Appendix — Weiss v. Alaska
Supreme Court brief1997
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' Ss. ° U.
4) D
~~ 97-186 vu 28 1997
No. QPEIGE OF THE CLERK
~ IN THE
SUPREME COURT OF THE UNITED STATES
October Term, 1996
VERN T. WEISS, et ai.,
Petitioners,
v.
STATE OF ALASKA, et ai.,
Respondents,
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI TO THE
SUPREME COURT OF THE STATE OF ALASKA
James B. Gottstein* Alan B. Morrison
Bruce A. Moore Public Citizen Litigation Group
406 G Street, Suite 206 1600 20th Street, N.W.
Anchorage, Alaska 99501 Washington, D. C. 20009
(907) 274-7686 (202) 588-1000
David T. Walker Barry S. Rosen
417 Harris Street 30 South Wacker Dr., 29th Floor
Juneau, Alaska 99801 Chicago, Illinois 60606-7484
- (907) 586-3537 (312) 207-1000
Counsel for Petitioners
*Counsel of Record
APPENDIX
to
WEISS, et al., Petitioners
Vv.
STATE OF ALASKA, et ai., Respondents
TABLE OF CONTENTS
Opinions And Orders Entered In Conjunction With The
Judgment Sought To Be Reviewed.
A. 1-49 Weiss, et al., v. State of Alaska, et al., Opinion
No. 4816 (Alaska May 2, 1997) (Weiss Il).
B. 1-8 State of Alaska v. Weiss, et al., 706 P.2d 681
(Alaska 1985) (Weiss J).
C. 1-105 Memorandum Decision and Order Granting Final
Approval to the HB 201 Settlement, Dec. 6, 1994.
D. 1-16 Memorandum Decision and Order (Beneficiaries),
April 27, 1988.
E. 1-4 Memorandum Decision, June 14, 1983.
Other Orders, Findings Of Fact, And Conclusions Of Law
Entered In Conjunction With The Judgment Sought To Be
Reviewed.
F. 1-3 Judgment (Rule 54(b)), Sept. 14, 1984.
The Judgment For Which Review Is Sought.
G. 14 Order (Dismissal), Dec. 13, 1994.
Other Material.
H. 1-4 — Stipulation (Set-off), August 1984.
I. 1-25 Settlement Agreement and Stipulation to
Terms of Dismissal, June 10, 1994, including
Attachments C & D.
J. 1-2 Pertinent Portions of Alaska Statutes.
PR ern
——_
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ee ee
Notice: This opinion is subject to formal correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk of
the Appellate Courts, 303 K Street, Anchorage, Alaska
99501, telephone (907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
VERN T. WEISS, father and
next friend of CARL WEISS,
on behalf of himself and all
others similarly situated;
and MARY C. NANUWAK and
BILLY R. CROSS, on behalf of
themselves and all others
similarly situated,
Appellants,
¥.
Nw ee ee ee ee ee eee ee”
STATE OF ALASKA, ANITA BOSEL,
FRANCES DOULIN, SHARON
GOODWIN and GABRIEL MAYOC;
and H.L., M.K., and ALASKA
ADDICTION REHABILITATION
SERVICES,
—
Appeliees.
ee ee ee a a
Supreme Court No. S-6845
Superior Court No. 4FA-82-2208 CI
OPINION
[No. 4816 - May 2, 1997]
—_—_—=<—<_—_ —_
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Appeal from the Superior Court of the State of Alaska,
Fourth Judicial District, Fairbanks, Mary E. Greene, Judge
Appearances: David T. Walker, Law Offices of David T.
Walker, Juneau, and James B. Gottstein and Bruce A.
Moore, Law Offices of James B. Gottstein, Anchorage, for
Appellants. Brian D. Bjorkquist and Nathaniel B. Atwood, |
Assistant Attorneys General, Anchorage, and Bruce M.
Botelho, Attorney General, Juneau, Julian L. Mason and .
William S. Cummings, Ashburn & Mason, Anchorage, and
G. Thomas Koester, Law Office of Thomas Koester,
Juneau, for Appellee State of Alaska. James H. Parker, )
Disability Law Center of Alaska, Anchorage, for Appellees i
Bosel, Doulin, Goodwin and Mayoc. Philip R. Volland,
Rice, Volland, Taylor & Hensley, P.C., Anchorage, for
Appellees H.L., M.K. and Alaska Addiction Rehabilitation |
Services.
Before: Compton, Chief Justice, Rabinowitz, Eastaugh, and
Fabe, Justices. [Matthews, Justice, not participating. ]
FABE, Justice. !
I. INTRODUCTION
Vern T. Weiss et_al.' (Weiss) appeal from the superior
court's approval of an agreement settling a class action lawsuit
concerning the lands granted to Alaska under the Alaska Mental
Health Enabling Act, Pub. L. No. 84-830, § 202, 70 Stat. 709,
711-712 (1956) (AMHEA). The settlement agreement, reached
after almost a decade of negotiations, reconstitutes the trust with
ct ia eR HE
Mary C. Nanuwak also joins this appeal. Billy R. Cross appeals from
the superior court's denial of a motion to substitute him as a named plaintiff-
intervenor for John Martin after Martin died in 1994.
A-2
land and cash and establishes institutional mechanisms to protect
the trust and improve mental health programs. For the reasons
set forth below, we conclude that the superior court did not err in
determining that the agreement represents a fair, adequate, and
reasonable settlement of this litigation.
a re
We summarized the facts and proceedings in this case
prior to 1985 in State v. Weiss, 706 P.2d 681 (Alaska 1985):
In 1956 the United States Congress passed
the Alaska Mental Health Enabling Act (AMHEA)
which, insofar as it concerns this case, granted the
Territory of Alaska one million acres of federal
land to be held in public trust to help effectuate the
creation and operation of mental health care
facilities in Alaska. Pub. L. No. 84-830, 70 Stat.
709 (1956). Section 202(e) of the Act specifically
provides:
to the Territory of
Alaska under this section, together with the
income therefrom and the proceeds from any
dispositions thereof, shall be administered by
the Territory of Alaska as a public trust and
such proceeds and income shall first be
applied to meet the necessary expenses of the
mental health program of Alaska. Such
lands, income and proceeds shall be managed
and utilized in such manner as the Legislature
of Alaska may provide. Such lands, together
with any property acquired in exchange
therefor or acquired out of the income or
proceeds therefrom, may be sold, leased,
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mortgaged, exchanged, or otherwise disposed
of in such manner as the Legislature of
Alaska may provide in order to obtain funds
or other property to be invested, expended or
used by the Territory of Alaska. The
authority of the Legislature of Alaska under
this subsection shall be exercised in a manner
compatible with the conditions and
requirements imposed by other provisions of
this Act. (emphasis added)
The state managed these lands without
maintaining a separate account until 1978. The
Alaska State Legislature made its practice law in
1978 when it passed the following statutory
provision:
REDESIGNATION AND _ DISPOSAL OF
MENTAL HEALTH LAND
(a) Land granted to the state under
the Mental Health Enabling Act of 1956, 70
Stat. 709, and patented to or approved for
patent to the state on July 1, 1978 and land
designated as mental health land which was
received by the state in exchange for land
granted under that federal land grant is
redesignated as general grant land and shall
be managed and disposed of by the
Department of Natural Resources under
applicable provisions of law.
Ch. 181, § 3(a), SLA (1978).
Alaska has provided continuous mental
health care since statehood... .
Stee NN a Rito Aenbee
Weiss et al. filed a class action in 1982
alleging that the state breached the public trust by
1) failing to account for revenues realized, 2)
using revenues for purposes other than mental
health care and 3) passing legislation redesignating
the property "general grant land."- Plaintiffs
sought declaratory relief invalidating the
redesignation legislation; injunctive __ relief
compelling the state to administer the trust
according to the law; general relief establishing a
trust account "for the receipt of funds generated
from all lands selected by the State of Alaska
under the aforesaid mental health land grant... ."
State v. Weiss, 706 P.2d at 681-82.
The superior court agreed with plaintiffs that the State
breached its duties as trustee by removing the federal grant lands
from the trust. Id. at 682. However, the trial court ruled that it
could not invalidate the 1978 redesignation legislation. Id.
Instead, it ordered the State to pay fair market value and interest
for all lands conveyed from the trust, including the lands
redesignated general grant lands. Id. The superior court also
ordered a set-off against this payment "for all monies spent by the
state on mental health care.” Id.
On appeal, we affirmed the lower court's ruling that
Congress created a trust under the AMHEA and that the State
breached its duties as trustee. Id. at 683. As a remedy for this
breach, we invalidated the redesignation legislation and remanded
the case to the trial court to reconstitute the trust "to match as
nearly as possible the holdings which comprised the trust when
the 1978 law became effective.” Id. at 684. We also provided
the trial court with the following guidance:
Those general grant lands which were
once mental health lands will return to their
former trust status. In the event exchanges have
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been made, those properties which can be traced
to an exchange involving mental health lands will
also be included in the trust. To the extent that
former mental health lands have been sold since
the date of the conveyance the trust must be
reimbursed for the fair market value at the time of
sale. In calculating the total amount owed, the
trial court should grant a set-off for mental health
expenditures made by the state during the same
period. In the event that expenditures exceeded
the value of lands sold, the state need not furnish
cash as part of the reconstitution. The goal is to
restore the trust to its position just prior to the
conveyance effected by the redesignation
legislation.
Id. at 684. We left open, however, "questions regarding the title
held by conveyancees and bona fide purchasers of mental health
lands." Id. at 684 n.4.
At the time of our decision in Weiss, only about thirty-
five percent of the original trust land remained in state ownership
and unencumbered. The State had conveyed about 90,000 acres
to private individuals and municipalities and had designated more
than 350,000 acres for parks, forests, wildlife areas, and similar
uses.
Upon remand, we permitted the Alaska Mental Health
Association (AMHA) et al.” (collectively, AMHA Intervenors) to
intervene. The AMHA Intervenors added claims seeking to
invalidate many of the State's conveyances of trust land to third
parties.
, Mary C. Nanuwak and John Martin joined AMHA's complaint.
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B. ‘ r4 Chapter 210
The legislature established the Interim Mental Health
Trust Commission (Trust Commission) in 1986. Ch. 132, SLA
1986. It gave the Trust Commission the power to approve
proposals for the sale, lease, or exchange of mental health trust
land and to make recommendations for resolving the litigation.
See Ch. 132, §§ 2(c), 4, SLA 1986.
One year later, based on discussions among all parties,
the legislature attempted to settle the litigation by adopting
Chapter 48, SLA 1987 (Chapter 48). Chapter 48 directed the
commissioner of natural resources to establish the fair market
value of the original trust lands under procedures approved by
the Trust Commission. Ch. 48, § 4(a), SLA 1987. Once the
Trust Commission established the fair market value of the lands,
the commissioner, with the approval of the Trust Commission,
was to select a combination of original trust lands and lands
within legislatively designated areas with a fair market value
equal to that of the original trust. Ch. 48, § 4, SLA 1987. The
State would then compensate the trust for its use of these lands by
paying it a "rent" of eight percent of the fair market value. Ch.
48, § 2, SLA 1987. Chapter 48 also provided that, until the fair
market value of the trust land was established, the State would
pay the trust five percent of unrestricted general fund revenues
annually. Ch. 48, § 11, SLA 1987. Finally, the legislation
created the Alaska Mental Health Board to determine the needs of
persons to be served by the mental health program and to
transmit recommendations for services and funding to the
governor and legislature. See Ch. 48, § 6, SLA 1987.
During enactment of Chapter 48, other plaintiff groups
moved to intervene in the action. The superior court permitted
Anita Bosel et al.* (Bosel Intervenors) to intervene on behalf of
developmentally disabled individuals,‘ and H.L. et_al.* (H.L.
Intervenors) to intervene on behalf of chronic alcoholics with
psychoses. AMHA and Weiss opposed the addition of the Bosel
Intervenors. After an examination of the legislative history of the
AMHEA, the superior court in 1988 concluded that Congress
intended to benefit developmentally disabled individuals as well
as those suffering from a psychiatric illness who may require
hospitalization (Beneficiary Decision). The superior court also
concluded that beneficiaries of the trust included chronic
alcoholics suffering from psychoses and senile individuals who
suffer major mental illnesses as a result of their senility.
In December 1989 two of the three members of the Trust
Commission estimated the fair market value of the original trust
lands to be $2.243 billion. The third member, the delegate of the
commissioner of natural resources, rejected this figure and
estimated the value of the original trust lands to be about $565
million. In response to these conflicting valuations, the
commissioner of natural resources declared an "impasse" and
refused to implement Chapter 48. In 1990 the legislature enacted
a different proposal under which the State would pay six percent
of unrestricted general fund revenues annually to the trust. Ch.
210, § 2, SLA 1990. This solution, which avoided the issue of
the fair market value for the original trust land, foundered due to
opposition by plaintiffs who feared revenues would fall.
, Frances Doulin, Sharon Goodwin, and Gabriel Mayoc also joined in
Bosel's complaint.
. We use the term "developmentally disabled” to refer to those
individuals labeled "mentally retarded” and “mentally defective" in early
versions of the AMHEA and in the record.
M.K. and Alaska Addiction Rehabilitation Services joined in H.L.'s
motion to intervene.
During this period of negotiations, the State continued to
convey original trust land. However, after the failure of Chapter
48, the plaintiffs obtained a preliminary injunction prohibiting the
State from transferring trust lands or any interest in trust lands
pending final resolution of the litigation. In addition, the
plaintiffs refiled lis pendens on all original trust lands. The
injunction and lis pendens affected thousands of land transactions.
C. Chapter 66
At the end of the 1991 legislative session, the legislature
again attempted to settle the litigation by enacting Chapter 66,
SLA 1991 (Chapter 66). Chapter 66 established a procedure to
reconstitute the mental health land trust entirely through a land
exchange. Under its provisions, the trust would retain much of
its original holdings, and plaintiffs would be allowed to nominate
replacement land of equal value from other state land. Chapter
66 also created a new agency, the Alaska Mental Health Trust
Authority (Trust Authority), to act as trustee. Ch. 66, § 10, SLA
1991. The proposed settlement incorporating Chapter 66 was
signed by the State and three of the four attorneys representing
the plaintiffs, but the legality of the settlement was challenged by
intervenors representing development and _ environmental
interests. In addition, the H.L. Intervenors opposed the
settlement, alleging improprieties in the negotiations.’
On December 30, 1993, the superior court denied
preliminary approval of the Chapter 66 settlement. The superior
court found that, because "either party may terminate the
agreement at any time for any reason," the settlement was
The plaintiffs originally filed a notice of lis pendens on all original
trust land prior to our decision in Weiss. This notice was expunged by the
superior court on November 15, 1984.
Although the Bosel Intervenors joined the agreement, they later
withdrew their support.
seriously deficient and could not be approved without
modification. Following this ruling, the State informed the
parties that it did "not intend to implement the reconstitution
provisions of Chapter 66." Instead, the State moved forward
with a new approach to ending the litigation.
D. HB 201
After renewed negotiations between the parties, the
legislature enacted the core of the settlement now before us in a
special session following the regular 1994 legislative session.
Ch. 5, 6, FSSLA 1994. Known as HB 201, the legislation
returned about 568,000 acres of original land to the trust and
designated approximately 353,000 acres of other state land as
substitute trust land. The reconstituted trust now includes about
435,000 acres held in fee, 55,000 acres of mineral estate, and
78,500 acres of oil and gas interests from the original trust
corpus. Other state land placed in the trust includes 111,000
acres held in fee, 217,000 acres of mineral estate, and 25,000
acres of oil and gas interests. The entire reconstituted trust
consists of about 930,000 acres.
HB 201 provides for a special unit in the Department of
Natural Resources (DNR) to manage trust land. AS 44.37.050.
The settlement requires DNR to manage the land "consistent with
the trust principles imposed on the state" by the AMHEA. AS
38.05.801. In addition, DNR must manage the land “under those
provisions of law applicable to other state land" and adopt
regulations that "at a minimum" address: "(1) maintenance of the
trust land base; (2) management for the benefit of the trust; (3)
management for long-term sustained yield of products from the
land; and (4) management for multiple use of trust land." AS
38.05.801(c).
The settlement also provided for a payment by the State
of $200 million in cash. Ch. 6, FSSLA 1994. This cash
payment, proceeds from the sale of trust land, and other proceeds
attributable to principal are retained perpetually in the mental
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a
health trust fund and invested by the Alaska Permanent Fund
Corporation. AS 37.14.031-.035. The income from the fund,
the land, and other assets is deposited in the mental health trust
settlement income account. AS 37.14.036. The Trust Authority
may use this income account to award grants and contracts to
ensure an integrated mental health program, obtain grants and
gifts for that purpose, pay the Department of Natural Resources
and the Alaska Permanent Fund Corporation for managing trust
assets, offset the effect of inflation on the value of the principal of
the trust, and pay its administrative expenses. AS 37.14.041.
HB 201 also requires the Trust Authority to make
recommendations on mental health spending to the governor and
legislature. AS 47.30.046. The appropriation bill submitted by
the governor and the appropriation bill passed by the legislature
must be limited to the mental health program. AS 37.14.003(a)
& .005(b). The bills must be accompanied by reports explaining
any differences between the appropriations they contain and the
Trust Authority's recommendations. AS 37.14.003(b) & .005(c).
In addition, the governor must explain any vetoes of
appropriations for the mental health program "in light of" the
Trust Authority's recommendations. AS 37.14.003(c).
The legislature made portions of the settlement contingent
on dismissal of the litigation on or before December 15, 1994.
Ch. 5, §§ 48-51, FSSLA 1994. If the superior court had not
approved the settlement and dismissed the suit on or before that
date, the trust would have been reconstituted with only the lands
included in the settlement agreement; the provisions for payment
of $200 million, establishment of the Trust Authority, and the
special budgeting procedures would not have taken effect. Id.
The State and the H.L. and Bosel Intervenors
(collectively, Proponents) supported HB 201, while the AMHA
Intervenors and Weiss opposed it. After a four-day evidentiary
hearing, the superior court gave preliminary approval to the HB
201 settlement on July 29, 1994.
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In granting preliminary approval, the superior court
noted several problems with the settlement that might have
precluded final approval. Some of these were addressed by a
second special session of the legislature. Chs. 1-2, SSSLA 1994.
The legislature amended the settlement to allow for the
provisions of HB 201 to go into effect even if some members of
the class appealed final approval after the December 1994
deadline. Ch. 1, § 2, SSSLA 1994. It also modified the list of
lands incorporated into HB 201 to avoid title problems and
include more valuable lands. Ch. 1, §§ 4-7, SSSLA 1994.
Finally, it gave assurance that the trust would receive the full
$200 million in cash even if the State could not sell certain lands
for the amount stated in the legislation. Ch. 2, §§ 4-5, SSSLA
1994.
After reviewing comments and conducting another
evidentiary hearing on the fairness of the settlement, the superior
court issued final approval of the HB 201 settlement on
December 6, 1994. Weiss appeals.*®
Ii. DI N
A. Standard of Review
In reviewing the superior court's approval of a class
action settlement pursuant to Alaska Rule of Civil Procedure
23(e),? we adopt the same abuse of discretion standard applied
under the federal rule, 7B Charles A. Wright et al., Federal
° Earl Hilliker, an original plaintiff, and AMHA opposed the settlement
but are not participating in this appeal.
° Rule 23(e) provides:
(e) Dismissal or Compromise. A class action shall not be dismissed
or compromised without the approval of the court, and notice of the
proposed dismissal or compromise shall be given to all members of
the class in such manner as the court directs.
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NDA ih RA RM lh TRI BEN Sette 9
Practice and Procedure § 1797.1, at 394 (1986), and in our
previous cases concerning settlement agreements. E.g. Barber v.
Barber, 837 P.2d 714, 716 n.2 (Alaska 1992). We review the
Superior court's findings of fact under the clearly erroneous
standard. Id.
B. Did the Superior Court Err in Ruling that the
Settlement Agreement Is Fair, Adequate, and
Reasonable?
In granting final approval, the superior court properly
focused on determining whether the settlement as a whole was
fair, adequate, and reasonable. The superior court listed seven
factors to consider in making this determination:
(1) comparison between the likely result of
litigation and the remedy in the settlement;
(2) expense, complexity, and likely
duration of further litigation;
(3) reaction of the class to the settlement,
number of objectors, and nature of objections;
(4) experience and views of counsel;
(5) defendant's ability to pay (feasibility of
settlement);
(6) extent of discovery completed; and
(7) presence of collusion in settlement
negotiations. se
This list of factors, drawn from federal precedent, provides a
framework for thorough analysis. See Class Plaintiffs v. City of
Seattle, 955 F.2d 1268, 1291 (9th Cir. 1992); Manual for
Complex Litigation, Third § 30.42 (1995); 2 Herbert B.
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Newberg & Alba Conte, Newberg on Class Actions § 11.43, at
11-97 (3d ed. 1992).
The bulk of Weiss's arguments concern the fairness of
the settlement; he argues, in short, that it is a "bad deal." As the
United States Supreme Court has stated, “[cJourts judge the
fairness of a proposed compromise by weighing the plaintiff's
likelihood of success on the merits against the amount and form
rs the relief offered in the settlement." Carson v. American
rands, Inc., 450 U.S. 79, 88 n.14 (1981). Thus, the focus of
ee challenge is the superior court's analysis under the first
factor above: the comparison between the likely result of
litigation and the remedy in the settlement. In making this
comparison, a court should attempt to determine
a range of reasonableness with respect to a
settlement - a range which recognizes the
uncertainties of law and fact in any particular case
and the concomitant risks and costs necessarily
inherent in taking any litigation to completion -
and the judge will not be reversed if the appellate
court concludes that the settlement lies within that
range.
Newman v. Stein, 464 F.2d 689, 693 (2d Cir. 1972)."
The superior court determined that the HB 201 settlement
"provide[d] the class with five primary benefits." These included
1@ In addition, neither the superior court in considering the settlement nor
this court in reviewing it “decide[s] the merits of the case or resolve unsettled
legal questions.” Carson v. American Brands, Inc., 450 U.S. 79, 88 n.14
(1981).
1! We remanded for an equivalent analysis in an appeal involving the
proposed settlement of the claims of a minor under Alaska Civil Rule 90.2. In
re Estate of Brandon, 902 P.2d 1299, 1310 (Alaska 1995).
A-14
reconstitution of the trust with $1.1 billion of original and
replacement land, payment of $200 million, establishment of the
Trust Authority, alteration of the budgeting process, and creation
of a special DNR unit to manage trust land.” The superior court
compared these benefits to what it determined would be the likely
result of continued litigation: a trust composed solely of between
$1.2 and $1.5 billion worth of land. It reasoned that, because the
set-off for the State's mental health expenditures permitted under
Weiss would probably exceed the value of the payment for lands
removed from the trust, further litigation would not result in any
cash payment to the trust. It also concluded that continued
litigation would not result in any Program Benefits.
Weiss challenges this comparison, arguing in essence that
the superior court erred both by overvaluing the settlement and
undervaluing the probable outcome of continued litigation.
s Land value
The settlement provides for the trust to be reconstituted
with both original trust land and substitute land. The superior
court, for purposes of comparison, valued the combination of
original trust land and substitute land in the HB 201 settlement at
$1.1 billion. The court then compared this value with the value
of the original trust lands without the land that would probably
not be returned to the trust after further litigation. Considering
the outcomes of both highly successful and unsuccessful
litigation, the superior court determined that the value of the land
returned to the trust after final judgment would be between $1.16
billion and $1.53 billion.
Weiss argues that the superior court erred in two general
ways: (a) it undervalued original trust land and overvalued
” The latter three are referred to collectively as the "Program Benefits."
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settlement land; and (b) it incorrectly assessed the risks of further
litigation. The former involves primarily issues of fact regarding
the various efforts to appraise the value of the lands at issue,
while the latter centers on the nature of the trust established by
the AMHEA.
a. Value of original trust and settlement
lands
Weiss's arguments concerning the valuation of the
original trust lands focus on the mineral values of those lands.”
The starting point for the superior court's consideration of the
mineral values was the testimony of Weiss's expert, Dr. Paul
Metz. Dr. Metz estimated the mineralized lands to be worth
between $1.3 and $1.5 billion, exclusive of coal and industrial
minerals. The Proponents attacked this estimate through the
testimony of four expert witnesses. Applying their "corrections"
to Dr. Metz's work, these witnesses testified that the value of the
mineral portion of the original trust lands was between $80 and
$119 million, or approximately ten percent of Dr. Metz's
estimate.
Considering this conflicting testimony, the superior court
found that Dr. Metz "overstate[d] the true value of the mineral
lands." It concluded that, although the settlement land "is not as
valuable as the original mental health trust,” the difference in
value suggested by Dr. Metz's appraisal was not "a real dollar
loss." This conclusion undercut Weiss's position in two ways.
3 _ Weiss also contends that the superior court erred in valuing the surface
value of original trust lands by considering that "the time required to sell surface
value original trust lands (called ‘absorption’) reduced the value to as much as
one-tenth to one-fifth of [the lands'] stated value." The superior court,
however, did not apply absorption or discount rates when establishing the value
of original trust lands; it used the valuation of the land provided by Weiss's
expert. Thus, this argument is irrelevant.
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First, it suggested that the other benefits of the settlement, such
as the $200 million in cash and the establishment of the Trust
Authority, would be adequate compensation for land not returned
to the trust. Second, it supported the superior court's conclusion
that Weiss faced a "very high litigation risk" of proving that the
State owed as much as he claimed for the lands it removed from
the trust.
Weiss faults the superior court for failing to provide
sufficient analysis of the expert testimony on mineral valuation
and for ignoring rebuttal testimony. This argument is
unpersuasive. The superior court specifically explained the
analysis of each of the four experts critical of Dr. Metz's
methodology. It also noted several of Dr. Metz's arguments in
rebuttal. Contrary to Weiss's argument, the trial court's decision
provides "a clear understanding of the ground on which the trial
court reached its decision,” Sloan v. Jefferson, 758 P.2d 81, 86
(Alaska 1988), and reflects a detailed analysis of both sides of the
valuation issue.
Weiss also argues that the superior court erred by not
accepting Dr. Metz's appraisal of the original trust lands. This
argument fails for two reasons. First, the trial court in fact
largely adopted Weiss's estimates in making its comparison
between the settlement and the probable result of continued
litigation, explicitly stating that the "valuations given by Dr. Metz
are useful when comparing two groups of mineralized land."
Second, a trial court does not err simply by finding the testimony
of one witness more convincing than that of another. Evans v.
Evans, 869 P.2d 478, 480-81 (Alaska 1994).
In arguing that the superior court overvalued the
settlement lands, Weiss contends that, because only land "no one
maintained an objection to was included" in the settlement, the
"posited surface values should . . . be reduced" to a fraction of
their stated value. However, Weiss never argued and no witness
testified to the trial court that such a reduction should be applied
only to lands included in the settlement. Thus the trial court did
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not err by failing to reduce the value of the land as Weiss
suggests.
b. i nti itigatio
In assessing the likely —result of continued
litigation with regard to land, the superior court divided the land
in the original trust into categories and assigned each category a
"litigation risk.""* The categories in dispute are: (i) land held by
third-party purchasers; (ii) municipality entitlements; (iii)
legislatively designated areas (LDAs) and lands transferred to
other state agencies; and (iv) pre-1978 disposals.”
i. Third-party purchasers
The superior court concluded that the litigation risk of
recovering land purchased by third parties would be very high.
It reasoned that the land conveyed to third parties would probably
be considered "sold" under Weiss. It also determined that,
because most of the purchasers did not buy the land with
knowledge of the breach of trust, these sales would probably be
* In evaluating this risk, the superior court focused on the probability
that plaintiffs would be able to recover the land removed from the trust through
further litigation. Under Weiss, the State would be liable to the trust for the fair
market value of “sold” lands. Weiss, 706 P.2d at 684. As discussed below,
however, any payment by the State for “sold” lands would be subject to the "set-
off." Id. Therefore we, like the superior court, address the likely amount of
such payment in connection with our discussion of the set-off and focus here on
the likelihood that the trust would recover its original land grant.
1S The superior court also determined that the litigation risk of recovering
trust lands exchanged with the Cook Inlet Region Incorporated was “low.” The
original trust lands that currently generate about $1 million a year in revenue
from coal leases, concluding that these lands would “clearly return" to the trust
in continued litigation.
A-18
ee ee ee,
Sai ae
pelts water? Rake 4 cece
upheld under basic principles of trust law. The trial court
further noted that such purchasers might also raise other valid
defenses, such as the statute of limitations.
Weiss argues that this analysis is incorrect. He asserts
that under "a long-standing per se rule . . . conveyances of
federal trust lands in breach of trust are void, regardless of the
actual state of knowledge of the conveyees." Weiss supports this
position by citing cases from Nebraska and Arizona dealing with
land granted by Congress to states for the purpose of supporting
public schools.
This argument is not persuasive. The trial court
reasonably interpreted Weiss as supporting the view that land
transferred to third parties would be considered "sold" for
purposes of reconstituting the trust. It also did not err in
concluding that under the bona fide purchaser doctrine many if
not most of these sales would be valid because the purchasers had
neither actual nor constructive notice of any breach of trust.
Precedent relied on by Weiss involving school land trusts
in Nebraska and Arizona does not contradict this conclusion.
The holdings in those cases rely on the detailed procedures for
disposal of trust land contained in the enabling acts and state
constitutional provisions governing those land trusts. Eg.
Gladden Farms, Inc. v. State, 633 P.2d 325, 327-30 (Ariz.
The superior court cited Restatement (Second) of Trusts § 284 (1959),
which states:
(1) If the trustee in breach of trust transfers trust property to, or
creates a legal interest in the subject matter of the trust in, a person
who takes for value and without notice of the breach of trust, and
who is not knowingly taking part in an illegal transaction, the latter
holds the interest so transferred or created free of the trust, and is
under no liability to the beneficiary.
(2) In the Restatement of this Subject such a transferee is called a "bona
fide purchaser."
A-19
1981); Murphy v. State, 181 P.2d 336, 353-54 (Ariz. 1947);
State ex rel. Ebke v. Board of Educ. Lands & Funds, 47 N.W.2d
520, 522-23 (Neb. 1951). The AMHEA differs from these laws
because it explicitly permits trust lands to "be sold, leased,
mortgaged, exchanged, or otherwise disposed of in such manner
as the Legislature of Alaska may provide." AMHEA § 202; see
also State_v. University of Alaska, 624 P.2d 807, 815 n.1l
(Alaska 1981) (noting that the Nebraska Constitution specifically
provides for a method of management and disposal of school
lands, while the Alaska Constitution "has left these
determinations to the legislature"). While we noted in Weiss that
precedent involving school trust land supported our reliance on
"basic trust law principles," Weiss, 706 P.2d at 683 n.3, this
reliance does not imply that application of such principles yields
the same result regardless of the nature of the trust at issue. The
superior court properly applied basic principles of trust law under
the specific terms of the AMHEA to determine that the plaintiffs
would face a high risk of recovering land conveyed to many
third-party purchasers.
ii. LDAs and land transferred to
other state agencies
The superior court estimated that the litigation risk that
the trust will recover land set aside by the legislature for other
uses since 1978 would be “high.” The court based this
conclusion on its determination that, in accord with State v.
University of Alaska, 624 P.2d 807 (Alaska 1981), these lands
would probably be deemed "sold" under Weiss. Weiss argues
that the term "sold” in Weiss does not refer to lands "still held by
the State.”
In University of Alaska, we considered a 1929 grant of
100,000 acres by the federal government to the Territory of
Alaska for the "exclusive use and benefit" of the University of
Alaska. 624 P.2d at 810-11. The State, without paying
compensation, placed about 5,000 acres of the land into Chugach
State Park. Id. at 809-10. We concluded that the State breached
A - 20
the trust by redesignating the land, but declined to invalidate the
State's action. Id. at 814-15. Instead, we held that the State
must compensate the university for the land by paying it fair
market value or by agreeing to a land exchange. Id. at 816.
In Weiss, we distinguished University of Alaska on the
grounds that the 1978 redesignation legislation did "not involve a
disposition of a portion of trust lands for a specific use" and
therefore could not support an inference of legislative intent to
pay for the trust land. Weiss, 706 P.2d at 684. However, unlike
the 1978 redesignation legislation, the State's transfer of land to
legislatively designated areas or for the use of state agencies is "a
disposition of . . . trust lands for a specific use." Id. The State's
action with respect to such land is thus similar to the action
permitted under University of Alaska. The superior court
therefore reasonably concluded that, under that case, the
plaintiffs would face a high risk of not recovering this land
through further litigation.
iii. | Municipal entitlements
The superior court evaluated the litigation risk associated
with recovery of original trust lands selected by municipalities
under the municipality entitlement program, AS 29.65, as
"medium." It based this conclusion partly on its evaluation of the
argument that the transfers would be upheld under University of
Alaska and partly on the fact that many of the lands have been
resold to individuals who may be bona fide purchasers. Weiss
argues that this finding is contradicted by City of Sierra Vista v.
Babbit, 633 P.2d 333, 334 (Ariz. 1981), in which a sale of school
trust land to a municipality was invalidated.” In contrast to the
17 Weiss also argues that the municipalities could not claim bona fide
purchaser status since they did not pay value for the land. This argument, even
if true, is irrelevant because the court did not base its finding on the bona fide
purchaser status of the municipalities.
case before us, however, City of Sierra Vista relies on the
specific requirement in the Arizona Enabling Act that school trust
lands be sold to the “highest and best bidder." Id. Therefore,
Weiss's reliance on this case is misplaced.
Weiss also argues that the superior court erred by
including sales by municipalities to third-party purchasers in this
category because those sales had already been considered by the
court in its specific discussion of sales to third-party purchasers.
However, the superior court's finding that the plaintiffs face a
"medium" risk of recovering municipal entitlement lands through
continued litigation is amply supported by University of Alaska
regardless of whether such lands were resold to third parties.
iv. Pre-1978 disposals
The superior court evaluated the plaintiffs’ risk of
recovering lands disposed of prior to the 1978 redesignation
legislation as “very high." The court reasoned that because
“[{njothing in Weiss would require that they be included in the
reconstituted trust,""* the "plaintiffs would have to prove a breach
of trust or other invalidity other than the enactment of the
redesignation legislation." It concluded that, under University of
Alaska and the legislature's power under the AMHEA to dispose
of trust lands, the plaintiffs would be unlikely to succeed in
forcing the State to return this land. Weiss contends that the
plaintiffs would have little difficulty in establishing that the pre-
1978 transfers were in breach of trust.
The lands disposed of prior to 1978 include both
purchases by third parties and land designated for other uses. As
discussed above, the trial court reasonably found the risk of
8 We stated in Weiss that the goal on remand was “to restore the trust to
its position just prior to the conveyance effected by the redesignation
legislation.” Weiss, 706 P.2d at 684.
recovering land in these two categories as "very high" and
“high,” respectively. This analysis applies with equal force to the
pre-1978 disposals. Thus the superior court did not err in its
evaluation of the risk with respect to recovering this category of
land.
c. Summary _of litigation _risk_with
respect to land
In summary, the superior court did not err in concluding
that the likely result of continued litigation would be a trust
corpus including land worth between about $1.1 billion and $1.5
billion. Nor did the court err in estimating, for purposes of
comparison, the value of settlement lands as about $1.1 billion.
The superior court ably analyzed the complex land valuation
issues in this case; its findings and conclusions are well supported
by both the record and the relevant authority.
2. Cash
The superior court considered the settlement's $200
million “cash infusion" to be "extremely significant" because it
assured “some income” for Trust Authority programs and
because "it is real money in hand today." The trial court stated
that "$200 million of mineral value may never produce $1 of
income for the trust; because the mineral values are based on
probabilities of discovery derived from extremely limited
geophysical, geochemical, and geological data with no actual
drilling." The superior court also stated that, based on
calculations by an expert witness for the Proponents, $200
million in cash is equal to the net present value of the royalties
from between $588 million and $6.3 billion in annual mineral
production, depending on one's assumptions regarding cost of
production, discount rate, mine life, and delay in the start of
production.”
Weiss complains that these comparisons led the trial court
to overemphasize the value of the cash component of the
settlement. He argues that the court's statement that $200 million
in mineral value might not produce any income for the trust
"represents a fundamental misunderstanding of the valuation
process."
While Weiss is correct that mineral lands valued at $200
million could presumably be sold for $200 million “cash in
hand,” his argument misses the superior court's point that the
capacity of the trust land to produce income is highly speculative.
Contrary to Weiss's assertions, these comparisons and
calculations were not presented as “one of the fundamental
underpinnings” of the superior court's analysis, but merely as an
"interesting" way to contrast the speculative value of the trust's
land with the certain value of cash. The superior court did not
err by observing this distinction or by illustrating it.”
3. The set-off
The issue of the set-off goes to the heart of the nature of
the trust created by the AMHEA. In Weiss, we stated:
1% —_ The $588 million figure is based on immediate production, a 10%
discount rate, a mine life of 20 years, and a royalty payment of four percent of
gross production. The $6.3 billion figure is based on a 10-year delay in
production, a 20% discount rate, a mine life of 20 years, and a royalty stream of
four percent of gross production.
%® Weiss offers his own calculations purporting to show that the court‘s
conclusions are “very far off the mark." These calculations, while
mathematically correct, ignore the court's assumptions regarding start-up delay,
discount rate, and mine life. Thus they do not provide a meaningful point of
comparison.
To the extent that former mental health
lands have been sold since the date of the
conveyance [redesignation legislation] the trust
must be reimbursed for the fair market value at the
time of sale. In calculating the total amount owed,
the trial court should grant a set-off for mental
health expenditures made by the state during the
same period. In the event that expenditures
exceeded the value of lands sold, the state need
not furnish cash as part of the reconstitution.
706 P.2d at 684. The superior court considered the "setoff... a
very significant litigation risk" with the "potential to negate any
cash recovery to the trust resulting from the State's obligation to
pay for ‘sold’ land.” It reasoned that neither we nor the United
States Supreme Court would be likely to review and reverse our
decision in Weiss. It also noted that the language of the AMHEA
supports its assessment of the risk created by the set-off because
it “appears to allow the proceeds of [land] sales to be used for the
necessary expenses of the mental health program."
Weiss counters that our statement in Weiss allowing the
set-off was merely the product of a dubious and unauthorized
stipulation made by plaintiff's original counsel. Weiss argues
that the making of such a stipulation amounted to "inadequate
representation” by class counsel and that class members will
therefore not be bound by the resulting settlement agreement.
Weiss's argument rests on the assumption that the set-off,
at least as understood by the superior court, is an erroneous
interpretation of Weiss and the AMHEA. Relying on our holding
in Weiss that the State, by passage of the 1978 redesignation
legislation, “breached its duty to preserve the corpus" of the
trust, Weiss, 706 P.2d at 683, he concludes that we rejected the
State's view that it had the power to spend trust principal to fund
the mental health care program. He argues that the superior
court should have interpreted Weiss as endorsing his position that
A-25
the State has a duty to preserve the trust corpus against
"diminution."
We disagree. The AMHEA provides that trust lands
"may be sold, leased, mortgaged, exchanged, or otherwise
disposed of in such manner as the Legislature of Alaska may
provide in order to obtain funds or other property to be invested,
expended, or used by the Territory of Alaska." AMHEA- §
202(e). The superior court reasonably interpreted this language
as expressly permitting the State to fund mental health programs
by selling trust assets. Thus the trial court did not err in
reasoning that the AMHEA probably does not require that the
State preserve the corpus of the trust in perpetuity. Nor is this
reasoning contradicted by any duty under basic trust law
principles. Trustees have a duty to preserve trust property for
the uses of the trust,” but they do not necessarily have a duty to
maintain the corpus of the trust forever.”
*t The Restatement (Second) of Trusts § 176 (1959), under the heading
“Duty to Preserve the Trust Property,” states: “The trustee is under a duty to the
beneficiary to use reasonable care and skill to preserve the trust property.”
Comment b of § 176 further states that "[i}t is the duty of the trustee to use
reasonable care to protect the trust property from loss or damage.” Thus the
duty to preserve the trust corpus does not prohibit the trustee from using the
principal for the purposes of the trust. Indeed, trusts may allow the trustee to
expend the principal of the trust for the support of the beneficiary, under specific
terms of the trust, or at the trustee's discretion. See, e.g., Restatement (Second)
of Trusts, §§ 153-55, 190 (1959).
#2 The school trust land cases do not compel a different result. As noted
school trust lands, in contrast to the AMHEA, expressly require the state to
ananassae by greed poe ne hee nb
22 Envtl. L. “797, $79 (1992). Conaintatisdeecans
establishes such a permanent trust fund for the mental health trust. See AS
37.14.031. In view of the language of the AMHEA, it is unlikely that further
litigation would achieve this result.
In light of the provisions of the AMHEA, general trust
principles, and our approval of a set-off in Weiss, the superior
court did not err in concluding that plaintiffs would face a
significant risk that a set-off for the State's mental health
expenditures "has the capacity to destroy any affirmative cash
recovery regardless of how many lands are determined to have
been ‘sold.'"
4. The mismanagement claim
Weiss argues that even if the trial court correctly found
that the set-off would exceed any cash recovery for lands
removed from the trust, it erred by not adequately assessing the
plaintiffs’ claim against the State for damages from the State's
alleged mismanagement of the trust. Weiss argues that,
according to Restatement (Third) of Trusts, Prudent Investor
Rule § 205 (1990), a trustee who commits a breach of trust is
"chargeable with the amount required to restore the values of the
trust estate and trust distributions to what they would have been if
the trust had been properly administered." Weiss concludes that
the superior court erred by finding "significant risks" that
damages from this mismanagement or “lost opportunity” claim
would not exceed the set-off. He also argues that the superior
Moreover, Weiss undercuts his own position that the State's duties with
regard to the mental health trust are similar to the duties of other states toward
school land trusts by arguing that the State breached its duty as trustee by failing
to manage the trust's mineral lands so as to produce income to fund the mental
health program. The use of royalties from nonrenewable resources to fund
mental health programs would necessarily diminish the corpus of the trust. In
recognition of this, states with school land trusts usually place mining royalties
into permanent funds or use them to purchase additional trust land. See Sally K.
Fairfax et al., The School Trust Lands: A Fresh Look at Conventional Wisdom,
22 Envtl. L. 797, 879 (1992). Indeed, under the settlement agreement, “royalty
proceeds” are placed in the permanent fund containing the trust's cash principal.
AS 37.14.031(b)(2).
court abused its discretion by refusing to allow his expert to
testify on the likely amount of mismanagement damages.
The superior court agreed with Weiss that "it is very
likely that the plaintiffs could prove that the State mismanaged
the trust." It found, however, that the plaintiffs would face
significant risks both in proving damages in excess of the set-off
and in overcoming potential legal defenses. This conclusion is
well supported by both the relevant law and facts of this case. In
this regard, the trial court stated:
Lost opportunity damages are difficult to
prove in amy case unless there is an existing
history of business activity or earnings. They
would be extremely difficult to prove in this case.
The most difficult area of proof concerns
the mineral lands. Almost nothing is actually
known about the mineral producing capacities of
these lands. The lands were open for mineral
development and staking for free from the time
they were in state control until after the Supreme
Court's decision in Weiss. Accordingly, the proof
would center on what would have happened with
proactive promotion of the lands. However, there
is moO appropriate comparative standard.
Throughout this period no group in this state
actively promoted mineral lands. Thus, it is hard
to predict how the mineral industry would have
reacted to active management. Even if the
plaintiffs overcome this hurdle, they would have to
prove how much money they would have earned
from producing mines. Alaska has not had a very
active metallic mineral industry, other than for the
production of gold. There is a substantial risk that
the plaintiffs would be left with speculative
damages for which they could be awarded
nothing.
A-28
The easiest area to prove, lost opportunity
damages concerning the surface lands, still poses
litigation risks. There are proof problems there as
well. The years from 1966 (when selections were
largely completed) to 1978 were growth years for
the state, but most of the growth occurred in the
latter part of that period with the building of the
Transalaska pipeline. The plaintiffs could have
difficulty showing a market for lands before 1975.
The superior court also found that portions of the
mismanagement claim were subject to several legal defenses
putting "some if not all of the potential damages from the lost
opportunity claim at risk." It noted that the plaintiffs either
approved or did not object to many of the transactions between
1986 and 1990 approved by the Interim Mental Health Trust
Commission. In addition, the preliminary injunction sought by ~
plaintiffs has precluded the State from "permitting any activity on
trust lands without court approval." Thus the trial court
concluded that the State “could probably defeat most claims after
1986 based on waiver."
The superior court also found that the mismanagement
claim might be barred by "limitations placed by the court on the
intervention by AMHA.” The mismanagement claim was added
to this litigation by the complaint in intervention filed by AMHA
after we issued our decision in Weiss. This court's order
permitting AMHA's intervention stated that "counsel for AMHA
declared its general satisfaction with the decision in Weiss, and
its present desire only to participate in future proceedings in
Weiss on the previously ordered remand thereof." Under this
order, the trial court granted AMHA's request to file its
complaint “only insofar as the Additional Claims relate directly to
the reconstitution of the trust ordered by the Alaska Supreme
Court” in Weiss. Referring to these orders permitting AMHA's
intervention, the superior court stated that an “independent claim
for damages may exceed that limitation." In light of this
A - 29
analysis, we hold that the superior court did not err in its
evaluation of the plaintiffs’ mismanagement claim.
Weiss also argues that the trial court abused its discretion
by refusing to allow Weiss's expert to testify on the likely amount
of mismanagement damages. Our review of the transcript,
however, reveals that the excluded testimony arose after a new
attorney took over examination of the expert during direct
testimony. As a condition for allowing the switch in attorneys,
the court required the witness's further testimony to be within the
scope of the prior testimony. The trial court did not abuse its
discretion in ruling that the scope of the prior testimony did not
include the calculation of damages due to the State's alleged
mismanagement of the trust.
5. Program Benefits
In comparing the settlement with the likely result of
continued litigation, the trial court considered three "primary
benefits" in addition to land and cash. These benefits,
collectively referred to as the "Program Benefits," include (a) the
creation of the Trust Authority, (b) budgeting advantages for the
mental health program, and (c) the management of trust land by a
special unit within DNR. Weiss argues that the superior court
overvalued each of these benefits.
a. The Trust Authority
The superior court found the Trust Authority to be a
"fundamental and significant part" of the settlement agreement.
Weiss argues that the benefit of the Trust Authority is largely
"illusory" because its power to spend money from the trust
income account without appropriation by the legislature is
possibly unconstitutional. Weiss also contends that the power of
the Trust Authority to oversee DNR's administration of trust
lands is meaningless since DNR will have "the final say."
In granting both preliminary and final approval, the
superior court recognized that the constitutionality of the Trust
Authority's power to spend trust income without legislative
appropriation was uncertain. Thus, contrary to Weiss's
assertion, the superior court did not "just close its eyes” to this
issue. Indeed, it would have been improper for the trial court to
attempt to resolve this unsettled legal question. See Carson v.
American Brands, Inc., 450 U.S. 79, 88 n.14 (1981).
Furthermore, the court based its finding as to the significance of
the Trust Authority on "all its powers and its advocacy position,"
not solely on its spending power.” Thus the superior court, even
while acknowledging Weiss's argument, came to a different
conclusion as to the Trust Authority's value; this conclusion was
not Clearly erroneous. Weiss's second argument also fails.
Again, the superior court recognized and accounted for the fact
that, although the Trust Authority has the power to disapprove
proposed land exchanges, DNR will ultimately decide how to
manage trust land. See AS 37.14.009(a)(2).
Moreover, the superior court responded to both of these
arguments with the observation that, without the settlement there
“would be no Trust Authority." Instead, the likely result of
litigation would be "general directions to the State to manage the
trust in the interests of the beneficiaries and under the Enabling
Act." The superior court did not err in determining that
management under the Trust Authority will probably be better
than "management with those directions."
* _ The superior court emphasized its view of the importance of the Trust
Authority's “advocacy position”:
The Trust Authority, if it does its job, will serve as a watchdog to
ensure that neither DNR nor the legislature mismanages these trust
lands again. . . . {I}t is clear that the sometimes powerless have been
empowered. The Trust Authority can be a powerful advocate for the
real needs of those who have so much difficulty advocating for
themselves.
b. Budgeting advantages
The superior court found that the budgeting procedures in
HB 201, set forth at AS 47.30.046 and AS 37.14.003-.005,
may prove to be significant as the budget
for the integrated comprehensive mental health
program competes with other needs for general
fund appropriations. The mental health budget is
given an advantage for inclusion in the governor's
budget over the budgets of other state agencies.
The mental health budget is given an advantage
before the legislature both from its separation from
other appropriations and in the required legislative
report. Clearly, there are no guarantees of
adequate funding or expanded funding for
necessary services, but these budget advantages
may prove to be significant nonetheless.
Weiss argues that the superior court erred in not
quantifying the benefit of these "budgeting advantages." It would
make little sense, however, to require the trial court to quantify
the value of such terms; as the court recognized, their
significance remains to be seen. However, like the Trust
Authority, the budgeting advantages would almost certainly not
be established through continued litigation. Therefore, the
superior court did not err in considering these procedures a
benefit, albeit of unknown value, to the class.
c. Land management
Weiss makes several interrelated arguments with regard
to the land management provisions of the settlement agreement.
First, he contends that the management regime is “illegal”
A - 32
because it allegedly does not require trust lands to be managed
"solely in the best interest of the beneficiaries." Weiss also
asserts that the court erred by considering the "not very concrete"
benefit of management of trust land by a special DNR unit.”
Weiss argues that the settlement's management scheme is
illegal because it provides that DNR "shall manage mental health
trust land under those provisions of law applicable to other state
land." AS 38.05.801(b)(1). This argument is unconvincing. HB
201 explicitly makes this provision subject to the overall
requirement that the lands "be managed consistent with the trust
principles imposed" by the AMHEA. AS 38.05.801(a). In light
of this express language, the trial court reasonably concluded that
the settlement's management standard conforms with the
requirements of the trust.
Weiss also argues that the management provisions are
illegal because they require that DNR's regulations “address . . .
management for multiple use of trust land." We agree with the
superior court, however, that when "viewed in its entirety, there
is actually no conflict" in the statute between the multiple-use
subsection and the subsections requiring maintenance of the trust
_ land base and management for the benefit of the trust and long-
term sustained yield of products from the land. As the superior
court noted, multiple use can refer to multiple types of
development as well as to combining recreation or preservation
with development.* Moreover, recognition of the "unique
a Weiss also argues briefly that the superior court erred by not reducing
the value of settlement land because of the settlement's management regime.
This argument assumes that the State's management under the settlement will be
different than the management resulting from continued litigation. As discussed
below, the court did not err in refusing to accept this assumption.
ad The law review article from which the management provisions adopted
by HB 201 are derived reinforces the superior court's interpretation of the term
“multiple use" in the context of state trust lands: “Management for multiple
A - 33
scenic, paleontological, and archeological values" of trust lands is
not necessarily incompatible with trust principles, even under the
stringent rules governing school trust lands. National Parks &
Conservation Ass'n v. Board of State Lands, 869 P.2d 909, 921
(Utah 1993).
Weiss also takes issue with the superior court's appraisal
of the value of the settlement's creation of a separate unit within
DNR to manage trust lands. The superior court found
the addition of a special unit to manage these lands
to be an improvement over general management
by DNR for several reasons. First, the land
managers in the special unit will have a smaller
amount of land per person to manage than those in
DNR. This should allow managers to be proactive
managers instead of passive managers. Second,
the special unit members can be trained in the
special rules applicable to trust management and
will have to apply only those rules and those laws
applicable to other state lands which do not
conflict with trust management under the Enabling
Act. Third, the individuals in the special unit may
develop a sense of pride in their special charge.
Even if, as Weiss asserts, the trial court's first point is not
supported by evidence, the court's second and third points offer
ample support for its conclusion that management by a
uses on state trust lands varies from the common conception of multiple use as it
is applied to federal lands. In the states’ case, multiple uses must either
contribute to the overall generation of revenues for the trust, must be revenue
neutral, or must be funded by other sources." Sally K. Fairfax et al., The
School Trust Lands: A Fresh Look at Conventional Wisdom, 22 Envtl. L. 798,
905 (1992).
specialized unit will probably be an improvement over the result
of continued litigation.
In summary, the program benefits at best offer a
considerable advantage over continued litigation. At worst, they
are as favorable as the likely product of continued litigation.
Therefore, we hold that the superior court did not err in its
appraisal of the settlement's provisions regarding the Trust
Authority, the budgeting procedures, and land management.”
6. Enforceability
Weiss argues that the superior court erred in approving a
settlement that "is not legally enforceable." The settlement
agreement provides:
By this agreement, the parties stipulate to
a mutual dismissal of all claims and defenses, and
acknowledge that the trust is reconstituted in
accordance with State v. Weiss, 706 P.2d 681
(Alaska 1985). The provisions of . . . HB 201. .
. Constitute material terms upon which the
plaintiffs have agreed to a dismissal and
acknowledged that the trust is reconstituted. If the
Legislature materially alters or repeals any of
those provisions, the plaintiffs' sole remedy is a
new action alleging that the mental health trust has
not been adequately reconstituted and to seek such
* The superior court also noted that approval of the settlement
Eliminated the risk that the so-called “non-settlement provisions” of HB 201
would be upheld as "curative legislation” for the State's breach of the trust. If
the superior court had not approved the settlement, the non-settlement provisions
of HB 201 would have “reconstituted” the trust with the settlement lands but
without the $200 million in cash, establishment of the Trust Authority, or
enactment of the budgeting procedures.
relief as may be appropriate in light of the
plaintiffs’ claims. In light of the dismissal of each
parties’ [sic] claims, no modification of this
agreement may be made except in writing signed
by all the parties. Nothing in this section shall
limit any party's right to enforce this agreement or
applicable state statutes.
The superior court noted in its decision granting final
approval that “nothing in HB 201, the Settlement Agreement, or
this decision can prevent a future legislature from passing
legislation affecting the trust, but there are remedy provisions if
this happens and deterrents exist." The court stated that, in the
event of such legislative action, the class can move for relief
from judgment under Civil Rule 60(b)(6). The trial court also
relied on the expectation that the Trust Authority, as an advocate
for the trust, will
in a position to influence the governor to veto any
islation which makes a material change in this
settlement.
Finally, the trial court found that third parties, such as
“purchasers of state land, hardrock miners, and oil companies . .
. would undoubtedly lobby the legislature to maintain stability in
land titles in order to avoid disrupting land development in
Alaska with another lawsuit.”
Weiss contends that Rule 60(b) “is not an appropriate
enforcement vehicle,” citing O'Link v. O'Link, 632 P.2d 225,
229 (Alaska 1981), for the proposition that relief under the rule is
available only under “the most extraordinary of circumstances.”
In O'Link, we stated: “Clause (6) [of Rule 60(b)] and the first
A-3%6
five clauses of Rule 60(b) . . . are mutually exclusive. Relief
under clause (6) is not availeble unless the other clauses are
inapplicable. . . . Clause (6) is reserved for extraordinary
circumstances not covered by the preceding clauses." 632 P.2d
at 229. This rule, however, does not contradict the well-
established practice of using Rule 60(b)(6) “to return the parties
to the status quo” after “one party fails to comply" with a
settlement agreement. 11 Charles A. Wright et al., Federal
Practice and Procedure § 2864, at 352 (1995).” A material
change of the settlement agreement by the legislature would thus
present one of the narrowly defined situations that clearly present
“other reason{s] justifying relief" under Rule 60(b)(6).
Weiss also argues that the court should not have
approved the settlement unless the State agreed “to be bound by a
consent decree or otherwise subject to specific performance."
The Proponents respond that plaintiffs “retain the ability to
specifically enforce the settlement agreement" and “to enforce
legislation enacted as part of the settlement." They argue that no
agreement could bind future legislatures so as to prevent
amendment of the HB 201 settlement statutes. The Proponents
are correct. It is a well-established principle that one legislature
cannot abridge the power of a succeeding legislature. 73 Am.
Jur. 2d Statutes § 34 (1974); State v. Lewis, 559 P.2d 630, 643
(Alaska 1977); Application of Hendrick & Irish, 922 P.2d 943,
951 (Haw. 1996). Thus, it would be impossible for the State to
grant the enforcement terms Weiss would require. Furthermore,
the proponents are also correct in stating that the court relied
primarily on the “product” elements of the settlement, that is, the
reconstitution of the trust with land and cash, rather than on the
“process” elements contained in the program benefits. The class
77 —_ Because Rule 60(b)(6) is modeled on its federal counterpart, federal
authorities are instructive in interpreting the state rule. See Agostinho v.
Fairbanks Clinic, 821 P.2d 714, 716 n.4 (Alaska 1991).
A-37
need not rely entirely on either judicial supervision or “the good
faith cooperation of the defendants," Morales v. Turman, 569 F.
Supp. 332, 334 (E.D. Tex. 1983), to ensure the realization of
significant benefits of the settlement. Therefore, the superior
court did not err in granting approval to the settlement.
7. Summary
In summary, the superior court did not err in its careful
evaluation of the settlement and the likely result of continued
litigation. After taking into account “the uncertainties of law and
in taking [the] litigation to completion,” the court did not abuse
its discretion in holding that the settlement is fair, adequate, and
reasonable.
Weiss also attacks the process under which the settlement
was negotiated and approved. Specifically, he objects to (1) the
superior court's definition of the class, (2) the conduct of
negotiations between the parties, (3) the notice to class members
and the court's consideration of class comments, and (4) the
schedule established by the court for consideration of the
settlement.”
L. Definition of the class
The superior court redefined the class in 1994 as -
%# —_ Weiss also argues that the trial court abused its discretion by not
granting prelimimary approval to the Chapter 66 settlement and by denying a
motion to substitute Billy R. Cross for John Martin. Because our decision
moots these issues, we do not address them.
A-38
all persons who are past, present and future
beneficiaries of the mental health lands trust
created by Congress in the Alaska Mental Health
Enabling Act of 1956. The beneficiaries are
residents of the State of Alaska who are mentally
ill, mentally defective or retarded, chronically
alcoholic suffering from psychoses, senile and as a
result of such senility suffer major mental illness,
amd -such other persons needing mental health
services as the legislature may determine.
The trial court ordered this redefinition on the motion of Weiss
and AMHA to make the class "co-extensive with the beneficiaries
of the trust" as determined by the superior court's Beneficiary
Decision in 1988. | Weiss argues that the superior court's
Beneficiary Decision erroneously included the developmentally
disabled” as beneficiaries of the trust and hence members of the
class.
The superior court based its Beneficiary Decision on a
review of the legislative history of the AMHEA. The court
concluded, and Weiss does not dispute, that the version of the bill
originally passed by the House included the developmentally
disabled as beneficiaries of the trust. Weiss asserts, however,
that the Senate “disagreed that they should be included." As
evidence for this position, he relies on a comment made by the
sponsor of the bill in the Senate, Senator Jackson, that "[tJhere
are a lot of people who are mentally retarded that should not be
under the provision of this bill." The context of this remark,
however, suggests that Senator Jackson was concerned that
inclusion of the developmentally disabled under the AMHEA's
definition of “mentally ill” might lead to their imprisonment or
stigmatization, not that he felt they should be excluded as
7 = See supra note 4.
beneficiaries. Furthermore, Senator Jackson never came to a
conclusion on the matter; after a brief exchange, he merely
states, "I do not know. My mind is open... ." His statement
thus provides no evidence of legislative intent to exclude the
developmentally disabled as beneficiaries of the trust.
Weiss also argues that the Senate's refusal to adopt
language suggested by the Department of Health, Education, and
Welfare (HEW) demonstrates its intent not to include the
developmentally disabled. The proposed language would have
replaced the phrase “mentally ill" in the House version of
AMHEA § 202(e) with the phrase “the mental health program of
Alaska, including (but not by way of limitation) the out-patient
and in-patient care and treatment of the mentally ill, and of the
mentally defective and mentally retarded, of Alaska.” The
version of the AMHEA finally passed by the Senate retained the
phrase “mental health program,” but dropped the remainder of
HEW's proposed language. The report by the House managers
noted the difference between the House version, defining the
phrase "mentally ill" to include the developmentally disabled, and
the Senate version, using the phrase “mental health program”
with no definition. The managers stated that they “accepted this
Senate amendment which broadens the use of the revenues for
use of the Alaska mental-health program rather than for the
hospitalization and care of the mentally ill in Alaska.” Because
the House version included the developmentally disabled, the
superior court reasonably concluded that a version that
“broadens” the program would also include those individuals.
Moreover, the relatively vague phrase “mental health program"
does not support an intent by the Senate to exclude potential
beneficiary groups. The Senate's decision not to adopt the rest of
HEW's proposed amendment shows little more than a desire to
avoid cumbersome and unnecessary language.
The superior court's conclusion is also supported by
other parts of the AMHEA. Along with the land grant, the
AMHEA provided for grants
A-40
to the Territory of Alaska to assist it to carry out
plans, submitted by the Governor of the Territory
or his designee and approved by the Surgeon
General, for an integrated mental health program
for the Territory, including outpatient and
inpatient care and treatment.
AMHEA § 201. This suggests that Congress intended the
meaning of the term "mental health program" to be determined
by the Territory and the Surgeon General. The superior court
found, and Weiss does not dispute, that the first mental health
program enacted by the Territory in 1957 defined “mentally ill
individual" as "an individual having a psychiatric or other disease
or senile changes which substantially impair his mental health or
who is mentally deficient." The superior court also noted that
one impetus for passage of the AMHEA was to end the need for
placing Alaskans with mental problems in Morningside Hospital
in Portland. These Alaskans included the developmentally
disabled. Therefore, we hold that the superior court did not err
in determining that Congress intended the developmentally
disabled to be beneficiaries of the trust and hence members of the
plaintiff class in this litigation.
2. Settlement negotiations
Weiss argues that the HB 201 settlement was the result of
collusion between the State and counsel for the H.L. and Bosel
Intervenors.” Weiss claims that collusion occurred between the
%* —_ Weiss also argues that the superior court erred by failing to make a
ee ce The case upon which
en orp. En r itig.. 594 F.2d
1106, 1124 & n.21 (Mth Cir. 1979), sunpeste doo qeepediinn Gas Geen want
consider whether the class is adequately represented by the “representative
parties” in the action under Alaska Civil Rule 23(a)(4). However, neither that
case nor any other authority requires the trial court to make a specific finding
A-4l
State and Proponents because Proponents (1) “caused the State to
withdraw from the Chapter 66 Settlement Agreement by being
willing to support" the HB 201 settlement, (2) supported the
“passage of legislation [HB 201] that provided for the dismantling
of the trust if their negotiated settlement is not approved by the
courts," (3) "negotiated a settlement and a schedule that would
not allow judicial determination of whether the [Trust
Authority's] key right to spend the Trust's income free of
legislative appropriation was constitutional,” and (4) “assured the
mental health community that they would only accept a settlement
that contained certain elements to gain their support and then
negotiated a settlement that did not contain those elements.” The
superior court considered these arguments in its decision granting
preliminary approval and found no evidence of collusion.
Instead, it found that Weiss's points merely demonstrated “that
the attorneys had legitimate disagreements.”
A trial court "may not approve a proposed settlement if it
is the product of fraud or overreaching by, or collusion among,
the negotiating parties." In re Pacific Enters. Secs. Litig., 47
F.3d 373, 378 (9th Cir. 1995) (quotation omitted). Black's Law
Dictionary defines “collusion” as follows: “An agreement
between two or more persons to defraud a person of his rights by
the forms of law, or to obtain an object forbidden by law. It
implies the existence of fraud of some kind, the employment of
fraudulent means, or of lawful means for the accomplishment of
an unlawful purpose.” Black's Law Dictionary 264 (6th ed.
1990). Im the absence of evidence to the contrary, “courts
generally attach ‘a presumption of correctness . . . to a class
settlement reached in arms length negotiations between
experienced, capable counsel after meaningful discovery.'”
that the class is adequately represented by counsel. Even if there were such a
requirement, the superior court's consideration of the conduct of the settlement
negouations by Proponents’ counsel would have met it.
A-42
Herbert B. Newberg & Alba Conte, 2 Newberg on ye Actions
§ 11.28, at 11-59 (1992) (quoting Manual for Complex
Litigation, Second § 30.44 (1985)). Evidence suggesting
collusion may include significant differences in the relief received
by different groups within the class or the simultaneous
negotiation of attorney's fees and class claims. See Manual for
Complex Litigation, Third § 30.42 (1995).
Given these principles, we conclude that even if Weiss's
first three allegations are true, they do not establish collusion. As
Proponents point out, Weiss does not allege that secret meetings
were held, that Proponents’ counsel excluded his counsel from
meetings, that settlement proposals were not relayed as they were
received, that he was not allowed to comment on the proposals,
or that he was not free to negotiate independently with the State.
Furthermore, there is no argument that Proponents or
Proponents’ counsel benefitted from the settlement unfairly. The
superior court properly found that these arguments show merely
"that the attorneys had legitimate disagreements."
Weiss's principal evidence supporting the fourth
allegation is a letter written by counsel for AMHA purportedly
documenting an agreement as to negotiating strategy between
counsel. The superior court specifically found that "the attorneys
had legitimate disagreements over the interpretation" of that
letter. While Weiss argues that the letter embodied a “formal
agreement" representing “absolute bottom line requirements for a
settlement,” Proponents interpret the letter “as evidence of
Weiss's counsel's continued support for the basic settlement
proposal.” Considering the ambiguous language of the letter, the
fact that counsel for Proponents never responded to it, and the
continued willingness of counsel for Weiss to participate in a
settlement even after the alleged agreement had been "breached,"
the superior court did not err in finding that the letter showed no
evidence of collusion on the part of counsel for the H.L and
Bosel Intervenors.
3. Notice
‘ Notice of the proposed settlement was sent to every
household in Alaska and to 1400 providers of mental health and
other services. In addition, notice was published in newspapers,
announced on radio and television, distributed on audio cassette,
published in Braille and large print, and translated into Spanish,
Filipino, Inupiaq, and Yupik. The notice allowed for comments
by members of the public, including family, guardians and
friends of beneficiaries, and provided a form allowing
commentors to identify themselves as beneficiary members of the
class, guardians or relatives of a class member, or members of
the public. The trial court received 1088 comments, about 150
from class members, eighty from advocacy groups or people
"indicating they work in the mental health field," and about 170
from family members and guardians of class members. The
court treated comments from these groups as class comments, but
considered all others public comments and gave them little
weight. Weiss argues that the superior court abused its discretion
in approving the content of the notice and by allowing individuals
who were not members of the class to comment.
Weiss objects to the content of the notices, asserting that
it: (1) was “silent on the State's unilateral right to alter the
settlement;" (2) failed to inform the class of the risk that the
power of the Trust Authority to spend trust funds without
legislative appropriation might be found unconstitutional; (3) did
not mention that more litigation might be required to ensure that
land management regulations comply with the AMHEA; (4) did
not urge the class to "consider the importance of cash to them;"
(5) did not "describe the value of the original Trust and the value
of the HB 201 Settlement Trust; (6) stated that the settlement
contained 930,000 acres as compared with 1,000,000 acres
"without any kind of disclosure that only land that no one else
wanted is included;" (7) imcorrectly suggested that the
“settlement commits the State and Trust Authority to providing an
adequate mental health program;" and (8) falsely stated that the
Trust Authority would "oversee" management of trust land.
A-44
According to one authority ,**
[t]he contents of a Rule 23(e) notice are sufficient
if they inform the class members of the nature of
the pending action, the general terms of the
settlement, that complete and detailed information
is available from the court files, and that any class
member may appear and be heard at the hearing.
The notice should be brief and reasonably
clear to the minimally sophisticated layperson.
However, the terms of the settlement and the
course of the litigation should not be
oversimplified to increase readability at the
expense of accuracy and completeness. Of course,
as the length of litigation, the complexity of issues,
and the variety of terms of settlement increase,
their description in a Rule 23(e) notice will
generally be more elaborate. . . . [W]here some
multiple plaintiffs oppose a proposed class
settlement, the court in its discretion may insist
that notice of the settlement under those
circumstances be neutral in tone and should not
include either a party's or the court's arguments
for or against settlement.
2 Herbert B. Newberg & Alba Conte, Newberg on Class Actions
§ 8.32 (3d ed. 1992) (footnotes omitted).
The notice provided by the superior court meets these
criteria. Moreover, adopting Weiss's suggestions would have
created a substantial risk of either misleading class members or
violating the neutral tone called for by the class's split over the
3s See supra note 27.
settlement. The trial court successfully struck a difficult balance
between providing enough information for the class to evaluate
the settlement and making the notice understandable to as many
class members as possible. Therefore we conclude that the
superior court did not abuse its discretion by approving the
content of the notice.
In arguing that the superior court abused its discretion by
allowing comments by individuals who are not class members,
Weiss relies on Gould v. Alleco, Inc., 883 F.2d 281 (4th Cir.
1989). This case stands for the unobjectionable proposition that
only class members have standing to object to settlement
proposals. Id, at 284. The Gould court, however, explicitly
stated that its “ruling regarding the lack of standing of non-class
members to object to proposed settlements should not be read to
restrict the trial court's authority to consider or even solicit the
views of non-parties to proposed class settlements." Id. at 284
n.3.
Accepting comments from individuals outside of the class
was particularly appropriate in this case because, as the superior
court stated, "many members of the class may not be able to
understand the notice or speak for themselves." Thus, the court
properly considered the “comments from family members,
guardians, advocacy groups, mental health professionals, and
others working directly with trust beneficiaries" as class
comments. Furthermore, the court, by including a space on the
notice form for sommentors to identify their status with respect to
the litigation, provided adequate protection against the risk of
improperly corsidering comments from the general public.
Judge Greene adopted an excellent procedure both for
disseminating aotice of the proposed settlement and for
distinguishing class comments from public comments so as to
evaluate each appropriately.
4. Due process
Finally, Weiss argues that he was denied due process
because the superior court did not grant "adequate time to brief,
prepare for and conduct the hearings" and "did not give the time
to its deliberations necessary to fulfill his} right to a fair and
impartial decision." We have stated that due process under the
state constitution requires "notice and opportunity for hearing
appropriate to the nature of the case." Carvalho v. Carvalho,
838 P.2d 259, 262 (Alaska 1992) (citations omitted). The United
States Supreme Court has further stated that due process under
the Federal Constitution requires that every person "shall have
the protection of [a] day in court, and the benefit of the general
law, a law which hears before it condemns, which proceeds not
arbitrarily or capriciously, but upon inquiry, and renders
judgment only after trial." Truax_v. Corrigan, 257 U.S. 312,
332 (1921).
Weiss cites a number of cases in support of his position
that the superior court failed to give him adequate time to satisfy
his due process rights to contest the HB 201 settlement. In these
cases, however, the injured party was denied all opportunity for a
hearing, not merely constrained by the court's schedule.” E.g.
ane meme ge P. ed a 263 (Alaska 1992);
¥: Bd., 524
% ~~ Weiss also cites Channel Flying, Inc. v. Bernhardt, 451 P.2d 570,
572-73 (Alaska 1969), to support the statement that we have “recognized the due
process implications of forcing a litigant to proceed without having an adequate
opportunity to prepare.” In Bernhardt, we stated that a trial judge erred by not
allowing a party reasonable time to respond to late filings raising matters “which
petitioners would find it important to meet if they were to succeed in their
efforts to obtain a preliminary injunction.” Id. at 573. Weiss makes no
allegation that the parties did not have equal amounts of time to prepare and
present their cases and to respond to the arguments of their opponents.
A-47
established a seven-month schedule to consider the settlement and
conducted a four-day evidentiary hearing on preliminary approval
and a ten-day evidentiary hearing on final approval. Weiss
introduced considerable testimony in support of his position,
including testimony of twelve expert witnesses at the final
approval hearing, and exhaustively briefed his opposition to both
preliminary and final approval as well as a number of other
related issues. Weiss clearly had ample opportunity to present
his case.
Furthermore, Weiss fails to identify how any time
constraints caused him serious prejudice. We will not disturb a
trial court's refusal to grant a continuance unless a party has been
seriously prejudiced by that refusal. House v. House, 779 P.2d
1204, 1206 (Alaska 1989). In this case, as in House, the lower
court's ruling was "based on a review of all the relevant evidence
and . . . the complaining party had reasonable opportunity in
court to introduce evidence and contest the other side's evidence.
Inability to mount a successful case does not mean that due
process was violated or that an abuse of discretion occurred.” Id.
at 1207. Therefore we hold that the superior court did not violate
Weiss's due process rights by establishing and adhering to its
schedule for final approval.
We also reject Weiss's assertion that the superior court
failed to give adequate consideration to his claims. Judge
Greene's thorough, deliberative, and well-reasoned analysis is
documented by her fifty-eight page preliminary approval
memorandum, her 137-page final approval memorandum, and
her other decisions resolving earlier stages of this litigation. We
are satisfied that Judge Greene gave Weiss's position the full
benefit of her able consideration.
IV. CONCLUSION
In closing, we echo Judge Greene's thoughts on the
resolution of this lengthy litigation:
A - 48
The settlement process as a whole has
done some harm. The class and their families are
very divided on the question of this settlement.
Some may feel cheated and abandoned by this
decision approving it. Others may feel vindicated.
Hopefully, neither will persist in those feelings.
Whether or not to approve this settlement was a
very difficult and complex decision. The court
shares many of the concerns that have been
expressed by the class. The task that lies ahead
for the beneficiaries, their friends and families is
to come together to make the best of this
agreement. The beneficiaries will need to speak
with one voice again, if their concerns are not
heeded. They need to heal the divisions that exist
today and vow as recommended by one
commenting beneficiary to go "out of the courts
and into the budget."
We conclude that Judge Greene's approval of the HB 201
settlement demonstrated a sound understanding of the relevant
authority and the facts of this case, as well as a keen regard for
the rights and interests of the plaintiff class. Weiss has not
clearly demonstrated that approval of the settlement on the basis
that it was fair, adequate, and reasonable constitutes an abuse of
discretion. Therefore, we AFFIRM the superior court's
decision.
A-49
STATE OF ALASKA,
Appellant/Cross-Appellee,
VERN T. WEISS, et al.,
Appellee/Cross-Appellant.
SUPREME COURT OF ALASKA
vs
ee Se”
Nos. S-653/678, No. 2987
706 P.2d 681
October 4, 1985
Appeal from the Superior Court of the State of Alaska,
Fourth Judicial District, Fairbanks, Warren W. Taylor, Judge.
COUNSEL
G. Thomas Koester, Assistant Attorney General, Norman
C. Gorsuch, Attorney General, Juneau, for
Appellant/Cross-Appellee.
Stephen C. Cowper, Fairbanks, for Appellee/Cross-
Appellant. Russ Winner, McGrath & Associates,
Anchorage, for Amicus Curiae Cook Inlet Region, Inc.
JUDGES
Before: Rabinowitz, Chief Justice, Burke, Matthews and
Compton, Justices. Moore, Justice, not participating
OPINION
COMPTON, Justice. OPINION
The State of Alaska ("state") appeals from a judgment of
the superior court holding that the state breached its duty as
trustee of federal mental health grant lands when the legislature
redesignated the property as "general grant land." For the reasons
B- 1
set forth below, we affirm the holding to this extent, but reverse
the superior court's conclusion that the redesignation legislation
was valid.
I. FACTUAL AND PROCEDURAL BACKGROUND
In 1956 the United States Congress passed the Alaska
Mental Health Enabling Act (AMHEA) which, insofar as it
concerns this case, granted the Territory of Alaska one million
acres of federal land to be held in public trust to help effectuate
the creation and operation of mental health care facilities in
Alaska. Pub. L. No. 84-830, 70 Stat. 709 (1956). Section 202(e)
of the Act specifically provides:
All lands granted to the Territory of
Alaska under this section, together with the
income therefrom and the proceeds from any
dispositions thereof, shall be administered by the
Territory of Alaska as a public trust and such
proceeds and income shall first be applied to
meet the necessary expenses of the mental health
program of Alaska. Such lands, income and
proceeds shall be managed and utilized in such
manner as the Legislature of Alaska may provide.
Such lands, together with any property acquired
in exchange therefor or acquired out of the
income or proceeds therefrom, may be sold,
leased, mortgaged, exchanged, or otherwise
disposed of in such manner as the Legislature of
Alaska may provide in order to obtain funds or
other property to be invested, expended or used
by the Territory of Alaska. The authority of the
Legislature of Alaska under this subsection shall
be exercised in a manner compatible with the
conditions and requirements imposed by other
provisions of this Act. (emphasis added)
The state managed these lands without maintaining a
separate account until 1978. The Alaska State Legislature made
its practice law in 1978 when it passed the following statutory
provision:
REDESIGNATION AND DISPOSAL OF
MENTAL HEALTH LAND
(a) Land granted to the state under the
Mental Health Enabling Act of 1956, 70 Stat.
709, and patented to or approved for patent to the
state on July 1, 1978 and land designated as
mental health land which was received by the
state in exchange for land granted under that
federal land grant is redesignated as general grant
land and shall be managed and disposed of by the
Department of Natural Resources under
applicable provisions of law.
Ch. 181, § 3(a), SLA (1978).
Alaska has provided continuous mental health care since
statehood. The record indicates that between 1959 and 1982 the
state spent over $222,000,000 on mental health care. Generally
speaking, there has been a constant increase from 1959 to the
present in mental health expenditures: slightly less than
$1,200,000 was expended in 1959, and slightly more than
$29,000,000 was expended in 1982. The record does not indicate
how much of the trust land at issue has been disposed of, nor the
total value of such disposed land. In the state's answer to the
complaint, it alleges that “state expenditures for mental health
purposes exceeded revenues from mental health grant lands in all
years for which revenues from those lands were tabulated
separately." The record does indicate that as of 1973, total
revenues from these mental health trust lands amounted to
$19,555,582. The state's total expenditures to that point
amounted to $66,726,176.
Weiss et al. filed a class action in 1982 alleging that the
state breached the public trust by 1) failing to account for
revenues realized, 2) using revenues for purposes other than
mental health care and 3) passing legislation redesignating the
property "general grant land." Plaintiffs sought declaratory relief
invalidating the redesignation legislation; injunctive relief
compelling the state to administer the trust according to the law;
general relief establishing a trust account "for the receipt of funds
generated from all lands selected by the State of Alaska under the
aforesaid mental health land grant... ."
The superior court ruled that invalidation of the
redesignation legislation was not an available remedy, based on
State v. University of Alaska, 624 P.2d 807, 815 (Alaska 1981).
However, the court did hold that the state breached its duties as
trustee by removing the federal grant lands from the trust. As a
remedy, the court ordered that
[t]he public trust established by P.L. 84-830, 70 Stat.
709, shall recover from the defendant State of Alaska
an amount equal to the fair market value of all lands
conveyed from the trust as of the date of conveyance,
plus prejudgment interest from the date of each
conveyance. For the purposes of this judgment, all
lands remaining in the trust as of July 19, 1978, shall be
considered as having been removed from trust status by
the State of Alaska on that date... .
The court also ordered a set-off for all monies spent by the state
on mental health care.
The state appeals from the judgment, except the holding
that the redesignation legislation was valid. Weiss et al. cross-
appealed the trial court's failure to rule the legislation invalid.
II. DID THE STATE BREACH THE PUBLIC TRUST
CREATED BY CONGRESS WHEN IT REDESIGNATED
B-4
woe)
PROPERTY IN THE TRUST AS "GENERAL GRANT
LAND?"
A. Nature of the Trust.
The state argues, essentially, that the redesignation is of
no legal consequence because the state has always provided
public mental health programs in the past and, implicitly, will
provide them in the future. The state maintains that providing
such programs fulfills its obligations according to AMHEA,
freeing the grant lands for other public purposes. Textual support
for this position comes from the portion of Section 202(e) which
states that "proceeds and income shall first be applied to meet the
necessary expenses of the mental health program of Alaska." It is
suggested that this language means Congress intended that the
land grant serve as a revenue base guarantee. Great emphasis is
placed on the legislative history of AMHEA which establishes
that Congress did not wish to limit the use of grant lands
exclusively to mental health programs.’
| The debates in the House and Senate are too lengthy to reproduce in their
entirety here, but certain remarks are representative of the discussions. Senator
Jackson commented that "the income from sales or leases will be used to support
the mental health program in Alaska. The income will be held in trust for that
purpose. Any money received over and above the need for the mental health
program may be used for other public purposes.” He further noted that the
language change was not of a fundamental nature, and thus said that, “the
purpose of granting 1 million acres is the same as in all other similar grants,
such as the public school land-grant program." 102 Cong. Rec. 9761 (June 7,
1956).
We note that the language in the federal grant was changed from designating the
proceeds of the land grant to be used as a public trust for Alaska's mental health
program, to saying that the proceeds “shall first be applied to meet the necessary
expenses of the mental health program” only because of worry among members
of Congress that the land may actually have a value far in excess of the
necessary health care expenses. The record in this case shows that income from
the land grant was actually less than state expenditures for mental health
programs.
B-5
Despite these observations, we think it irrefutable that
Congress intended to create a trust, to be based on a corpus of
one million acres of federal land. It is a commonplace of the law
that without trust property there can be no trust. Restatement
(Second) of Trusts § 74 (1959).? When the state, through the
legislature, altered the status of the property grant the trust was
thereby effectively terminated. The state, as trustee, had no
power to do this and consequently breached its duty to preserve
the corpus.’ The fact that the state has provided mental health
care in the past and will most likely do so in the future is no
ivstification for termination of the trust. Whether a beneficiary
can rely on the bona fides of a trustee to continue voluntarily to
uphold the terms of a defunct trust is quite beside the point. We
decline the opportunity to encourage the state, or any trustee for
that matter, to determine unilaterally when to terminate a trust
without specific authority to do so.
B. Remedy.
Having concluded that the state breached the trust, we
find it necessary on the facts of this case to invalidate the
redesignation statute, Ch. 181, § 3(a), SLA (1978). State v.
University of Alaska, 624 P.2d 807, 815 (Alaska 1981) does not
compel a different result. In that case, the federal government
had granted 100,000 acres to the state "for the exclusive use and
benefit" of the University. Id. at 811. Years after the grant, the
state included 5,040 acres of the trust land in a state park. This
? Section 74 provides: "A trust cannot be created unless there is trust property.”
> Our reliance upon basic trust law principles finds ample support in the
precedents of this court and the United States Supreme Court. See Lassen v.
Arizona, 385 U.S. 458, 17 L. Ed. 2d 515, 87 S. Ct. 584 (1967); State v.
University of Alaska, 624 P.2d 807 (Alaska 1981). Both Lassen and University
of Alaska involved federal grants to be used by states for school purposes. Those
cases stand for the proposition “that the same private trust law principles are to
apply to federal land granted to the states for school purposes.” University of
Alaska, 624 P.2d at 813. There is no reason to treat federal lands granted for
mental health purposes differently.
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action was not in itself a breach of the trust so long as the
University was paid fair market value for the land. We inferred
that the legislature intended to pay the University for this
disposition, stating:
It is also logical to assume that the legislature
intended to compensate the University for the loss
of its land. This view gives the statute creating
{the park] a reading that is in accord with the
well recognized cannon of statutory construction
that, when possible, legislation should be
construed in a way that upholds its validity.
524 P.2d at 816.
Unlike the situation in University of Alaska, the present
case does not involve a disposition of a portion of trust lands for
a specific use. Instead, the entire corpus of the trust is
intermingled with the general grant lands of the state. No
particular use of the trust lands is specified and it may be years
before much of the land is used. While it was reasonable to infer
a legislative intent to pay for 5,040 acres for which there was a
present park land use in University of Alaska, it is not reasonable
to infer that the legislature meant to pay for a quantity of trust
land approaching one million acres for which in large part there
is no present use. Thus, the payment remedy imposed in
University of Alaska is not appropriate here. Because the state in
passing the redesignation act went beyond the power which had
been granted it with respect to the trust lands by Congress, the
redesignation act must be declared invalid.
It follows from our conclusion that the redesignation
legislation is invalid that the trust must be reconstituted to match
as nearly as possible the holdings which comprised the trust when
the 1978 law became effective. The case is remanded so that
requisite findings can be made. We take this opportunity to
provide some guidance to the trial court to simplify its task.
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|
Those general grant lands which were once mental health
lands will return to their former trust status. In the event
exchanges have been made, those properties which can be traced
to an exchange involving mental health lands will also be
included in the trust. To the extent that former mental health
lands have been sold since the date of the conveyance the trust
must be reimbursed for the fair market value at the time of sale.
In calculating the total amount owed, the trial court should grant
a set-off for mental health expenditures made by the state during
the same period. In the event that expenditures exceeded the
value of lands sold, the state need not furnish cash as part of the
reconstitution. The goal is to restore the trust to its position just
prior to the conveyance effected by the redesignation legislation.‘
AFFIRMED in part, REVERSED in part and
REMANDED for further proceedings consistent with this
opinion.
* Amicus raises questions regarding the title held by conveyances and bona fide
purchasers of mental health lands. In view of our disposition of this case, we
deem it unnecessary to address those issues at the present time.
B-8
CO OOOO TT
IN THE SUPERIOR COURT FOR THE STATE OF ALASKA
FOURTH JUDICIAL DISTRICT
VERN T. WEISS, father and
next friend of CARL WEISS,
a minor child, and EARL
HILLIKER, on behalf of
themselves and all others
similarly situated; the
ALASKA MENTAL HEALTH
ASSOCIATION, MARY C. NANUWAK
and JOHN MARTIN, on behalf
of themselves and all others
similarly situated; ANITA
BOSEL, FRANCES DOULIN, SHARON
GOODWIN, and GABRIEL MAYOC;
and H.L., M.K., and ALASKA
ADDICTION REHABILITATION
SERVICES,
Plaintiffs,
VS.
STATE OF ALASKA,
Defendant.
Case No. 4FA-82-2208 Civil
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FILED in the
Trial Courts
State of Alaska
Fourth District
Dec 06, 1994
MEMORANDUM DECISION AND ORDER GRANTING
FINAL APPROVAL TO THE HB 201 SETTLEMENT
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TABLE OF CONTENTS
I. PEs I tess sscevesexsetnecesstebinscatebasiasbiniia
Il. ee eveixetsivsnecnesceensediisassanteondnnsalal
History
HB 201
UO>
SINR < «1 sviceucusuncosasasaedsbaleasiial ed
Previous Settlement Attempts......................ccc0eceee
TCT TR LEME ese ee Ty\
SORE REE EEE EEE EEE EERE EEE EEE EEE ERE EEE REECE EO!
SORE EERE EEE EEE EEE HEE EEE EEE EEE EEE EEE OH EEE
c. Extent to Which Problems Identified by the
Court in the Decision Regarding
Preliminary Approval Have Been Resolved............
His. WM ihichatsniseousciovenechaneuisenaidececibalcedewecrmadthan
a. Non-settlement provisions of HB 201......................
Be EEE Hn cenrevantinnsincantutudidd Ciuhsxnshiivcnsancanucinen
3. Comparison of the Likely Result of
Litigation with Setthement.............ccrccssscsscsscsccsesee
E. Reaction of the Class to the Settlement......................
3. Class comments at the final hearing........................
DME aticthicsscoaustculidies 0a cheksnaelcdnaedeendandesouen
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G. Defendant's Ability to Pay (Feasibility
Of the Settlement)..........ccccscescccsssccccccccccccscscscsscees 89
H. Extent of Discovery Completed...............::scseeeeeeeees 90
VI. RESPONSE TO MAJOR OBJECTIONS
TO THE SETTLEMENT...............000:sesecscseeeeeeess 91
A. Inadequate Compensation for Value
Of Original Trust..............::ccceeeeeseeeeeecneeceeeeseneeens 92
B. Specific Lands Comprising the Trust Under HB 201..... 94
C. Possibility of Legislative Actions Contrary to the
DOI, ois ccdsscescccrscovesecevsccsecssancessvesccecssceess 95
D. DNR Managementl................:scscseeeeeeeneeneeereeneeneees 97
E. Trust Authority Has Responsibility for Preserving
Trust Assets Without the Management Authority.......... 99
F. Concern Regarding Constitutionality of the
Trust Authority's Power to Spend Trust..................++ 100
G. Concern that the Legislature Will Cut Mental a
Health Funding from the General Fund...................++- 101
Vil. CORNCTAIGIOIN ...niccccscvccsseccsscccsccscscscesvcssscsees 103
I. INTRODUCTION
This lawsuit is a class action which began twelve years
ago. Alaska Civil Procedure Rule 23 contains procedures
specifically governing class actions in state courts. It is essentially
identical to the corresponding federal rule. See Alaska R. Civ. P.
23. Subsection (e) of Rule 23 safeguards the rights of class
members by requiring court approval of any proposed settlement
after notice has been given to the class.' Alaska R. Civ. P. 23(e).
Due process requires that notice to the class members be given
' Alaska Civil Rule 23(e) states:
A class action shall not be dismissed or compromised without the
approval of the court, and notice of the proposed dismissal or
compromise shall be given to all members of the class in such manner
as the court directs.
Alaska R. Civ. P. 23(e).
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because settlement of a class action has res judicata effects on all
class members.’ Grunin v. Intern'l House of Pancakes, 513 F.2d
114, 120 (8th Cir.), cert. denied, 423 U.S. 864, 46 L.Ed.2d 93
(1975). The requirement of court approval of settlements prevents
private agreements which are contrary to the best interests of the
class and protects the interests of absent class members who are not
among the negotiating parties. In re Agent Orange Product
Liability Litigation, 597 F.Supp. 740, 758 (E.D.N.Y. 1984).
The approval process for settlement of a class action
involves several steps: (1) submission of the proposed settlement to
the court; (2) if necessary, an evidentiary hearing about the nego-
tiation process and other concerns about the settlement proposal;
(3) preliminary approval by the court and an order regarding notice
to the class and the scheduling of a final hearing at which members
of the class may comment; (4) notice informing class members of
the proposed settlement and solicitation of their comments
concerning the settlement; (5) a fairness or final approval hearing
regarding whether the settlement is reasonable and fair to the class;
(6) final approval of the settlement by the court and either dismissal
of the case or continuing court oversight of the implementation of
settlement provisions. See generally H. Newberg, Newberg on
Class Actions § 11 (3d ed. 1992); Manual for Complex Litigation,
Second § 30.4 (1985) ["MCL2d"].
At the preliminary approval stage, the court determines
whether the proposed settlement has obvious deficiencies and is
?The type of notice required for due process depends upon the nature of the class
and the kind of relief involved. This is discussed in relation to this case in part IV
of this Memorandum Decision.
*The Civil Rule 23(e) requirements for the settlement of class actions are
necessary because of the possibility that:
substantial rights of the class may be bargained away in exchange for
relief which inures primarily to the named plaintiffs or to class counsel.
Because of the potential for abuse, protection of class interests cannot
be left to class counsel alone. The Court must act as the guardian of
the class.
Holden v. Burlington Northern Inc., 665 F. Supp. 1398, 1406 (D. Minn. 1987)
(citations omitted).
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————_—
sufficiently within the range of possible approval to warrant the
time and expense for giving notice to the class. See, €2..
Armstrong v. Board of School Directors, 616 F.2d 305, 314 (7th
Cir. 1980). At the final hearing, proponents of the settlement must
convince the court that the proposed settlement is "fair, reasonable,
and adequate" before final approval may be granted. E.g., Grunin
v. International House of Pancakes, 513 F.2d at 123. The class
comment portion of the final approval hearing provides an
opportunity for class members to present their objections to the
settlement. In re Agent Orange, 597 F. Supp. at 759.
The court's role in reviewing a class settlement is limited to
the minimum necessary to protect the interests of the class.
Armstrong, 616 F.2d at 315. A class action settlement remains a
bargained bilateral compromise negotiated between the litigants. Id.
The court has no authority to delete, modify, or substitute terms of
the settlement and can only accept or reject the settlement proposal
as it is presented. Officers for Justice v. Civil Service Comm'n,
688 F.2d 615, 630 (9th Cir. 1982); MCL 2d § 30.41, at 237.
This proposed settlement is now before the court for
decision on whether it should receive final approval. It was
submitted by three of the parties in June 1994. The court
conducted an evidentiary hearing in July. The court granted
preliminary approval on July 29, 1994. The class has received
notice. The court has received comments from the class. The
court conducted a lengthy hearing on the fairness of the settlement.
The opinion that follows explains the process and contains an
analysis of the settlement agreement.
Il. BACKGROUND
A. History of the Case
The mental health lands trust was created by Congress with
passage of the Alaska Mental Health Enabling Act of 1956
("Enabling Act"]. Pub. L. No. 84-830, 70 Stat. 709 (1956). The
Enabling Act transferred responsibility for mental health programs
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All lands granted to the Territory of
Alaska under this section, together with the income
therefrom and the proceeds from any dispositions
thereof, shall be administered by the Territory of
Alaska as a public trust and such proceeds and
income shall first be applied to meet the necessary
expenses of the mental health program of Alaska.
Such lands, income, and proceeds shall be
managed and utilized in such manner as the
Legislature of Alaska may provide: Such lands,
together with any property acquired in exchange
therefor or acquired out of the income or proceeds
therefrom, may be sold, leased, mortgaged,
exchanged, or otherwise disposed of in such a
manner as the Legislature of Alaska may provide,
in order to obtain funds or other property to be
invested, expended, or used by the Territory of
Alaska. The authority of the Legislature of Alaska
under this subsection shall be exercised in a
manner compatible with the conditions and
requirements imposed by other provisions of this
Act.
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from the federal government to the Territory of Alaska and granted
a one million acre trust to the Territory to aid in the financial
support of a comprehensive mental health program.* Pub. L. No.
84-830, §§ 101, 202, 70 Stat. 709 (1956). Section 202(e) of the
Enabling Act states:
Pub. L. No. 84-830, § 202(e), 70 Stat. 709 (1956). Section 6(k) of
the Alaska Statehood Act confirmed and transferred the mental
health trust land grant from the Territory to the State. Pub. L. No.
85-508, § 6(k), 72 Stat. 339 (1958).
“In 1956 no mental health services existed in Alaska. The federal government
transported mentally ill and mentally retarded people in need of hospitalization to
the Morningside Hospital in Portland, Oregon.
gi ie aS hg Ses elt Be i ae 8
The State of Alaska managed trust lands in the same
manner as lands granted under section 6(a)-(b) of the Alaska
Statehood Act ["general grant lands") and did not maintain separate
accounting for revenue produced by trust lands.° Because the
mental health trust lands were some of the first land parcels
selected by Alaska, trust lands were among the most attractive state
lands for surface value use both for private development and public
purposes. During the 1970's there was growing pressure on the
Legislature to convey state-owned land to private individuals and
municipalities. In 1978, the Alaska Legislature enacted Chapters
182 and 181, SLA 1978, redesignating mental health trust lands as
general grant lands to be managed and conveyed as all other state-
owned lands. A percentage of all State land revenue was to be
paid to a mental health trust fund to compensate the trust for the
loss of the lands "subject to legislative appropriation of sufficient
funds."-Ch. 182 § 4, SLA 1978. No money was ever appropriated
by the legislature to the fund.
After the redesignation legislation, some of the original
mental health trust land was set aside for public purposes such as
parks, recreation, and wildlife habitat. Much of the trust land
located within municipal boundaries was transferred to municipal-
ities, who later sold some of this land to private individuals. Many
of the trust lands most suitable for development were sold by the
State to private individuals through the land sale programs imple-
mented by the Alaska Department of Natural Resources ["DNR"].
Overall, up to 50,000 acres were conveyed to private individuals,
over 40,000 acres were conveyed to municipalities, and over
350,000 acres were placed in legislatively designated areas® such as
Most state-owned lands are the general grant lands conveyed to Alaska under
subsections (a) and (b) of section 6 in the Alaska Statehood Act.
“In legislation for a previous settlement attempt in this case, the term
"legislatively designated area” was defined as land designated by state law as a
state park, state forest, state game refuge, state wildlife refuge, state game
sanctuary, state recreational area, state recreational river, state wilderness park,
state marine park, state special management area, state public use area, critical
habitat area, bald eagle preserve, bison range, or moose range. Ch. 66 §§ 54(6),
55(b), SLA 1991.
C-7
state forests, parks and wildlife areas. Only about 35 percent of the
original one million acres of trust land remained unencumbered and
in state ownership in 1985.
Vern Weiss, on behalf of his son Carl Weiss, and Earl
Hilliker filed this lawsuit as a proposed class action on November
26, 1982. The complaint stated that Earl Hilliker and Carl Weiss
were in need of mental health services unavailable in Alaska. They
claimed that the State breached the mental health lands trust by
failing to account for trust revenues, using the revenue from trust
lands for purposes other than mental health services, and
redesignating trust lands as general grant lands. In January 1983,
the lawsuit was certified as a class action, and the class was defined
as “all persons who are residents of the State of Alaska and who
will require mental health services in the future which are not
available in the State of Alaska.” Order Certifying Action (Jan. 26,
1983) (Judge Taylor). The superior court ruled that the State
breached its duties as trustee by redesignating the trust lands as
general grant lands, but also ruled that invalidation of the 1978
redesignation legislation was not an available remedy. The
superior court ordered the State to pay the trust an amount equal to
the fair market value of lands conveyed from the trust as of the date
of conveyance plus prejudgment interest from the date of each
conveyance. Additionally, the superior court ordered a setoff for
all money spent by the State on mental health services. Both sides
appealed from that decision. 7
In October 1985, the Alaska Supreme Court upheld the
superior court's ruling that the State had breached its obligations as
trustee for the mental health lands trust established by Congress in
1956. State v. Weiss, 706 P.2d 681, 684 (Alaska 1985). However,
the Supreme Court invalidated the 1978 redesignation legislation
and held that the trust should be reconstituted to match as nearly as
possible the holdings which comprised the trust when the 1978 law
became effective. Weiss, 706 P.2d at 684. The Supreme Court
provided the following “guidance” to the superior court on remand:
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Those general grant lands which were
once mental health lands will return to their former
trust status. In the event exchanges have been
made, those properties which can be traced to an
exchange involving mental health lands will also be
included in the trust. To the extent that former
mental health lands have been sold since the date
of the conveyance the trust must be reimbursed for
the fair market value at the time of the sale. In
calculating the total amount owed, the trial court
should grant a set-off for mental health
expenditures made by the state during the same
period. In the event that the expenditures
exceeded the value of the land sold, the state need
not furnish cash as part of the reconstitution. The
goal is to restore the trust to its position just prior
to the conveyance effected by the redesignation
legislation.
Weiss, 706 P.2d at 684 (footnote omitted). The Court specifically
declined to rule on questions raised in amicus briefs regarding the
title held by the conveyancees and bona fide purchasers of mental
health trust lands. See Weiss, 706 P.2d at 684 n.4.
In 1985, Weiss and Hilliker were the only class
representatives. The Alaska Mental Health Association ["AMHA"]}
was permitted to intervene on January 24, 1986, and Mary C.
Nanuwak and John Martin were added in June 1986.” The AMHA
intervened because of its disagreement with the manner in which
the original plaintiffs’ attorney was conducting the case.* See
Transcript of Oral Argument before the Alaska Supreme Court, at
2-4, 7 (Jan. 14, 1986). In particular, the AMHA believed that the
validity of many of the State's conveyances of mental health land to
third parties, such as municipalities, should be challenged, because
the conveyances were the result of the State's breach of trust. Id. at
18, 27-29. The superior court permitted AMHA to file additional
claims only to the extent that the claims related directly to the
reconstitution of the trust ordered by the Alaska Supreme Court in
State v. Weiss, 706 P.2d 681, 684 (Alaska 1985). Order (June 19,
1986) (Judge Greene).
On March 31, 1987, the court permitted Bosel, Doulin,
Goodwin, and Mayoc ("Bosel") to intervene in order to assure
adequate representation for the developmentally disabled who were
potential members of the class. Soon after intervening, the
attorney for Bosel, Jeff Jessee, requested that mentally retarded and
mentally defective individuals be declared to be among the intended
beneficiaries of the trust and members of the class. Bosel's Motion
for Partial Summary Judgment (July 14, 1987). Mr. Walker and
Mr. Gottstein, attorneys for Weiss and AMHA respectively,
opposed including as beneficiaries individuals not falling within the
traditional definition of "mentally ill."
H.L., M.K., and Alaska Addiction Rehabilitation Services
("H.L."), on behalf of chronic alcoholics with psychoses, were
permitted to intervene on June 1, 1987. Order Granting
Intervention (June 1, 1987). H.L. sought to intervene "to assure
better representation of the class" and to assure that the relief
obtained in this action reflects the needs and characteristics of
[chronic alcoholics].". H.L.'s Memorandum in Support of Motion
to Intervene, at 1, 3 (May 13, 1987).
In 1988 the court ruled that Congress intended the trust to
benefit at least those individuals suffering from a psychiatric illness
who may require hospitalization and the mentally defective and
retarded. Memorandum Decision and Order, at 16-17 (April 27,
1988). Included in this definition of trust beneficiaries were
chronic alcoholics suffering from psychoses and senile people who
as a result of their senility suffer major mental illness. Id. at 17 n.6.
The court also concluded that it was within the discretion of the
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State to include other groups as recipients of services by the mental
health program, but it was not within the discretion of the State to
exclude the groups specifically identified by the court as intended
beneficiaries. Id. at 17. The class definition was modified in 1994
to coincide with this definition of the beneficiaries as a result of this
decision. The class is now defined as
all persons who are past, present and future
beneficiaries of the mental health lands trust
created by Congress in the Alaska Mental Health
Enabling Act of 1956. The beneficiaries are
residents of the State of Alaska who are mentally
ill, mentally defective or retarded, chronically
alcoholic suffering from psychoses, senile and as a
result of such senility suffer from major mental
illness, and such other persons needing mental
health services as the legislature may determine.
Order Modifying Class Definition (Aug. 2, 1994).
The Supreme Court's “guidance” in its 1985 decision
created almost as many issues as it resolved. The continuing
uncertainty surrounding the validity of third party conveyances has
been a major source of disagreement among the parties in
evaluating the potential outcome of continued litigation. Because
the setoff is applicable only to lands "sold," interpretation of the
term "sold" within the context of the Supreme Court's decision has
been another source of disagreement. It is in the interest of the
class to include as few lands as possible within the definition of
"sold," while it is in the State's interest to include as many lands as
possible.? It is also hard to determine which specific state
°As a result, attorneys for the class have argued that the term includes only
private third-party purchasers falling within the strictest possible definition of bona
fide purchaser. The State, on the other hand, has suggested that any lands where
an interest has been given or conveyed to others, including use of the land by
another state agency, are “sold.”
C-11
expenditures should be included in the setoff."° A simple return of
all original trust lands still in state ownership presents problems for
both the class and the State due to the impact on state forests,
parks, and wildlife refuges, including the Chilkat Bald Eagle
Preserve near Haines. These and other unresolved issues led the
parties to spend several years pursuing proposals for settlement of
this case.
B. Previous Settlement Attempts
Major attempts at settlement were made through legislation
in 1987 (Chapter 48), 1990 (Chapter 210), and 1991 (Chapter 66).
Chapter 48 and Chapter 210 were abandoned by the parties before
the proposals were even presented to the court. The State
withdrew from the Chapter 66 settlement after the court denied
preliminary approval.
The Chapter 48 and Chapter 210 settlement proposals both
involved the State's continued use of trust lands with the trust to be
compensated with "rent." In Chapter 48, the trust was to be
reconstituted entirely with land within legislatively designated areas
and the original trust lands not within legislatively designated areas
were to be released from trust status. The reconstituted trust was
to have the same fair market value as the original one million acres
of trust land. The State was to compensate the trust by "renting"
the reconstituted trust lands at an annual amount of eight percent of
the fair market value of the trust lands with the value of the lands to
be redetermined every five years. Until fair market value of the
lands was established, five percent of the State's unrestricted
general fund revenues was to constitute the income of the trust.
Chapter 48 also created the Alaska Mental Health Board to
determine the needs of the mental health program and transmit
funding recommendations to the governor and legislature. ‘
‘For example, services specifically for alcoholics have not always been
classified as mental health services, although chronic alcoholics suffering from
psychosis are among the beneficiaries of the mental health lands trust.
Additionally, the State has proposed inclusion of the cost of incarcerating people
who are class members and violate the criminal laws.
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The parties could not agree on the fair market value of the
trust lands. The fair market value was estimated at $2.243 billion
using procedures approved by the Interim Mental Health Trust
Commission.'' The State objected to this figure as grossly
excessive. The Commissioner of DNR notified interested parties
on April 17, 1990, that the State refused to follow the
Commission's procedures for determining fair market value. An
impasse resulted ending the consideration of the Chapter 48
settlement.
The Legislature then enacted a different proposal in
Chapter 210, which eliminated the need for determination of land
values. Chapter 210 provided for compensation to the trust in the
amount of six percent of the State's annual unrestricted general
revenues. Plaintiffs rejected this proposal, in part because they
expected the State's general revenues to fall to a level at which the
trust was unlikely to receive fair compensation for the value of the
trust lands.
The State continued to convey original trust lands while
various settlement proposals were negotiated. After the impasse in
the Chapter 48 process was reached, plaintiffs obtained a
preliminary injunction prohibiting the State from taking any further
action on mental health lands. See Memorandum Decision and
Order (July 9, 1990). The plaintiffs also refiled lis pendens on all
original mental health lands. Between 4,000 and 6,000 land
transactions were affected by the injunction and lis pendens. This
placed many purchasers of small parcels in the difficult position of
making all of their payments to the State for land purchased in state
land sales, but being unable to obtain title to the land. Because of
the cloud on their title, many of these individual purchasers found
themselves unable to sell the land or obtain financing for
construction. Original mental health trust lands have been closed
to mineral activity since shortly after the Supreme Court's decision.
\'The Interim Mental Health Trust Commission was originally established under
Chapter 132, SLA 1986.
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In May 1991, after negotiations between the State and class
counsel, the Alaska Legislature passed Chapter 66.'2 Chapter 66
established a procedure for reconstitution of the mental health lands
trust through a process amounting to a land exchange between the
State and the trust. It also contained amendments to legislation
affecting some of the state's mental health programs and created a
new agency, the Alaska Mental Health Trust Authority, to act as
trustee. The Chapter 66 settlement was a land-based settlement
without any significant cash component. During the negotiations
leading to the enactment of Chapter 66, the State refused to
consider a settlement with a large cash component. On April 6,
1992, a proposed settlement agreement incorporating Chapter 66
was signed by the State and three of the four attorneys representing
the class, Mr. Walker, Mr. Gottstein, and Mr. Jessee.
The legality of portions of Chapter 66 and the 1992
proposed settlement agreement was challenged by intervening
outside interests.’ A group of public interest intervenors ["Public
Interest Intervenors"]'* brought a broad-based constitutional attack
on the parts of the Chapter 66 settlement which reconstituted the
land trust.'* Marathon Oil Company and Union Oil Company of
California challenged portions of the settlement's reconstitution
'*Chapter 66 contained a provision that it would not become effective until this
lawsuit was dismissed. Ch. 66 § 58, SLA 1991. That provision was changed
during the special sessions of the 1994 legislature to provide that certain sections of
Chapter 66 would become effective December 16, 1994 if the HB 201 settlement
was approved and the lawsuit dismissed by December 15, 1994. Ch. 1 § 2-3,
SSSLA 1994, amending Ch. 5 §§ 37 & 39, FSSLA 1994; Ch. 5 § 38, FSSLA
1994.
"The court's decisions on April 26 and May 14, 1993, with regard to these
challenges have been appealed. The Alaska Supreme Court stayed the appeals
when the State withdrew from the Chapter 66 settlement.
“The Public Interest Intervenors included the Alaska Center for the
Environment, Alaska Sportfishing Association, Lynn Canal Conservation,
Northern Alaska Environmental Center, Sierra Club, Southeast Alaska
Conservation Council, Susitna Valley Association, and Trout Unlimited. They
were represented by attorneys for the Sierra Club Legal Defense Fund.
'SThe Public Interest Intervenors objected to the provisions for the land-based
trust reconstitution contained in sections 54 through 57 of Chapter 66.
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process which could affect their oil and gas leases on state land in
Cook Inlet.
The Public Interest Intervenors' challenge attacked the
constitutionality of many parts of Chapter 66. The challenge raised
state constitutional issues of first impression in Alaska. The issues
presented were very complex and briefing and decision
substantially delayed consideration of the Chapter 66 settlement.
The decision by this court invalidated the hypothecated lands list
and held that state land laws were applicable to the trust unless the
application of the law violated the Enabling Act. The settling
parties had the right to withdraw from the agreement because they
viewed these matters as crucial to the Chapter 66 settlement. The
issues On appeal placed the entire settlement at risk.
The intervening oil companies challenged the legality of
transfer of the State's interest as lessor in oil and gas rights on state
land in Cook Inlet, as well as confidentiality provisions in the
settlement agreement and the agreement on interim management of
state lands. Their challenges also delayed the approval process and
the issues on appeal threatened the very existence of the settlement.
Mr. Volland, attorney for H.L., opposed approval of the
Chapter 66 settlement. Mr. Volland alleged that improprieties
occurred during negotiations; an evidentiary hearing regarding
negotiations was held in September 1992 and January 1993.
Although Mr. Jessee, attorney for Bosel, signed the written agree-
ment on April 6, 1992, he formally withdrew his support for it in
December 1992. Mr. Walker, attorney for Weiss, and Mr.
Gottstein, attorney for AMHA, both supported the Chapter 66
settlement.
On October 4, 1993, the court ruled that if a settlement
received final approval in this case, all members of the class would
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be bound by that decision, including those objecting to the
settlement. '°
On December 30, 1993, the court denied preliminary
approval of the Chapter 66 settlement because there were serious
deficiencies in the proposed settlement agreement. Memorandum
Decision and Order, at 122 (Dec. 30, 1993). The class was not
adequately protected by the agreement because it permitted any
party to terminate the settlement agreement after final approval and
dismissal of the case. Memorandum Decision and Order, at 121
(Dec. 30, 1993).
C. HB 201 Settlement
Negotiations for a new settlement began in January 1994.
In February the State made an initial offer, which was discussed by
all plaintiff groups and the third party intervenors.'’ The State
invited counterproposals from any of the plaintiffs attorneys, and in
March Mr. Volland submitted a counteroffer involving the
formation of a permanent endowment fund for the state's mental
health program. None of the other attorneys submitted a
counteroffer.
On April 15, the State responded to Mr. Volland's counter-
proposal with additional changes, including management of trust
land by DNR. At an April 25 meeting attended by Mr. Volland,
representatives of beneficiaries were generally supportive of the
proposal with the exception of certain land management provisions.
Management of trust land by DNR was opposed by many
‘Class members who object to a settlement, however, may appeal a decision
granting final approval. .
"The Public Interest Intervenors, who were primarily interested in
environmental impacts of development of lands in a reconstituted trust, played an
active role in negotiating the contents of the list of lands to be included in the
reconstituted trust under the new settlement. Public Interest Intervenors' Response,
at 4 (July 1, 1994). Representatives from the coal industry and the oil and gas
industry were also involved in the negotiation process. Mr. Volland sought to
involve affected parties so that if a settlement was reached, it would not suffer the
attacks from outside interests which plagued the Chapter 66 settlement.
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lc
beneficiaries or their representatives. Around this time, Mr.
Walker and Mr. Gottstein indicated their dissatisfaction with the
proposed settlement unless significant changes were made, but they
continued to be involved in the negotiation process.
The State continued to pursue a contingency plan by
advocating two sets of provisions, one for settlement and one for
on-going litigation. The settlement provisions would become
effective only if the case was dismissed by a specified date. Other
provisions would become effective immediately and remain
effective regardless of whether the case was dismissed. A few
provisions would take effect immediately, but would be repealed if
the case was dismissed by the specified date. In this way the State
apparently hoped to better its litigation position if the settlement
failed. These provisions and the deadline have been called "cram-
down" provisions by objectors to the settlement. The inclusion of
these provisions has created much ill will among many members of
the class and their families, who view the State as acting unfairly.
HB 201 was passed in a special session immediately
following the regular 1994 legislative session. It amended Chapter
66 and established a deadline of December 15, 1994, for final
appellate and trial court approval in order for the settlement
provisions to become effective. The accompanying appropriations
bill, HB 371, was also passed in the special session. It appropriates
$200 million for the trust fund. Governor Hickel signed both bills
on June 23, 1994.'*
After a four-day evidentiary hearing, the court found that
the HB 201 settlement was within the range of possible approval
and granted preliminary approval. See Memorandum Decision and
Order Re: Preliminary Approval of HB 201 Proposed Settlement
Agreement, at 58 (July 29, 1994). The proposed settlement was
described in detail in the Memorandum Decision and Order
'SHB 201 became Chapter 5, FSSLA 1994, and HB 371 became Chapter 6,
FSSLA 1994. Because the label "HB 201" has been used in other documents, the
court will continue to refer to this settlement as the "HB 201 settlement” in order to
avoid confusion.
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regarding preliminary approval.'* Id. at 13-19. However, the court
identified several problems which could potentially prevent final
approval. See Memorandum Decision and Order Re: Preliminary
Approval of HB 201 Proposed Settlement Agreement, at 31-41
(July 29, 1994). Governor Hickel called a second special session of
the legislature in September 1994, to give the legislature an oppor-
tunity to amend HB 201 and HB 371 before the court made a
decision regarding final approval. See Ch. 1, SSSLA 1994; Ch. 2,
SSSLA 1994. The legislature passed the amendments as submitted
by the Governor.
One of the major amendments made during the second
special session changed the deadline and conditions for the effective
date of the settlement provisions of HB 201. The legislature
eliminated the requirement that all appeals must be resolved before
the December 15 deadline in order for the settlement provisions to
become effective and for the repeal of Chapter 66 to be prevented.
See Ch. 1 § 2, SSSLA 1994, amending Ch. 66 § 58, SLA 1991, as
repealed and reenacted by Ch. 5 § 37, FSSLA 1994. As long as
final approval of the settlement and dismissal of the case by the
superior court occurs no later than December 15, 1994, the
settlement will become effective. While those opposed to settle-
ment still may appeal final approval, such an appeal can no longer
automatically destroy the entire settlement.
A second major change corrected and amended the lands
lists incorporated into HB 201. See Ch. 1 §§ 4-7, SSSLA 1994;
Ch. 5 § 40, FSSLA 1994 (HB 201). The corrections added 122
parcels with approximately 190,955 acres and deleted 85 parcels
with approximately 124,209 acres. The Salcha mineral parcel”
'°Of course, this description does not include the September 1994 amendments
to HB 201. Those amendments are described below.
The original Salcha mineral parcel had not been tentatively approved for
transfer from the federal government to the state because of military use of the
parcel. In addition, there were reportedly hazardous waste sites located on the
parcel that would have posed a significant liability risk for the trust.
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was replaced with the mineral estate in nearby parcels, which
present fewer problems and greater value.”
The court had expressed concern that the state land
contract portfolio could not be sold for the $25 million stated in HB
371. In that event, the full $200 million would not be available for
the trust fund as compensation for some of the original trust lands
not returned. Alternative funding sources for the $200 million
appropriation to the trust fund were identified in the event the
sources originally designated in HB 371 prove to be inadequate.
See Ch. 2, SSSLA 1994. This was enacted to resolve the
uncertainty in whether the class would get the benefit of their
bargain with regard to the $200 million cash payment to the trust.
D. Description of HB 201 Settlement
The settlement components of HB 201 are contained in
sections 3 through 9, 12 through 40, 43, 46, 47, 50, and 51. See
Ch. 5, FSSLA 1994 and amendments in Ch. 1, SSSLA 1994. HB
371 contains a total appropriation of $200 million to the trust fund.
See Ch. 6, FSSLA 1994 and amendments in Ch. 2, SSSLA 1994.
The settlement components in Chapter 66 are contained in sections
2 through 48, 51, 52, and 58.” Ch. 66, SLA 1991.
Section 40 of HB 201 reconstitutes the trust with a
combination of "Original Mental Health Land" and "Other State
Land."” Ch. 5 § 40(a), FSSLA 1994. Some of the approximately
*'The parcels replacing the Salcha mineral parcel were part of a land exchange
agreement between the State and Messrs. Volland and Jessee. See H.L.'s Notice of
Resolution of Salcha Exchange (Sept. 22, 1994).
“HB 201 repealed parts of Chapter 66: AS 37.14.009(b) in section 10; AS
37.14.036(c) in section 11; AS 47.30.031(b)(2) in section 26; sections 49, 50, and
53 through 57. Ch. 5 § 39, FSSLA 1994.
For the purpose of reconstituting the trust, the following land was designated
in HB 201 as mental health trust land:
(1) the original mental health land listed in “Original Mental
Health Land To Be Designated as Mental Health Trust Land, April 28, 1994,”
as amended by the additions and deletions listed in the September 23, 1994,
addendum to the April 28, 1994, list described in this paragraph, both of which
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995,502 acres in the reconstituted trust will not be held in fee
simple.“ Only the subsurface estate of approximately 341,421
acres is conveyed to the reconstituted trust. Only the hydrocarbon
(oil and gas) interest of approximately 104,286 acres is conveyed to
the reconstituted trust. Approximately 549,795 acres in fee simple
are conveyed to the reconstituted trust.
Approximately 568,814 acres of the 995,502 acres in the
reconstituted trust are “Original Mental Health Land." This
"Original Mental Health Land," which is returned to the trust, is
composed of approximately 434,456 acres in fee simple, 55,792
acres of only subsurface estate, and 78,566 acres of only
hydrocarbon interest.~ The "Original Mental-Health Land" in the
reconstituted trust is primarily located near the urban areas in
Southeast Alaska, in the Anchorage/Kenai Peninsula area, and near
Cape Yakataga, Tyonek, Lake Minchumina, Healy, Anderson,
Nenana, and Fairbanks.
are located in the office of the director of lands, Department of Natural
Resources, in Anchorage, Alaska; and
(2) the state land listed in “Other State Land To Be
Designated as Mental Health Trust Land, April 28, 1994," as amended
by the additions and deletions listed in the September 23, 1994,
addendum to the April 28, 1994, list described in this paragraph, both
of which are located in the office of the director of the division of
lands, Department of Natural Resources, in Anchorage, Alaska.
Ch. 5 § 40(a), FSSLA 1994, as amended by Ch. 1 § 4, SSSLA 1994.
**A fee simple estate includes the entire bundle of possible property rights. It
contains both the surface and subsurface estates.
**The subsurface estate or hydrocarbon interests are subsurface interests
conveyed to the Trust Authority where the surface estate has been conveyed to a
third party or another state use, but the surface use is not incompatible with
subsurface development. For example, mineral exploration and development is a
permitted activity in the Matanuska Valley Moose Range. Thus, the subsurface
rights to original mental health trust lands in the Moose Range are returned to the
trust.
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Under the HB 201 settlement, approximately 556,392
acres” of original mental health trust lands will not be returned to
the trust. Compensation for these non-returned lands ["NRTL's"]
will be composed of: (1) approximately 426,688 acres of "Other
State Lands," (2) $200 million placed in a trust fund established for
the monetary corpus of the trust, (3) establishment of an Alaska
Mental Health Trust Authority to act as trustee, (4) changes in the
budgeting process for mental health programs, and (5) the program
improvements outlined in Chapter 66, SLA 1991.
The "Other State Lands" which are conveyed include
approximately 115,339 acres in fee simple, approximately 285,629
acres of subsurface estate only land, and approximately 25,720
acres in hydrocarbon interest only land. The subsurface and fee
simple interests in "Other State Lands" are located primarily
southeast of Chena Hot Springs, just north of Fairbanks, northwest
of McGrath, in the Livengood area,” around Delta Junction, near
Tok, northwest of Haines, north of Sitka, and numerous other
locations in Southcentral and Southeast Alaska. The hydrocarbon
interests are located in the lower Kenai peninsula and lower Susitna
Valley. The Salcha replacement mineral parcel comprises more
than half the acreage of subsurface estate only land in the "Other
State Land" category.”
The Settlement Agreement submitted to the court on June
10, 1994, requires most of the land to be conveyed to the Trust
Authority prior to final approval of the settlement. Settlement
Agreement, art. IV, § 1, at 6-7 (June 10, 1994). The Agreement
**The Non-Returned Trust Lands are composed of approximately 423,000 acres
in fee simple and approximately 133,500 acres of surface estate.
"The Livengood area has been the location of mining activity in the past.
A replacement parcel was chosen because there was no assurance that the
federal government would ever convey the original Salcha parcel to the State. The
replacement parcel is larger than the original parcel and has a value equal to or
greater than the original parcel. The replacement parcel was substituted for the
original on the list of “Other State Land To Be Designated as Mental Health Trust
Land” as part of the amendments passed during the Second Special Session of the
Legislature in September 1994.
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calls for the State to tender to the court the deeds for conveying to
the trust authority the lands to be included in the reconstituted trust
prior to dismissal of this action.”” Settlement Agreement, art. IV, §
1, at 6-7 (June 10, 1994). Accordingly, the State tendered non-
recordable deeds with attached plats on the last day of the fairness
hearing.
DNR normally issues patents, which technically are a form
of quitclaim deed. The HB 201 calls for the State to issue
quitclaim deeds to Trust Authority rather than warranty deeds.
However, the State has warranted in the Settlement Agreement that
it has legal authorization to convey the land to the Trust Authority.
Settlement Agreement, art. IV, § 2, at 7 (June 10, 1994). If the
warranty is violated, the trust will be compensated with other land.
Settlement Agreement, art. IV, § 2, at 7 (June 10, 1994).
Mental health trust land selections not yet conveyed to the
State by the federal government will be conveyed to the Trust
Authority as the State receives them. DNR has agreed to consult
the Trust Authority when the annual conveyance priorities are
submitted to the Bureau of Land Management. Settlement
Agreement, art. IV, § 9, at 11 (June 10, 1994). If such land
parcels are different from those described on the lists referenced in
HB 201, the State will compensate the trust with other land of a
similar character, equal value, and similar revenue-producing
potential. Settlement Agreement, art. IV, § 2, at 7 (June 10, 1994).
The Alaska Mental Health Trust Authority, which is
created by Chapter 66 to act as trustee for the mental health lands
°The Agreement acknowledges that full legal descriptions may not be available
at the time the action is dismissed. Settlement Agreement, art. IV, § 1, at 7.
However, the State has agreed to use its best efforts to complete recordable deeds
for delivery to the trust authority as soon as practicable after dismissal. Settlement
Agreement, art. IV, § 1, at 7 June 10, 1994). The interim deeds describe parcels
by number and reference to maps attached to the interim deeds. The State will
bear the recording costs for all documents required by the settlement. Settlement
Agreement, art. IV, § 5, at 9-10 (June 10, 1994).
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trust,” "has a fiduciary obligation to ensure that the assets of the
trust are managed consistent with the requirements of the Alaska
Mental Health Enabling Act." Ch. 5 § 9, FSSLA 1994; Ch. 66 §
10, SLA 1991, as amended by Ch. 5 § 8, FSSLA 1994; Ch. 66 §
26, SLA 1991, as amended by Ch. 5 § 26, FSSLA 1994. The
Trust Authority is required to contract with DNR to manage the
land assets of the trust. Ch. 5 § 9, FSSLA 1994. A separate unit of
DNR must be established whose sole assignment will be to manage
the reconstituted land corpus of the trust. Ch. 5 § 22, FSLA 1994.
Section 17 of HB 201 lists the general standards applicable
to DNR's management of lands in the reconstituted trust:
(a) Mental health trust land shall
be managed consistent with the trust principles
imposed on the state by the Mental Health
Enabling Act, P.L. 84-830, 70 Stat. 709 (1956).
(b) Subject to (a) of this section,
the department
(1) shall manage mental health trust
land under those provisions of law
applicable to other state land;
(2) may exchange other state land for
mental health trust land under procedures
set out in AS 38.50; and
(3) may correct errors or omissions in
the legal descriptions of mental health trust
land.
(c) The commissioner [of DNR] shall
adopt regulations under AS 44.62 (Administrative
A seven-person board of trustees will govern the Trust Authority. Ch. 66 § 26,
SLA 1994 (to be codified as AS 47.30.016(b)). Board members must be appointed
by the governor and confirmed by the legislature. Ch. 5 § 24, FSSLA 1994.
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Procedures Act) to implement this section. The
regulations adopted under this subsection must, at
a minimum, address
(1) maintenance of the trust land base;
(2) management for the benefit of the
trust;
(3) management for long-term sustained
yield of products from the land; and
(4) management for multiple use of trust
land.
Ch. 5 § 17, FSSLA 1994 (to be codified as AS 38.05.801). The
four management provisions which must be addressed in the
regulations are based on a law review article discussing
management principles for public trust lands. See Fairfax, Souder,
& Goldenman, The School _ T ;
Conventional Wisdom, 22 Envtl. L. 797, 900-908 (1992). The
regulations for DNR's management of trust lands will be adopted
through the usual public rulemaking procedures during which the
beneficiaries and the public will have an opportunity to comment.
See Ch. 5 § 17, FSSLA 1994 (to be codified as AS 38.05.801(c)).
In addition, DNR is required to consult the Trust Authority before
adopting regulations for the management of trust land. See Ch. 5 §
9, FSSLA 1994 (to be codified as AS 37.14.009(a)(2)(B)).
The Settlement Agreement requires DNR to "consult a
transition team of representatives from the beneficiary community"
during the development of the initial policies and procedures for
the DNR unit managing trust land. Settlement Agreement, art. V,
§ 6, at 13-14 (June 10, 1994). DNR Commissioner Harry Noah
has been consulting with the transition team. This arrangement
seems to be working well. Final Hearing (Oct. 25, 1994). Section
9 of HB 201 includes DNR's general obligations to the Trust
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Authority. When DNR manages trust land under a contract with
the Trust Authority, DNR is required to:
(A) manage in conformity with AS
38.05.801;
(B) consult with the authority before
adopting regulations under AS 38.05.801(c);
(C) provide notice to, and consult with, the
authority regarding all proposed actions subject to
public notice under AS 38.05.945 before giving
that public notice;
(D) annually provide the authority with a
report including
(i) a description of all land
management activities undertaken under
this section during the prior year;
(ii) an accounting of ll
income and proceeds generated from
mental health trust land;
(ili) an explanation of the
manner in which the income and proceeds
were allocated between the mental health
trust fund and the mental health trust
income account; and
(E) obtain the approval of the authority
before exchanging mental health trust land under
AS 38.05.801(b)(2).
Ch. 5 § 9, FSSLA 1994.
HB 201 designates the Alaska Permanent Fund
Corporation to manage the investment of the monetary corpus of
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the trust, the "mental health trust fund,” which will receive the
$200 million cash payment from the State.*' Ch. 5 §§ 3 and 9,
FSSLA 1994. Both DNR and the Permanent Fund Corporation
must keep the Trust Authority informed with regularly published
reports.** Ch. 5 §§ 3 and 9, FSSLA 1994.
Earnings from the trust fund and the trust lands must be
deposited in a trust income account. Ch. 5 §§ 3, 14, and 15,
FSSLA 1994. The Trust Authority will administer the income
account. Ch. 5 § 16, FSSLA 1994 (to be codified as AS
37.14.039(a)). The Trust Authority is required to use money from
the trust income account for providing an integrated comprehensive
mental health program, offsetting the effects of inflation on the trust
fund, and meeting the necessary administrative expenses of the
Trust Authority. Ch. 5 § 28, FSSLA 1994 (to be codified as AS
47.30.056(a)). Among other things, the money in the income
account also may be used to reimburse the Permanent Fund
Corporation and DNR for the cost of managing trust assets, to
award grants and contracts for mental health programs, to obtain
private and federal grants and to solicit gifts, bequests, and
contributions for the mental health program. Ch. 5 § 16, FSSLA
1994 (to be codified as AS 37.14.041(a)).
The Settlement Agreement expressly states the Trust
Authority will have the power to allocate money from the trust
income account without further legislative involvement.”
*'The principal of the trust fund is to be “retained perpetually in the fund for
investment by the Alaska Permanent Fund Corporation.” Ch. 5 § 14 (to be codified
as AS 37.14.035(a)). The Trust Authority is required to contract with the Alaska
Permanent Fund Corporation for management of the mental health trust fund. Ch.
5 § 9, FSSLA 1994 (to be codified as AS 37.14.009(a)(3)).
DNR must provide an annual report to the Trust Authority that includes: (1) a
description of all land management activities undertaken during the prior year; (2)
an accounting of all income and proceeds generated from mental health trust land;
and (3) an explanation of the manner in which the income and proceeds were
allocated between the corpus and income of the trust. Ch. 5 § 9, FSSLA 1994 (to
be codified as AS 37.14.009(a)(2)(D)).
33
C-26
— =”.
Settlement Agreement, art. V, § 4, at 12 (June 10, 1994). Section
16 of HB 201 states that the income account will be administered
by the Trust Authority and lists the specific uses for which money
from the trust income account may be used and the requirements
for grants and contracts awarded by the Trust Authority to further
the mental health program.* See Ch. 5 § 16, FSSLA 1994.
Under Chapter 66 and HB 201, each of the four major
beneficiary groups will be represented by their own advocacy
group for purposes of planning services and making budget
recommendations to the Trust Authority. See, e.g., Ch. 66 § 26 (to
be codified as AS 47.30.036(2)-(3)) and § 39 (to be codified as AS
47.30.666), SLA 1991, as amended by Ch. 5 § 35, FSSLA 1994.
The four advocacy groups are the Older Alaskans Commission, the
Alaska Mental Health Board, the Governor's Council for the
Handicapped and Gifted, and the Advisory Board on Alcoholism
and Drug Abuse. See Ch. 5 § 24, FSSLA 1994, amending Ch. 66
§ 26, SLA 1991 (to be codified as AS 47.30.016(b)(2)(A)(D)). A
member from each group also will be on the panel established to
advise the governor regarding appointments to the board of trustees
of the Trust Authority. The six-member panel will consist of one
person selected by each of the following: (1) the Alaska Mental
Except for the administrative expenses of the Authority subject to
the Executive Budget Act under Section 16 of HB 201, and to the
fullest extent consistent with the Alaska Constitution, the Trust
Authority may use the money in the income account for the purposes
authorized in Section 16 of HB 201 without, and free of, further
legislative appropriation.
Settlement Agreement, art. V, § 4, at 12 (June 10, 1994).
“Attorneys for Weiss and AMHA submitted a draft letter of intent to the
legislature in the Second Special Session, stating that the legislature intended the
Trust Authority to have the power to make expenditures from the trust income
account without legislative appropriation. Final Hearing, Weiss Exh. 18. The
letter was not adopted by the legislature. The court does not believe that the
legislature's refusal to adopt the proposed letter of intent can be interpreted as an
expression of contrary legislative intent. The Second Special Session was called
for a particular purpose; the attorney general's office ultimately determined that the
letter of intent went beyond the call.
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Health Board, (2) the Governor's Council on Disabilities and
Special Education, (3) the Advisory Board on Alcoholism and
Drug Abuse, (4) the Older Alaskans Commission, (5) the Alaska
Native Health Board, and (6) the Trust Authority. Ch. 66 § 26,
SLA 1991, as amended by Ch. 5 § 24, FSSLA 1994 (to be codified
as AS 47.30.016(b)). The Trust Authority must consider the
recommendations submitted by the four advocacy groups and
coordinate the state agencies involved with the mental health
program when forming budget recommendations for the state's
comprehensive mental health program. Ch. 66 § 26, SLA 1991 (to
be codified as AS 47.30.036(2)-(3)).
HB 201 requires the governor to submit to the legislature a
separate appropriations bill limited to the comprehensive mental
health program. Ch. 5 § 4, FSSLA 1994. Similarly, the legislature
is required to pass appropriations for the program in a separate bill.
Ch. 5 § 7, FSS’ ° 1994. If the bill submitted by the governor or
passed by the .egislature differs from the Trust Authority's
recommendations for appropriations from the state's general fund,
a report must accompany the bill explaining the reasons for the
differences. Ch. 5 §§ 5 and 7, FSSLA 1994. The governor
must make a similar explanation of any veto of an appropriation for
the state's comprehensive mental health program. Ch. 5 § 6,
FSSLA 1994.
By January 1, 1996, the Trust Authority must have adopted
regula
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