FILED March 5, 2019 0515 PM Appellate Court Records

IN THE SUPREME COURT OF THE STATE OF

CASCADIA WILDLANDS, an Oregon non-profit corporation; AUDUBON Supreme Court No. S066223 SOCIETY OF PORTLAND, an Oregon non-profit corporation; THE CENTER Court of Appeals No. A159061 FOR BIOLOGICAL DIVERSITY, a California Corporation; and JOSHUA Lane County Circuit Court LAUGHLIN, Case No. 162-14-0784 7

Petitioners-Appellants/­ Respondents on Review, v. OREGON DEPARTMENT OF STATE LANDS, an administrative agency in the state of Oregon, Respondent-Respondent/­ Petitioner on Review,

and SENECA JONES TIMBER COMPANY, LLC, an Oregon limited liability company,

Intervenor-Respondent/Petitioner on Review.

OPENING BRIEF ON THE MERITS OF INTERVENOR­ RESPONDENT SENECA JONES TIMBER COMPANY, LLC, PETITIONER ON REVIEW, AND SUPREME COURT EXCERPT OF RECORD

Opinion Filed: August l , 2018 Author of Opinion: Armstrong, P.J. Joined by Egan, C.J and Shorr, J.

March, 2019 Michael E. Haglund #772030 Daniel R. Kruse #064023 Christopher T. Griffith #154664 KRUSE & SAINT MARIE HAGLUND KELLEY LLP Attorneys At Law 200 SW Market St., Ste 1777 101 E. Broadway Ste. 130 Portland, OR 97201 Eugene, OR 97 401 Telephone: (503) 225-0777 Telephone: (541) 687-6788 Email: [email protected] Email: [email protected] [email protected]

Dominic M. Carollo #09305 7 Nicholas Stanton Cady, #112463 YOCKIM CAROLLO LLP CASCADIA WILDLANDS 430 SE Main Street PO Box 10455 PO Box 2456 Eugene, OR 97440 Roseburg, OR 97470 Telephone: (541) 434-1463 Telephone: (541)957-5900 Email: [email protected] Email: [email protected] Attorneys for Petitioners­ Attorneys for Intervenor­ Appellants/Respondents on Responde nt/Petitioner on Review Review

ELLEN F. ROSENBLUM, #7 53239, Attorney General INDE D. WELLS #881137 CARSON L. WHITEHEAD #105404 Assistant Attorneys General 1162 Court St. NE Salem, OR 97301-4096 Telephone: (503) 378-4402 [email protected] [email protected]

Attorneys for Respondent­ Responde nt/Petitioner on Review TABLE OF CONTENTS

TABLE OF AUTHORITIES ...... iii

INTRODUCTION ...... 1

QUESTIONS PRESENTED AND PROPOSED RULES OF LAW ...... 3

First Question Presented on Review ...... 3

First Proposed Rule of Law ...... 3

Second Question Presented on Review ...... 3

Second Proposed Rule of Law ...... 3

Third Question Presented on Review...... 4

Third Proposed Rule of Law ...... 4

NATURE OF THE ACTION ...... 4

STATEMENT OF MATERIAL FACTS ...... 5

SUMMARY OF ARGUMENT ...... 16

ARGUMENT ...... 20

A. ORS 530.450 Violates Article VIII, Section 5 of the Oregon Constitution ...... 20

B. The Separation of Powers Doctrine Voids ORS 530.450 ...... 25

C. The Admission Act Compact between Oregon and the Imposes Trust Obligations on the State 11

Land Board that Cannot be Impaired by Legislative Action ...... 29

CONCLUSION ...... 37

SUPREME COURT EXCERPT OF RECORD INDEX ...... 39 lll

TABLE OF AUTHORITIES Page(s) Cases Andrus v. Utah, 446 US 500, 100 S Ct 1803, 64 L Ed 2d 458 (1980) ...... 6, 8, 29 Cascadia Wildlands v. Decker, 911 F Supp 2d 1075 (D Or 2012) ...... 14, 15 Cascadia Wildlands v. Dept. of State Lands, 293 Or App 127, 427 P3d 1091 (2018) ...... passim Ervien v. U.S. , 251 US 41, 47, 40 S Ct 75, 76, 64 L Ed 128 (1919) ...... 31 Freedom Socialist Party u. Bradbury, 182 Or App 217, 48 P3d 199 (2002) ...... 29 Grand Prize Hydraulic Mines v. Boswell, 83 Or 1, 162 P 1063 (1917) ...... 17, 31 Johnson v. Dept. of Revenue, 292 Or 373, 639 P2d 128 (1982) ...... 22, 23, 24, 25 Lassen v. Arizona, 385 US 458, 87 S Ct 584, 17 L Ed 2d 515 (1967) ...... 19, 31, 32, 36 Oklahoma Educ. Ass'n v. Nigh, 1982 Ok 22, 642 P2d 230 (Okla 1982) ...... 34 Rooney v. Kulongoski, 322 Or 15, 902 P2d 1143 (1995) ...... 26 Skamania County v. State, 102 Wash 2d 127, 685 P2d 576 (1984) ...... 33, 34 State v. University of Alaska) 624 P2d 807 (Ala 1981) ...... 34 JV

State v. Joslin, 232 Or 373, 375 P2d 808 (2001) ...... 29 State v. Kennedy, 295 Or 260, 666 P2d 1316 (1983) ...... 29

State ex rel. Ebke v. Board of Educ. Lands & Funds, 154 Neb 244, 47 NW2d 520 (Neb 1951) ...... 34 State Land Board v. Lee, 84 Or 431, 165 P 372 (1972) ...... 27, 32

State of Or. By & Through Div. of State Lands v. Bureau of Land Mgmt., Dep't of the Interior, 876 F2d 1419 (9th Cir 1989) ...... BJ 9, 13 Tillamook County v. State By and Through State Bd. of Forestry, 302 Or 404, 730 P2d 1214 (1986) ...... 35, 36

United States u. Morrison, 240 US 192, 36 S Ct 326, 60 L Ed 599 (1916) ...... 8, 31 United States v. , 331 US 440, 67 S Ct 1319, 91 L Ed 1590 (1947) ...... 8 Utah u. Kleppe, 586 F2d 756 (10th Cir 1978), rev'd on other grounds, 446 us 500 (1980) ...... 6

White u. Public Employees Retirement Bd, 351 Or 426, 268 P3d 600 (2011) ...... 36 Statutes

1 Oregon Code Annotated§ 1 (1930) ...... 7, 8

43 USC§§ 851~852 ...... 8

Act of August 14, 1848, 9 Stat 323 (1848) ...... 1, 7, 30 V

Act of January 7, 1853, 10 Stat 150 (1853) ...... 7, 30 Act of March 1, 1927, 44 Stat 1262-63 (1927) ...... 12 Act of March 2, 1905, 33 Stat 1264 (1905) ...... 9 Admission Act, 11 Stat 383 (1859) ...... passim Indemnity Act of 1891, Rev. Stat§§ 2275-76 ...... 8

Or Laws 1913, ch 124, § 1 ...... 10

Or Laws 1919, ch 145 ...... 11 Or Laws 1957, ch 240, § 1 ...... 13

ORS 530.450 ...... passini ORS 530.510 ...... 18, 21

Presidential Proclamation of April 28, 1972, 45 Stat 2907 (1927) ...... 13 Other Autho1·ities

37 Op Atty Gen 569 (1975) ...... 35 46 Op Atty Gen 468 (1992) ...... 35 Charles H. Carey, A General Prior to 1961 (1936) ...... 2

Or Const, Art VIII, § 5 ...... passim INTRODUCTION

The central issue in this case is straightforward: whether the has the power to prohibit the sale of common school lands, despite the state constitutional and federal compact requirements that these lands be held in trust and sold or managed to maximize economic returns benefiting· Oregon's public schools. ORS 530.450 is unambiguous in its effect: the State Land Board is prohibited from selling common school lands within the .

In 1848, Congress passed legislation reserving two sections in every square mile of the "for the purpose of being applied to schools.'' Act of August 14, 1848, 9 Stat 323, ch 177 (1848).

In his 1849 inaugural address to the territorial legislature, Governor

Joseph Lane declared:

In this grant we shall have the means of providing a system of common schools for the education of all the children of the territory. Your attention is invited to the importance of adopting a system of common schools and providing the means of putting them into operation; and when the lands become available, the system may, under wise legislation, be maintained and continued without bearing· onerously upon the people, and ultimately be productive of the end in view when the gift was made. With a system of education, sustained by such resources, there is no reason to doubt that in the course of a few years the rising g~neration of Oregon will proudly vie, in respect to useful knowledge and moral 2

culture, with that of the older settled portions of our common country.

Charles H. Carey, A General History of' Oregon Prior to 1961, 701 (1936) (emphasis added).

In 1859, the Admission Act offering statehood to Oregon confirmed the grant of two sections in every township to Oregon "for the use of schools.'' 11 Stat 383, § 4 (1859). In accepting this offer, the federal land grant imposed trust obligations on the state of Oregon that were

"irrevocable without the consent of the United States." Id. To carry out this function, the State Land Board consisting of the Governor,

Secretary of State and State Treasurer was established by the Oregon

Constitution "for the sale of school, and university lands, and for the investment of the funds arising there from." Or Const, Art VlII, § 5

(original).

As demonstrated below, ORS 530.450 unconstitutionally abrogates the State Land Board's power to sell common school lands, violates the separation of powers between the and legislative branches of Oregon government and breaches the federal land grant compact between the United States and Oregon that underlies the

Admission Act admitting Oregon to the Union and which should guide 3

the interpretation of related provisions in the Oregon constitution.

QUESTIONS PRESENTED AND PROPOSED RULES OF LAW

First Question Presented on Review

The legislature enacted ORS 530.450 in 1957 to prohibit the State

Land Board from selling the common school lands that comprise the

majority of the Elliott State Forest. Did that statute conflict with Article

VIII, section 5 (original), which gave the Board the power to sell common

school lands?

First Proposed Rule of Law

Yes. ORS 530.450 was in direct conflict with Article VIII, section

5 (original), when passed by the legislature and is therefore

unconstitutional.

Second Question Presented on Review

Is ORS 530.450 unconstitutional under Article III, section 1,

because it violates the separation of powers?

Second Proposed Rule of Law

Yes. ORS 530.450 violates Article III, section 1, because the statute both usurps the constitutional power of the State Land Board to sell common school lands and places an undue burden on the Board's 4

exercise of its fiduciary duty to manage those lands for the benefit of

schools.

Third Question Presented on Review

Does ORS 530.450 breach the state of Oregon's trust obligations

under the 1859 Admission Act compact between Oregon and the United

States?

Third Proposed Rule of Law

Yes. As a matter of federal compact law, the land grant trust

established when Oregon accepted statehood on terms offered by

Congress requires compliance with trust standards in the management

and sale of common school lands.

NATURE OF THE ACTION

On December 10, 2013, the State Land Board ordered the Oregon

Department of State Lands ("DSL") to sell 788 acres in the Elliott State

Forest called the East Hakki Ridge parcel based upon a finding that it

"is in the best interest of the Common School Fund to dispose of this parcel by sale or exchange." SER 1. Petitioners did not challenge that order. At a public auction, intervenor-respondent Seneca Jones Timber

Company, LLC (''Seneca Jones'') submitted the high bid of $1.89 million, 5

which exceeded DSL's appraised value. The parties entered into a

purchase and sale agreement and the sale closed on May 27, 2014. ER

1-4.

Petitioners filed suit in Lane County circuit court to vacate and

reverse the land sale on the grounds that the statutory withdrawal of

t he bulk of the. Elliott State Forest from potential sale in ORS 530.450

prohibited the State Land Board from exercising its discretion to sell the

parcel. The circuit court in Lane County dismissed the petition without

reaching the merits, ruling that petitioners lacked standing. On appeal,

the Court of Appeals reversed the trial court's ruling on standing, proceeded to the merits and upheld ORS 530.450 as binding on the State

Land Board. Cascadia Wildlands v. Dept. of State Lands, 293 Or App

127, 427 P3d 1091 (2018).

STATEMENT OF MATERIAL FACTS

The East Hakki Ridge parcel consists of four tax lots in Douglas

County. ER 36. Prior to DSL's sale to Seneca Jones, the four tax lots

were assets of the Common School Fund and were part of the Elliott

State Forest. Id.

The state of Oregon acquired three of the tax lots in 1929, after 6 selecting them for acquisition from the United States in lieu of lands which were owed to the state as comn1on school lands but unavailable when the state joined the Union. Id. The state acquired the fourth tax lot from a private company in 1983. Id.

Since 1802, the Enabling Act admitting each of the states into the

Union 1'has included grants of designated sections of the federal lands for the purpose of supporting public schools." Andrus v. Utah, 446 US

500, 506, 100 S Ct 1803, 64 L Ed 2d 458 (1980). Because the original 13 states had sovereign authority over all of the lands within their borders, each was provided a tax base for the support of education and other governmental functions. Id. at 522. In the western territories however, the federal government owned the vast majority of the land and it was therefore immune from taxation. In order to place new states in the

West on an equal footing with the original 13 states, Congress made land grants to the newly admitted states. Utah u. Kleppe, 586 F2d 756,

758 (10th Cir 1978), rev'd on other grounds, 446 US 500 (1980)

As this practice of federal land grants evolved, Congress began reserving certain sections in every township within the territories for the sole purpose of supporting schools. Andrus, 446 US at 523, n 2 7

(Powell, J., dissenting) (citing Land Ordinance of 1705, 1 Laws of the

United States 565 (1815)).

In Oregon's case, Congress in 1848 reserved certain lands of the

Oregon Territory for the ''purpose of being applied to schools" in anticipation of statehood. Act of August 14, 1848, 9 Stat 323, ch 177 §

20 (1848) (establishing the Territorial Government of Oregon). Five years later, Congress passed the Act of January 7, 1853, 10 Stat 150, ch

6, §§ 1, 2 (1853), authorizing the territory to select "lieu" lands when sections 16 or 36 were "taken'' or ''occupied" before title could vest in the territory. This statute specified "that when selections were made * * * said lands so selected, and their proceeds, shall be forever inviolably set apart for the benefit of common schools." Id. and§ 2.

Finally, in 1859, Congress passed the Admission Act, offering

Oregon admission into the Union. The Admission Act included conditions that Oregon had to accept, including that the United States grant sections 16 and 36 in every township to the State "for the use of schools," which proposition the state accepted by an Act dated June 3,

1859. 11 Stat 383, § 4 (1859); 1 Oregon Code Annotated§ 1, at 37

(1930). In accepting the offer of admission, the propositions became 8

"obligatory on the United States and upon the State of Oregon," 11 Stat

383, § 4, and "irrevocable without the consent of the United States." 1

Oregon Code Annotated§ 11 at 37 (1930).

Although the Admission Act stated that common school lands

"shall be granted to the State," 11 Stat 383, only those sections which

(1) had been surveyed by the United States and (2) had not already been reserved or disposed of for other purposes vested at the date of admission. United States u. Wyom,ing, 331 US 440, 443-44, 67 S Ct

1319, 91 L Ed 1590 (1947). For unsurveyed lands, title in common school lands did not vest until the land was surveyed by the United

States. United States v. Morrison, 240 US 1921 207 -08, 36 S Ct 326, 60 L

Ed 599 (1916). If the sections identified in the Admission Act were unavailable by reason of reservation (such as inclusion within a national forest) or disposal, the state was entitled to indemnity selections. Id. at 207.

To deal with indemnity claims, Congress enacted a line of

statutes, including The Indemnity Act of 1891, Rev. Stat §§ 2275-761 providing for selections of other public lands in lieu of unavailable sections. 43 USC §§ 851-852; Andrus, 446 US at 501-502; see also State 9 of Or. By & Through Div. of State Lands v. Bureau of Land Mgmt.,

Dep't of the Interior, U.S., 876 F2d 1419, 1421 (9th Cir 1989). For reserved lands that were included within national forests, the Forest

Lieu Exchange Act of 1897 provided for indemnity selections, Div. of

State Lands, 876 F2d at 1421-22 (citing 30 Stat 11, 36), but this statute

was repealed in 1905 Act of March 21 1905, 33 Stat 1264 (1905); Div, of

State Lands, 876 F2d at 1422.

After admission, Oregon sought to resolve its indemnity claims for unavailable sections but, by the turn of the century, two problems had arisen. First, the Forest Lieu Exchange Act was the subject of abuse and fraud in Oregon, resulting in orders by the Secretary of Interior in

1903 and 1904 suspending all forest lieu selection applications involving Oregon state lands. Div. of State Lands, 876 F2d at 1422.

Second, around this same time, many of the remaining indemnity claims the state of Oregon possessed were within national forests.

SCER 17-18, 20.

To resolve these issues, Governor Oswald West and State Forester

Francis Elliott initiated a campaign in 1911 to exchange scattered indemnity lands for a consolidated tract of forestland. Id. at 20. 10

However, due to the suspension of any processing of Oregon's forest lieu selections and the repeal to the Forest Lieu Exchange Act, federal legislation was necessary to authorize such an exchange. Id. at 20, 38.

To encourage federal action, on February 25, 1913, the Oregon

Legislature enacted a statute, providing:

WHEREAS, it appears that the State is about to secure from the federal government, through an excha nge of certain of its schools sections, a compact body of timbered lands in the Santiam national forest and;

WHEREAS, it is the desire that said tract be set aside as a State forest, and administered for the permanent good of the State and its educational institutions, and the revenue derived therefrom turned into the common school fund of the State:

Be it enacted by the People of the State of Oregon:

Section 1. That any lands now in the national forest, selected by, and patented to, the State for the purpose of establishing a State forest shall be withdrawn from sale for a period of 50 years.

Or Laws 1913, ch 124, § 1.

State Forester Elliott explained that the "purpose of this law was to meet the federal requirement that any national forest lands patented to the state should be withdrawn from sale for a period of 50 years."

SER 24. . In its 1913 Annual Report, the U.S. Department of Agriculture described the progress on fulfilling Oregon's forest lieu exchange 1 I proposal as follows:

A bill has been introduced in Congress and approved by the department providing for the selection by the State of Oregon of a compact body of land not to exceed 40,000 acres of timber land within the Santiam National Forest in lieu of unsurveyed school sections 16 and 36 scattered throughout the National Forests. The State desires to consolidate its holdings and administer the selected area as a forest in connection with the department of forestry of the Oregon State Agricultural College at Corvallis. In anticipation of the proposed exchange the Oregon Legislature has passed an act to withdraw from sale for a period of 50 years the lands to be acquired and providing for the management of the forest by the State board of forestry.

SCER 26-27.

The bill referenced above did not pass Congress; hence, the contemplated exchange for land in the Santiam National Forest did not occur. Six years later in 1919, the legislature passed another statute authorizing the State Land Board to pursue a forest lieu exchange with the federal government. Id.; Or Laws 1919, ch 145. In his annual report in 1929, state forester Frances Elliott noted that Oregon's objective in pursuing a forest lieu exchange with the United States was to trade common school lands within the national forest that were "so isolated and scattered as to be practically valueless to the state" for a consolidated block of forestland. SOER 21. As state forester Elliott put it: 12

The proper administration of such a scattered area of land was impossibility. It was these areas within the national forests that the state desired to exchange for a solid block of federal land.

Id.

Following the passage of the state legislation in 1919, the state forester's office and t he U.S. Forest Service undertook "extensive reconnaissance of possible selection areas." Id. at 22. In his 1922 report to the State Land Board, state forester Elliott rec01nmended the selection of what was referred to as the Millicoma tract which he had previously described as follows:

[I]t will be the first large, compact forest area owned and controlled by the state, where the practice of intensified, modern forestry may be carried out and the value of state­ owned forests determined in a practical way * * * Situated as it is in a region where the Douglas fir forest is of the finest type, it can be made of inestimable value for demonstrating practical forestry and be an object lesson in the conduct of Oregon's other future state forests.

SCER 17.

State forester Elliott's vision became reality when Congress authorized the Millicoma tract exchange, Act of March 1, 1927, 44 Stat

1262·63, which was implemented by a presidential proclamation in

1927 that "carved out a block of land from the 13 to provide lands for selection by Oregon in satisfaction for its right to indemnity for lost school lands." Div of State Lands, 876 F2d at 1423

(discussing Presidential Proclamation of April 28, 1927, 45 Stat 2907).

Oregon subsequently filed on those lands and the first clear lists were issued in early 1929. Id.; SCER 22.

Among the lands identified in the clear lists are three parcels included in the East Hakki Ridge parcel that DSL sold to Seneca Jones.

SER 27-35 (clear list Nos. 47 and 48). The approval of these lists by the

U.S. General Land Office conveyed title in the listed lands to the state.

Id. Once the exchange was completed and title vested in the state, the

Elliott State Forest was formally established in 1930 as Oregon's first state forest and named after Francis Elliott.

In 19571 nearly three decades following the federal/state land exchange and the establishment of the Elliott State Forest, the Oregon

Legislature amended the 1913 Act applicable to the failed Santiam

National Forest exchange proposal to remove the 50-year limitation on the withdrawal from sale and imposed a permanent prohibition on the sale of land within the Elliott State Forest. Or Laws 1957, ch 240, § l ;

ORS 530.450. 14

Historically, the Elliott State Forest was highly productive in terms of timber production and the revenues delivered to the Common

School Fund. HoweverJ beginning in 1990, the Endangered Species Act

("ES~') listings of the northern spotted owl and the marbled murrelet caused timber harvest volumes to drop significantly. SCER 2, 7-8.

Beginning in 1995, the Elliott was managed under a Habitat

Conservation Plan ("HCP") that avoided exposure under the ESA and allowed for modest timber harvest through 2010, when the HCP expired. Id. When the state and National Marine Fisheries Service

("NMFS") were unable to reach agreement on a new HCP, the state elected to comply with the ESA through a take-avoidance approach included as part of a new Forest Management Plan. Id. at 11. Under this plan, DSL estimated that the Elliott State Forest would generate

$3-5 million annually for the Common School Fund. Id. at 12.

Following adoption of the new Forest Management Plan for the

Elliott State Forest in 2011, several of the petitioners in this action sued state officials in federal court. Cascadia Wildlands u. Decker, 911

F Supp 2d 1075 (D Or 2012). Petitioners alleged that the harvest of timber on the Elliott State Forest was causing the "take" of marbled 15 murrelets in violation of the ESA. Id. at 1078-79. Although the case was never decided on the merits, the state cancelled numerous timber sales and substantially revised its marbled murrelet surveying and operating procedures in response to the litigation. SER 8-9.

In its 2012 Real Estate Asset Management Plan, the DSL characterized a 1992 opinion by Charles

Crookham as containing the "most complete description of the

Admission Act and Oregon Constitution mandates for managing" common school lands and listed the following as two of the four "broad points" to be drawn from that opinion:

• For the purposes of Admission Act (Trust) lands, the "greatest benefit for the people" means to use the land for schools and for the production of income for the Common School Fund.

* * *

• This obligation has previously been characterized as a duty to maximize the value of, and revenue from, these lands over the long term for current and future beneficiaries.

SCER 37.

This plan reports that Common School Fund distributions in 2011 totaled $48.8 million, including $6.2 million derived from 2.8 million 16 acres of com1non school lands. Id at 36, 42. While forestlands as a category comprised only 119,770 of these acres or 4.3%, common school forestlands contributed $4.12 million or 66% of total revenue produced from all managed lands in FY 2011. Id. at 42.

In fiscal year 2013, common school lands for the first time ever produced a net loss to the Common School Fund of $2.8 million)

"primarily due to drastic reductions in revenues from forest lands."

Based on projections forecasting a deficiency of "similar magnitude for fiscal year 2014," the State Land Board in December 2013 approved

DSL's recommendation to sell three forest land parcels totaling 2,728 acres within the Elliott State Forest. SCER 61, 65, 80. All three parcels were sold at auction to private timber companies, generating total sales proceeds of $4.5 million. One of those sales was the 788-acre

East Hakki Ridge parcel sold to Seneca Jones. Id. at 81.

SUMMARY OF ARGUMENT

In addressing a question not previously considered by the Oregon

Supreme Court, the opinion of the Court of Appeals reaches a clearly incorrect result. In this case, the Court of Appeals upheld the constitutionality of a statute that dramatically usurps the power of the 17

State Land Board to perform its function as trustee of common school fund lands dedicated to benefit public schools. The court's decision to uphold the constitutionality of ORS 530.450j which prohibits the sale of over 80% of the common school lands within the Elliott State Forest\ is wrong on three separate and independent grounds.

First, the Oregon Constitution expressly designates the Governor,

Secretary of State and State Treasurer to constitute a board of co1nmissioners, presently the State Land Board, for a single dedicated purpose: "for the sale of school, and university lands, and for the investment of the funds arising there from." Or Const, Art VIII, § 5

(1857). This Court has previously held that this provision of the Oregon

Constitution imposed a "duty" on the State Land Board "to dispose of

[common school lands] for as near their full value as may be, and to create thereby a continuing fund for the maintenance of public schools.''

Grand Prize Hydraulic Mines u. Boswell, 83 Or 1, 6-7, 162 P 1063

(1917). The legislature has no authority to remove or limit the State

Land Board's constitutionally assigned power to sell common school

1 Approximately 70,000 of a total of 85,000 acres of Common School Fund land in the Elliott State Forest are subject to the ORS 530.450 prohibition on sales. SCER 82-83, 85. 18 lands.

Second, because the State Land Board is a department of state government created by the Constitution with expressly designated power to sell common school lands and to invest the resulting funds,

ORS 530.450 violates the separation of powers doctrine by removing or severely limiting the Board's power to sell those lands. The Court of

Appeals' holding that "ORS 530.450 does not unduly burden the State

Land Board's core function to dispose of and manage school lands," but

"places only a limitation on the board's authority to sell certain common school lands" is clearly wrong and elevates forn1 over substance.

Cascadia Wildlands, 293 Or App at 146. ORS 530.450 states unequivocally that lands within the Elliott State Forest ''are withdrawn from sale except as provided in ORS 530.510," which authorizes a narrow category of land exchanges that also consolidate the Elliott

State Forest. The Board's power to sell the vast majority of the lands within the Elliott State Forest is, for all intents and purposes, eliminated by the terms of ORS 530.450.

Third, Oregon's acceptance of Congress' offer in the Oregon

Admission Act of two sections in every township throughout the state 19

"for the use of schools" created a compact between this state and the

United States. 11 Stat 383 § 4 (1859). The Admission Act specifically provided that acceptance of this offer made its terms "obligatory on the

United States and upon the said State of Oregon." Id. The U.S.

Supreme Court has held that these land grants, which have been made since the Northwest Ordinance of 1787 to states newly admitted to the

Union, are "trust lands" for the use and benefit of public activities designated in the particular admission act. Lassen v. Arizona, 385 US

458, 460-61, 87 S Ct 584J 17 L Ed 2d 515 (1967). According to this nation's highest court, the United States ''has a continuing interest in the administration of both the lands and the funds which derive from them" and that the federal land grant "was plainly expected to produce a fundJ accumulated by sale and use of the trust lands, with which the

State could support the public institutions designated by the Act." Id. at

460, 463. The Court of Appeals' holding that the legislature may prohibit the sale of certain common school lands is plainly in violation of the c01npact between the United States and Oregon. 20

ARGUMENT

A. ORS 530.450 Violates Article VIII, Section 5 of the Oregon Constitution.

In upholding the constitutionality of a statute removing the State

Land Board's power to sell common school lands in the Elliot State

Forest, the Court of Appeals focused its analysis on the following language in Article VIII, Section 5 of the Oregon Constitution:

The Governor, Secretary of State, and State Treasurer shall constitute a Board of Commissioners for the sale of school and university lands, and for the investment of the funds arising therefrom, and their powers and duties shall be such as may be prescribed by law.

Or Const, Art VIII, §5 (1857) (emphasis added).

Despite other language in the Constitution establishing the State

Land Board "for the purpose of selling school lands and investing the funds arising from those lands," Or Const, Art VIII, § 5 (1857), the

Court of Appeals concluded that the language stating that the Board's

"powers and duties shall be such as may be prescribed by law" conferred broad power on the legislature. Cascadia Wildlands, 293 Or App at 141-

43. In the court's view, this language meant that the legislature "is constitutionally authorized to establish the contours of the State Land

Board's powers and duties" and "to determine how those powers and 21 duties will be exercised." Cascadia Wildlands, 293 Or App at 143. Then, in addressing respondents' argument that the legislature could not remove a power expressly granted to the Board in the Constitution, the

Court of Appeals reached the inexplicable conclusion that ORS 530.450 did not "remove" a constitutionally conferred power, but only directed the State Land Board "on how it is to exercise its power to sell land." Id. at 144. In fact, ORS 530.450 prohibits the sale of over 80% of the

Common School Fund lands within the Elliott State Forest (70,000 of a total of 85,000 acres).

The only circumstance under which the Board can dispose of these lands within the Elliott State Forest is in a trade for land of equal value that facilitates consolidation of the forest. Considering that Oregon's purpose in the forest lieu land exchange that became the Elliott State

Forest was to trade scattered and isolated inholdings within federal national forests for a consolidated block of forestland in the Siuslaw

National Forest, the option to pursue exchanges of Elliott State Forest land solely "for the consolidation of the forest," ORS 530.510(1), is a virtual impossibility. Contrary to the suggestion by the Court of

Appeals, ORS 530.450 unequivocally precludes the State Land Board 22 from selling or disposing of common school lands within the Elliott

State Forest.

In upholding the constitutionality of ORS 530.450, the Court of

Appeals misread this Court's decision in Johnson v. Dept. of Revenue,

292 Or 373, 639 P2d 128 (1982), interpreting that case as supporting the court's broad construction of the meaning of "prescribed by law."

Cascade Wildlands, 293 Or App at 144. This conclusion is plainly wrong. In Johnson, this Court for the first time considered the 1968 amendments to Article VIII, Section 5 and found that the "purpose" of the amendments "was to authorize the State Land Board to expend moneys in the common school fund to carry out its land management activities.'' 292 Or at 381. This Court went on to uphold a statute requiring that common school lands under lease to third parties be carried on the tax rolls and subject to property taxation by Oregon counties. Id. at 383~84. The case did not involve any legislative action to limit or remove the power of the State Land Board to sell or manage common school lands. To the contrary, the 1968 amendments expanded the Board's powers with respect to the use of the monies within the

Common School Fund. Nonetheless, the Court of Appeals treated this 23

Court's finding in Johnson that "the determination of a prope1· use of

Common School Funds is a legislative one" as supporting its holding that the "as prescribed by law" language in the Constitution empowered the legislature to prohibit the sale of forest land within the Elliott State

Forest. Cascadia Wildlands, 293 Or App at 144 (internal quotations omitted).

The legislature's power to control the use and allocation of distributions from the Common School Fund is one of the legislature's constitutionally assigned core functions. It is up to the legislature whether to use those funds to make capital investments in new schools, pay teacher salaries or fund special academic programs. There is nothing in the Johnson decision that supports removal of the Board's power to sell common school lands. Indeed, this Court made clear in

Johnson that Article VIII, section 5 of the Constitution as amended in

1968 imposes separate but parallel obligations on this state's executive and the legislative branches. As the Court noted:

The goal imposed by section 5 (2) ***requires the State Land Board, and the legislature as supervisor, to use lands dedicated to the common school fund in such a way as to derive the greatest net profit for the people of this state. 24

Johnson, 292 Or at 382. Prohibiting the sale of well over half of the highly productive forest lands within the Board's Common School Fund portfolio2 clearly impedes the Board's constitutionally required trust obligation to sell or manage Common School Fund lands to derive the

"greate~t net profit" for public schools. Id. at 382. The record facts demonstrate that the Board was in fact carrying out its trust obligation by electing to sell forest land parcels at a substantial profit instead of continuing to hold lands that were imposing both current and projected future deficits on the Common School Fund.

As one would expect of a trustee, the record below shows that the

State Land Board engaged in the type of rigorous analysis that the prudent investor rule demands of a trustee. Based on policy direction set out in its Real Estate Asset Management Plan, DSL evaluated the

East Hakki Ridge tract against a list of specific factors in the plan's disposal criteria matri-x, determined that the land was now considered as falling into the lowest value category 4 or "Minimal/No Income

Production Potential." SCER 80. It was on that basis that DSL

2 ORS 530.450 prohibits the sale of 70,000 acres of a statewide total of 120,000 acres of common school forestland or 58% of the State Land Board's "most valuable category of land." SCER 82-83, 85. 25 recommended that the East Hakki Ridge parcel be sold through open competitive bidding at a value equal to or greater than the appraised value. Id. at 160. The State Land Board unanimously approved that recommendation.

Whete, as here, the Oregon Constitution establishes the Common

School Fund as an irrevocable trust for federal land grant lands dedicated to public schools, the legislature has no power to limit the

State Land Board's mandatory trust obligation to carry out the terms of the trust.

B. The Separation of Powers Doctrine Voids ORS 530.450.

The Court of Appeals rejected the respondents' separation of powers argument in an entirely conclusory fashion, characterizing ORS

530.450 as only limiting the Board's power "to sell certain Common

School Lands" and therefore not unduly burdening a core function of the

Board. Cascadia Wildlands, 293 Or App at 146. If the Court of Appeals is correct, there is no principled basis on which to distinguish a legislative prohibition on selling certain common school lands and a statute that prohibits the sale of all such lands. Determining whether a statute violates the separation of powers doctrine involves a two part 26 inquiry: assessing whether one branch of government has unduly burdened the actions of another branch; and whether one branch is performing functions constitutionally committed to the other. A violation of the separation of powers doctrine is found "if the problem is clear.J) Rooney v. Kulongoski, 322 Or 15, 28, 902 P2d 1143 (1995).

The answer to both inquires is abundantly clear. First, in order to carry out its constitutional mandate to sell common school lands whenever such action is necessary for the State Land Board to fulfill its duty to prudently manage the common school land base for the benefit of its public school beneficiaries, the power to sell must be unfettered.

Any legislation prohibiting the sale of Common School Fund land places an improper and unconstitutional burden on the Board's trust obligations and the associated fiduciary duties.

Second, the Oregon Constitution unequivocally grants to the State

Land Board the power to sell common school lands. The suggestion by the Court of Appeals that ORS 530.450 "merely directs how the State

Land Board is to exercise its power to sell certain school lands" makes no sense. The power to sell common school lands is a governmental function assigned in the Constitution to the State Land Board. ORS 27

530.450 prohibits the sale of over half of the most valuable and productive lands in the Common School Fund land portfolio. This is a clear usurpation by the legislature of a function expressly assigned in the constitution to the State Land Board, a "co-ordinate department of the state government." State Land Board v. Lee, 84 Or 431, 439, 165 P

372 (1972).

Finally, the notion that prohibiting the sale of common school lands in the Elliott State Forest is a valid exercise of the police power by the legislature is absurd. Neither respondent in this case has contended that the Oregon Forest Practices Act or this state's fish and game regulations unconstitutionally burden common school lands. Indeed, these laws apply with equal force to common school lands and to all other Oregon lands and waters under the jurisdiction of state government. None of these examples of the valid and appropriate use of the legislature's police power place common school lands on an unequal footing with other similarly situated lands in this state. But most importantly, none of these laws or regulations prevent the State Land

Board from carrying out its constitutionally mandated obligation to sell and/or 1nanage common school lands in a manner that meets the 28

Board's trust obligations to its public school beneficiaries.

In a footnote, the Court of Appeals acknowledged that the record below contained evidence that, "in recent years," the Elliott State Forest was imposing a net loss on the Common School Fund, but the court refused to consider that evidence because the parties had argued only that ORS 530.450 violated the separation of powers doctrine "when the statute was enacted." Cascadia Wildlands, 293 Or App at 146, n 10. In fact, both Seneca: Jones and the Oregon Department of State Lands challenged the constitutionality of the statute as applied to the financial situation addressed by the State Land Board in 2013 rather than on a facial basis.3 Given the circumstances facing the State Land Board in fiscal years 2013 and 2014, it was entirely consistent with the Board's trust obligations to approve DSL's recommendation to sell three parcels

totaling 21 728 acres to generate a positive $4.5 million for the Common

School Fund rather than to incur additional losses from the common school lands in the Elliott State Forest.

3 Seneca Jones Answering Br at 41; DSL Answering Br at 25. 29

C. The Admission Act Compact between Oregon and the United States Imposes Trust Obligations on the State Land Board that Cannot be Impaired by Legislative Action.

In Oregon, there is a long line of cases requiring state courts to decide state constitutional issues "before reaching federal questions."

State v. Joslin, 232 Or 373, 379, 375 P2d 808 (2001); State v. J(ennedy,

295 Or 260, 262, 666 P2d 1316 (1983). This analytical framework is often referred to as the "first-things-first" principle. Freedom Socialist

Party v. Bradbury, 182 Or App 217, 228, 48 P3d 199 (2002). As applied to this case, this principle requires this Court to first decide the two questions of state constitutional law which are the first two questions presented. Only in the event that those two issues are decided against respondents is this Court required to decide the federal compact issue, which is the third question presented that is addressed below.

Since 1802, the enabling legislation admitting each of the states into the Union "included grants of designated sections of federal lands for the purpose of supporting public schools." Andrus, 446 US at 506.

For states admitted from the western territories, where the land base was dominated by federal ownership that was immune from taxation,

Congress made land grants to newly admitted states in order to 30 equalize their tax base status compared to the original 13 states which had pre-admission sovereignty over the lands within their borders and thus a tax base to support education and other government functions.

Id. at 522.

In the West, Congress established a practice of 1:·eserving certain sections in every township for the purpose of supporting public education. Id. at 523. In the case of Oregon, Congress first passed legislation in 1848 reserving certain lands of the Oregon Territory for the ''purpose of being applied to schools" in anticipation of statehood.

Act of August 14, 1848, 9 Stat 323, ch 177, § 20 (1848). In 1853,

Congress authorized the territory to select "in lied' lands where sections 16 or 36 in each township were already taken or occupied before title could vest in the territory. Act of January 7, 1853, 10 Stat

150, ch 6, §§ 1, 2 (1853). This legislation specifically provided ''that when selections are made * * * said lands so selected, and their proceeds shall be forever inviolably set apart for the benefit of common schools." Id.

In 1859, the Admission Act offering statehood to O1:·egon contained propositions and conditions including the grant of two sections in every 31 township to Oregon "for the use of schools." 11 Stat 383, § 4 (1859).

Oregon accepted this offer in legislation dated June 3, 1859, which then made the conditions in the Admission Act "obligatory on the United

States and upon the state of Oregon" and "irrevocable without the consent of the United States." Id.

Courts throughout the United States have consistently recognized that the federal land grants to states to benefit schools, made as part of the offer and acceptance admission process into the Union, create a

"compact." Morrison, 240 US at 201. Further, the U.S. Supreme Court has characterized these compacts as creating a "trust" for the benefit of schools that was "'necessarily exclusive of any other purpose."' Lassen,

385 US at 467 (citing Eruien u. U.S., 251 US 411 47, 40 S Ct 75, 76, 64 L

Ed 128 (1919)).

In two 1917 decisions, this Court recognized that Article VIII,

Section 5 of the Oregon Constitution created a trust for the benefit of public schools, but did not address the scope of the State Land Board1s trust obligation, either as a matter of state constitutional law or as a matter of federal contract law based upon the Admission Act compact between the United States and Oregon. Grand Prize Hydraulic Mines, 32

83 Or at 6 ("the school lands granted to the state of Oregon are a trust for the benefit of public education.''); Lee, 84 Or at 441-4.

The U.S. Supreme Court's 1967 Lassen decision removed any doubt concerning the federal/state compact question: federal land grants made for specific purposes pursuant to enabling legislation admitting states to the Union impose a trust obligation on states which may be enforced by the U.S. Attorney General. 385 US at 460-61. The

Lassen Court reversed an Arizona Supreme Court decision upholding a statute exempting its state highway department from having to pay for the acquisition of rights of way and material sites on Arizona's common school lands. Id. at 469. Construing the relevant enabling act under which Arizona became a state, the Supreme Court held Arizona to the equivalent of a private trust standard, ruling that the trust must be compensated for "full appraised value" in any type of acquisition involving federal land grant trust lands. Id. The Court characterized this full value standard as the one which "most consistently reflects the essential purpose of the grant." Id. at 4 70.

To date, numerous states have applied trust principles to federal land grant trusts. Most recently, the Washington Supreme Court, in a 33 case examining whether the legislature could relieve private timber companies from their contract obligations to harvest timber on comn1on school lands as a result of a n1arket downturn, found that "every court that has considered the issue has concluded that these are real, enforceable trusts that impose upon the state the same fiducia1-y duties applicable to private trustees." Skamania Cou,nty u. State, 102 Wash 2d

127, 133, 685 P2d 576 (1984). As a result, the Washington Supreme

Court declared unconstitutional the Forest Products Industry Recovery

Act of 1982, finding that the legislation failed to satisfy the

''constitutional requirement that the state seeks full market value for trust assets." Id. at 583.

In analyzing the state's trust obligation, the Washington Supreme

Court in Skamania County first examined the argument that the challenged legislation was a presumptively valid exercise of the police power. After noting the basic principle that the only limitation on the scope of the legislature's police power is that a statute "must reasonably tend to correct some evil or promote some interest of the state, and not be contrary to any constitutional provision," the Court noted that the permissible goals of a statute dealing with state trust lands "are more 34 limited" because federal land grant trusts "were created specifically to benefit certain named beneficiaries." Id. at 579-80. The Court then applied basic trust principles - the duties of undivided loyalty and to act prudently - and invalidated the statute as a breach of the state's fiduciary duty under the Washington constitution by failing "to satisfy the constitutional requirement that the state seeks full market value for trust assets." Id. at 583.

Courts in Oklahoma, Alaska and have reached similar decisions and applied trust principles to issues involving federal land grant trusts. Oklahonia Educ. Ass'n u. Nigh, 1982 Ok 22, 642 P2d 230,

236 (Okla 1982); (invalidating statutes establishing maximum rents on common school land leases and interest rates on common school fund loans as violating Enabling Act compact with the United States and

Oklahoma's irrevocable duty as trustee to maximize return to the comn1on school fund); State v. University of Alaska, 624 P2d 807 (Ala

1981) (placing university lands in a state park without compensation violated federal land grant trust); State ex rel. Ebke v. Board of Educ.

Lands & Funds, 154 Neb 244, 248-49, 4 7 NW2d 520 (Neb 1951)

(statutory lease renewal and appraisal requirements for common school 35 lands violated the state's trust obligation to prudently manage trust lands for maximum financial returns.)

While this Court has not addressed the scope of the State Land

Board's trust obligation regarding common school lands since the 1968 amendments to the Oregon Constitution, Oregon's attorney general has twice opined that the Admission Act compact and the Oregon

Constitution "each impose a binding trust upon the State of Oregon to utilize the school lands granted to the state for school purposes." 46 Op

Atty Gen 468 (1992); 37 Op Atty Gen 569 (1975).

In a so mew bat analogous factual setting, this Court considered the nature of the state of Oregon's obligations to counties with respect to tax-foreclosed forest land conveyed by counties to the Oregon Board of Forestry. In Tillamook County u. State By and Through State Bd. of

Forestry, 302 Or 404, 416, 730 P2d 1214 (1986), this Court deemed it unnecessary to consider the trial court's determination that a contractual or trust relationship existed between the state and the counties. Treating the issue as purely one of statutory construction, this

Court ruled that the state could not convey revenue-producing Linn

County forest land in exchange for land that was to become a park and 36 therefore would produce no revenue. Id. at 416-17.

In a more recent decision, this Court examined the public trust obligations of the Public Employees Retirement Board (PERB) in White u. Public Employees Retirement Bd, 351 Or 426, 268 P3d 600 (2011). In rejecting the position by a group of PERS retirees that the PERB was required to credit any excess funds exclusively to Tier One employee accounts, this Court emphasized that a public trustee must comply with statutes that require specific allocations to beneficiaries and that its discretionary allocation of funds applied only to actions not mandated or prohibited by statute. This Court went on to quote a treatise for the following proposition: "'A trustee's powers ordinarily are discretionary, unless the terms of the trust or applicable law make them mandatory."'

Id. at 439 (citing 3 Scott and Ascher on Trusts§ 18.2, 1338 (4th ed.

2007)).

In this instance, the clear thrust of the reasoning underlying the

U.S. Supreme Court's Lassen decision and those of the state Supreme

Courts that have addressed the character of the trust obligations owed by executive branch agencies managing federal land grant trust lands have all reached the same conclusion: basic common law trust 37 principles govern including the duties of undivided loyalty and prudent management. In enacting ORS 530.450, the legislature interfered with the State Land Board's irrevocable duty to manage common school lands for the exclusive benefit of the beneficiary public schools. This legislation hindered the Board's duty to prudently manage its land

base1 in this case by selling valuable forest land that was imposing current and projected future net losses on the Common School Fund.

This statute not only usurps a constitutionally designated duty, but a duty embodied in a contract obligation owed to the United States set out in the Admission Act compact.

CONCLUSION

Because ORS 530.450 both violates the Oregon Constitution and the Admissions Act compact with the United States, this Cou1t should reverse the Court of Appeals and enter judgment in favor of intervenor- 38 respondent Seneca Jones Timber Company, LLC and respondent

Oregon Department of State Lands.

Dated this 5th day of March, 2019.

Isl Michael E. Haglund Michael E. Haglund #772030 HAGLUND KELLEY LLP 200 SW Market St., Ste 1777 Portland, OR 97201 Telephone: (503) 225-0777 Email: [email protected]

Isl Dominic M. Carollo Dominic M. Carollo #093057 YOCKIM CAROLLO LLP 430 SE Main Street PO Box 2456 Roseburg, OR 97 4 70 Telephone: (541)957-5900 Email: [email protected]

Attorneys for Intervenor­ RespondentlPetitioner on Review Seneca Jones Timber Company, LLC 41

COMBINED CERTIFICATE OF COMPLIANCE WITH BRIEF LENGTH AND TYPE SIZE REQUIREMENTS, AND CERTIFICATES OF FILING AND SERVICE

Brief length

I certify that this Opening Brief on the Merits of Intervenor Respondent Seneca Jones Timber Company, LLC, Petitioner on Review and Supreme Court Excerpt of Record complies with the word-count limitation in ORAP 5.05, which word count is 7,580.

I certify that the size of the type in this brief is not smaller than 14 point for both the text of the brief and footnotes.

I certify that I filed this Opening Brief on the Merits of Intervenor Respondent Seneca Jones Timber Company, LLC, Petitioner on Review and Supreme Court Excerpt of Record with the Appellate Court Administrator on this date.

I certify that service of a copy of the Opening Brief on the Merits of Intervenor Respondent Seneca Jones Timber Company, LLC, Petitioner on Review and Supreme Court Excerpt of Record will be accomplished on this date on the following participants in this case, U.S. Mail and email:

Daniel R. Kruse #064023 ELLEN F. ROSENBLUM, #753239 KRUSE & SAINT MARIE Attorney General Attorneys At Law INDE D. WELLS #881137 101 E. Broadway Ste. 130 CARSON L. WHITEHEAD Eugene, OR 97401 #105404 Telephone: (541) 687-6788 Assistant Attorneys General Email: [email protected] 1162 Court St. NE Salem, OR 97301-4096 Nicholas Stanton Cady, #112463 Telephone: (503) 378-4402 CASCADIA WILDLANDS carson.l.whitehead @doj .state.or. us PO Box 10455 [email protected] Eugene, OR 97440 Telephone: (541) 434-1463 Attorneys for Respondent- 42

Email: [email protected] Respondent/ Petitioner on Review Attorneys for Petitioners­ Appellants/Respondents on Review

DATED this 5th day of March, 2019

Isl Michael E. Haglund Michael E. Haglund #772030 HAGLUND KELLEY LLP 200 SW Market St., Ste 1777 Portland, OR 97201 Telephone: (503) 225-0777 Email: [email protected]

Isl Dominic M. Carollo Dominic M. Carollo #093057 YOCKIM CAROLLO LLP 430 SE Main Street PO Box 2456 Roseburg, OR 97470 Telephone: (541)957-5900 Email: [email protected]

Attorneys for Intervenor­ Respondent Seneca Jones Timber Company, LLC, Petitioner on Review