Court Opinion

ID: 9566686
Source: CourtListenerOpinion
Date Created: 2023-08-21 19:42:00.170611+00
Date Added: 2024-06-11T09:38:55.207268
License: Public Domain

CAMERON, Justice,
dissenting.
I regret that I must dissent. We are presented with two questions:
1. Did Congress intend for mineral leases to be subject to the appraisal, competitive bidding, and advertising requirements of Section 28 of the Enabling Act?
2. Does the fixed-rate royalty provision of A.R.S. § 27-234(B) provide maximum revenue for school lands consistent with the trust principles imposed by the Enabling Act on federally granted lands?
I believe the answer to Question 1 is no and the answer to Question 2 is yes. I would, therefore, affirm the decision of the trial court.
INTENT OF CONGRESS
At the time of enactment, the Enabling Act imposed an appraisal requirement on “[a]ll lands, leaseholds, timber and other products of the land.” As originally enacted, the Enabling Act did not grant to the states known mineral lands. Subsequent discovery of minerals on vested lands, however, would not void title. See Wyoming v. United States, 255 U.S. 489, 41 S.Ct. 393, 65 L.Ed. 742 (1921).
In 1922, the Supreme Court of New Mexico held that since Congress had not originally contemplated the conveyance of any mineral lands to the state via the Enabling Act, it had not intended that the Enabling Act’s leasing provisions should govern mineral leasing procedures. Neel v. Barker, *49927 N.M. 605, 204 P. 205 (1922). The court held valid an oil and gas lease issued without the procedural requirements of formal appraisal, advertisement, or public auction. Id. at 605, 204 P. at 205. Subsequently, the New Mexico Legislature requested that Congress authorize a constitutional amendment codifying Neel v. Barker. Congress responded by passing the Act of February 6, 1928, ch. 28, 45 Stat. 58, which authorized New Mexico to lease lands granted under the Enabling Act for mineral purposes without regard to appraisal, advertising, or competitive bidding. The mineral rights in the granted lands, however, could not be sold by the state, but only leased. Following the New Mexico example and as a result of the Jones Act, Arizona, prior to the 1936 amendment, similarly could have leased its granted lands for mineral purposes without complying with the appraisal, advertising, and bidding requirements. Pub.L. No. 570, ch. 57, 44 Stat. 1026 (1927).
The Act of June 5, 1936, ch. 517, 49 Stat. 1477, provided for the lease of mineral lands for a term of twenty years or less, “in a manner as the State legislature may direct.” Subsequently, section 28 was amended again by the Act of June 2, 1951, ch. 120, 65 Stat. 50. This amendment liberalized the restrictions placed on school lands, stating in part:
Nothing herein contained shall prevent: ... 2) the leasing of any of said lands, in such manner as the Legislature of the State of Arizona may prescribe, whether or not also leased for grazing and agricultural purposes, for mineral purposes, other than for the exploration, development, and production of oil, gas, and other hydrocarbon substances, for a term of twenty years or less; ____
Pub.L. No. 44, ch. 120, 65 Stat. 50 (1951); see Ariz. Const, art. 10, § 3. Congress, in plain words, granted the Arizona Legislature the power to lease school lands for mineral development for a term of 20 years or less, in such a manner as Arizona’s legislature might elect.1
In construing the 1936 amendment consistent with its historical background, the state legislature, in prescribing the manner for leasing mineral lands, is not limited by the requirements of appraisal, competitive bidding and advertising.2 See Farmers Inv. Co. v. Pima Mining Co., 111 Ariz. 56, 58-59, 523 P.2d 487, 489 (1974) (“Minerals are expressly excepted in § 28 and are subject to disposition as provided by the Legislature of the State.”) Considering the history of the legislation and the amendments to our Enabling Act, I believe the legislature has the power to provide for leasing of mineral lands without appraisal.
MAXIMUM RETURN
In 1981, we held that school trust lands could not be sold without public auction to the Arizona Division of Emergency Services (ADES), even though ADES was a state agency. Gladden Farms, Inc. v. State, 129 Ariz. 516, 633 P.2d 325 (1981). The court found it important to note that simply because sale of the land in trust was to another state agency, it did not necessarily provide the protection to the trust lands that Congress intended. Id. at 520, 633 P.2d at 329. Furthermore, the court also *500commented that the purpose for the sale of lands in trust is irrelevant; of paramount concern is maximum return from the trust:
However worthwhile and desirable this sale may be for the humanitarian purposes for which it is made, we do not believe that the sale without auction and bid assures the “highest and best” price that the Enabling Act requires. The Enabling Act does not allow trust lands to be used for the purpose of subsidizing public programs no matter how meritorious the programs.
Id. at 521, 633 P.2d at 330.
Court opinions concerning the trust land provisions in Arizona strictly interpret the Enabling Act in order to protect the beneficiaries of the trust. Even though mineral leases are exempt from the Enabling Act’s formal leasing requirements, mineral lands are included in the corpus of the state trust properties and the state is not absolved from its fiduciary duties as trustee. Lassen v. Arizona, 385 U.S. 458, 87 S.Ct. 584, 17 L.Ed.2d 515 (1967). The state, as trustee, acts in a fiduciary capacity in the administration of state trust lands and has a duty to maximize the revenues generated by the trust corpus. If the fixed-rate royalty limits the return from the trust land, then it would be contrary to the provisions of the trust and would be deemed a breach of the trust. Act of June 20, 1910, ch. 310, 36 Stat. 557 § 28. See also Alamo Land and Cattle Co. v. Arizona, 424 U.S. 295, 96 S.Ct. 910, 47 L.Ed.2d 1 (1976).
At the time of the filing of the instant case, the relevant portion of A.R.S. § 27-234 provided:
B. Every mineral lease of state land shall provide for payment to the state by the lessee of a royalty of five per cent of the net value of the minerals produced from the claim. The net value shall be deemed to be the gross value after processing, where processing is necessary for commercial use, less the actual cost of transportation from the place of production to the place of processing, less costs of processing and taxes levied and paid upon the production thereof. In case of minerals not processed for commercial use, the net value shall be the gross proceeds, or gross value, at the place of sale or use, less the actual cost of transportation from the place of production to the place of sale or use, less taxes, if any, levied and paid upon the production thereof.
A.R.S. § 27-234(B).
In reviewing the testimony in the trial court, I believe there is sufficient evidence from which it can be found that a royalty of five percent returns an equal if not a greater amount to the school trust account than could be obtained through other methods of leasing. The legislature, in establishing a royalty rate, may balance the revenue to be received with the discouragement of future mining operations that might occur with the imposition of higher royalty rates. Furthermore, it should be noted that mineral deposits are of a unique nature. While timber, range land and even rock and gravel can be easily evaluated and appraised before exploitation, mineral deposits are almost impossible to value until after extensive and often expensive exploration. Such deposits must first be discovered, explored and developed before mining.
In this regard, the statement by the majority should be noted that “the state mineral royalty receipts had declined to $1.3 million in 1986 from a 1980 return of $8 million____ It appears that the net flat rate statute has not served to protect the state’s royalty income from the market-related decline in mineral production of the last decade.” Page 496, 747 P.2d page 1195. I believe this is misleading. The decline in mineral production in the past decade was due to market conditions and not the flat rate royalty. Indeed, rising costs of production of mineral could well have resulted in less production and less revenue. As the brief of Magma Copper pointed out, there is no positive correlation between royalty rates and income derived from state trust lands. To the contrary, the Auditor General’s Report shows that California has the highest royalty rate of the states examined, but the revenue derived from all state mineral leases totalled only $259,000 for the fiscal year 1978-79. *501Arizona for the same fiscal year generated an income of $3.4 million.
In the appendix to Magma Copper’s brief, Spencer Smith stated that he examined the status of California’s metallic leases and that: “The ten percent minimum royalty imposed in California is one of the primary reasons for the lack of metallic mineral production on their [California’s] state lands.” Letter from Spencer A. Smith to C.J. Hansen, President Arizona Mining Association (December 22, 1980) (discussing S. Smith, Elements of Mineral Leasing Systems for State Lands with Comments on the Laws of Selected States (July 7, 1980) (unpublished article)).
I believe that the legislature has properly determined that a fixed-royalty rate appropriately maximizes the revenues to be generated by mineral leases on the school lands. I would hold that A.R.S. § 27-234(B) does not violate the Enabling Act or the Arizona Constitution.
I would affirm the judgment of the trial court.

. Speculators mulling the reasons for this liberalization contend that a change in Congressional policy occurred in the 1950s concerning the type of restrictions placed on trust lands. The Alaska Statehood Act, P.L. 85-508, 72 Stat. 339 (1958), for example, imposed no trust provisions or other limitations on Alaska’s state lands, i.e., Alaska was given a "free transfer.” The Alaska state land policy, therefore, reflects a veritable about-face by Congress when it is compared with the restrictions placed upon Arizona. The potential concerns and harms caused by an absence of trust controls on state land is stated accurately by one commentator: "If there is to be no control over the price of sale or lease, certainly the pro-school forces have sufficient grounds to be alarmed. There could be a total depletion of the trust lands with almost no income—all in the name of the public good.” Dunipace, Arizona's Enabling Act and the Transfer of State Lands for Public Purposes, 8 ARIZ.L. REV. 133, 138 (1966).

. Minerals clearly are not subject to appraisal as "other products of the land.” Because mineral lands were reserved to the federal government under the Enabling Act, Congress could not have contemplated their inclusion in "other products of the land.” See State Land Dept. v. Tucson Rock & Sand Co., 107 Ariz. 74, 76, 481 P.2d 867, 870 (1971).