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Weiss v. State (5/2/97), 939 P 2d 380
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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, ) Supreme Court No. S-6845
on behalf of himself and all )
others similarly situated; ) Superior Court No.
and MARY C. NANUWAK and ) 4FA-82-2208 CI
BILLY R. CROSS, on behalf of )
themselves and all others ) O P I N I O N
similarly situated, )
) [No. 4816 - May 2, 1997]
Appellants, )
)
v. )
)
STATE OF ALASKA, ANITA BOSEL, )
FRANCES DOULIN, SHARON )
GOODWIN and GABRIEL MAYOC; )
and H.L., M.K., and ALASKA )
ADDICTION REHABILITATION )
SERVICES, )
)
Appellees. )
______________________________)
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 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. (EN1) (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, sec. 202, 70 Stat.
709, 711-712 (1956) (AMHEA). The settlement agreement, reached
after almost a decade of negotiations, reconstitutes the trust with
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.
II. FACTS AND PROCEEDINGS
A. The 1956 Act, the Redesignation Legislation, and State v.
Weiss
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:
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, sec. 3(a), SLA (1978).
Alaska has provided continuous mental
health care since statehood. . . .
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 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. (EN2) (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.
B. Chapter 48 and 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,
sec.sec. 2(d), 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, sec. 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, sec. 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, sec. 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, sec. 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, sec. 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. (EN3) (Bosel Intervenors) to intervene on behalf
of developmentally disabled individuals, (EN4) and H.L. et al.
(EN5) (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,
sec. 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.
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. (EN6) 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, sec. 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. (EN7)
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 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
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, sec.sec. 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.
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, sec. 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, sec.sec. 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, sec.sec. 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. (EN8)
III. DISCUSSION
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),
(EN9) we adopt the same abuse of discretion standard applied under
the federal rule, 7B Charles A. Wright et al., Federal Practice and
Procedure sec. 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.
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 sec. 30.42 (1995); 2 Herbert B. Newberg & Alba
Conte, Newberg on Class Actions sec. 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, "[c]ourts judge the
fairness of a proposed compromise by weighing the plaintiff's
likelihood of success on the merits against the amount and form of
the relief offered in the settlement."(EN10) Carson v. American
Brands, Inc., 450 U.S. 79, 88 n.14 (1981). Thus, the focus of
Weiss's 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 þ 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 þ 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). (EN11)
The superior court determined that the HB 201 settlement
"provide[d] the class with five primary benefits." These included
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. (EN12) 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.
1. 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
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.
(EN13) 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. 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 not err by failing to reduce the value of the land as
Weiss suggests.
b. Risks of continued litigation
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."(EN14) 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. (EN15)
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 upheld under basic
principles of trust law. (EN16) 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. E.g.
Gladden Farms, Inc. v. State, 633 P.2d 325, 327-30 (Ariz. 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 sec. 202; see also State v. University of
Alaska, 624 P.2d 807, 815 n.11 (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 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. (EN17) In
contrast to the 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
"[n]othing in Weiss would require that they be included in the
reconstituted trust,"(EN18) 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
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. (EN19)
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. (EN20)
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:
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 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 sec. 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, (EN21) but they do not
necessarily have a duty to maintain the corpus of the trust
forever. (EN22)
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 sec. 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 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 any 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 no
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.
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 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. (EN23) 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."
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"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. (EN24)
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.
(EN25) Moreover, recognition of the "unique 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 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. (EN26)
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 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
actively oppose any attempt by the legislature
to make a material change in the terms of the
settlement and remind the legislature of the
possibility of another long and costly lawsuit
against the State. The Trust Authority may
also be in a position to influence the
governor to veto any legislation 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 five
clauses of Rule 60(b) . . . are mutually exclusive. Relief under
clause (6) is not available 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 sec. 2864, at 352 (1995). (EN27) 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
sec. 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 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 fact . . . and the concomitant risks and costs necessarily
inherent in taking [the] litigation to completion,"the court did
not abuse its discretion in holding that the settlement is fair,
adequate, and reasonable.
C. Did the Superior Court Abuse Its Discretion by
Establishing the Approval Process?
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. (EN28)
1. Definition of the class
The superior court redefined the class in 1994 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 major mental
illness, and 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 (EN29) 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 "[t]here
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 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
sec. 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
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 sec. 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. (EN30) Weiss claims that collusion occurred between
the 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). In 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.'"Herbert B. Newberg & Alba Conte, 2 Newberg
on Class Actions sec. 11.28, at 11-59 (1992) (quoting Manual for
Complex Litigation, Second sec. 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 sec. 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)
incorrectly 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.
According to one authority, (EN31)
[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 sec.
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
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 commentors
to identify their status with respect to the litigation, provided
adequate protection against the risk of improperly considering
comments from the general public. Judge Greene adopted an
excellent procedure both for disseminating notice 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. (EN32)
E.g. Carvalho v. Carvalho, 838 P.2d 259, 263 (Alaska 1992);
Frontier Saloon, Inc., v. Alcoholic Beverage Control Bd., 524 P.2d
657, 658 (Alaska 1974). In this case, the trial court 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:
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.
ENDNOTES:
1. 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.
2. Mary C. Nanuwak and John Martin joined AMHA's complaint.
3. Frances Doulin, Sharon Goodwin, and Gabriel Mayoc also joined in Bosel's complaint.
4. 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.
5. M.K. and Alaska Addiction Rehabilitation Services joined in H.L.'s motion to intervene.
6. 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.
7. Although the Bosel Intervenors joined the agreement, they later withdrew their support.
8. Earl Hilliker, an original plaintiff, and AMHA opposed the settlement but are not
participating in this appeal.
9. 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.
10. 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).
11. 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).
12. The latter three are referred to collectively as the "Program Benefits."
13. 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.
14. 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.
15. The superior court also determined that the litigation risk of recovering trust lands
exchanged with the Cook Inlet Region Incorporated was "low." The parties do not dispute this
finding. The superior court also briefly considered 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.
16. The superior court cited Restatement (Second) of Trusts sec. 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."
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.
18. 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.
19. 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.
20. 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.
21. The Restatement (Second) of Trusts sec. 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 sec. 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, sec. 153-55, 190 (1959).
22. The school trust land cases do not compel a different result. As noted above, the
enabling acts, constitutional provisions, and statutes governing many school trust lands, in
contrast to the AMHEA, expressly require the state to preserve the corpus of the trust in an
"'inviolate' permanent fund." Sally K. Fairfax et al., The School Trust Lands: A Fresh Look
at Conventional Wisdom, 22 Envtl. L. 797, 879 (1992). One possible benefit of the settlement
is that it 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.
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).
23. 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.
24. 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.
25. 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 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).
26. 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.
27. 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).
28. Weiss also argues that the trial court abused its discretion by not granting preliminary
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.
29. See supra note 4.
30. Weiss also argues that the superior court erred by failing to
make a specific finding that the class was adequately represented.
The case upon which Weiss relies, In re General Motors Corp. Engine
Interchange Litig., 594 F.2d 1106, 1124 & n.21 (7th Cir. 1979),
supports the proposition that the court must 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 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 negotiations
by Proponents' counsel would have met it.
31. See supra note 27.
32. 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.
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