IN THE SUPREME COURT OF THE STATE OF IDAHO · PDF fileIN THE SUPREME COURT OF THE STATE OF...

IN THE SUPREME COURT OF THE STATE OF IDAHO

IDAHO WATERSHEDS PROJECT,an Idaho non-profit organizationorganization

Appellant,

vs.

STATE BOARD OF LANDCOMMISSIONERS, comprised ofPHIL BATT, Governor, PETE T.CENARRUSA, Secretary of State,ALAN D. LANCE, Attorney General,J.D. WILLIAMS, State Controller,and ANNE C. FOX, Superintendentof Public Instruction, all intheir official capacities; andIDAHO DEPARTMENT OF LANDS,

an agency of the State of Idaho

Respondents.

Supreme Court No. 24367

APPELLANT’S OPENING BRIEF

Appeal from the 4th Judicial Districtof the State of Idaho, in and for Ada County

Hon. D. Duff McKee, Presiding

Laird J. Lucas Stephanie BalzariniLAND AND WATER FUND OF THE ROCKIES Deputy Attorney GeneralPO Box 1612 Idaho Dept. of LandsBoise ID 83701 PO Box 83720(208) 342-7024 Boise ID 83720-0050

Attorney for Appellant Attorney for Respondents

TABLE OF CONTENTS

STATEMENTOFTHECASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. Nature Of The Case ................................. 12. Course of Proceedings Below ........................... 13. Statement Of Facts ................................. 3

IWP’s 1996 Lease Applications ...................... 4Respondents’ Acceptance of IWP’s Applications ........... 7Applying I.C. 0 58-310B To “Disqualify” IWP From Auction ... 8

ISSUES PRESENTED ON APPEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

STANDARDOFREVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A R G U M E N T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I. AUCTIONS ARE REQUIRED OVER IWP’S LEASE APPLICATIONSUNDER THE IDAHO CONSTITUTION . . . . . . . . . . . . . . . . . . .

A. Article IX, 0 8 Expressly Requires Auctions Over CompetingLease Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B. The “Maximum Return” Provision Of Article IX, 0 8 AlsoRequires Auctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C. Breach Of Constitutional Duty Of Loyalty . . . . . . . . . . . . . .

II. I.C. 0 58-3108 AND THE LAND BOARD’S ACTIONS ALSOVIOLATE STATE AND FEDERAL EQUAL PROTECTIONGUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A. Equal Protection Standards of Review . . . . . . . . . . . . . . . . .

B. Intermediate Equal Protection Review Applies Here . . . . . . . .

C. I.C. 0 58-310B And The Land Board’s Actions CannotSurvive Means-Focus Review . . . . . . . . . . . . . . . . . . . . . .

III. THE LAND BOARD’S TREATMENT OF IWP’SAPPLICATIONS WAS ARBITRARY, CAPRICIOUS,CONTRARY TO LAW, NOT SUPPORTED BY SUBSTANTIALEVIDENCE, AND ABUSE OF DISCRETION . . . . . . . . . . . . . . .

13

14

15

15

16

19

21

23

24

25

27

28

APPELLANT’S OPENING BRIEF -- i

1

A. The Land Board Abused Its Discretion In Refusing ToConduct Auctions On Contested Leases . . . . . . . . . . . . . . . .

B. The Land Board’s Treatment Of IWP’s Applications WasPretextual And Discriminatory . . . . . . . . . . . . . . . . . . . . .

CONCLUSION . . . . . . . . . . . . . . . . . . .a.. . . . . . . . . . . . . . . . . . . . . .

TABLE OF CASES AND AUTHORITIES

CASES

Asarco Inc. v. Kadish, 490 U.S. 605, 627 (1989) . . . . . . . . . . . . , . . . . . . . . . .‘ 16

Atchison. Toneka & San Francisco Railroad v. Wichita Board of Trade,412 U.S. 800, 808 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balderston v. Brady, 17 Idaho 567, 575, 107 P. 493 (1910) . . . . . . . . . . . . . . . .

31

29

Barber Lumber Co. v. Gifford, 25 Idaho 654, 666, 139 P. 557 (1914) . . . . . . . 20-1, 34

Castaneda v. Brighton Corp., 98.2 ISCR 59, 60 (1998) . . . . . . . . . . . . . . . . . . . 14

Citv of Cleburn v. Cleburn Living Center, 473 U.S. 432, 439-41 (1985) ......... 24

Countv of Skamania v. State of Washiwton, 685 P.2d 576 (Wash. 1984) ........ 23

Curr v. Curr, 124 Idaho 686, 864 P.2d 132 (1993) .................... 15, 32

East Side Blaine Countv Livestock Assn. v. State Board,34 Idaho 807, 198 P. 760 (1921) ............................ 17, passim

Ervien v. United States, 251 U.S. 41 (1919) .......................... 22

Ferguson v. Board of County Comm’rs, 110 Idaho 785, 718 P.2d 1223 (1986) ..... 14

Hammond v. Alexander, 31 Idaho 791, 177 P. 400 (1918) . . . . . . . . . . . . . . . . . 19

H&V Engineering v. Idaho State Bd., 113 Idaho 646, 747 P.2d 55 (1987) ........ 15

Idaho State Ins. Fund v. Hunnicutt, 110 Idaho 257, 715 P.2d 927 (1988) ........ 32

Idaho Watersheds Proiect v. State Board Of Land Commissioners,128 Idaho 761, 918 P.2d 1206 (1996) .......................... 3, passim

APPELLANT’S OPENING BRIEF -- ii

29

30

35

Intermountain Gas CO. v. Idaho PUC, 97 Idaho 113, 540 P.2d 775 (1975) . . . . . . . 31

Jensen v. Dinehart, 645 P.2d 32, 34-35 (Utah 1982) ..................... 16

Jones v. State Board of Medicine, 97 Idaho 859, 555 P.2d 399 (1976) ....... 14, 24-5

Lassen v. Arizona Highway Dem., 385 U.S. 458 (1967) ............. 16, 20, 22

Leliefield v. Johnson, 104 Idaho 357, 659 P.2d 111, 127 (1983) . . . . . . . . . . . . . 24-7

Moon v. Investment Board. 96 Idaho 140, 525 P.2d 335 (1974) . . . . . . . . . . . . . . 14

9. 111 Idaho 389, 724 P.2d 125 (1986) . .1 7

Morpan v. Dem. of Health and Welfare, 120 Idaho 6, 813 P.2d 345 (1991) . . . . . 15, 32

Motor Vehicle Mfrs v. State Farm Mut. Auto Ins. Co., 463 U.S. 29 (1983) . . . . . . . 33

National Parks and Conservation Ass’n v. Board of State Lands,869 P.2d 909, 916 (Utah 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

O’Bryant v. Citv of Idaho Falls, 78 Idaho 313, 325-26 (1956) . . . . . . . . . . . . . . . . 14

Oklahoma Education Ass’n v. Nigh, 642 P.2d 230 (Ok. 1982) ............. 20, 23

Olson v. Freeman, 117 Idaho 706, 791 P.2d 1285 (1990) ................... 14

Packard v. Joint School District No. 171, 104 Idaho 1983, 661 P.2d 770, 773-74 (Id. App.1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,27, 30

Pennell v. Citv of San Jose, 485 U.S. 1, 14 (1988) . . . . . . . . . . . . . . . . . . . . . . . 24

Pike v. State Bd. of Land Commissioners, 19 Idaho 268, 286, 113 P. 447 (1911) . . . . 29

Plateau Mining Co. v. Utah Division of State Lands, 802 P.2d 720 (Utah 1990) . . . . . 16

Rider v. Cooney, 23 P.2d 261, 263 (Mont. 1933) . . . . . . . . . . . . . . . . . . . . . . . . 16

Rosebud Enterprises v. Idaho PUC, _ Idaho _, 917 P.2d 766 (1996) . . . . . . . . . 31

Shokal v. Dunn, 109 Idaho 330, 707 P.2d 441, 442-45 (1985) ................ 15

Standlee v. State, 96 Idaho 849, 538 P.2d 778 (1975) ..................... 14

APPELLANT’S OPENING BRIEF -- iii

State v. Breed, 111 P.2d 497, 725 P.2d 202, 205 (Id. App. 1986) . . . . . . . . . . . . . 24-5

State ex rel. Ebke v. Board of Educational Lands & Funds,47 N.W.2d 520 (Neb. 1951) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20, 23

State v. Peterson, 61 Idaho 50, 55-56 (1939) . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Tobev v. Bridgewood, 22 Idaho 566, 127 P. 178, 182 (1912) overruled on other groundsIdaho-Iowa Lateral & Reservoir Companv. Limited v. Fisher,27 Idaho 695, 151 P. 998 (1915) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 19, 29

U.S. v. Gratiot, 39 U.S (14 Peters) 526, 537-38 (1840) . . . . . . . . . . . . . . . . . . . . 16

OTHER AUTHORITIES

Idaho Constitution, Article IX, 0 8 ............................ 1, passimIdaho Admission Bill 9 4, 26 Stat. L. 215, ch. 656 ....................... 17Idaho Administrative Procedures Act, I.C. 0 67-5240 et seq. ............. 1, 28-33Idaho Attorney General Opinion No. 81-8 (April 21, 1981) .................. 17I.C. 8 58-310B ......................................... 1, passim

APPELLANT’S OPENING BRIEF -- 1

STATEMENT OF THE CASE

1. Nature Of The Case

This is a companion appeal to Idaho Watersheds Project v. State Board of Land

Commissioners, Idaho Supreme Court No. 24239, presently pending before this Court.

Appellant Idaho Watersheds Project (IWP) here challenges the constitutionality, under Idaho

Constitution Article IX, $ 8, of the State Land Board’s refusal to conduct auctions over

numerous applications IWP submitted -- and Respondents accepted -- in 1996 for expiring school

endowment land leases. Because the Land Board applied the “anti-Marvel” statute, I.C. 8 58-

310B, to “disqualify” IWP from going to auction over the majority of the 1996 applications, the

constitutionality of that statute is also directly raised in this appeal. IWP further challenges the

Land Board’s discriminatory and arbitrary treatment of the 1996 applications under the federal

and state equal protection guarantees, and the Idaho Administrative Procedures Act.

2. Course of Proceedings Below

In June 1996, IWP submitted 25 new applications for expiring school endowment leases.

Respondents’ handling of those 1996 lease applications is the subject of this appeal, whereas

their handling of IWP’s 1995 lease applications is presented in the companion case, No. 24239.’

After accepting IWP’s 1996 lease applications, the Land Board decided not to conduct

auctions over most of them in December 1996. IWP then filed its Complaint for Declaratory

Relief and Petition for Judicial Review in this matter on January 13, 1997. R. Vol. I, pp. 3-15.

Similar to the 1995 lease applications case, IWP challenged both the validity of I.C. 5 58-310B,

’ For clarity, this brief will refer to the companion appeal as the ” 1995 lease applications”case, and this appeal as the “1996 lease applications” case.


and Respondents’ refusal to hold auctions over the 1996 applications. Id.

Upon filing the complaint, IWP also simultaneously filed a motion in the 1995 lease

applications case requesting the district court to consolidate the two cases, or for leave to file

a supplemental complaint to add allegations concerning the 1996 applications (in which case the

1996 complaint would be dismissed), so that all IWP’s claims over both years’ applications

would be adjudicated together. See IWP v. State, No. 24239, R. Vol. II, pp. 153-94. The

district court denied that motion, instructing IWP to proceed with two separate actions over the

1995 and 1996 applications, respectively. Id., at 193-99.

Because briefing was substantially underway in the 1995 lease applications case, the

parties stipulated to stay briefing in this case until the district court resolved the first case. See

Stipulation Re: Case Scheduling (R. Vol. 1, pp. 53-55. After the district court issued its

Memorandum Opinion of May 23, 1997 in the 1995 lease applications case, it issued a

scheduling order governing briefing in the 1996

Filing of the agency record and transcripts of

completed. R. Vol. I, pp. 24-52, 60-72.

lease applications case. R. Vol. I, pp. 56-59.

the relevant Land Board meetings were also

After briefing, oral argument, and supplemental briefings, see R. Vol. I, pp. 73-74, the

district court issued a Memorandum Decision on December 16, 1997. R. Vol. I, pp. 75-77.

That decision followed the lower court’s earlier ruling in the 1995 lease applications case, and

broadly deferred to the Land Board while upholding the constitutionality of I.C. 0 5%310B. Id.

Judgment was entered based on the Memorandum Decision on December 19,

constituting a final appealable order under I.A.R. 11(a)(l). R. Vol. I, pp. 82-83. IWP

filed its Notice of Appeal herein on December 19, 1997. R. Vol. I, pp. 78-81.


1997,

timely

3. Statement Of Facts

As detailed in IWP’s opening brief in the companion appeal, since 1993 IWP has been

applying to lease Idaho school endowment lands -- lands which were granted to Idaho by the

federal government upon statehood, to be held and managed in trust for the benefit of the public

schools. See Appellant’s Opening Brief, IWP v. State, No. 24239 (filed 2/17/98), at 4-6. On

its first application in 1993, the Land Board conducted an auction, which IWP won when the

prior lessee refused even to bid. Yet the Land Board awarded the lease to the prior lessee,

despite his lack of participation at auction. This Court reversed, holding that the Land Board

“does not have the discretion to grant a lease to an applicant who does not place a bid at an

auction, based on Idaho’s constitutional and statutory mandate that the Board conduct an

auction. ” Idaho Watersheds Project v. State Board Of Land Commissioners, 128 Idaho 761, 918

P.2d 1206, 1211 (1996) (“IWP I”).

The Land Board and Department also

IWP submitted in 1994 -- yet again refused

conducted auctions over several lease applications

to award any lease to IWP, even when it won at

auction. See Appellant’s Opening Brief, IWP v. State Land Board, No. 24239 (filed 2/17/98),

at 5. Then, in 1995, the Idaho legislature enacted the so-called “anti-Marvel” bill, S.B. 1194

(now codified largely at I.C. 6 58-310B), for the express purpose of “encouraging a healthy

Idaho livestock industry,” authorizing the Land Board to avoid conducting auctions on competing

lease applications if it deemed applicants “not qualified” based on a variety of factors. Id. at

5-6. After IWP submitted sixteen different lease applications in 1995, the Land Board held

numerous hearings about how to apply the new statute, and eventually denied auctions over the

vast majority of them. Id. at 6-19. The validity of those actions, and of I.C. Q 58-31OB, is


challenged in the 1995 lease applications appeal presently pending before this Court.

IWP’s 1996 Lease Applications

In June 1996, while its challenges over the 1995 lease applications were still pending in

district court, IWP filed 25 new applications seeking to lease nearly 30,000 acres of school

endowment lands. See R. Vol. I, pp. 3-15; A.R. 50-104. * Aside from IWP’s applications,

only three other “conflict” lease applications were submitted in 1996 for school endowment

grazing leases. A.R. 50-104. For 24 of the leases sought by IWP, IWP was the only “conflict”

applicant; on one other, IWP and another party sought the lease. Id.

The agency record reflects in great detail the widely differing nature of the leases sought

by IWP in its 1996 applications. See A.R. 50-1662; S.A.R. 7-233 (record including maps,

photos, staff reports, etc.). The parcels range in location throughout much of Idaho, including

sections in endangered salmon habitat in Lemhi and Custer counties. U The lease parcels also

vary in size from 6200 acres down to 40 acres. Id. Irrespective of size, though, all of IWP’s

applications were for the entire expiring leases as publicly advertised by the Department. Id.;

Transc. of Dec. 18, 1996

“cherry pick” portions of

special meeting, p. 31. In other words, IWP did not attempt to

parcels containing valuable water sources, as Respondents have

accused IWP of doing in the past.

The lands sought by IWP also vary widely in terms of their past management. See A.R.

50-104 (staff memoranda discussing leases); Transc. of Dec. 18, 1996 Land Board meeting, at

2 “A.R.” refers to the page number at which documents appear in the agency record onfile herein, according to the Certificate of Record on Appeal filed by Respondents. (R. Vol. I,pp. 29-50); while “S.A.R.” refers to the page number in the Supplemental Record on Appealfiled by Respondents (R. Vol. I, pp. 64-70).


28-35. They include, for example, several parcels which had not been grazed in the past by the

lessees. Id. On one parcel (No. G-9355), the Department of Lands had terminated the lease

of the former lessee (Pritchett) for failure to pay the annual grazing fee, after several years of

non-use. hi.; A.R. 1815-64, 1871-75; Transc. of Feb. 13, 1997 Land Board meeting. On

another parcel (No. G-8160), the prior lessee (Katsilometes) did not own or graze any livestock;

though he subleased adjoining federal and private land to others for grazing, he did not graze

or sublease the state lands sought by IWP. A.R. 50-104, 787-843; S.A.R. 60-100. On a third

parcel (the Bennett Mountain lease, No. G-6645), the lessee did not graze livestock for long

periods, but allowed others to do so without notification or authorization by the Department.

A.R. 416-61. Other parcels sought by IWP included lands in the urbanizing Boise area, which

the Department admitted would not be grazed at all for at least two years because of the recent

Boise foothills fire (Cottonwood Canyon and Table Rock lease, No. G-6359); and lands used

very briefly by a sheep rancher each year on the outskirts of Hailey, which the City of Hailey

also sought to lease in order to locate a wastewater treatment facility (the Posey lease, no. G-

7527). A.R. 376-415, 588-635; S.A.R. 143-57.

Some of the leases sought by IWP involve parcels which are fenced or otherwise

managed separately from adjoining federal, state, or private lands (Nos. 6008, 8676, 9242,

9360, 8160, 6230). See A.R. 50-104 (staff memoranda discussing leases); Trans. of Dec. 18,

1996 Land Board meeting, at 28-35. Moreover, the record demonstrated that for many of the

leases not separately fenced, and which lay within larger federal allotments, IWP’s acquisition

of the lease would not disrupt the federal lands’ management -- indeed, federal agencies

submitted comments indicating that IWP’s proposed management of the state lands would have


no or minimal adverse impact upon the federal land management, and in fact could assist in

achieving federal management goals, such as protection of salmon habitat. See Transc. of Dec.

18, 1996 Land Board meeting, p. 35-36,40-41; A.R. 1073-83, 1122-54, 1197-1206, 1291-1309,

1665-1735.

Any suggestion that IWP’s acquisition of unfenced leases within larger federal allotments

might somehow impact state land management is also wholly unsupported by the record. A

large number of the expiring leases sought by IWP had no existing management plan for grazing

of any type, including Department-approved grazing management plans as required by the

grazing regulations. Id.; see also A.R. 1663-64. Further, IWP submitted sworn affidavits and

repeatedly assured Respondents that its administration of the leases would adhere to any

management plan adopted for the parcels. See. e.g., A.R. 112-20, 131-39, 1819, 1874.

IWP’s 1996 lease applications all expressly stated that the lands were sought for purposes

of “grazing and riparian enhancement. ” A.R. 112-20, 163-71, 211-19, 303-311, 341-47, 384-

92, 425-34, 494-502, 559-67, 595-609, 646-57, 710-18, 758-61, 813-21, 862-70, 997-1005,

1041 -49, 1090-98, 1165-73, 1213-21, 1259-67, 1317-25, 1373-81, 1418-26, 1553-61, 1630-38.

The 1996 lease applications were thus identical in this respect to IWP’s 1995 lease applications.

See jppellant’s Opening Brief, IWP v. State, No. 24239 (filed 2/17/98), at 6. Moreover, as

in 1995, IWP confirmed to Respondents that it intended to use the leases for purposes consistent

with their grazing classification; and that IWP would pay the full lease rate, even if grazing

levels were below the authorized maximum. See A.R. 131-39; A.R. 1819; A.R. 1874; A.R.

1897-99. With respect to leases in critical salmon habitat, IWP further advised that it intended

to cooperate with Department staff and federal agencies in developing management plans to


protect salmon and other potentially endangered fish, such as bull trout and cutthroat trout. ld.;

Transc. of Dec. 18, 1996 special meeting, p. 32.

Respondents’ Acceptance Of IWP’s Applications

Despite the fact that IWP’s 1995 and 1996 applications were identical in seeking the

leases for purposes of “grazing and riparian enhancement,” Respondents treated the 1996 lease

applications differently from 1995 in important respects.

On the 1995 applications, as IWP’s briefings in the companion case explain, Respondents

spent over ten months debating how to handle the applications under I.C. $ 58-310B, including

conducting several Land Board meetings and repeatedly asking IWP to submit its “qualifications”

under the factors set forth in I.C. $58-3108. See Appellant’s Opening Brief, IWP v. State, No.

24239 (filed 2/17/98), at 13-19. However, according to Respondents’ briefings below, the Land

Board then reversed course and rejected the bulk of IWP’s 1995 applications as a “threshold land

management matter, ” without applying I.C. 0 58-310B, because the applications supposedly

sought the lands for invalid “non-grazing purposes.” Id.’

By contrast, Respondents unquestionably did accept IWP’s identical 1996 lease

applications as “valid” and consistent with the “grazing purposes” of the endowment lands. As

stated by the Department in a memorandum to the Land Board about the 1996 lease applications:

The Department has reviewed the 1996 lease applications and the Departmentbelieves that the majority of the grazing lease applications filed this year arefor uses that are consistent with the current land classification.

See A.R. 50-5 1 (emphasis added). Indeed, the Department recommended that all of IWP’s 1996

3 As detailed in IWP’s opening brief in the companion case, of course, the record flatlycontradicts this litigation-driven contention that IWP’s 1995 lease applications were “rejected”as an initial matter, apart from I.C. 0 5%310B. Id.


lease applications be “accepted” because the applications were for valid purposes consistent with

the lands’ “grazing classification,” stating:

The Department recommends that the Land Board accent for processing allapplications for leases listed in this category. All state lands covered by theseleases are classified as general management zone -- range grazing. Allapplicants, including the conflict applicant Idaho Watersheds Project,propose using the subject state lands for grazing purposes.

Id., at 5-10 (A.R. 88-98) (bold added, underscore in original).

At the special meeting conducted on December 18, 1996, the Land Board approved the

Department’s recommendation to accept IWP’s applications as being for valid “grazing

purposes. ” A.R. 1753-57; Transc. of Dec. 18, 1996 special meeting, at 48-49, 97-99, 124-37.

Although only months before the Land Board supposedly rejected IWP’s 1995 lease applications

as being for invalid “non-grazing” purposes, and despite the fact that IWP’s 1996 lease

applications were identical to those “rejected” in 1995, neither the Department nor the Land

Board bothered to explain what had caused them to suddenly reverse position and find that

IWP’s 1996 lease applications now were somehow “valid” for “grazing purposes. ” Id.

Applying I.C. $ 58-310B To “Disqualify” IWP From Auction

Having accepted IWP’s 1996 lease applications, Respondents then explicitly applied the

criteria of the “anti-Marvel” statute, I.C. 5 58-310B, in determining not to conduct auctions over

most of the applications, holding that IWP was not a “qualified” applicant under $ 58-310B for

all but a handful of those applications. See A.R. 50-104 (staff memoranda to Land Board); A.R.

1753-57 (minutes of Dec. 18, 1996 meeting); A.R. 1900-02 (minutes of Feb. 13, 1997 meeting);

A.R. 1920 (minutes of March 11, 1997 meeting); Transc. of Dec. 18, 1996 special meeting.

For most (18) of IWP’s 1996 lease applications, the Department recommended, and the


Board agreed, that IWP should be rejected as a “qualified applicant” under I.C. 6 58-310B,

based on the assertion that the lands sought by IWP were “managed together with adjacent

federal, state or private lands -- typically scattered state sections located in large federal grazing

allotments. ” See A.R. 50-52, 88-92; Transc. of Dec. 18, 1996 special meeting, at 8-49. In

voting to reject IWP as a “qualified applicant” for these leases, the Board made clear it was

applying factors under I.C. 6 58-310B, primarily concerns over the possible impacts upon

existing lessee ranching operations on adjoining lands if IWP acquired any of the leases. id.

The Board also cited considerations of the “indirect” economic benefits which would supposedly

be generated by the existing lessees over the long-term, but not IWP, if the leases were renewed

to them, even though Respondents never studied or tried to quantify these alleged benefits. &

Notably, the Board ignored the evidence submitted by IWP showing that Respondents had

never before refused to hold an auction where competing applicants sought state lands lying

within larger federal allotments, despite the potential “disruption” this might have on existing

ranching operations or adjoining land management. See A.R. 1665-1737; Trans. of Dec. 18,

1996 special meeting, at 9-4 1. In light of these past practices, IWP claimed that selectively

applying these considerations now to avoid auctions over IWP’s 1996 lease applications was

discriminatory and arbitrary. Id. The Board also ignored the fact that excluding IWP from

auction over these leases would significantly reduce the direct economic returns which the lands

would generate for the public schools -- indeed, the record before the agency demonstrated that

if auctions were held over all IWP’s 1996 lease applications, the competitive bidding would

easily produce tens if not hundreds of thousands of dollars in additional revenue, based on IWP’s

past participation in lease auctions. Id.


Aside from these 18 applications, the Department initially did recommend that IWP be

deemed a “qualified applicant” under I.C. 6 58-310B for four lease applications, based on its

analysis that the state land parcels were “fenced separately for the management needs of the

current lessee” and hence IWP’s acquisition of the leases would not impact grazing operations

on adjoining lands. &e A.R. 93-95; Transc. of Dec. 18, 1996 special meeting, at 39-74. But

the prospect of holding auctions over even a few IWP applications clearly bothered several

members of the Land Board. The Board was not convinced that allowing IWP to obtain any of

these leases would not impact existing lessees’ operations, and voted to grant a one-year lease

to the existing lessee on one parcel, see Transc. of Dec. 18, 1996 special meeting, at 72-73; and

then voted to defer consideration of others while the Department performed more analysis. Id.,

at 90-91, 95-96. By a 3-2 vote, the Board also approved the Department’s recommendation that

IWP be “qualified” for auction on two other lease applications, which were “managed

separately” though not fenced from adjoining lands. Id. at 97-99, 124-37; A.R. 96-98, 102-04.

Prior to this meeting, on December IO, 1997, the Land Board also considered one

additional 1996 lease application submitted by IWP, No. G-9355, which involved a lease

formerly held by Lee Pritchett, but which the Department had cancelled for non-payment after

several years of non-use by Pritchett. & A.R. 5A-47, 1815-64; Transc. of Dec. 10, 1996

Land Board meeting.4 After IWP applied for the lease, the Department contacted Pritchett to

see if he wanted to reapply, but he did not. No other applicant besides IWP sought the lease,

and the Department conceded it had not been grazed in the last several years. Id. Rather than

4 The transcript prepared for this meeting is dated “January 10, 1997,” but in fact themeeting occurred on December 10, 1996, as the agency record reflects. See R.p. 5A-47.


award this uncontested, ungrazed lease to IWP and thereby generate funds for the public schools

__ IWP offered to pay a substantial “premium” for the lease, even though it was uncontested --

the Land Board voted to ask IWP for more information on its management plans for the parcel.

Id. The Board ignored the fact that the unleased lands would remain “ungrazed” and

“unmanaged” if not leased out to IWP.

Thereafter, the Department prepared supplemental staff memoranda on the parcels which

the Land Board deferred from the December meetings, and the Land Board held several

additional meetings while it struggled over whether to hold auctions on the few remaining

applications. See A.R. 18151920. Evidently getting the “hint” from the Board, the Department

reversed its earlier recommendation that IWP be qualified for auction on some of the parcels.

& A.R. 1815-64, 1871-96. At its February 1997 meeting, the Board voted not to award the

former Pritchett lease to IWP, even though no other party had even applied for the lease, on

grounds that IWP had not provided a detailed enough management plan for the lease. Despite

the fact that IWP submitted additional information specifying its general management plans and

noting that it had to await final decision until it knew how many state leases it might be

awarded, the Land Board evidently desired that IWP specify exact numbers of livestock, exact

periods of use, exact plans for obtaining water, and other details of its proposed management

__ ignoring IWP’s protests that Respondents had never required this detailed information from

other lease applicants in the past. See Transc. of Feb. 13, 1997 Land Board meeting5; A.R.

1871-1902. The Board further voted to “disqualify” IWP from auction on one other lease

5 This transcript is erroneously dated as “February 13, 1996,” but in fact the meetingoccurred in 1997, not 1996. See R.p. 1891-1902.


(Shirley Cox, No. G-6008) based on concerns that IWP’s acquisition of the lease would impact

the prior lessee’s ranching operations. Id. Failing to reach consensus on how to handle two

other applications, the Board again deferred the matter. Id.

By a 3-2 vote, the Land Board finally decided at its March 1997 meeting to authorize

auctions on two of the remaining applications (G&L Livestock, No. G-8676; and McFarland

Livestock, No. G-9242). S.A.R. 1920. Ultimately, out of all IWP’s 1996 lease applications,

auctions were conducted over three: Posey, No. G-7527, 320 acres; Katsilometes, No. G-8160,

640 acres; and McFarland Livestock, No. G-9242, 40 acres. S.A.R. 1-6, 138-233.6 IWP won

two of the auctions (Posey and Katsilometes), in one case outbidding the prior lessee (Posey)

by three-fold. Id. Nevertheless, at its May 1997 meeting, the Board rejected IWP’s winning

bids from these two auctions, accepting the lower bids of the prior lessees based on the assertion

that IWP’s acquisition of the leases would disrupt management of the state and adjoining lands

__ the same rationale used to deny auctions on IWP’s 20 other lease applications, and which

supposedly were not concerns for these parcels since auctions were authorized after lengthy

debate. Id.; Transcripts of April 8, 1997 & May 28, 1997 Land Board meetings.

Even though the Board accepted these lower bids, the three auctions held over IWP’s

1996 lease applications -- for about 1000 acres of endowment lands -- raised an extra $ 1000 in

revenue for Idaho’s public schools, which would not have been earned had IWP not competed

at auction. Id. Of course, had the Land Board accepted IWP’s higher auction bids instead of

the lower bids at the two auctions IWP won, the returns would have been substantially greater

6 A fourth auction (G&L Livestock, G-8676) was postponed, because the lands are slatedto be exchanged with a federal agency.


on these parcels. Much more important, however, is the fact that if auctions had been conducted

over &l of IWP’s 1996 lease applications -- seeking to lease some 30,000 acres of endowment

lands -- easily in excess of $50,000 in additional revenues would have been generated for the

public schools, based on past auction results.

In short, out of 25 lease applications submitted by IWP in 1996, the Land Board voted

not to hold auctions on twenty applications, simply re-leasing the lands to the prior lessees

without any competitive bidding or auction whatsoever. The Land Board also voted to deny

IWP a lease on lands no other bidder even sought, and which will not be grazed or managed at

all, turning down IWP’s offer of a $ 1500 premium payment even though the lease was

uncontested. And it refused IWP’s high bids on two other leases for which it had found IWP

“qualified” under I.C. $ 58-310B. Thus, for the fourth year running, the Land Board has

refused to lease even a single acre of school endowment land to IWP, based on a variety of

rationales which, as explained below, are unconstitutional, pretextual, discriminatory, and

lacking substantial support in the record.

ISSUES PRESENTED ON APPEAL

1. Whether Respondents’ refusal to conduct auctions over IWP’s 1996 lease

applications should be reversed and remanded as violating Article IX, 5 8 of the Idaho

Constitution and/or the federal or state equal protection guarantees.

2. Whether the “anti-Marvel” statute, I.C. 0 58-310B, should be declared

unconstitutional, in whole or in part, as violating Article IX, 9 8 of the Idaho Constitution

and/or the federal or state equal protection guarantees.

3. Whether Respondents’ handling of IWP’s 1996 lease applications should be


reversed and remanded as contrary to law, procedurally irregular, not supported by substantial

evidence in the record, or arbitrary, capricious, or an abuse of discretion under the Idaho APA,

I.C. 5 67-5279.

4. Whether the district court erred as a matter of law in denying IWP’s challenges

to I.C. 0 58-310B and Respondents’ handling of the 1996 lease applications.

STANDARD OF REVIEW

In reviewing the district court’s decision upholding the Land Board’s refusal to conduct

auctions over IWP’s 1996 lease applications, the Idaho Supreme Court exercises free review and

examines the agency record independently of the district court’s decision. Castaneda v. Brighton

Corp., 98.2 ISCR 59, 60 (1998); Idaho Watersheds Proiect v. State Board Of Land

Commissioners, 128 Idaho 761, 918 P.2d 1206 (1996); Fernuson v. Board of Countv Comm’rs,

110 Idaho 785, 718 P.2d 1223 (1986).

In construing the constitutionality of I.C. $ 58-310B, the Court starts with a presumption

that the statute is valid, and IWP bears the burden of demonstrating its unconstitutionality.

Olson v. Freeman, 117 Idaho 706, 791 P.2d 1285 (1990); Jones v. State Board of Medicine, 97

Idaho 859, 555 P.2d 399 (1976). Legislation which “is clearly in violation of a constitutional

principle” is not valid. Moon v. Investment Board. 96 Idaho 140, 525 P.2d 335 (1974). &e

&Q Standlee v. State, 96 Idaho 849, 850, 538 P.2d 778 (1975) (legislature may not enact any

law expressly or inferentially prohibited by the constitution); O’Brvant v. Citv of Idaho Falls,

78 Idaho 313, 325-26 (1956) (“that which the constitution directly prohibits may not be done by

indirection through a plan or instrumentality attempting to evade the constitutional prohibitions”).

On IWP’s petition for judicial review under the Idaho APA, Respondents’ actions must


be set aside and remanded, in whole or in part, if “the agency’s findings, inferences,

conclusions, or decisions are:

(a) in violation of constitutional or statutory provisions;(b) in excess of the statutory authority of the agency;(c) made upon unlawful procedure;(d) not supported by substantial evidence on the record as a whole; or(e) arbitrary, capricious, or an abuse of discretion.

I.C.’ § 67-5279(3). See also IWP I, 918 P.2d at 1209; H&V Engineering v. Idaho State Bd.,

113 Idaho 646, 747 P.2d 55 (1987) (agency violated constitutional provisions); Shokal v. Dunn,

109 Idaho 330, 707 P.2d 441, 442-45 (1985) (agency failed to consider statutory criteria, and

employed improper procedures); Morgan v. Dent. of Health and Welfare, 120 Idaho 6, 813 P.2d

345 (1991) (agency violated its own regulations): Curr v. Curr, 124 Idaho 686, 864 P.2d 132

(1993) (agency failed to make requisite findings upon which the decision is based).

ARGUMENT:

I. AUCTIONS ARE REQUIRED OVER IWP’S LEASE APPLICATIONSUNDER THE IDAHO CONSTITUTION

Unlike the 1995 lease applications case, there is no dispute that Respondents accepted

IWP’s 1996 lease applications as being for valid “grazing” purposes, but then refused to hold

auctions over the majority of them based on the “anti-Marvel” statute, I.C. 0 58-310B.

Accordingly, the constitutionality of the statute is squarely presented in this case, as is the

constitutionality of Respondents’ refusal to hold auctions over the majority of IWP’s 1996

applications.

IWP’s opening brief in the 1995 lease applications case explains in detail how the “anti-

Marvel” statute and Respondents’ refusal to hold auctions over IWP’s lease applications violate

Article IX, 0 8 in several ways, and hence must be held unconstitutional by this Court. See

Appellant’s Opening Brief, IWP v. State, NO. 24239 (filed 2/17/98), at 22-34. Those

arguments, of course, are equally applicable here. For brevity’s sake, however, IWP’s


constitutional arguments are only briefly reiterated below; and the Court is respectfully directed

to IWP’s briefings in the companion appeal for further discussion, if necessary.

A. Article IX, 0 8 Expressly Requires Auctions Over Competing LeaseApplications

First, I.C. 8 58-310B and Respondents’ refusal to conduct auctions over most of IWP’s

1996 lease applications violate the express “public auction” provision of Article IX, 0 8.

Article IX, 6 8 requires, in part, that school endowment lands are to be managed “subject

to disposal at public auction.” Idaho Const., Art. IX, $ 8. As explained in IWP’s prior

briefing, the plain meaning of the term “disposal” as used in Article IX, $ 8 includes leases as

well as sales of endowment lands. Many decisions confirm this reading of the term “disposal”

or “disposition” as it applies to property interests, including in the endowment lands context.

See Asarco Inc. v. Kadish, 490 U.S. 605, 627 (1989) (“disposition” of endowment lands

includes “all lands, leaseholds, timber and other products of land”); Lassen v. Arizona ex rel.

Arizona Highwav Dept., 385 U.S. 458, 462 (1967) (endowment lands “must be disposed of”

according to admission act requirements “that lands be sold or leased only to the highest and

best bidder at public auction”): U.S. v. Gratiot, 39 U.S (14 Peters) 526, 537-38 (1840) (U.S.

may “dispose” of mines by either sale or lease); Tobev v. Bridgewood, 22 Idaho 566, 127 P.

178, 182 (1912) overruled on other grounds Idaho-Iowa Lateral & Reservoir Company. Limited

v. Fisher, 27 Idaho 695, 151 P. 998 (1915) (Article IX, 0 8 provisions “limit the power of the

state land board, with reference to the disposition of the lands granted to the state by the general

government to the leasing and sale of state lands”); Plateau Mining Co. v. Utah Division of

State Lands, 802 P.2d 720, 728-29 (Utah 1990) (“disposing of trust property” includes mineral

leases); Jensen v. Dinehart, 645 P.2d 32, 34-35 (Utah 1982) (same); Rider v. Coonev, 23 P.2d


261, 263 (Mont. 1933) (“leasing of the lands of the state for a term of years is the disposal of

an interest of estate in the lands within the provisions of our Constitution”).’

Since the term “disposal at public auction” in Art. IX, 8 8 includes leases as well as sales

of endowment lands, this constitutional provision imposes an express limitation on the authority

of the Land Board or legislature in the administration of Idaho’s endowment lands. These

trustees of the endowment lands may lease or sell the lands -- but they must do so pursuant to

public auction, according to the Constitution8

The Idaho Supreme Court has twice confirmed this constitutional requirement that

auctions be conducted over contested endowment grazing leases. See East Side Blaine Countv

Livestock Assn. v. State Board, 34 Idaho 807, 198 P. 760 (1921); Idaho Watersheds Project

v. State Land Board , _ Idaho _, 918 P.2d 1206 (1996). As Respondents have emphasized,

both these decisions did construe -- in part -- the statutory scheme which existed prior to the

“anti-Marvel” bill in 1995, which required auctions whenever two or more competing applicants

’ See also Idaho Admission Bill, 26 Stat. L. chap. 656 (1890), 0 4 (referring to lands “soldor otherwise disposed of”) and 0 8 (limiting use of “proceeds arising from the sale or disposal”of school lands); Idaho Attorney General Opinion No. 81-8 (April 21, 1981), p. 2 (Art. IX, 58 “constitutes the foundational, pervasive authority of the State Board of Land Commissionersover the disposition of state lands including the ‘location’ and the ‘rental’ thereof”).

8 Respondents have cited Moon v. State Board of Land Commissioner, 111 Idaho 389,724 P.2d 125 (1986), to support their claim that Article IX, 8 8 does not require auctions overendowment leases. But Moon addressed how “proceeds” from endowment land managementmust be handled under Article IX, 0 4. 724 P.2d at 128-29. Moon never discussed themeaning of “subject to disposal at public auction ” in Art. IX, 0 8, or whether grazing leasesmust be auctioned. Neither does it address the holding in East Side that auctions areconstitutionally required over “conflict” lease applications. Accordingly, Moon is inappositehere.


sought to lease the same school Iands.9 Nevertheless, both East Side and IWP I equally rely

on the language of Article IX, 6 8 for their conclusions that auctions are required over

competing lease applications. As stated in East Side (and quoted approvingly in IWP I):

Article 9, 6 8, makes it the duty of the State Board of Land Commissioners toprovide for the location, sale, or rental of [endowment lands] . . . in such manneras will secure the maximum possible amount therefor, and that the general grantsof land made by Congress to the state shall be judiciously located and carefullypreserved and held in trust, subject to disposal at public auction. . ,

The dominant purpose of these provisions of the Constitution and of the statutesenacted thereunder is that the state shall receive the greatest possible amount forthe lease of school lands. . . and for this reason competitive bidding ismandatory.

East Side, 198 P. at 762-63 (emphasis added).

Likewise, in IWP I, the Court held that the Land Board “does not have the discretion to

grant a lease to an applicant who does not place a bid at an auction, based upon Idaho’s

constitutional and statutory mandate that the Board conduct an auction.” 918 P.2d at 1209-

11 (emphasis added) .”

Where this Court has thus held twice, over a seventy year period, that leases of school

lands are subject to the auction requirements of Article IX, 8 8, Respondents were plainly

obligated under Article IX, $ 8 to conduct auctions over IWP’s 1996 lease applications. This

9 As explained in IWP’s opening brief in the 1995 lease applications case, Idaho statutessince the first years of statehood have required auctions when two or more applicants seek thesame endowment land lease; this requirement applied until the legislature enacted the “anti-Marvel” bill in 1995. & 1891 Idaho Session Laws, p. 114; 1905 Idaho Session Laws, pp. 138-39; former I.C. Q 58-310 (1994). This statutory history confirms, IWP believes, the long-standing recognition in Idaho that auctions are required for endowment leases under Article IX,0 8.

lo Notably, the lower court never even cited either of these cases. Neither did it addressthe “public auction” provision of Article IX, 3 8. See Memorandum Decision, R. Vol. I, pp.75-77. Such failure to address the key authorities relevant to this case means that the lowercourt’s decision is obviously faulty, and must be reversed upon appeal.


constitutional requirement exists irrespective of whether the legislature has purported to authorize

the Land Board to avoid auctions through enactment of I.C. $ 58-310B. See IWP I 918 P.2d- -9

at 1210 (following Tobev v. Bridgewood, 22 Idaho 566, 127 P. 1783 (1912) in holding that

Board may not act where “absolutely prohibited by the provisions of the constitution”). Further,

the legislature’s effort to protect existing lessees from having to compete at auction with IWP,

thrqugh enactment of I.C. 6 58-310B, is also plainly unconstitutional in light of the “public

auction” requirement of Article IX, 6 8. Accordingly, this Court must declare the “anti-Marvel”

statute invalid, and reverse the Land Board’s actions with instructions to conduct auctions.

B. The “Maximum Return” Provision Of Article IX, 0 8 Also Requires Auctions

I.C. 0 58-310B and the Land Board’s refusal to authorize auctions over most of IWP’s

1996 lease applications also violate the “maximum long-term financial return” provision of

Article IX, $j 8.

As explained in IWP’s prior briefing, East Side and IWP I underscore that the “public

auction” requirement of Art. IX, 0 8 complements and must be construed together with the

“maximum return” provision, because competitive bidding at auction is the best way to ensure

that maximum returns are earned from school endowment lands. See East Side, 198 P. at 762-

63 (“competitive bidding is mandatory” under Article IX, 6 8, in order that “the state shall

receive the greatest possible amount for the lease of school lands”); IWP I, 918 P.2d at 1209-l 1

(rationale behind the requirement of conducting an auction is to solicit competing bids, with the

lease being granted to the bid that would, in the discretion of the Board, “secure the maximum

long term financial return” to Idaho’s schools). Many other decisions of this Court, as well as

other courts, confirm this basic principle that maximum returns from endowment lands can only

be ensured through the competitive bidding process. See Hammond v. Alexander, 31 Idaho 791,


177 P. 400, 401 (1918) (emphasizing importance of competitive bidding in administration of

school lands); Barber Lumber Co. v. Gifford, 25 Idaho 654, 666, 139 P. 557 (1914) (holding

that Land Board could properly accept a slightly lower financial bid -- 1% below highest bid --

for endowment land timber sale, based on considerations of other direct economic benefits which

the bidder’s improvements would provide); Lassen v. Arizona Highway Dept., 385 U.S. 458

(1967) (endowment trust requires realization of “full value” for endowment lands, generally

determined by competitive bidding); State ex rel. Ebke v. Board of Educational Lands & Funds,

47 N.W.2d 520 (Neb. 1951) (holding that since competitive bidding is necessary to ensure

maximum returns to school lands, statute which would permit renewal of school land leases

without competitive bidding was unconstitutional); Oklahoma Educ. Ass’n v. Nigh, 642 P.2d

230 (Okla. 1982) (holding that statute granting preference rights to farmers in leasing of school

lands was unconstitutional, in part by avoiding competitive bidding for leases).

Here, the Land Board’s refusal to conduct auctions over most of IWP’s 1996 lease

applications violates that elementary principle and this Court’s holdings in East Side, IWP I, and

even Barber Lumber, by eliminating competitive bidding from the Board’s decisions about

granting endowment leases. Without competitive bidding at auction, the Land Board lacks the

basic information which any prudent manager or trustee needs to evaluate their options for

management of lands -- namely, what price will the market bear? Without this market-based

information, the Land Board’s cannot possibly assure itself -- or the public -- that it is obtaining

“maximum long-term returns” from the endowment lands, as required by Article IX, § 8. And

as this case vividly demonstrates, renewing leases without competitive bidding virtually ensures

that maximum returns are not achieved, since the prior lessees are able to avoid making any


“premium” payments for the renewed leases as would be required were auctions held.

The Land Board has thus plainly violated the “maximum return” requirement of Article

IX, 8 8 by not conducting auctions over the majority of IWP’s 1996 lease applications, and by

simply renewing the leases without competitive bidding or payment of premium bids.

Likewise, by supposedly authorizing the Land Board to avoid competitive bidding at

auction over lease applications, I.C. $ 58-310B equally violates the “maximum return”

requirement of Article IX, 5 8. In fact, the “anti-Marvel“ bill effectively elevates to the

statutory level the rancher’s refusal to bid at auction which this Court rejected in IWP I.T h e

only real difference between this case and IWP I is that now the legislature would allow virtually

every rancher lessee to win lease renewals without participating at auction against IWP, and

without having to bid competitively for the leases. The result obviously deprives the public

schools of substantial revenues they would receive if auctions were held, and “premium”

payments accordingly were made for the leases.

In short, the statutory scheme under I.C. 0 58310B to avoid competitive bidding can in

no way be squared with the constitutional requirement under Article IX, 0 8 that endowment

lands be managed for maximum long-term returns. Accordingly, the statute must be invalidated.

c . Breach Of Constitutional Duty Of Loyalty

I.C. $ 58-310B and the Land Board’s refusal to hold auctions further violate Article IX,

0 8, by using endowment lands to protect the interests of a particular group or industry, i.e.,

public lands ranchers, at the expense of the public schools. This breaches the State of Idaho’s

constitutional duty of loyalty in the management of endowment lands, as imposed by Article IX,

0 8. & Barber Lumber Co. v. Gifford, 25 Idaho 654, 666, 139 P. 557 (1914); National Parks


and Conservation Ass’n v. Board of State Lands, 869 P.2d 909, 916 (Utah 1993) (both

emphasizing that school endowment trustee’s duty of loyalty requires state to act solely for

benefit of trust). As explained in IWP’s prior briefing, there are two components to this

constitutional violation.

First, by substituting considerations such as the “indirect benefits” of ranching and

impacts upon current lessees in place of actual returns from bidding at auction in determining

how to award leases, I.C. Q 5%310B(6) improperly allows -- or even commands -- the Land

Board to avoid realizing “full value” for school endowment lands. See Lassen v. Arizona

Highwav Dent., 385 U.S. 458 (1967) (endowment trust requires realization of “full value” which

state as trustee may not avoid); Ervien v. United States, 251 U.S. 41 (1919). Such failure to

obtain “full value” for the lands obviously breaches the “maximum long-term return”

requirement of Article IX, $ 8; but is doubly pernicious because it benefits existing rancher-

lessees while depriving the public schools of revenue. Under the U.S. Supreme Court’s Lassen

and Ervien decisions, as well as East Side and IWP 1, these results cannot be countenanced.

Second, in seeking to “encourage a healthy Idaho livestock industry” by authorizing the

Land Board to avoid auctions over competing lease applications, I.C. 0 58-310B elevates the

interests of a special interest group -- public land ranchers -- over those of the school

beneficiaries. Authorizing the Land Board to avoid auctions achieves the statutory goal of

promoting a “healthy Idaho livestock industry” by subsidizing rancher lessees at the expense of

the public schools, since the lessees may renew leases without making any “premium” payments

for the leases, as would be required if auctions were held. At bottom, existing rancher lessees

are subsidized at the expense of the public schools, since they do not have to compete and make


“premium” payments for leases won at auction. Many courts have struck down similar schemes

to manipulate endowment lands in order to financially benefit or promote a particular interest

group -- or even the state generally -- at the expense of direct returns to the public schools.

E.g., Lassen v. Arizona Highway Dept., 385 U.S. 458 (1967); Ervien v. United States, 251

U.S. 41 (1919); State ex rel. Ebke v. Board of Educational Lands & Funds, 47 N.W.2d 520,

523 (Neb. 1951); Oklahoma Educ. Ass’n v. Nigh, 642 P.2d 230 (Okla. 1982); Countv of

Skamania v. State of Washington, 685 P.2d 576 (Wash. 1984).

Equally here, this Court should not permit Respondents to favor a special interest group

in the administration of Idaho’s school endowment lands, by allowing existing rancher lessees

to renew leases sought by IWP without auction, and without having to pay the-true market value

of the leases as determined by competitive bidding. In refusing to conduct auctions over most

of IWP’s 1996 lease applications, Respondents have conferred substantial financial benefits upon

the rancher-lessees, depriving the public schools of substantial revenues that would have been

earned had the lessees been obligated to compete at auction against IWP. Neither the Land

Board nor the legislature may constitutionally put the interests of a “healthy Idaho livestock

industry” above the generation of revenues for the public schools in the management of

endowment lands, under Article IX, 0 8. Accordingly, both I.C. 0 58-310B and the Land

Board’s refusal to conduct auctions over IWP’s 1996 lease applications pursuant to that statute

should be declared unconstitutional.

II. I.C. 0 58-310B AND THE LAND BOARD’S ACTIONS ALSO VIOLATESTATE AND FEDERAL EQUAL PROTECTION GUARANTEES

IWP also challenges I.C. 6 58-310B, and the Land Board’s treatment of IWP’s lease

applications, as being unconstitutional under the federal and state equal protection guarantees,


U.S. Const., Amend. 14; Idaho Const., Art. 1, §§ 2 and 13.

A. Equal Protection Standards of Review

Idaho courts have established three levels of equal protection review under the state

constitution, which mirror the levels of scrutiny developed under the U.S. constitution. See

Jones v. State Board of Medicine, 97 Idaho 859, 555 P.2d 399, 405-12 (1976); Leliefield v.

Johnson, 104 Idaho 357, 659 P.2d 111, 127 (1983); State v. Breed, 111 P.2d 497, 725 P.2d

202, 205 (Id. App. 1986); Packard v. Joint School District No. 171, 104 Idaho 1983, 661 P.2d

770, 773-74 (Id. App. 1983). At the highest level, where a statute targets “suspect classes”

(such as race or religion) or “fundamental rights” (such as freedom of speech or voting), “strict”

scrutiny is invoked and the legislation will be struck down unless narrowly tailored to serve a

compelling governmental interest. Breed, 725 P.2d at 205; Jones, 555 P.2d at 410; City of

Cleburn v. Cleburn Living Center, 473 U.S. 432, 439-41 (1985). At the least rigorous level

of “rationality review,” usually applied to social and economic legislation, “the question becomes

whether the classification ‘advances legitimate legislative goals in a rational fashion. “I

Leliefield, 659 P.2d at 128. See also Pennell v, City of San Jose, 485 U.S. 1, 14 (1988) (under

rationality review, statute must be “rationally related to a legitimate state interest”).

As Breed notes, the “wide gap” between strict scrutiny and rationality review encouraged

the development of an intermediate level of review, called “means-focus” review under Idaho

law. Breed, 725 P.2d at 205-06. This intermediate review requires a classification “to bear a

substantial relationship to a specifically identifiable legislative end.” Id. See also Leliefield,- -

659 P.2d at 127 (a “fair and substantial relationship between the means selected and the

articulated and otherwise legitimate purpose of the legislation” is required under means-focus

review). The means-focus test “poses a different and higher standard than the traditional

restrained analysis of equal protection,” and is applicable to statutes “which create obviously

discriminatory classifications”). Jones, 555 P.2d at 407. See also Leliefield, 659 P.2d at 127-


28 (quoting Jones, means-focus test is “a more stringent judicial inquiry” which applies “where

the discriminatory character of a challenged statutory classification is apparent on its face and

where there is also a patent indication of a lack of relationship between the classification and the

declared purpose of the statute”).”

B. Intermediate Equal Protection Review Applies Here

“Intermediate” or “means-focus” review of I.C. 5 58-310B and the Land Board’s actions

is appropriate here, for several reasons.

First, “especially important” interests are at stake. Breed, 725 P.2d at 205-06. Idaho’s

school endowment lands are held in trust under the constitution -- a relationship which the Idaho

Supreme Court has described as one of “the highest and most sacred order, made so by Act of

Congress and the Constitution. ’ State v. Peterson, 61 Idaho 50, 55-56 (1939). The “anti-

Marvel” statute, I.C. $ 58-310B, thus does not address ordinary social or economic legislation,

but tampers with constitutional and trust duties in the administration of school endowment land

having elevated constitutional status. These trust duties and constitutional status call for a

heightened level of judicial review. Indeed, at least one member of the Land Board

acknowledged the higher scrutiny which applies in this case under Idaho Const. Art. IX, 8 8,

stating:

And, as I mentioned the constitution is very clear that it is our duty to secure themaximum return and the best way to do that, by far, is to have an auction. Soif we don’t have an auction have to have a good reason that will -- that I thinkwill stand what the courts call close scrutiny --

” See also Breed 725 P.2d at 205-06 (means-focus analysis applies “where especially---7important (though not ‘fundamental’) interests are at stake, where unusually sensitive (thoughnot ‘suspect’) classes have been created, or where a statutory scheme otherwise blatantlydiscriminates”).


See Transc. of Feb. 13, 1997 Land Board meeting, at 16 (remarks of Controller Williams)

(emphasis added). l2

Second, 1.C. $ 5&310B, both as written and as applied in this case, creates unusual and

“blatant” statutory classifications. Breed, 725 P.2d at 205-06. The Idaho legislature has singled

out one special interest group -- public land ranchers -- for special favors in I.C. 0 5%310B.

Not only is I.C. 0 58-310B expressly intended to “encourage a healthy Idaho livestock

industry,” but the criteria for determining who may go to auction on state leases are blatantly

stacked in favor of existing ranching lessees -- including such factors as “the importance of the

state grazing lands to be leased upon the current lessee’s total annual livestock operation.” “the

ability of the lessee to remain economically viable without the lease,” and the “indirect benefits

. . . from all sources generated by the lessee’s proposed activities.” See I.C. 0 5%310B(6).

Based on these statutory classifications, in this case the Land Board voted to deny auctions on

20 of IWP’s lease applications, citing concerns that IWP’s acquisition of any of the leases would

disrupt the ranching operations of existing lessees and adjoining lands. Such blatant favoritism

in the administration of school endowment lands again calls for heightened equal protection

review.

Third, further demonstrating the blatant nature of the classifications drawn under the

statute, I.C. 8 58-310B was targeted specifically to prevent IWP from bidding competitively on

state leases. Indeed, the statute has been popularly dubbed the “anti-Marvel” bill because it was

specifically enacted in order to defeat IWP’s efforts to compete for endowment leases against

I2 This transcript is erroneously dated as February 13, 1996, but in fact the meetingoccurred on February 13, 1997.


public lands ranchers. See Affidavit of Jon Marvel, Idaho Watersheds Project v. State Land

Board, No. 24239 (R. Vol. I, p. 66) 11 1-15 & Exh. 5.13 Reflecting this legislative intent,

the statute has been applied only to IWP -- indeed, the Land Board has not “disqualified” a

single applicant under I.C. 5 58-310B other than IWP, even though other applicants in 1996 had

not used the lands for grazing in the past. As established in the 1995 lease applications case,

the Land Board in the past has frequently leased “grazing” lands to applicants for express non-

grazing purposes, including 30,000 acres of lands leased to Idaho Fish and Game Dept. for

wildlife purposes. See Transc. of April 5, 1996 Land Board meeting, p. 70; Transc. of April

18, 1996 Land Board meeting, at 5; Idaho Watersheds Proiect v. State Land Board, No. 24239,

A.R. 959-77 (list of ungrazed “grazing” leases). Where, as here, a statute has been adopted and

applied specifically to target a politically unpopular applicant, its blatantly discriminatory nature

requires heightened judicial review. Jones, 555 P.2d at 407; Leliefield, 659 P.2d at 127-28.

C. I.C. 05%310B And The Land Board’s Actions Cannot Survive Means-Focus Review

Under “means-focus” review, the statutory classifications must provide a “fair and

substantial relationship between the means selected and the articulated and otherwise legitimate

purpose of the legislation. ” Leliefield, 659 P.2d at 127 (emphasis added). I.C. 6 58-310B fails

that test. It lacks both a substantial relationship between the means chosen (avoidance of

auctions) and any legitimate purpose which it may serve.

As the U.S. Supreme Court and other courts have held in cases such as Ervien Lassen-> -7

l3 Although the Marvel Affidavit was filed in the 1995 lease applications case, IWPexpressly referenced it and incorporated it into its briefings before the district court in the 1996lease applications case; and is properly considered by the Court in connection with these twoclosely related appeals.


Ebke Skamania, and Nigh (all cited above), it is not a “legitimate” purpose to use employ-9

school endowment lands in order to protect or subsidize any special interest group, such as the

ranching industry.14 Yet that is exactly what I.C. 0 5%310B does. It favors existing rancher

lessees in the determination of who is “qualified” to bid on school endowment leases, while

allowing the Land Board to “disqualify” IWP from going to auction based on criteria heavily

stacked in favor of the “current lessee.” See I .C. 5 58-3 10B. The current rancher lessees may

thereby avoid paying fair market value for the leases, since they need not competitively bid for

them at auction.

Because it is not a legitimate goal, under the constitutional duties imposed by Article IX,

Q 8, for the Idaho legislature to seek to “encourage a healthy Idaho livestock industry” through

leasing of school endowment lands, I.C. 0 58-310B fails intermediate or “means-ends” scrutiny

under the equal protection clauses, and must be invalidated. And because it is not a legitimate

exercise of its trust duties under Article IX, 8 8 for the Land Board to protect livestock interests

from competing at auction against IWP, the Land Board’s actions in refusing to hold auctions

in this case must also be reversed as a violation of equal protection.

ID. THE LAND BOARD’S TREATMENT OF IWP’s APPLICATIONS WASARBITRARY, CAPRICIOUS, CONTRARY TO LAW, NOT SUPPORTEDBY SUBSTANTIAL EVIDENCE, AND ABUSE OF DISCRETION

Even if intermediate equal protection review is not applied in this case, the facts reveal

that the Respondents’ handling of IWP’s lease applications was discriminatory and pretextual,

I4 In requiring auctions be held over endowment leases, both the East Side and IWP Idecisions further confirm this principle that the Land Board should not favor current lessees byallowing them to renew leases without competitive bidding, which would generate additionalrevenues for the public schools.


constituting arbitrary and capricious action. Thus, Respondents’ actions must be reversed as a

violation of state or federal equal protection guarantees, under even the “rationality” review of

equal protection analysis. For the same reasons, Respondents’ actions must be reversed as being

contrary to law, “not supported by substantial evidence on the record as a whole,” “made upon

unlawful procedure,” or “arbitrary, capricious or an abuse of discretion” under the Idaho APA.

I.C.’ $ 67-5279(3).

A. The Land Board Abused Its Discretion In Refusing To Conduct Auctions OnContested Leases

The Idaho Supreme Court has made clear that while the Land Board has broad discretion

in managing endowment lands, that discretion is confined by the Idaho constitution and other

aspects of law. See Balderston v. Bradv, 17 Idaho 567, 575, 107 P. 493 (1910) (prohibiting

Land Board “relinquishment” of title to state lands without auction or sale, as being “without

authority of law”): Pike v. State Bd. of Land Commissioners, 19 Idaho 268, 286, 113 P. 447

(1911) (Land Board actions must “not run counter to the provisions of the constitution or

statute”); Tobev v. Bridgewood, 22 Idaho 566, 127 P. 178, 182 (1912) overruled on other

grounds Idaho-Iowa Lateral & Reservoir Companv. Limited v. Fisher, 27 Idaho 695, 151 P. 998

(1915) (reversing grant of deed for easement on state lands as violating “public auction”

requirement).

Directly on point, in both East Side and IWP I the Idaho Supreme Court has held that

Respondents lack “discretion” to refuse to hold auctions over endowment land grazing leases.

In East Side, the Land Board sought to justify its refusal to hold an auction based on

“discretionary” considerations similar to those voiced here -- including that the existing lessee

was an adjoining landowner to the leasehold, whereas the competing applicant was not, and the


current lessee was away upon military service. See East Side, 198 P. at 761-62. Quoting from

Balderston, PiJe, and Tobey (cited above), the Court emphasized that “discretion” could not

override the Land Board’s constitutional and statutory duty to conduct an auction in order to

achieve highest returns from the lease. See East Side, 198 P. at 762-63.

Similarly, in IWP I this Court confirmed that the Land Board’s discretion as trustee is

confined by the requirements of the Idaho constitution. Again, the Land Board cited

“discretionary” considerations for its decision to award the lease to the rancher, Ingram, who

did not bid at auction. Similar to here, these included the lengthy lease relationship between

Ingram and the Land Board, and the fact that the state parcel was located in a larger federal

allotment. & 918 P.2d at 1207-08. The Court rejected this claimed exercise of discretion,

stating:

The rationale behind the requirement of conducting an “action” is to solicitcompeting bids, with the lease being granted to the bid that would, in thediscretion of the Board, “secure the maximum long term financial return” toIdaho’s schools. Idaho Const. art. IX, 0 8. The Board does not have thediscretion to grant a lease to an applicant who does not place a bid at anauction, based upon Idaho’s constitutional and statutory mandate that theBoard conduct an auction.

I&, at 12 11 (emphasis added).

As in East Side and IWP I, the Land Board here cannot justify its refusal to conduct

auctions as an exercise of “discretion,” when the result violates the Idaho constitution and the

Land Board’s fiduciary obligations. Accordingly, the Land Board’s refusal to hold auctions over

most of IWP’s 1996 lease applications represents an abuse of discretion and must be reversed

pursuant to the Idaho APA and the equal protection clauses.

B. The Land Board’s Treatment Of IWP’s Applications Was Pretextual AndDiscriminatory

IWP’s opening brief in the 1995 lease applications case argues that the Land Board’s


handling of its 1995 applications was pretextual and discriminatory, in part because the Land

Board rejected most of IWP’s applications as being for “non-grazing” purposes, yet Respondents

admit they have granted “grazing leases” for over 30,000 acres of endowment lands to other

parties for non-grazing purposes. See Appellant’s Opening Brief, IWP v. State Land Board,

No. 24239, at 37-43. The Land Board’s handling of IWP’s 1996 lease applications perpetuates

that pattern of arbitrary and discriminatory treatment in a number of different ways.

First, unlike the 1995 applications which were supposedly rejected as being for “non-

grazing” purposes, it is undisputed in this case that Respondents accepted all IWP’s 1996 lease

applications as being for valid “grazing purposes.” Yet, as noted above, the 1995 and 1996

lease applications submitted by IWP were identical in form, stating that IWP sought the

respective leases for purposes of “grazing and riparian enhancement. “I5 Why were applications

in 1995 “rejected” as being for “non-grazing” purposes, but identical applications were accepted

a few months later as valid? Respondents did not bother to explain this sudden shift in position.

Such failure to treat identical factual situations in a consistent manner, or to explain why an

agency reached different results on the same fact patterns, is the hallmark of arbitrary and

capricious agency action. See Atchison. Topeka & San Francisco Railroad v. Wichita Board

of Trade, 412 U.S. 800, 808 (1973) (agency has “duty to explain its departure from prior

norms”); Rosebud Enterprises v. Idaho PUC, _ Idaho _, 917 P.2d 766 (1996);

Intermountain Gas CO. v. Idaho PUC, 97 Idaho 113, 540 P.2d 775 (1975) (both requiring

agency to explain reasons for deviating from past decisions).

The arbitrary and discriminatory nature of Respondents’ actions goes much deeper than

that, however. The Land Board’s asserted reason for refusing to hold auctions over most of

IWP’s 1996 lease applications, under I.C. 0 58-310B, was based on impacts that IWP’s

I5 IWP also submitted identical sworn affidavits supporting the 1995 and 1996 applicationsstating it would adhere to any Department-approved management plan for the leases.


acquisition of leases might have upon management and ranching operations on surrounding

lands, supposedly reducing returns from endowment lands over the long-term. However,

Respondents have no factual support for the claim that long-term returns would somehow be

greater if IWP was not allowed even to go to auction against the prior lessees.16 Neither have

Respondents produced any evidence to justify giving up the substantial direct returns which

auctions would generate, in favor these speculative “long-term” benefits from avoiding auctions.

Agency action wholly lacking in factual support, of course, is arbitrary and capricious or not

supported by substantial evidence, and hence must be reversed under the Idaho APA and equal

protection clauses. See Idaho State Ins. Fund v. Hunnicutt, 110 Idaho 257, 715 P.2d 927 (1988)

(“substantial evidence” standard requires agency to consider all relevant evidence); Morgan v.

Dem. of Health and Welfare, 120 Idaho 6, 813 P.2d 345 (1991) (evidence in record did not

support agency’s determination); Curr v. Curr, 124 Idaho 686, 864 P.2d 132 (1993) (rejecting

agency’s post-decision “findings” as unsupported by the record).

Moreover, the pretextual and discriminatory nature of Respondents’ actions is

demonstrated by their failure to address the evidence presented by IWP, showing that the Land

Board had never refused to hold auctions in similar circumstances in the past twenty years, when

an applicant sought to acquire state leases within a larger allotment controlled by another lessee.

& A.R. 16651737; Trans. of Dec. 18, 1996 special meeting, at 9-41. Why is the Land Board

suddenly concerned about disruptive impacts of a lease upon adjoining lands, when it never has

in the past? More importantly, Respondents utterly fail to address the fact that IWP applied for

I6 For example, there are no economic evaluations of the premium bids which auctionsmight generate and the interest those bids would earn over time, versus projected “long-term”benefits from not holding auctions; studies of the long-term applicant “pool” and how the marketforces affecting it might differ if auctions are avoided; or any analysis of why competing againstIWP would somehow force public land ranchers out of business any faster than low cattle pricesand other market forces already are.


the entire expiring leases as publicly advertised by the Department. Why are Respondents

offering these leases to the public if they do not intend to lease them to any party but the current

lessee, or if leasing them to any other person beside the current lessee poses unacceptable

impacts to other land management? The answer to these questions, of course, is that

Respondents are singling IWP out and imposing new burdens on it specially. Such selective

treatment, and the agencies’ failure to address important facts or to explain an abrupt reversal

of position, constitutes arbitrary and capricious action which must be reversed. Motor Vehicle

Mfrs v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983) (agency action is arbitrary,

capricious and abuse of discretion if “entirely failed to consider an important aspect of the

problem “).

The Land Board also failed to address numerous factual differences between the 1996

lease applications themselves, while erecting other new hurdles for IWP which had never been

applied to other applicants. For example, in denying IWP’s application to obtain the former

Pritchett lease, which had been cancelled due to non-payment, the Land Board asserted that IWP

had failed to provide sufficient information about its management plans. See Transc. of

December 10, 1996 hearing; Transc. of Feb. 13, 1997 hearing. Yet IWP in fact did provide

substantial information about its plans for management of the parcel; and the Department

admitted that many other ranchers failed to respond to requests for information on their

management plans in 1996. Id. The Land Board simply ignored the fact that it had never

required the level of detail sought from IWP in the past from other applicants. Id. And while

the Land Board expressed concerns that IWP’s management of this parcel would result in less

grazing than the total grazing levels authorized, the Board never addressed the fact that the lands

had been wholly ungrazed for some time in the past, and would remain ungrazed if not leased.

Id. Why is the Land Board suddenly so concerned about ensuring that IWP must graze parcels

completely, when it has not applied that standard to other lessees? The answer again is obvious:


the Board is targeting IWP for selective treatment, applying requirements it never has applied

to other applicants.

Likewise, in issuing a blanket disqualification of IWP for the eighteen leases which the

Department contended would impact adjoining lands, the Land Board failed to address individual

differences between those leases. On many parcels, as explained above, the responsible federal

agency opined that IWP’s acquisition of the state lease would not disrupt management objectives.

And on many others, the Department conceded there was no “management plan” in place for

the state sections. The Land Board had no problem allowing prior lessees to renew leases on

parcels without management plans, but it voted that IWP could not even obtain the unleased

Pritchett section without a highly detailed management plan, never before required of other

applicants.

At the deepest level, however, the discriminatory, arbitrary, and capricious nature of

Respondents’ actions is revealed by one key consideration: Respondents denied IWP the

opportunity even to go to auction over most of the 1996 lease applications, based on purported

concerns about impacts on adjoining lands if IWP obtained the leases. How could IWP’s

participation at auction possibly impact future land management, when the Board retain authority

to award leases following auction.7 Indeed, as the Barber Lumber

Board has discretion not to award a lease to the highest bidder

case demonstrates, the Land

at auction, provided it can

articulate other cogent reasons for determining that a lower bid is more attractive for the

endowment in the long-term. See Barber Lumber Co. v. Gifford, 25 Idaho 654, 666, 139 P.

557 (1914).” Even if the Land Board’s concerns about possible impacts upon land

l7 As Barber Lumber equally demonstrates, the Land Board must be able to demonstratethat the lower bid will, in fact, produce more attractive returns over the long-term. J& BarberLumber is thus consistent with U.S. Supreme Court and other state decisions requiring thatendowment land trustees must point to “cogent reasons” for not accepting a highest bid. SeeLassen v. Arizona, 385 U.S. 458 (1967); Oklahoma Educ. Ass’n v. Nigh, 642 P.2d 230, 236-38


management were valid, that concern should only arise after auctions have occurred and the

Land Board must determine how to award the lease. Such concerns do not justify eliminating

auctions altogether.

In summary, it is fundamentally arbitrary, capricious, and an abuse of discretion for the

Land Board to refuse to conduct auctions over lease applications which it has accepted, such as

the 1996 lease applications it accepted from IWP. The proper course -- consistent with the

Idaho constitution and past practices and policies -- is to conduct auctions over competing lease

applications, and then address any other factors which may bear upon the Land Board’s lease

decisions, as occurred in Barber Lumber. Since this Court has held twice, in East Side and Iwp

1, that it is an abuse of discretion for the Land Board to refuse auctions and attempt to award

leases to one competing party over another outside of competitive bidding, the Court should

again hold that the Land Board similarly abused its discretion by awarding leases sought by IWP

to prior lessees without any auction or competitive whatsoever.

CONCLUSION

For the foregoing reasons, IWP respectfully prays that the Court reverse the lower

court’s decision and judgment in this matter; declare I.C. 5 58-310B unconstitutional, in whole

or in part; and reverse and remand Respondents’ decisions not to hold auctions over most of

IWP’s lease applications, with instructions to conduct auctions.

/I

/I

II

II

(Okla. 1982); Ebke v. Board of Educ’l Lands and Funds, 47 N.W.2d 520, 523 (1951).Absolutely no such evidence exists in this case which could possibly support the Land Board’sdecision to forego auctions and competitive bidding altogether.


DATED: March 11, 1998 Respectfully Submitted,

LAND AND WATER FUND OF THE ROCKIES

Attorneys for IWP

CERTIFICATE OF SERVICE

I hereby certify that on this 1 lth day of March 1998, I caused a true and correct copyof the foregoing APPELLANT’S OPENING BRIEF to be served via hand delivery to thefollowing:

Stephanie BalzariniDeputy Attorney GeneralIdaho Department of Lands950 W. JeffersonPO Box 83720Boise ID 83720-0050


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