ALAMO LAND & CATTLE CO. v. ARIZONA

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Argument of J. Gordon Cook

Chief Justice Warren E. Burger: We will resume arguments in Alamo Land and Cattle Company against Arizona.

Mr. Cook you may proceed.

You have about 18 minutes remaining.

Mr. J. Gordon Cook: Thank you.

Mr. Chief Justice and may it please the Court.

If I may spend just a minute briefly revealing what I said yesterday.

My position yesterday was that the Lassen case is not opposite to my client's position and I seize upon wording in the Lassen case that refers to general powers of sale and lease given to the state by the Act and my proposition is that it was for the state to decide whether it should or should not insert a Condemnation Clause.

I point out that there was no evidence below that would indicate that the state acted unreasonably in inserting or not inserting a Condemnation Clause.

I distinguish the Fuller case, which I mention is a companion case almost, because there the Taylor Act specifically said that nothing shall “create any right, title, interest or state into the lands.”

Meaning therefore, upon condemnation by the Federal Government, it would not have to pay for any right to the fee lands because of any increase in value, because of the right to use a Taylor grazing lands, but there is no such wording in the Enabling Act that would prohibit Arizona by not inserting a Condemnation Clause from creating a right to the lessees.

I realize that Lassen says, “We must nevertheless conclude that the purposes of Congress require that the Act's designated beneficiaries, derive the full benefit of the grant,” but there is no testimony below that they did not.

There is no testimony below that one way or the other, it was not necessary to insert a Condemnation Clause in order to lease.

I remind you of the fact that statistics show that there is a lot of remote land in Arizona, that there is a lot of Federal land in Arizona.

Of the 72 million acres of land in Arizona and I get this from the 61st Annual Report of the Arizona Land Department, of the 72 million plus acres, only 11,500,000 are privately owned, 51 million is federally owned, 9 million plus is owned by the state and in these remote areas, as the testimony show, often there is not a lot of fee ownership land.

Now, by the Fuller case you have already said that upon condemnation the Taylor Grazing increment in value is not compensable.

So I say and I ask you to realize that if you say that there is no compensation allowed for the lessee's interest, then a very valuable tool on financing maybe lost and I am backed up by that by the amici curiae brief of different banks and by the fact that New Mexico takes a position by amici curiae brief in opposition to that of Arizona.

I would turn then to analyzation of the lease because the Court of Appeals below, when it decided that there was no property right created in Alamo, said it was not then necessary to discuss the lease provisions, it is now.

There is nothing in the lease that prevents my client’s position.

My opponent seizes upon the word “vested” but that simply means that the right of the lessee is subject to no contingencies and we discussed yesterday of the fact that here, in the event there is reclassification, the lessee could be ousted from possession.

Now, I have cited a myriad of cases in my briefs, particularly in the reply brief on pages 5 and 11 that I think are without contradiction that say that just because the landlord could terminate the lease, it does not mean that the tenant does not have a compensable interest upon condemnation.

That is merely an evidentiary factor to be considered and there is no law that decides to the contrary.

Justice William H. Rehnquist: Mr. Cook, would it not be likely if we were to decide in your favor on the Enabling Act question and to say that the Enabling Act does not require Arizona to put a Condemnation Clause, that we would send it back to the Ninth Circuit or perhaps to Judge Craig in the District Court for determination as to what in fact, the construction of the lease was under Arizona law?

Mr. J. Gordon Cook: I think by necessity, since the lease came in evidence that was already constructed by Judge Craig.

Justice William H. Rehnquist: But it was left open in the Ninth Circuit?

Mr. J. Gordon Cook: It was merely left open in the Ninth Circuit because the Ninth Circuit said that since it interpreted the Enabling Act and not create a property right, there was therefore, no Fifth Amendment compensation to my clients and they therefore, did not have to pass upon the question of whether the lease precluded the rights.

But I submit that Judge Craig did because the lease came in evidence and we argued that below.

I think you can properly pass upon the lease at this level.

Justice William H. Rehnquist: Even though the Ninth Circuit did not?

Mr. J. Gordon Cook: It said, it did not have to reach it, but the Trial Court did.

It was at issue.

Chief Justice Warren E. Burger: What we usually do is give intermediate court an opportunity to ask some of the questions, if they have not passed on it?

Mr. J. Gordon Cook: I must confess, I have not researched that specific question as to whether you do or you do not.

I thought you could pass upon it because the District Court did and --

Justice Byron R. White: The value of the land was stipulated too in this case?

Mr. J. Gordon Cook: Yes sir.

Justice Byron R. White: And that stipulation was based on an appraisal?

Mr. J. Gordon Cook: Yes sir.

Justice Byron R. White: Is that appraisal in the record?

Mr. J. Gordon Cook: Yes sir.

Justice Byron R. White: And, it was based on the, part of one piece was based on the value of the land for grazing purposes and the other included that valuation on recreational -- for the highest use was one piece was recreation?

Mr. J. Gordon Cook: No sir.

Justice Byron R. White: what was -- both for grazing?

Mr. J. Gordon Cook: Yes sir.

Justice Byron R. White: And it was based on a unit basis that this land would run so many cattle?

Mr. J. Gordon Cook: No sir.

Justice Byron R. White: What was the basis for the appraisal?

Mr. J. Gordon Cook: Well, that was my second part.

The primary basis is that the land had added value in conjunction with the use with Alamo’s fee land.

Justice Byron R. White: That is what you argue, but I just want to know what the appraisal was based on, that is in the record?

Mr. J. Gordon Cook: It said it in the appraisal.

Justice Byron R. White: What did it say?

And what page is that?

Mr. J. Gordon Cook: The appraisal contained a statement and I believe it is on page 21 of the appendix and I refer to that.

It said that consequently the market value of this river, dead land is inseparable from the usefulness in connection with the dry grazing areas on both sides of the river which dessert areas are useful only when water or livestock control and dependable forge can relied upon.

And below, Mr. Davis at the transcript on page 86 and 87 said, and that was Alamo’s appraiser, as I understand the statement, he gave consideration to the fact that the State lease land is a part of an operating unit and has value because it serves as part of that unit with the dependable irrigated forge and page 21 --

Justice Byron R. White: You think the appraisal would have been different if the appraisal occurred at the expiration of the lease which had no renewal on it?

Let us assume the land -- this was not leased and was not located -- it was not leased to somebody who owned the adjoining land, would the appraisal been the same?

Mr. J. Gordon Cook: That was the testimony below.

Mr. Davis said, under those circumstances it would be worth $40,000.00 to $50,000.00.

This is remote land.

It is really in Timbuktu, without the damage, 30 miles from the nearest paved road that has no value at all except for the grazing purposes and what the position below was, is that when there is dependable pasture land that is irrigated with a water supply like Alamo had, you are then not depended upon the lack of rain fall in Arizona and depended upon having to sell your cattle because there is no feed upon the dessert.

You can then take your cattle into the pasture land and keep them until we get more rain and you can then utilize the Taylor grazing and state lease grazing.

That was the testimony below and that is why the appraiser for the government said what he said.

Now, I submit that his conclusion was wrong.

He said, “Well, I think as a matter of law that the State is entitled to get it all,” but I submit to you that is basic evidentiary law that --

Justice Byron R. White: That is (Inaudible) conclusion.

Justice William H. Rehnquist: That is not for the appraiser to decide on.

Mr. J. Gordon Cook: Thank you.

So in considering the proposition, I would refer you to wording in the Nebraska case where it said, there was nothing in the Nebraska Act and I submit there is nothing in the Arizona Act that would assume to say the State is harmless in a situation condemnation from a diminution in the market value of the state's right to the creation of a lease hold.

Now, all of the cases that to my knowledge in the west had interpreted these Enabling Acts, all came to the conclusion that there was a property right upon condemnation of the lessee and this had been going on for years and I have set forth that authority in my reply brief and I mentioned one quote from an Oklahoma case, “The fact that land is always for sale or lease, renders the right to buy it at the appraisal or to release a valuable one.”

If we turn to basic Agency Law and Trust Law, I submit upon a hypothetical situation.

Let us just presume this would be a trust or a living trust or trust by will and at the terms of the trust were such as are often found that gives the lessee, I am sorry the trustee the full discretion to decide the terms of a contract or the terms of a lease.

It is basic Agency Law that the authority to lease means in usual or reasonable manner.

I have set forth that law in my reply brief on page 5.

It is basic Trust Law, when you are dealing with how the trustee has exercised his authority.

I am not dealing with an accounting situation now that when he exercises his authority, it does presume to be reasonable until there is evidence to the contrary and there was no evidence below that Arizona acted unreasonably in not inserting the Condemnation Clause.

There was no evidence below, whether or not the insertion or lack of insertion or such a clause was necessary in order to lease.

So that this is not anything to show that Arizona acted unreasonably under those circumstances so I --

Justice Byron R. White: Did the government file an amicus brief on the merits or just a petition stage?

Mr. J. Gordon Cook: Did not file one on the merits, just at the petition stage and it raised the point that has not been raised here and that is a challenge to the method of valuation.

Justice Byron R. White: And its position was something you -- I take it you disagree with that that if we agree with you on the Enabling Act, there should not be a remand, they say there should be, I guess.

Mr. J. Gordon Cook: What they really said in their brief was that they submitted -- they agree that there was a compensable right in the Lessee, but they wanted to utilize a short-term lease method evaluation and this came from a long standing battle between the United States and New Mexico and that is why New Mexico --

Justice Byron R. White: United States stipulated to the valuation, did they not?

Mr. J. Gordon Cook: Yes sir, but they were talking about valuation of the lessee’s interest and they used the short-term lease method evaluation where you try to show that the rents in fact are cheaper than the reasonable rental value.

We used a different method of valuation below that their support for the record --

Justice Byron R. White: On the Enabling Act, is that issue still open?

Mr. J. Gordon Cook: It was not challenged.

There was not any challenge below to our method of valuation.

The challenge below was simply not that our method was wrong and giving the lessee what it got.

Challenge below was simply that the Lessee in any event could get nothing, except the value of its improvements that was some $3000.

Justice Byron R. White: The United States has never intervened in this case?

Mr. J. Gordon Cook: No sir, the United States did not -- at the trial do anything, but sit there and observe.

Justice William H. Rehnquist: What concern does the Government have with the method of valuation when it stipulated to the amount recoverable as damages?

Mr. J. Gordon Cook: Not -- well, I just mentioned that because Justice White had mentioned the Governments amicus curiae brief.

Justice Byron R. White: Well, I think the Government has an interest in -- it is just probably a general interest is how to value lessee’s interest that in other cases they may have to pay for.

Mr. J. Gordon Cook: I would agree with that.

Justice Harry A. Blackmun: (Inaudible) what the law is in the Ninth Circuit with respect to this or the other Circuit?

Mr. J. Gordon Cook: I would agree with that, but I was pointing out in this particular case, they had no interest.

If I can just reserve a couple of three minutes, I like to.

Chief Justice Warren E. Burger: Very well.

Mr. Gulatto.

Argument of Peter C. Gulatto

Mr. Peter C. Gulatto: Mr. Chief Justice and may it please the Court.

The more that I read the Lassen case and the Enabling Act, the more difficult I find it to reconcile petitioner's arguments with these provisions of the Act and provisions of the Lassen case.

Without going into a great deal of detail, I think that from a general reading of the Lassen case, it can be easily detected that Arizona’s restrictions on the use of their Enabling Act Lands are much stricter than they are in practically in any other state and the reason for this was that the lands were being diverted to private use and the moneys derived there from were being be used for other purpose, for private advantage.

Justice Byron R. White: Could I ask you, except to the Enabling Act, would you agree that under the Petty case, there is a compensable interest in the lessee?

Mr. Peter C. Gulatto: Without the restrictions on the Enabling Act, I have no quarrel with the general condemnation law, both federal and at the state level that lessee has a compensable interest in property being condemned without a Condemnation Clause.

Justice Byron R. White: There was no Enabling Act here or let us assume we rule against you on the Enabling Act point, would you agree that this amount of money that was paid in the Court of the United States should be divided between the lessee and the lessor?

Mr. Peter C. Gulatto: Well --

Justice Byron R. White: I mean, if there is a compensable interest in the lessee --

Mr. Peter C. Gulatto: If there is a compensable interest in the lessee then it would have to be determined based on the relative rights and I think that --

Justice Byron R. White: And those rights were determined in the District Court anyway?

Mr. Peter C. Gulatto: Well, they were determined -- I do not agree with the determination at the District Court level because they misapplied the law and this was the final argument in my brief.

I raised it in the final argument of my brief, I raised at the Trial Court, and I raised it at the Court of Appeals.

Justice Byron R. White: That issue is still open?

Mr. Peter C. Gulatto: That issue is still open, but I think it is open more as a matter of law than as a matter of fact.

Justice William J. Brennan: What was your position?

Mr. Peter C. Gulatto: The position is that in the event that the Lessee has a compensable interest, that it can only be determined based on the actual life of the present lease and you cannot speculate on a renewal and this is consistent with all the cases we have cited.

Justice William J. Brennan: Did you put a dollar value on that?

Mr. Peter C. Gulatto: We put, I put a multiple dollar value on it.

There were two or three different ways you could arrive at a value and these were what we argued to the Court below, Trial Court and to the Ninth Circuit and these are set forth in my brief.

Justice William J. Brennan: How much less than the $57000?

Mr. Peter C. Gulatto: Well, if you go on just the actual, on the basis of the life of the lease, then it comes to $19000 as opposed to $57000 for a 26-year term.

If you go on a basis of the highest sale of any cattle unit on a state lease land, it comes down to approximately $6000 and I have set that forth in my brief and this is the testimony that was elicited from Mr. Davis on cross examination.

I like to point --

Justice Byron R. White: Excuse me, before you reach it.

Do you think the issue in this case is -- you think the issue before us turns around, turns on what you call the Enabling Act.

Now, that was repeated, however, there was a state statute too by the Arizona legislature?

Mr. Peter C. Gulatto: Right.

The Arizona legislature enacted.

Justice Byron R. White: And you are claiming that --

Mr. Peter C. Gulatto: Well, that is constitutional.

Justice Byron R. White: -- the Arizona statutes creating a compensable interest and the lessee is forbidden?

Mr. Peter C. Gulatto: Well, I do not think the Arizona statutes create a compensable interest on the lessee.

Justice Byron R. White: I know they do not plead, but do you think it forbids it?

It forbids creating a compensable interest in the lessee by a lease?

Mr. Peter C. Gulatto: I think the provision is in the State constitution and it is practically a re-script of the Enabling Act.

Justice Byron R. White: Alright, but it is still is a state constitutional argument?

Mr. Peter C. Gulatto: Yes.

Justice Byron R. White: Now, do you think that is sort of -- what my real question is, is this issue a matter of State or Federal Law?

Mr. Peter C. Gulatto: The Enabling Act restrictions are imposed by Congress, so therefore it is a question of Federal Law.

Justice Byron R. White: Does the state repeated in this constitution?

Mr. Peter C. Gulatto: If you come back --

Justice Byron R. White: And the question is, and the Court of Appeals tells us that the Arizona constitution forbids creating a compensable interest in the Lessee, is it not correct?

Mr. Peter C. Gulatto: That is correct, but they also say that the Enabling Act forbids it, that we were not ever authorized to do it.

Justice Byron R. White: (Voice Overlap) but then you also are saying the Arizona constitution forbids it?

Mr. Peter C. Gulatto: Well I --

Justice Byron R. White: (Inaudible) think that now?

Mr. Peter C. Gulatto: I think that if an interpretation --

Justice Byron R. White: You do not disagree with Court of Appeals on construing a state statute or state constitution?

You would be happy if we did that.

Mr. Peter C. Gulatto: I suppose.

Justice Byron R. White: You think this is a matter of federal law?

Mr. Peter C. Gulatto: I think the interpretation and application of the Enabling Act is a matter of federal law.

Now, the interpretation and application of the state constitution, I think is a matter of state law, just so it is consistent with the -- or not in our position to any Federal statute sir.

Justice Byron R. White: I do not suppose we have to get at the state constitution has to mean what the Enabling Act means?

Justice William J. Brennan: For example, suppose the Enabling Act does not as you say it does include a prohibition, but the state constitution does, what then?

Mr. Peter C. Gulatto: I think that the restrictions placed on the use of the trust lands by Congress can be tightened, but they cannot be loosened.

In other words, the state can make a more restrictive use of the trust, but they cannot make a less restrictive of use of the trust.

Justice William J. Brennan: Well, here they may in fact, if the state constitution that made them more restrictive, did it not?

Mr. Peter C. Gulatto: Yes.

When you look at the conclusion of the Lassen case, this Court held that Arizona could go ahead without complying with the action procedures on a direct sale of land to a condemning authority as long as it used the standard which nearly reproduces the result of the auction.

Now, under the Enabling Act and under the state constitution, the only way that land is sold out of the trust is for it to be put up for public auction, first of all to be appraised, to be advertised for ten weeks, to be put up for public auction and to be sold to the highest bidder at not less than the appraised value and on the distribution of the proceeds, the entire value of the land goes to the trust and the lessee only gets the value of the improvements and I would like to disagree with Mr. Cook.

An examination of the Enabling Act shows that the restrictions that were placed on the trust that says that the trust can only be used for the purposes set forth and that it cannot be sold or leased for any purpose in consistent with the trust unless the trust is fully compensated, except that it authorizes the legislature to lease the land for various purposes, for grazing, agricultural, domestic and commercial and in commercial this has a rather broad definition of any use, not otherwise set forth, for mining purposes, for oil and gas exploration and leasing.

And also it states, in the same provision, that the legislature is authorized to protect the lessee for the value of his improvements and on the sale of the property, the lessee shall be paid by either the succeeding lessee or the succeeding purchaser.

So the Enabling Act does address itself to what the lessee is entitled to on the sale of property.

Justice William H. Rehnquist: Supposing Mr. Gulatto that you win your argument on the Enabling Act here and the case goes back and the Arizona Land Department continues to hold auctions for these kind of leases, but inserts a Condemnation Clause, because we say that they have to.

Your bidding in that case is going to be lower because of the Condemnation Clause and without the Condemnation Clause, as if you have taken away one of the elements of value in the land, if you told the lessee that he will not get anything in the event of condemnation?

Mr. Peter C. Gulatto: Well, if you are looking at this case we are in grazing, the method for determining grazing rentals of land is set forth by statute in Arizona revised statutes 37255 I believe, 285, it is set forth to my brief.

It says statutory determination based on the percentage of the price of cattle, multiplied by the number of the sections carrying capacity.

In other words, the price that Arizona gets for the rental as a minimum price based in the economic return to the rancher for what he gets from the cattle, he --

Justice William H. Rehnquist: Well it is a public, open public bidding is it not?

Mr. Peter C. Gulatto: Oh, not on the determination of the rental value of the land or on the leasing.

If land comes up for a lease that has not been leased before, what the State Land Commissioner does is he reviews the application to see who can make the more successful use of the land that will result in the best return to the trust.

Every decision that the Land Commissioner makes is ultimately directed towards what is the best interest of the trust and how are we going to be able to produce the most revenue, not what lessee is going to be able to make the best profit of the land and with this --

Justice William H. Rehnquist: So, is there no competition then at all in the bidding for the land?

I mean, can someone bid so much break for year and someone else come in and bid something more than that?

Mr. Peter C. Gulatto: No, what is done first is the value of the land, the market value of the land for lease purposes is made by appraisal and the land is not leased for less than that appraisal.

Justice William H. Rehnquist: Okay, well then, would not an appraiser appraising the market value of the land for lease purposes take into consideration the fact that there was a Condemnation Clause in the lease and value it at a lower figure for that reason, because you have taken away one of the elements of value that would be in the lease?

Mr. Peter C. Gulatto: I do not think, from what I know of the demand for state leases that this really makes any difference, would make any difference in the rental value at all, especially of grazing leases.

Now, you see on a commercial lease or on an agricultural lease, the lessee is protected for the value of his improvements and he will be paid or those, in any event if the land is sold or leased to someone else, and for another lessee to come in and pay for those improvements really makes it quite burdensome once a land is developed.

So I do not think it is really going to affect the market value of the land at all.

Justice William H. Rehnquist: And you do not think an appraiser in deciding -- appraising two identical parcels, one with a Condemnation Clause and one without it, would make any distinction in the value?

Mr. Peter C. Gulatto: Well, no.

When you look at the terms and conditions of the lease whether or not you have the hardcore Condemnation Clause that Mr. Cook is referring to, when you have a provision that the land can be reclassified to another purpose and under that event, the lessee does not have an absolute right to release the land under those circumstances.

He has a preference, but still the best interest of the trust is going to be served rather than the lessee’s interest, when you look to fact that the lease provides that nothing in the lease shall create a vested interest.

Now, I think extending this out to include the language that was used under the Taylor Trust is sort of hallow argument.

I think that what we are looking at is we are looking at an attempt by the state to say to the lessee, “Look, you do not have any rights in this land.

All we are doing is giving it to you to lease in order to accommodate the administrative function that is going to be longer than for a term of a month to month or year to year.

We will give the ten year lease, but subject to these conditions where; one, we can relinquish it to United States; two, we can end up granting easements for multiple purposes across the land; three, that it can be reclassified and four, you have no vested interest.”

It seems to me that when you take all these together, what you are doing is you are saying in effect, look you do not have any rights and the lease can be terminated.

It can be terminated on 30 days.

Suppose we come across a parcel of land that the state wants or the United States wants that it is under grazing lease and they want it to develop in reference to a recreational purpose and we will say the park service, if there is a demand for that land for other than grazing, then the highest and best use is not being served and we go to a reclassification and in that event, the lease is terminated.

The lessee does not have any greater rights in the 30 days, right to continue occupancy.

I really do not see that the length of lease has any bearing on his rights when you look at the specific terms of a lease.

Justice William H. Rehnquist: Well, then you say in effect that you do not need the Enabling Act to reach the result you want to reach.

It is already reached by the provisions of the lease itself?

Mr. Peter C. Gulatto: Well, that was one of my arguments below and that is one of the arguments that I am making here.

Justice William H. Rehnquist: And that was rejected by Judge Craig and not passed on by the Ninth Circuit?

Mr. Peter C. Gulatto: That is right.

I would like to point out that Mr. Cook said that the highest and best use of this land was determined by the appraiser to be grazing on page 20. On page 30 of the abstract at the beginning paragraph referring to parcel 304, the appraiser and the only appraiser that we have determined that the recreational oriented home site would be the best market and on page 32 at the bottom paragraph with reference to parcel 305, the appraiser determined that major value of this section is its residential ranch headquarters, speculative recreational value, and reliably predictable multiple usefulness.

Now, none of these highest and best use values are based on a grazing value.

The value of the land is separate and apart and in Federal condemnation law, what the appraisal function is, is first to determine what partial is, what is its highest and best use and the value of that particular parcel.

Justice William J. Brennan: (Inaudible) All that the Court of Appeals actually decided was, that under the Enabling Act, Arizona’s trustee had no power to grand a compensable interest?

Mr. Peter C. Gulatto: That is right.

Justice William J. Brennan: And all these arguments you now have been making do not address that question?

Mr. Peter C. Gulatto: Okay.

Justice William J. Brennan: Are you -- you support that holding, do you?

Mr. Peter C. Gulatto: I support that holding.

Justice William J. Brennan: Why?

Mr. Peter C. Gulatto: I support that holding because the Enabling Act provides that the land was granted to the State of Arizona in trust for the use of the common schools and it says disposition of any of the lands or any of the money’s or thing of value directly or indirectly divided from the lands, contrary to the provisions of this Act shall be deemed to be breech of the trust.”

Therefore, what we can do with the land was limited.

The method that we can dispose of the land, namely through the auction procedures and the sale and the appraisal is restricted.

The use to which we can put the money after the land is sold is restricted.

The only thing we can do is put it in the trust fund and use the revenues from that trust fund for the support of the common schools.

It also says that no mortgage or other in encumbrance of the said lands or any part thereof shall be valid in favor of any person for any purpose under any circumstances whatsoever.

It seems to me that that is as direct a statement, saying that a mortgage is invalid against state lands is possibly can be written.

Now, Arizona has recognized that a Lessee may need money in order to develop land, and therefore, the legislature has authorized the mortgage of the lessee’s rights which ends up letting the value of the improvements be leased and upon the sale of the -- or on a default of the mortgage, the mortgage company can foreclose on the lease and the lessee’s interest, but it never, the statute involved, never permits the state land to be prejudiced because if you do let state lands be sold to satisfy a mortgage --

Justice William J. Brennan: Well I gather your argument is that in the face of those provisions of the Enabling Act, the state could not do any different anyway?

Mr. Peter C. Gulatto: That is right.

Justice William J. Brennan: And whether if it tried to give a compensatory property right to lessee, it could not because of the Enabling Act?

Mr. Peter C. Gulatto: That is right.

Justice William J. Brennan: That is your argument?

Mr. Peter C. Gulatto: Yes, and I think that this is -- the argument is supported by the language in the Lassen case and also in the --

Justice William J. Brennan: But then of course you go on and say in any event, anything that the state did do, whether by constitutional or statutory provision, it is preferably consistent with the prohibition against granting a compensable property?

Mr. Peter C. Gulatto: That is right.

Now, when you look at the U.S v. Ervin, it says words more clearly designed to create a definite and specific trust could hardly have been chosen.

This was cited in the Lassen case.

I think that this supports the conclusion and the position of the state with reference to the compensable interest.

Justice Lewis F. Powell: Mr. Gulatto?

Mr. Peter C. Gulatto: Yes sir.

Justice Lewis F. Powell: As I understand what you have said, it is your view that there is no compensable value in the lease, whether the transaction is a sale or condemnation and that that results from the Enabling Act without regard to Arizona law?

Mr. Peter C. Gulatto: Yes.

Justice Lewis F. Powell: In other words, if there was a straight sale --

Mr. Peter C. Gulatto: If there is a straight sale, there is no possibility under Arizona law or under the Enabling Act for the lessee to participate in the value of the land award, or the value of the purchase price.

Justice Lewis F. Powell: Let us put Arizona Law aside for the moment. Do you construe the Act itself as preventing any compensable interest in a valid lease whether it is a sale rather than a condemnation?

Mr. Peter C. Gulatto: When the Act speaks in terms of that, “No land shall be sold except for the full appraised value and that the trust has to be compensated for the full appraised value of the land,” I think, yes, that the Enabling Act prohibits the lessee from participating in the value -- in the proceeds of a sale.

Justice Lewis F. Powell: But you have already agreed that in a private transaction the full value of land subject to a lease, would take into account the value of the unexpired term of the lease?

Mr. Peter C. Gulatto: Yes and of course taking into consideration, the specific terms of the lease and whether or not there was a Condemnation Clause, but I do not think that the private, that this land can be dealt with as private land because of the conditions imposed by the Enabling Act and by the State constitution.

Justice Lewis F. Powell: Did you cite any authority in your brief dealing with the question of a full -- of a sale and the value that is recoverable under those circumstances?

Mr. Peter C. Gulatto: The authority that I cite is the state statutes.

Justice Lewis F. Powell: They were allowing the state statutes.

Mr. Peter C. Gulatto: And the constitution and the Enabling Act and I do not have --

Justice Lewis F. Powell: There is no case under the Enabling Act itself which says that there is no compensable value --

Mr. Peter C. Gulatto: Well, you can go to --

Justice Lewis F. Powell: -- to a lease on a straight sale?

Mr. Peter C. Gulatto: You can go to the Nebraska case which the Trial Court relied on and which the Ninth Circuit distinguished and in that case the Eight Circuit determined that under the Nebraska Enabling Act, the lessee had a right to participate in the award.

However, when you look at the terms of the Nebraska Enabling Act, the Enabling Act just made a direct grant to the state and there were no restrictions on the use or disposal of lands.

And therefore, under the Nebraska Enabling Act, that decision seems correct and consistent with the general condemnation law on the lessee’s rights.

However, when you look at the restrictions that Arizona has under its Enabling Act, I do not think that the two cases can be reconciled.

So, the Ninth Circuit distinguished the case and I think rightly so.

That is the whole purpose and intent of Congress in imposing the restrictions, was that there was a dissipation of the trust without having the revenues generated from the sale of the land going to the trust fund for the use of the beneficiaries.

That is what they were trying, exactly what they were trying to accomplish by imposing these restrictions.

Justice William J. Brennan: In other words, the Nebraska Act did not have any counterpart of section 28 of the Arizona?

Mr. Peter C. Gulatto: Not at all and I have cited the Nebraska Enabling Act and at that portion, I believe it is Section 7 in my brief and it just grants the land to the state.

It is interesting thought that a trust concept relying on the Lassen case was imposed by the Nebraska District Court, even after the Lassen case came down and said well, these are trust lands and the Federal Government has to pay for rights way over the trust lands which they had not been doing before.

Justice Harry A. Blackmun: Mr. Gulatto, I take it then you disagree with the Solicitor General, when he says in his amicus curiae briefs, submitted in connection with the petition for cert that it can fairly be said that two decisions, that is the Nebraska case and the one below here, represent a conflict and approach to the question of statutory interpretation presented here.

Mr. Peter C. Gulatto: Oh! I totally disagree with that.

As a matter of fact, I disagree with the whole concept or the whole concept of the US Solicitors, especially when you considered that from the onset of this case in view of the fact that the United States Attorney is supposed to be the ultimate overseer of the trust and we endeavored to get the support of the US Attorney in the case and the Phoenix office at least agreed with us and went along with the concept that the lessee had no compensable interest and the first, I was aware that the United States was taking different position was when they filed this brief.

I think that --

Justice Harry A. Blackmun: Suppose the SG is the superior of the Phoenix office?

Mr. Peter C. Gulatto: I suppose, so we have a great difference of opinion there, but I think if the United States is the ultimate overseer of the trust and their ultimate responsibility is to be an advocate on behalf of the trust, I do not see that this position is really consistent with the best interest of the trust.

I do not think that they are analyzing and seeing a conflict between those two cases as correct.

I think what you have to do is you have to look at each trust responsibility and determine what the responsibility is.

Justice Potter Stewart: United States is not so much the overseer, it is the grantor of the trust, the trustor?

Mr. Peter C. Gulatto: Also under the Enabling Act, the US Attorney has the ultimate responsibility for the enforcement of the trust provisions.

Justice Potter Stewart: Right.

Mr. Peter C. Gulatto: So they can come in anytime in Arizona as violating the trust provisions, they can come and take over.

Justice Potter Stewart: So the grantor generally to complain, the grantor and/or the beneficiaries to complain --

Mr. Peter C. Gulatto: I suppose.

Justice Potter Stewart: -- if the trust provisions are not being applied?

Mr. Peter C. Gulatto: So it would create a situation I suppose that if the United States had come in and attempted to defend the trust in this type of an action where it is a Federal condemnation, it would have a very difficult time stating a claim because it would be the United States suing the United States and in other words they withdraw lands for a particular purpose under the administration of the state, but still under the control of the United States and Congress and they are suing to condemn them for another purpose and I think it would have to be worked out administratively.

Justice Potter Stewart: It now leads us to the position of Arizona in the Lassen case (Inaudible).

Mr. Peter C. Gulatto: I think so.

We find ourselves fighting each other a lot.

I would like to conclude with this remark.

If we are going to nearly reproduce the result to the auction as Lassen prescribes that we must do if we are going to have sales other than at public auction.

In order for this Court to not establish a dual standard in the distribution of state funds, I think the only solution is to determine that just as in a sale of public lands through the auction procedures that the state and the trust must derive the full benefit of the sale of the lands and I think to conclude that a lessee has a compensable interest in, only in a condemnation case and not at under any other circumstance, really does not make a uniform consistent application in the trust and does not constitute, what I would say, results in the trust being compensated for the full appraised value of land taken out of the trust.

Thank you.

Chief Justice Warren E. Burger: Thank you Mr. Gulatto.

Do you have anything further Mr. Cook?

Rebuttal of J. Gordon Cook

Mr. J. Gordon Cook: Yes.

I will try to be very brief and I think I can answer some of the questions that have been posed here.

The Lassen decision below refers to an Arizona Supreme Court decision that compares the Enabling Act, Section 28 with Arizona’s constitution.

The citation is 181 Pacific Second 336 and it shows that they are the same.

There are a couple of minor distinctions that are not at issue herein.

There is an excellent annotation that appears at 1 ALR 3rd that is entitled condemnation property state law and that particular annotation refers to a decision of your Court in the Polson case which provides that in determining a Fifth Amendment question, you can interpret the state law and that appears in the annotation on page 481.

Arizona has consistently, by its statutes interpreted this right as being a property right.

In fact Arizona in the statute referred to in both my briefs, the reply at page 10 also in a situation where there was a condemnation for the purpose of parks, specifically said, the lessee’s right was “a property right.”

I believe one of the Justices asked whether or not there were any decisions of Enabling Acts of other states, there are.

There is New Mexico, in the Chavez case cited in my briefs, specifically interpreted the renewal rights under school trust lands to be compensable.

The same thing as true in Oklahoma.

You can find that in pages 6 to 10 of my reply brief.

Wyoming is interpreted as a property right.

That has been a consistent interpretation in the west.

On pages 5 and 11 of my reply brief, I set forth a myriad of cases that say, that although the landlord could terminate the lease, the lessee is still has a compensable property right.

I would like to mention the questions relative to the appraisal of the government.

On page 21 of the appendix under the Section, highest and best use, you can see from reading that that the appraiser of the United States is referring to the highest and best use as grazing.

Later on he speculates about residential, but that is what he says as a highest and best use under that particular heading.

And may I say the whole trial below was on one issue and that was when would the property be reclassified for residential purposes and it was determined that Alamo would stand till that happen and that was by Judge Craig, determined to be for 26 years, that is what it was all about below and there was no opposition to that particular testimony.

And I close by saying in response to some of the questions of Justice Rehnquist.

There is nothing except left to speculation as to whether or not, without -- with the Condemnation Clause, you would loose a source of lessees and I say the question is real because that is why New Mexico supported the petition and that is also why the banks supported the petition.

And even though you cannot have free bidding because the state does set the lease price, we do not what will happen as to whether or not you will loose the source of lessees and I think that is why throughout the years in the west, none of these states have tried to interpret and insert a Condemnation Clause in release.

Thank you.

Chief Justice Warren E. Burger: Thank you gentleman.

The case has submitted.