Court: Court of Appeals of Arizona; October 5, 1993; Arizona; State Appellate Court
The Arizona State Land Department scheduled two public auctions for land in Northeast Phoenix, which is part of the Desert Ridge residential community. The land, held in trust under the Enabling Act, required infrastructure development that neither the Department nor the City of Phoenix could finance. Consequently, the Department planned auctions for three leases totaling 563 acres (commercial, resort, and golf course land) and the sale of 839 acres (residential land and public roadway/utilities). The successful lease bidder would act as the master developer, anticipated to have a long-term commitment through a 99-year lease, and would be required to post a bond for infrastructure installation.
Richard V. Campana protested the auctions, requesting their cancellation, a reappraisal of the lands, and a restructuring to ensure equal bidding conditions. Following a hearing, the Department dismissed his protest as meritless, and the auctions proceeded with Northeast Phoenix Partners as the sole bidder. Campana filed a special action challenging the process, raising five issues, including concerns about whether the bidding was "chilled."
The Enabling Act of 1910 authorized land grants to Arizona and required that school trust lands be sold to the highest bidder after public notice, with sales contingent on obtaining true value through appraisal. Section 28 of the Act prohibits the sale or encumbrance of school trust lands without adhering to these conditions.
Campana contends that the bidding process for the land sale was compromised due to the interplay between commercial leases and the auction, asserting that actions by the auctioneer or sellers that inhibit a fair sale violate public policy. He argues that the auction discriminated against residential bidders in favor of a core lessee, thereby stifling competition. In contrast, the Department and Northeast Phoenix Partners maintain there is no evidence of a chilled bidding process. Citing Berry v. Arizona State Land Dept., the text emphasizes the Commissioner's obligation to manage trust lands to maximize revenue, while also having discretion in the sale process. The Martori case establishes that sale terms must serve the best interests of the trust without excluding eligible bidders or favoring a specific party. The record shows no evidence of preferential treatment toward Northeast Phoenix Partners, and the lack of multiple bids is attributed to various factors, not necessarily a chilled process. Additionally, Campana argues that the Department failed to conduct a current appraisal as required by A.R.S. sections 37-236(A) and -237, claiming that prior appraisals suggested significantly different values for the land. He asserts that the Commissioner simply accepted an appraisal without performing an independent evaluation.
Northeast Phoenix Partners asserts that under A.R.S. section 37-132(A)(5), the Commissioner acts as an appraiser by classifying and appraising state lands for sale or lease, a position the court supports. The Commissioner’s appraisal, which set land values between Wirth values, is deemed reasonable, as disagreement from Campana does not indicate a failure to appraise. The appraisal was conducted within 180 days of the auction, adhering to A.R.S. section 37-102(G), despite Campana's claim that outdated comparables invalidated it. Evidence shows the Commissioner set the auction price appropriately, with no violation of the statute.
Additionally, Campana contends that the Department's auctions led to leapfrog development and urban sprawl, defined under A.R.S. sections 37-101(16) and (23) as development requiring extended public services through undeveloped areas. He claims that sewer infrastructure needs to be extended three miles for Desert Ridge, which the City of Phoenix refuses to fund. However, project planner Gordon Taylor testified that neither the City nor the Department considers Desert Ridge as leapfrog development, supporting the hearing officer's conclusion that such development did not occur. This conclusion is further backed by photographic evidence showing connections to existing developments, affirming no abuse of discretion.
Lastly, Campana challenges the rental adjustment clause as violating the Enabling Act, arguing it creates poor public policy by allowing the Department to make overly generous deals to lessees at the expense of the trust.
Northeast Phoenix Partners highlights a trend of defaulting lessees due to declining land values, asserting that the rental adjustment clause was intended to prevent defaults and protect the trust. They contend that this clause allows lessees to request a rent reduction from the Department's Board of Appeals but does not guarantee reduced rent. The court partially agrees, referencing A.R.S. section 37-281.02, which mandates that rental adjustment formulas be defined in leases before bidding. The current clause lacks a specific formula, making the lease's rental value uncertain and reliant on future negotiations, which violates statutory requirements for determining the highest bidder.
Despite this, the lease is not entirely void due to a severability clause stating that if any provision is invalid, the remainder remains unaffected. The court finds that the rental adjustment clause can be severed without compromising the lease's fundamental elements—such as parties, duties, and compensation—allowing the lease to remain valid. Severing this clause does not hinder bidding, as all bidders would then compete on a lease with fixed rent. The court concludes by affirming the hearing officer's decisions, except for severing the rental adjustment clause, allowing the rest of the lease to remain in effect. Judges Weisberg and Jacobson concur.
