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.
2
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
3
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
4
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
6
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
7
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
9
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
10
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,
12
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,
13
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
14
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
16
__________________________________
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.
17