka I, 928 F.2d at 826-27. Furthermore, although we have as yet said little on the merits of § 5(f) claims, we have strongly suggested, if not explicitly held, that trust law princi- 9 In a concurring opinion in Rice v. Cayetano, Justice Breyer expressed concern that the relationship between OHA and Native Hawaiians was not analogous to a trust for an Indian tribe. See Rice, 528 U.S. at 524-257 (Breyer, J. concurring). Justice Breyer noted that, unlike a trust for an Indian tribe, the lands ceded in the Admission Act are to benefit “all the people of Hawaii,” not simply Native Hawaiians. Id. at 525. Furthermore, unlike an Indian trust, OHA has “funding . . . from several different sources” other than § 5(f) trust funds. Id. Justice Breyer’s characterization of OHA is accurate. The differences he describes between Indian trusts and the OHA, however, while perhaps relevant to the question at issue in Rice — about election of OHA officials — are not pertinent to this case or our prior applications of trust principles to § 5(f) claims for two reasons. First, at issue in this case and our prior related cases is only a portion of the OHA funds, those funds covered by § 5(f) and denominated by federal statute as held in “public trust.” At issue in Rice, on the other hand, was the election of officials who managed all of OHA’s assets, including funds that are not covered by § 5(f). Second, in contrast with the Hawaiian governor’s apparent position in Rice, this case is not based on any implicit assumption that Native Hawaiians and Hawaiians are the only intended beneficiaries of the § 5(f) trust. Our discussions of standing, rights of action, and the scope of the § 5(f) restrictions have arisen in cases brought by Native Hawaiian individuals and groups. But neither our prior case law nor our discussion today suggests that as a matter of federal law § 5(f) funds must be used for the benefit of Native Hawaiians or Hawaiians, at the expense of other beneficiaries. For example, our holding in Akaka I that Native Hawaiians have standing to sue to enforce the § 5(f) trust draws on the common law regarding trusts that, like this one, have multiple potential beneficiaries or are defined as “public.” See Akaka I, 928 F.2d at 827 (citing Restatement 2d of the Law of Trusts, § 214(1), comment a (regarding the rights of multiple beneficiaries), and § 391 (regarding which beneficiaries may sue to enforce the terms of a public charitable trust)). 9438 DAY v. APOLIONA ples guide the merits of any § 5(f) claims. If nothing else, the words “public trust” in the Admission Act “betoken the State’s duty to avoid deviating from section 5(f)’s purpose.” Price v. Hawaii, 921 F.2d at 955-56. But see id. at 955 (concluding that because the Hawaii Admission Act “confers a broad authority upon the State,” it does not impose any duties on the state regarding the management of the § 5(f) funds). And we have implied that the “body of law [applicable] for the purpose of enforcing” this duty likely draws on the common law of trusts. Id. (“There is no free floating federal common law of trusts, but we have no doubt that we would have the power to formulate a body of law for the purpose of enforcing the Act if that were appropriate under the circumstances. No doubt that would not present insuperable difficulties, since the common law of trusts is well developed in this country and speaks with a good deal of uniformity across the length and breadth of the land.” (citations omitted)).10 10 Courts have frequently looked to the common law of trusts to guide resolution of two sets of related claims: those concerning the federal government’s management of Indian assets for which the government has a fiduciary duty, see United States v. Mitchell, 463 U.S. 206, 226 (1983), and those related to states’ management of land granted to them in trust by the United States, see Branson Sch. Dist. RE-82 v. Romer, 161 F.3d 619, 637 (10th Cir. 1998); United States v. 111.2 Acres of Land, 293 F. Supp. 1042, 1049 (E.D. Wash. 1968), aff’d by, 435 F.2d 561 (9th Cir. 1970) (per curiam, adopting the district court opinion); Kadish v. Ariz. State Land Dep’t, 747 P.2d 1183, 1186-87 (Ariz. 1987); County of Skamania v. State, 685 P.2d 576, 579-80 (Wash. 1984) (en banc). Although we do not address the merits of Day’s claims, we note for the sake of example and clarity that the common law of trusts offers guidance on two of the issues that Day’s claims present: (1) how a court should determine whether activities funded by the trust funds are “for the betterment” of Native Hawaiians, and (2) whether trust funds can be spent in a way that serves Native Hawaiians, but also, incidentally, benefits other individuals. One treatise suggests: To the extent to which the trustee has discretion, the court will not control his exercise of it as long as he does not exceed the limits of the discretion conferred upon him. . . . Even where the trustee has discretion, however, the court will not permit him to abuse the discretion. This ordinarily means that so long as he acts DAY v. APOLIONA 9439 Thus, Akaka II constitutes an integral part of our § 5(f) jurisprudence. A change in its holding would have substantive, as well as procedural, impact. With the context set, we turn to the sole issue in this case: whether Akaka II remains the law of this circuit.