Lipscomb v. Columbus Municipal , 269 F.3d 494 ( 2001 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-60245
J. RANDOLPH LIPSCOMB, on behalf of himself and all
others similarly situated; MAYOR, CITY OF COLUMBUS;
CITY COUNCIL OF THE CITY OF COLUMBUS, MISSISSIPPI,
as the statutorily designated successors in office
to the Trustees of Franklin Academy,
Plaintiffs-Appellees,
versus
THE COLUMBUS MUNICIPAL SEPARATE SCHOOL DISTRICT,
etc.; ET AL.,
Defendants,
versus
STATE OF MISSISSIPPI; ERIC CLARK,
In his capacity as Secretary of State,
Defendants-Appellants.
Appeal from the United States District Court
For the Northern District of Mississippi
October 3, 2001
Before REYNALDO G. GARZA, HIGGINBOTHAM, and SMITH, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
This case requires us to examine a collision between the
Contract Clause of the United States Constitution and Mississippi’s
effort to escape rent and renewal terms of leases of sixteenth
section land in Columbus, Mississippi dating back to the early
nineteenth century. The Secretary of State of Mississippi and the
State maintain that the rental and renewal terms are invalid
because their perpetuation of rents that are now nominal violate a
provision of the 1890 Mississippi Constitution forbidding the
donation of public property to private parties. Lipscomb sues for
a declaration that the efforts of the Secretary of State to
invalidate these leases violates the Contract Clause. The
district court held that invalidating the leases would violate the
Contract Clause. We affirm.
I
Before Mississippi became a state, the United States Congress
set aside the sixteenth section of every township in the
Mississippi Territory to be used for the benefit of schools.1
Congress then authorized the leasing of the sixteenth section land
to raise funds to finance public schools in the Mississippi
Territory.2 Upon granting statehood to Mississippi in 1817,
Congress gave the sixteenth section land to the new State for the
1
Act of March 3, 1803, 2 Stat. 233-34. Sixteenth sections
were not set aside in northern Mississippi until 1817, see Act of
March 3, 1817, 3 Stat. 375, and “lieu lands” were provided for
sixteenth sections that were unavailable for various reasons. See,
e.g., Act of July 4, 1836, 5 Stat. 116 (Chickasaw Cession Lieu
Lands). The creation of sixteenth section lands and lieu lands is
discussed in Papasan v. Allain, 478 U.S. 265, 268-73 (1986).
2
Act of Jan. 9, 1815, 3 Stat. 163 (providing for leasing
certain lands reserved for the support of schools in the
Mississippi territory).
2
benefit of its schools.3 Thereafter, the Mississippi legislature
authorized the leasing of the school lands, the proceeds of which
would finance public schools.4
In the early-to mid-1800s, various persons leased sixteenth
section land from the school board of Columbus, Mississippi. These
leases were to last 99 years from February 10, 1821, or thereabouts
(regardless of when actually made) and contained “renewable
forever” provisions authorized by an 1830 Mississippi statute.5
Many of the leases—often after being assigned or subdivided—were
renewed in 1920 under their renewable forever provisions. The
rental rates paid on the Columbus leases have remained unchanged
for one hundred eighty years. Leaseholders of lots of property in
downtown Columbus pay pennies in rent per year, a small fraction of
their fair market rent.
In 1890, Mississippi ratified its current constitution.
Section 95 of the 1890 constitution prohibits the donation of state
lands to private parties.6 Mississippi courts subsequently
interpreted section 95 to prohibit leases or sales of land for
3
Papasan, 478 U.S. at 271.
4
See Miss. Const. of 1817, art. 6, § 20; Act of Feb. 10,
1821, 1821 Miss. Laws, 4th Sess., Ch. XLVI (authorizing a lease of
certain Town Lots therein named, and for other purposes).
5
Act of Dec. 13, 1830, 1830 Miss. Laws, 14th Sess., Ch. II.
6
Miss. Const. of 1890, art. 4, § 95 (“Lands belonging to, or
under the control of the state, shall never be donated directly or
indirectly, to private corporations or individuals, or to railroad
companies.”).
3
grossly inadequate consideration.7 A lease that violates section
95 is voidable.8 Following these rulings, the State and individual
school boards began asserting that sixteenth section leases for
nominal consideration were void and renegotiating the leases. The
leases in Columbus, Mississippi, however, occupy a unique position:
because the “renewable forever” leases in Columbus were signed
before the ratification of the 1890 Mississippi Constitution,
voiding the leases implicates the Contract Clause of the United
States Constitution.9
J. Randolph Lipscomb brought a declaratory judgment action in
federal court seeking certification of a class of leaseholders and
a declaration that the State’s threatened action to void the leases
and renegotiate would violate the Contract Clause. He originally
named the Secretary of State of Mississippi, the State of
Mississippi, the Columbus School Board, and the U.S. Department of
Housing and Urban Development10 as defendants.11
7
See, e.g., Hill v. Thompson, 564 So. 2d 1, 9 (Miss. 1989).
8
Id. at 12.
9
U.S. Const. Art. I, § 10, cl. 1.
10
Lipscomb alleged that in response to the State’s declared
intention to void the leases, HUD had declared the leased lands
“uninsurable,” thereby causing the leaseholders harm.
11
The School District has since been realigned as a plaintiff,
and HUD remains only as a “nominal” defendant. We will refer here
often to the remaining defendants collectively as the State.
4
The district court certified the class, but then abstained
under the Pullman and Burford doctrines. This Court reversed the
ruling on abstention and remanded.12 The district court redefined
the class and ultimately granted summary judgment in favor of
Lipscomb, declaring, in relevant part, that (1) “renewable forever”
in the Columbus sixteenth section leases means all rental
covenants, including the lease rate, are renewable forever, (2) the
Contract Clause of the United States Constitution applies to the
leases in this case, (3) voiding the leases under section 95 of the
Mississippi Constitution would violate the Contract Clause. The
Secretary of State and the State of Mississippi appeal that ruling.
II
The State challenges federal jurisdiction on several grounds,
and we turn first to that question.
A. Subject Matter Jurisdiction
The State argues that the district court lacked subject matter
jurisdiction because there is no federal question and the federal
defendant, HUD, has no case or controversy with the plaintiffs.13
12
See Lipscomb v. Columbus Mun. Separate Sch. Dist., 145 F.3d
238, 240-42 (5th Cir. 1998). The broader history of the leasing of
state lands for the benefit of schools is discussed below, in the
context of the Contract Clause analysis. See Part IV.A.
13
The State contends that the leases are in fact taxes, and
thus the federal courts are barred by the Tax Injunction Act, 28
5
Specifically, the State claims that the Supreme Court’s decision
in Public Service Comm’n v. Wycoff14 precludes federal jurisdiction
under 28 U.S.C. 1331 and the well-pleaded complaint rule.15 We
disagree.
In Wycoff, the plaintiffs sought a declaratory judgment that
their activities constituted interstate commerce so as to insulate
them from state regulation. The Court held that when “the
complaint in an action for declaratory judgment seeks in essence to
assert a defense to an impending or threatened state court action,
it is the character of the threatened action, and not of the
defense, which will determine whether there is federal-question
jurisdiction in the District Court.”16 The State contends that
Lipscomb has similarly attempted to evade the well-pleaded
U.S.C. § 1341, from entertaining a challenge to the state’s actions
to collect on the leases. This contention is without merit. The
lease obligations are a creature of contract, not a mandatory
obligation imposed by the state as taxes are. See New Jersey v.
Anderson, 203 U.S. 483, 492 (1906). Although the determination of
what is a “tax” is ultimately a question of federal law, Neinast v.
State of Texas, 217 F.3d 275, 278 (5th Cir. 2000), we note that the
Mississippi Supreme Court has characterized the leases as leases
rather than taxes. See Street v. City of Columbus, 23 So. 773, 774
(Miss. 1898). The appellants also note that the lease payments are
collected by the taxing authorities. This court has previously
rejected this reasoning: “This formalism is unhelpful. . . . [T]he
question is not where the money is deposited, but the purpose of
the assessment.” Neinast, 217 F.3d at 278.
14
344 U.S. 237, 248 (1952).
15
Louisville & Nashville R.R. v. Mottley, 211 U.S. 149 (1908).
16
Wycoff, 344 U.S. at 248.
6
complaint rule, by anticipating the Secretary of State’s judicial
action. Since the state legislative action giving rise to
Lipscomb’s claim is the Mississippi Constitution of 1890,
Lipscomb’s complaint does not anticipate a state judicial action,
it seeks redress for an existing harm.17 To the point, the
threatened action is legislative impairment of contract.
B. Eleventh Amendment Immunity
The State for the first time seeks a dismissal on grounds of
sovereign immunity. Lipscomb counters that the State has waived
its Eleventh Amendment immunity and, in the alternative, that Ex
parte Young18 saves the claim for declaratory relief against the
Secretary of State, even if the State of Mississippi must be
dismissed. We address these contentions in reverse order.
Ex parte Young of course offers an exception to the State’s
Eleventh Amendment immunity. That is, state immunity is no bar to
enjoining a proper state official from unconstitutional acts.
Lipscomb seeks not damages but a declaration that voiding the
leases would violate the Contract Clause. In function, this
requested relief is indistinguishable from a suit to enjoin the
Secretary from declining to abide the challenged lease terms.
While such a declaration will not support coercive, retrospective
17
See infra n. 32
18
209 U.S. 123 (1908).
7
relief or money damages when confronted by the Eleventh Amendment,
it will support injunctive relief.
The Secretary of State argues, however, that the suit
implicates the State’s ownership of land in a manner that takes it
outside the Ex parte Young exception, as in Idaho v. Coeur d’Alene
Tribe of Idaho.19 In Coeur d’Alene the Supreme Court held that a
claim to the ownership of submerged waters brought against the
state is barred by the Eleventh Amendment, even though no damages
were sought. The Court emphasized that the requested declaration
would strip the state of its jurisdiction and regulatory control
over the lands.20 The Court also noted that state control over
submerged lands was a special incident of sovereignty with deep
historical roots.21
We are not persuaded Coeur d’Alene controls here. The Supreme
Court relied on two interrelated factors: First, the Court noted
that the Eleventh Amendment bars a quiet title action in federal
court absent the state’s consent.22 The tribe claimed ownership and
exclusive occupancy of the lands and was seeking invalidation of
all state laws regulating the land. It conceded that its suit was
the functional equivalent of a quiet title action. Second, the
19
521 U.S. 261 (1997).
20
Id. at 281-83.
21
Id. at 282-87.
22
Id. at 281-82.
8
Court emphasized that the relief sought would have been an affront
to the state’s sovereignty. Because the tribe was a distinct
sovereign, not only would quieting title in the tribe divest the
state of ownership over the land, it would strip the state of all
of its jurisdiction and power over the land.23
We find our case distinguishable. Lipscomb did originally
seek to quiet title, but he abandoned that claim. His amended
complaint seeks only a declaration that the invalidation of the
price terms of the leases is prohibited by the Contract Clause of
the Constitution. The contention that the requested relief would
be an affront to state sovereignty is not convincing. Mississippi
would retain jurisdiction over the leased lands; indeed, title to
the lands would remain in Mississippi. The State’s basic police
and taxing power would not be affected.
The Tenth Circuit found similar distinctions from Coeur
d’Alene in a case resembling this one. In Elephant Butte
Irrigation District of New Mexico v. Department of Interior,24 it
denied an Eleventh Amendment challenge to a suit over the
distribution of profits from land leases to various governmental
23
Id. at 282 (“[T]he far-reaching and invasive relief the
Tribe seeks . . . go[es] well beyond the typical stakes in a real
property quiet title action.”). The majority opinion treated these
two factors in tandem. Justice O’Connor’s concurring opinion
distinguishes these factors and discusses them at greater length.
See id. at 288-91.
24
160 F.3d 602 (10th Cir. 1998).
9
bodies. The court acknowledged that the suit involved property
interests of the state, but noted that it was not a suit to quiet
title, and the “special sovereignty interests” present in Coeur
d’Alene did not exist.25 Instead, the Tenth Circuit noted, the only
interest of the state at stake was its relatively mundane interest
in the distribution of lease income.26
In sum, Lipscomb’s suit is not to quiet title, nor would the
granting of relief strip the state of any of its jurisdiction or
authority to regulate the land. While it would prevent the state
from charging current market rates for rent on renewal, it does
nothing to frustrate state taxation of the leasehold – a reality to
which we will return. As such, the Ex parte Young doctrine
applies, and the Eleventh Amendment does not deprive federal courts
of jurisdiction to entertain this suit against the Secretary of
State. This renders moot the claim for the same relief asserted
directly against the state, and we need not address that claim
further.
III
Before turning to the question of whether the Contract Clause
bars invalidation of the lease terms, we must examine a preliminary
question of whether refusing to honor the renewal and price terms
25
Id. at 608-09, 611-12.
26
See id. at 612.
10
implicates the Contract Clause at all. A violation of the Contract
Clause rests on the assertion that the current leases were in place
before the 1890 Mississippi Constitution. The Secretary argues
that renewals of the leases in 1920 changed the contract terms to
an extent that they were new contracts rather than renewals. The
Secretary’s argument is that the price terms on the contracts have
changed—that the contracts were altered, not merely renewed. If
so, the Secretary concludes, there can be no Contract Clause
violation, because the plaintiffs do not hold leases with price
terms that preexisted the 1890 Mississippi Constitution.
Lipscomb replies that changes in the price terms reflected
subdivision of the land, and lower price terms for contracts for
smaller plots represented pro rata division of the original lease
price.27 Lipscomb also notes that the leases were labeled
“renewals” and thus we may conclude that they were in fact
renewals.
We agree with the district court that the defendants failed to
create a genuine issue of material fact on this issue. Lipscomb
presented evidence that the leases were labeled “renewals.” This
view is consistent with the 1830 statute that authorized the
trustees of Franklin Academy to make all the leases at issue in
27
A state statute allowed lessees to subdivide their leases.
Act of January 28, 1846, 1846 Miss. Laws, (Regular Sess.) Ch. 143.
11
this case renewable forever.28 Further, although the leases were
divided and re-divided, increasing the difficulty of determining
whether their rents changed over time, Lipscomb presented evidence
that the aggregate rentals on the lands in question did not change
before and after 1920. The State responded only with evidence that
the per-acre rents changed over time. This is not relevant, since
allocation of rentals on sub-divided pieces of leased land could
rest on the quality of each lot rather than its area. For example,
a two-acre lot rented for two dollars a year could be divided into
two one-acre lots, one of which rented for $1.20 and one of which
rented for $0.80. Even though the rent-per-acre went up in one lot
and down in the other, the rental rate of two dollars for two acres
28
Act of Dec. 13, 1830, 1830 Miss. Laws, 14th Sess., Ch. II.
The State claims that this statute only authorized the creation of
leases that were renewable forever and that it did not make
previously created leases renewable forever or allow those leases
to be terminated and then renegotiated with renewable forever
provisions. The State argues that the statute provides that the
only way a prior lease can be renewed forever is at the end of its
lease term. The State misreads the statute. It states: “And be it
further enacted, That the Trustees of said Franklin Academy ... be,
and are hereby authorized to make out all leases for the lots of
[sixteenth section land in Columbus], for ninety nine years, dating
from the first leasing of lots in said town of Columbus, renewable
forever.... [A]nd that all leases heretofore made of lots, by the
said Trustees, be renewable at the expiration of the time for which
they were leased, in like manner as above, provided for, in cases
of lots to be leased hereafter.” Id. (emphasis added). The statute
is silent on the surrender or termination of pre-existing leases.
As the defendant’s note, the statute may well have induced holders
of pre-1830 leases to surrender them, so as to gain the benefits of
the renewable forever provisions that were now authorized. The
simple fact remains that the leases here at issue contain renewable
forever terms authorized by this statute.
12
did not change. The difference in rent between the two lots could
reflect the value of each lot’s location, the quality of its soil,
access to water or roads, or other differences. The precise
reasons for such differences in valuation are irrelevant. The
State thus has failed to create a genuine issue of material fact
that subdividing or releasing lands changed their rental rates. We
accept the district court’s conclusion that the 1920 leases were
renewals and at last reach the question of the limits imposed by
the Contract Clause.
IV
1
The 1890 Mississippi Constitution, section 95, states, “Lands
belonging to, or under the control of the state, shall never be
donated directly or indirectly, to private corporations or
individuals, or to railroad companies.”29 Mississippi courts have
consistently construed this to forbid transactions for
consideration so inadequate that they are the equivalent of
donations.30 The Mississippi Supreme Court, in Hill v. Thompson,31
held that a sale or lease of sixteenth section land that violates
29
Miss. Const. of 1890, art. 4, § 95.
30
See, e.g., Hill v. Thompson, 564 So. 2d 1, 9 (Miss. 1989)
(reviewing cases).
31
564 So. 2d 1 (Miss. 1989).
13
section 95 is voidable.32 However, the Mississippi Supreme Court,
in interpreting section 95 to make certain sixteenth section land
leases voidable, has invoked equity and held that even when a lease
is voided, the leaseholder retains the right of first refusal after
the land is appraised for fair rental value.33
In sum, the Secretary of State has sought, under section 95,
the invalidation of leases of sixteenth section lands throughout
Mississippi. The sixteenth section land leases in Columbus,
Mississippi, however, are renewals of leases signed before the
ratification of section 95 of the 1890 Mississippi Constitution.
Thus, Lipscomb argues for a declaration that this effort to
invalidate the leases in Columbus violates the Contract Clause of
the United States Constitution.
2
Article I, section 10 of the U.S. Constitution states, “No
State shall ... pass any ... Law impairing the Obligation of
Contracts.”34 The Supreme Court has emphasized, however, that the
32
See id. at 9.
33
See id. at 12.
34
U.S. Const. Art. I, § 10, cl. 1. The defendants argue that
the Contract Clause is not implicated by this lawsuit because the
alleged impairment of the leases was not caused by the legislative
act of enacting the 1890 Mississippi Constitution, but by the
judicial act of the Supreme Court of Mississippi in deciding Hill.
The defendants are correct in claiming that only legislative
actions, not judicial actions, can create a viable Contract Clause
claim. See Tidal Oil Co. v. Flanagan, 263 U.S. 444, 451 (1924);
Frazier v. Lowndes County, Mississippi, Bd. of Educ., 710 F.2d
14
absolute language of the Contract Clause does not create an
absolute prohibition; a State must be given some accommodation in
passing laws “to safeguard the vital interests of its people.”35
The Supreme Court has developed a three-part test to balance the
State’s obligation not to impair contracts with its interest in
public welfare. These three are applied against the backdrop of
legislative power to exercise eminent domain. That a state
legislature has by statute given assurance that it would not do so
does not mean that the legislature cannot later take the property
by eminent domain or paying just compensation.36 That is, we
address a claim of police power to regulate – without compensation.
And while impairment of contract analysis has an air of due process
about it, our analysis is distinct.
First, “[t]he threshold inquiry is whether the state law has,
in fact, operated as a substantial impairment of a contractual
relationship.”37 In considering whether an impairment to contract
1097, 1099 (5th Cir. 1983). But the impairment stems from the “no
donations” clause of the 1890 Mississippi Constitution that the
Hill court interpreted, not from the Hill decision itself, which
merely engaged in constitutional construction. Our prior opinion
in Lipscomb said as much. Lipscomb v. Columbus Mun. Separate Sch.
Dist., 145 F.3d 238, 243 n.4 (5th Cir. 1998).
35
Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459
U.S. 400, 410 (1983).
36
See West River Bridge Co. v. Dix, 6 How. (47 U.S.), 507
(1848).
37
Id. at 411 (internal quotations omitted).
15
is substantial, the court should consider the expectations of the
parties with respect to changes in the law.38 Particularly relevant
to this inquiry is whether the subject matter of the contracts had
been subject to regulation at the time the contracts were made.39
A “regulation that restricts a party to gains it reasonably
expected from the contract does not necessarily constitute
substantial impairment.”40 The court should also consider what
terms of the contract are affected and the duration of the
effects.41
Second, if we find a substantial impairment of contractual
rights, we must consider the justification offered by the State for
its impairment of the contract.42 A State can only justify a
substantial impairment of contracts with a “significant and
legitimate public purpose behind the regulation, such as the
remedying of a broad and general social or economic problem.”43 The
problem need not be “an emergency or temporary situation,”44 and
38
See Chrysler Corp. v. Kolosso Auto Sales, Inc., 148 F.3d
892, 894 (7th Cir. 1998).
39
See Energy Reserves Group, 459 U.S. at 411.
40
Id.
41
Cf. Allied Structural Steel Co. v. Spannaus, 438 U.S. 234,
245-47 (1978) (describing example of a severe impairment of
contractual rights).
42
See Energy Resources Group, 459 U.S. at 411.
43
Id. at 411-12.
44
Id. at 412.
16
“the elimination of unforeseen windfall profits” is a legitimate
state interest sufficient to justify state impairment of
contracts.45 The requirement that the problem be “broad and
general” ensures “that the State is exercising its police power,
rather than providing a benefit to special interests.”46 The
scrutiny to which the court subjects the state law is proportional
to the degree of impairment.47
Third, if the State presents a legitimate justification for
the impairment, we determine whether the impairment is reasonable
and necessary. “Legislation adjusting the rights and
responsibilities of contracting parties must be upon reasonable
conditions and of a character appropriate to the public purpose
justifying its adoption.”48 In cases involving impairment of
contracts between private parties, the court does not independently
45
Id.
46
Energy Reserves Group, 459 U.S. at 412.
47
See Allied Structural Steel Co. v. Spannaus, 438 U.S. 234
(1978) (“The severity of the impairment measures the height of the
hurdle the state legislation must clear.”). In Allied Structural
Steel, the Supreme Court noted that the challenged legislation
“worked a severe, permanent, and immediate change in [the
contractual] relationships—irrevocably and retroactively.” Id. at
250. The Court had little hesitation in striking down such
legislation when it (1) interfered with a previously unregulated
field, (2) was directed at a small subset of employers, rather than
business in general, and (3) did not even purport to be a necessary
step in remedying a social or economic problem. See id. at 247-50.
48
United States Trust Co. of New York v. New Jersey, 431 U.S.
1, 22 (1977); see also Energy Reserves Group, 459 U.S. at 412.
17
review the reasonableness of the legislation; it should defer to
the judgment of the legislature.49
However, when the State is a party to the contracts, the court
cannot defer to the State because the State’s self-interest as a
party is implicated.50 Instead, the court must engage in a two-part
inquiry. First, the court should determine whether the contracts
surrender “an essential attribute of [the State’s] sovereignty.”51
If so, the Contract Clause does not prevent the State from
impairing such an obligation, because “the legislature cannot
bargain away the police power of a State.”52 Purely financial
obligations, however, do not surrender aspects of the State’s
sovereignty, and thus are subject to the Contract Clause.53 Second,
even if the impairment is subject to the Contract Clause, the court
must determine whether the impairment is “reasonable and
necessary,” without giving “complete deference” to the
legislature’s judgment.54
49
Energy Reserves Group, 459 U.S. at 412.
50
United States Trust Co., 431 U.S. at 25-26.
51
Id. at 23.
52
Id.
53
See id. The Supreme Court has held that “any substantial
alteration by subsequent legislation of the rights of a purchaser
at a tax sale, accruing to him under laws in force at the time of
his purchase, is void as impairing the obligation of contract.”
Wood v. Lovett, 313 U.S. 362, 369 (1941).
54
United States Trust Co., 431 U.S. at 25-26.
18
In sum, the court must first determine whether the impairment
of the contract is substantial and the degree of that impairment.
If the impairment is not substantial, there is no claim under the
Contract Clause.55 The court must next assess the strength of the
State’s justification for the impairment. The justification must
identify a public purpose that is significant and legitimate. If
the State fails to provide such a justification, the impairment
violates the Contract Clause.56 Finally, the court must compare the
impairment and the justification to determine whether the
impairment is “reasonable and necessary.” The degree of deference
shown the legislature’s judgment on this question depends on
whether the government has impaired contracts to which it is a
party.
3
We begin by asking whether section 95 substantially impairs
the contractual rights of the leaseholders. To determine the
effect of a law on a contract, we must identify which contractual
rights are being affected by the law, and then consider the extent
to which the law has contravened the reasonable expectations of the
parties. Section 95 affects the renewal rent term. As read by the
Mississippi Supreme Court section 95 makes voidable the current
55
See, e.g., City of El Paso v. Simmons, 379 U.S. 497 (1965).
This case is discussed at length below.
56
See, e.g., Allied Structural Steel Co. v. Spannaus, 438 U.S.
234 (1978).
19
lease price, allowing the State to seek a fair market rate, but
giving the current leaseholder the right of first refusal.57 The
actual impairment to the leases is the invalidation of the
“renewable forever” clauses that guaranteed a continuation of the
original price term to the present day. Section 95 thus impairs
the contract term that freezes the rents at prices that the State
contends have become grossly inadequate with the passage of time.
Given that section 95 affects the renewal price term, we must
ask what the reasonable expectations of the contracting parties
were with respect to that contract term. The renewable forever
clauses are authorized by state statute.58 Additionally, the leases
were made in furtherance of the State’s duty to preserve the value
of the school trust lands. The leases in this case were signed in
57
Because the Mississippi Supreme Court has held that the
leases are voidable, rather than void, the State has no right to
seek foregone rent from past years. See Hill, 564 So. 2d at 9.
58
The Mississippi legislature passed numerous statutes
regulating the leasing of sixteenth section land in the years after
the creation of the State. Legislation in 1821 and 1830 authorized
the leases in this case. See Miss. Const. of 1817, art. 6, § 20;
Act of Feb. 10, 1821, 1821 Miss. Laws, 4th Sess., Ch. XLVI; Act of
Dec. 13, 1830, Miss. Laws 14th Sess. Ch. II. The Mississippi
legislature altered the regulation of Mississippi sixteenth section
lands throughout the 19th century. See, e.g., Act of Feb. 10, 1830,
1830 Miss. Laws Ch. XXIV; Act of December 16, 1830, 1830 Miss. Laws
14th Sess. Ch. II; Act of Feb. 27, 1833, 1833 Miss. Laws [pp.452-
54]; Act of January 28, 1846, 1846 Miss. Laws, (Regular Sess.) Ch.
143. Indeed, since the nineteenth century, the Mississippi
legislature has continued to place a great importance on the
management of sixteenth section lands. See Act of March 20, 1914,
Miss. Laws Ch. 462.
20
the 1820s, 1830s, and 1840s, against a backdrop of the State’s
binding trust obligations.
4
The nature of the trust is here relevant in two ways: first,
the extent of the State’s trust obligations in the management of
the sixteenth section lands affects the strength of Mississippi’s
interest in regulating those lands; second and relatedly, the
fetters of trust obligations bear on the reasonable expectations of
the parties to the leases on their execution – the strength of the
facially unqualified obligation to renew.
Since its earliest days, Mississippi has held sixteenth
section lands in trust for the benefit of the schools of the State.
Although courts often refer to “the” trust, there are in fact two
trusts—one state, one federal—in which Mississippi holds its
sixteenth section lands. Detailing this duality is necessary to
understanding Mississippi’s trust obligation. We turn first to the
federal trust.
Beginning with the Northwest Territory in 1785, Congress set
aside public lands in most of the territories of the United States
to be used for the benefit of territorial schools. The lands set
aside were composed of the sixteenth section of each township; in
later years, additional sections were set aside as well. As states
were formed out of territories, Congress, in the enabling act of
21
each new state, granted the school lands to the state.59 These
grants contain language that the land is being given to the state
for the benefit of its schools. This is the source of the claim
that the states hold the school lands in a federally created
trust.60
In defining the character of any federal trust, we then first
turn to the language of the statute granting the sixteenth section
lands to the State and their interpretation. Earlier grants of
sixteenth section did not contain any language creating specific
obligations on the part of the states.61 The Supreme Court long ago
held that such grants gave the sixteenth section lands to the
states in fee simple;62 the federal trust was purely honorary.63
59
Thus, almost every state aside from the original thirteen
has sixteenth section lands. See Andrus v. Utah, 446 U.S. 500, 522
(1980) (Powell, J., dissenting); see also P. Gates, History of
Public Land Law Development 287-88 (1968).
60
For a more extensive discussion of the history of sixteenth
section lands, see Papasan v. Allain, 478 U.S. 265, 268-70 (1986);
Andrus v. Utah, 446 U.S. at 522-24 (Powell, J., dissenting); Semmes
Luckett, Mississippi’s Sixteenth Section School Lands, 23 Miss. L.
J. 281 (1962).
61
See, e.g., Act of March 3, 1817, 3 Stat. 375 (“[S]ection No.
16, in each township, [ ] shall be reserved for the support of
schools therein.”) (Mississippi enabling act); Act of Feb. 14,
1859, 11 Stat. 383 (“[S]ections numbered sixteen and thirty-six in
every township of public lands ... shall be granted to said State
for the use of schools.”) (Oregon enabling act).
62
Cooper v. Roberts, 59 U.S. 173, 181-82 (1855).
63
See Alabama v. Schmidt, 232 U.S. 168, 173-74 (1914). The
Fifth Circuit long ago held that the statute creating Louisiana’s
sixteenth section land, Act of March 3, 1811, 2 Stat. 662 (the
22
Some later land grants—those to Arizona and New Mexico, for
example—were worded to create very specific rights and duties of
the United States and the state.64 The Supreme Court has treated
these grants as binding trusts.65
The grant of sixteenth section land to Mississippi was one of
the earliest trusts created, and contained no language establishing
a binding trust. We remain convinced then that the federal trust
in which Mississippi holds its sixteenth section lands is purely
honorary,66 that Mississippi holds absolute title to the land
without federal restriction and we turn to the matter of trust
obligations imposed by the law of Mississippi.
sixteenth section “shall be reserved in each township, for the
support of the schools within the same”), created only an honorary
trust. See Louisiana v. William T. Joyce Co., 261 F. 128, 130, 133
(5th Cir. 1919).
64
See Lassen v. Arizona ex rel. Arizona Highway Dept., 385
U.S. 458, 470-74 (1967) (reprinting statutory language of the land
grants).
65
See id. at 460-61, 466-67; see also Papasan v. Allain, 478
U.S. 265, 270 (1986) (“[T]he most recent grants are phrased not as
outright gifts to the state for specific use but instead as express
trusts.”).
66
Madison County Bd. of Educ. v. Illinois Central R.R. Co.,
939 F.2d 292, 305 (5th Cir. 1991).
23
“An overwhelming body of law”67 in Mississippi holds that the
lands are held in a binding trust.68 The Mississippi Supreme Court
has said the trust dates back to the creation of the state.69
Although the source of this trust obligation is obscure,70 the
67
Morrow v. Vinson, 666 So. 2d 802, 805 (Miss. 1995); see also
Mississippi Gaming Comm’n v. Bd. of Educ., 691 So. 2d 452, 461
(Miss. 1997) (quoting Morrow).
68
See Morrow, 666 So. 2d at 805-06; Hill v. Thompson, 564 So.
2d 1, 7 (Miss. 1990); Turney v. Marion County Bd. of Educ., 481 So.
2d 770, 776-77 (Miss. 1985); Bragg v. Carter, 367 So. 2d 165, 167
(Miss. 1978); Tally v. Board of Supervisors, 323 So. 2d 547, 549-50
(Miss. 1975); Edwards v. Harper, 321 So. 2d 301, 303 (Miss. 1975);
Holmes v. Jones, 318 So. 2d 865, 868 (Miss. 1975); Keys v. Carter,
318 So. 2d 862, 864 (Miss. 1975); State ex rel. Coleman v. Dear,
212 Miss. 620, 55 So. 2d 370, 373-74 (1951); Koonce v. Bd. of
Supervisors, 202 Miss. 473, 32 So. 2d 264, 265-66 (1947); Pace v.
State ex rel. Rice, 4 So. 2d 270, 272, 274, 276 (Miss. 1941);
Washington County v. Riverside Drainage Dist., 131 So. 644, 645
(Miss. 1931); Jefferson Davis County v. James-Sumrall Lumber Co.,
49 So. 611, 612 (Miss. 1909).
69
See Hill, 564 So. 2d at 7. One case, Pace v. State ex rel.
Rice, 4 So. 2d 270, 272, 274, 276 (Miss. 1941), has applied the
trust obligation to a lease beginning in 1847. The court stated
that “the state cannot abdicate its duty as trustee of property in
which the whole people are interested, any more than it can
surrender its police powers ....” Id. at 277.
70
Some cases suggest that the obligation is a creature of
state statute. See Broadhead v. Bonita Lakes Mall, Ltd.
Partnership, 702 So. 2d 92, 105 (Miss. 1997); Holmes v. Jones, 318
So. 2d 865, 868-69 (Miss. 1975). Other cases appeal to the
Mississippi Constitution of 1890, see Morrow v. Vinson, 666 So. 2d
802, 805-06 (Miss. 1995); Koonce v. Bd. of Supervisors, 202 Miss.
473, 32 So. 2d 264, 265-66 (1947), or the public trust doctrine,
see Secretary of State v. Wiesenberg, 633 So. 2d 983, 987 (Miss.
1994); Cinque Bambini Partnership v. State, 491 So. 2d 508, 511
(Miss. 1986).
24
Mississippi Supreme Court has declared its existence as a matter of
state law,71 and that is the end of the matter.72
The State holds title to the land for the benefit of its
schools; the common law rules applicable to private trusts apply to
the trust in which Mississippi holds its school lands.73 and any
action taken by the State in violation of this trust is voidable.74
71
In addition to the state-law sources of the trust cited
above, a few cases suggest that the trust is a federally
enforceable creation of Congress, See Hill, 564 So. 2d at 6;
Turney v. Marion County Bd. of Educ., 481 So. 2d 770, 776 (Miss.
1985). Since the Mississippi Supreme Court has adhered to Hill in
the face of federal precedent reaffirming that the federal trust is
honorary, however, it is clear that the binding trust is grounded
in state law. See Morrow, 666 So. 2d at 805.
72
“[W]e interpret the state statute the way we believe the
state Supreme Court would.” Vielma v. Eureka Co., 218 F.3d 458,
462 (5th Cir. 2000). Of course, the significance of this trust to
the Contract Clause is a question of federal law. We note that an
earlier Fifth Circuit case, Madison County Bd. of Ed. v. Illinois
Central Railroad Co., 939 F.2d 292, 305-06 (5th Cir. 1991), had
held that Mississippi state law created no binding trust obligation
for sixteenth section lands. This holding was superseded by the
Mississippi Supreme Court’s decision in Morrow, 666 So. 2d at 805.
In any case, the narrow holding of Madison County, that no trust
obligation prevented the sale of sixteenth section land in 1882,
remains good law; the Mississippi Supreme Court has held that the
trust, as modified by the state constitution, did not prevent the
sale of sixteenth section land between 1869 and 1890. See Lambert
v. State, 211 Miss. 129, 51 So. 2d 201, 203 (1951). We in no way
question the validity of sales of sixteenth section land made prior
to 1890.
73
See Hill v. Thompson, 564 So. 2d 1, 6 (Miss. 1990).
74
See Secretary of State v. Wiesenberg, 633 So. 2d 983, 987
(Miss. 1994) (“Since [1817], the common law of this State has
adhered to the doctrine of public trust, applying it in both
sixteenth section lands as well as tidelands.”); Cinque Bambini
Partnership v. State, 491 So. 2d 508, 511 (Miss. 1986) (describing
the State’s tidelands and navigable waters and the sixteenth
25
The Mississippi Supreme Court has stated that the State’s trust
obligations are the equivalent of its police powers, and cannot be
contracted away.75 The exact requirements of the trust have been
narrowed at times by statute and state constitution,76 but the
binding nature of the obligation has existed since 1817.77
When the leases were signed more than one hundred years ago,
the parties did not have the benefit of the body of law on school
lands trusts that we have today. The relevant inquiry here is into
section lands as “two great public trusts”); Pace, 4 So. 2d at 276-
77. That grants of land held in public trust are revocable is
discussed in Illinois Central R. Co. v. Illinois, 146 U.S. 387,
453-54 (1892). See also 63C Am. Jur. 2d Public Lands § 7 (1997).
Courts also note that common law rules applying to trusts also
apply to the maintenance of the sixteenth section lands trust.
Hill v. Thompson, 564 So. 2d 1, 6, 9 (Miss. 1990); Bragg, 367 So.
2d at 167. Even contracts made in good faith are voidable if
violating the trust. See State ex rel. Kyle v. Dear, 46 So. 2d
100, 105 (Miss. 1950); Koonce v. Bd. of Supervisors, 32 So. 2d 264,
265-66 (Miss. 1947).
75
State ex rel. Coleman v. Dear, 55 So. 2d 370, 373-74 (Miss.
1951); Pace v. State ex rel. Rice, 4 So. 2d 270, 276 (Miss. 1941).
76
Elements of this trust are embodied in the Mississippi
Constitution of 1890. See Miss. Const. of 1890, art. 4, § 95
(forbidding the donation of public lands to private parties); Miss.
Const. of 1890, art. 8, § 211 (governing the legislature’s
regulation of sixteenth section lands). The Mississippi Supreme
Court has noted that the Mississippi legislature has discretion in
executing its obligations under the trust, at least between 1869
and 1890. See Lambert, 51 So. 2d at 203. Lambert involved a lease
made under the Mississippi Constitution of 1869, which, unlike the
Constitution of 1890, placed no express limitation upon the
alienation of sixteenth section lands.
77
See Hill, 564 So. 2d at 7. The Mississippi Supreme Court
in Hill emphasized that section 95 of the 1890 Constitution did not
create the state law trust obligation, but merely made it “more
concrete.” Id.
26
the trust obligations that were the backdrop to the execution of
the leases. We must repair then to the understanding of the trust
at that time in order to assess what the parties to the original
leases reasonably expected the State’s duties and powers with
respect to the land were. While the parties would undoubtedly have
understood that the leases were being signed subject to some sort
of a binding trust obligation, the source of the trust obligations
was far less clear then than now.
At the same time the leases were signed, there was warrant for
believing that any trust was federal. It was generally believed in
Mississippi that the Mississippi legislature did not have the
authority to sell sixteenth section land until Congress passed a
law authorizing its sale in Mississippi in 1852.78 Indeed, Congress
regularly passed laws altering states’ control over sixteenth
section land prior to 1852.79 For virtually all of the nineteenth
century, the Mississippi Supreme Court labored under the belief
78
See Act of May 19, 1852, 10 Stat. 6. In 1829, the
Mississippi legislature petitioned the U.S. Congress for authority
to sell sixteenth section land. See Memorial of Feb. 5, 1829, 1829
Miss. Laws Ch. CI.
79
See Act of Feb. 1, 1826, 4 Stat. 138 (authorizing the
legislature of the state of Ohio to sell the lands heretofore
appropriated for the use of schools in that state); Act of March 2,
1827, 4 Stat. 237 (Alabama); Act of May 24, 1828, 4 Stat. 298
(Indiana); Act of Feb. 15, 1843, 5 Stat. 600 (Illinois, Arkansas,
Louisiana, and Tennessee).
27
that the United States did not transfer title to the lands to
Mississippi until 1852.80
That is, the concept of a state law trust obligation was then
perceived to be weaker. The Mississippi Constitution of 1817
contained a provision that appeared to create a trust obligation,
and the Mississippi legislature regularly passed statutes
regulating the leasing of sixteenth section land.81 The Mississippi
Constitution of 1832, however, did not contain such a provision,
80
Hester v. Crisler, 36 Miss. 681, 1859 WL 3619, *2 (Miss.
Err. & App. 1859), held that the United States held title to
Mississippi’s sixteenth section lands until the passage of a
federal statute in 1852. Before then, the court held, the State
had no authority over the lands. In 1895, the Mississippi Supreme
Court recognized that its decision was contrary to the weight of
authority and reversed Hester. See Jones v. Madison County, 18 So.
87, 92 (Miss. 1895). See Cooper v. Roberts, 59 U.S. 173, 181-82
(1855) (holding that the grant of sixteenth section land to
Michigan, which was virtually identical to the Mississippi grant,
created only an honorary trust). See also Street v. City of
Columbus, 23 So. 773 (Miss. 1898) (expressing the view that
Mississippi took title to lands when it was admitted into the
union). An 1841 Mississippi case did not reach the question of the
nature of the trust but suggested that Mississippi did have
authority over the lands. See Connell v. Woodard, 6 Miss. 665,
1841 WL 1865, *5 (Miss. Err. & App. 1841).
81
See Miss. Const. of 1817, art. VI, § 20 (“That the general
assembly shall take measures to preserve from unnecessary waste or
damage such lands as are or may hereafter be granted by the United
States for the use of schools . . . and apply the funds which may
be raised from such lands, by rent or lease, in strict conformity
to the object of such grant; but no lands granted for the use of
such township schools shall ever be sold by any authority in this
State.”). Congress had authorized the leasing, but not sale, of
Mississippi sixteenth section land in 1815. See An Act to provide
for leasing certain lands reserved for the support of schools in
the Mississippi territory, 3 Stat. 163 (1815).
28
stating only that “[a]ll laws now in force in this State, not
repugnant to this Constitution, shall continue to operate.”82
Lipscomb appeals to our prior opinion in this case, which
stated that “the trust under which Mississippi operated at best
created an honorary, not a mandatory, obligation on the part of the
state to administer the lands for the benefit of schoolchildren.”83
This statement responded to the State’s argument that the 1830
statute authorizing the “renewable forever” clauses violated the
State’s trust obligations. Lipscomb argues that the law of the
case doctrine requires that we reject the appellants arguments that
the State is bound by its trust obligation to maximize the value of
the sixteenth section lands.
As should be clear, Mississippi’s sixteenth section lands are
held in two trusts: one state, one federal. Our prior opinion did
not address the existence of a state-law trust obligation and
relied only on federal law in reaching its conclusion.84 As the
prior opinion did not expressly or by necessary implication rule on
the nature of the state-law trust, there is no law of the case on
the state-law trust.
82
See Miss. Const. of 1832, Schedule, § 4.
83
Lipscomb v. Columbus Mun. Separate Sch. Dist., 145 F.3d 238,
246 (5th Cir. 1998).
84
See id. (citing Madison County Bd. of Ed. v. Illinois
Central Railroad Co., 939 F.2d 292, 305-06 (5th Cir. 1991), and
Alabama v. Schmidt, 232 U.S. 168, 173-74 (1914)).
29
With increasing state regulation, the reasonableness of the
regulated private parties’ expectations of being freed from future
regulations by contract with the state is diminished. The
Mississippi statutes of the nineteenth century, however, acted to
facilitate the transfer of state land to private parties, not to
limit the activities of private parties. The statute authorizing
the renewable forever leases in Columbus reflects the State’s
interest in encouraging the development of land in that township –
as we will explain, not in derogation of trust obligations but in
their discharge.
5
In discharging its obligations to administer the lands for the
benefit of education, Mississippi faced certain realities.
Unsettled land generates no revenue for the State; yields no
agricultural bounty; supports no population; generates no commerce.
Both sales and long-term leases at low rates encourage settlement
and private investment in new lands.
But a lease that is renewable forever is here superior to a
land sale. By retaining title to the land, the State protects
itself against default. A lease ensures a perpetual stream of
income, however small, that guarantees that misfortune or
mismanagement of sales proceeds cannot completely dissipate the
income from the lease. Selling land for a lump-sum risks such a
loss. Such a judgment is born out in Mississippi’s history. It is
30
the sad story of the Chickasaw lieu lands.85 In 1836, Congress
conveyed some 174,555 acres of land from the Chickasaw Cession to
Mississippi in lieu of sixteenth section land. In 1856,
Mississippi sold this land and invested the proceeds in 8 percent
loans to Mississippi’s railroads. Within ten years, this entire
investment was rendered worthless when Mississippi’s railroads were
destroyed during the Civil War.
Thus, to this day Mississippi continues to receive its
bargained-for benefit from these leases, just as the leaseholders
reap the benefit of extremely favorable rental rates. The leases
have generated a constant stream of revenue that is secured by the
State’s continuing ownership in the land. For its first 50 years
or so the rental income sustained the schools. The guarantee of
perpetual low lease rates attracted settlement in Columbus, and the
leaseholders improved the land they held, increasing the general
wealth of the community and enlarging the tax base for later
property taxes to support schools. Upsetting this balance by
invalidating the renewal lease rates would substantially impair the
contracts.
The State identifies a significant, legitimate, public
interest in the leased sixteenth section lands. The Mississippi
courts have stated that preservation of the trust lands for the
benefit of the schools is a central governmental power and duty,
85
See Papasan v. Allain, 478 U.S. 265, 271-72 (1986).
31
comparable to the police powers.86 As we have explained,
Mississippi case law has repeatedly emphasized the significance of
the State’s interest in preserving the value of the sixteenth
section lands.
Of course, this interest in protecting the school lands trust
is a valid reason for the State’s action. Funding schools and
avoiding the dissipation of state assets are classic police
functions, and section 95 of the Mississippi Constitution is a law
of “broad and general” application that does not single out any
subset of leaseholders.87 All this is a given – but it does not
respond to the reality that the original structure of the leases
has not frustrated the state’s obligation. To the contrary, it has
rather done the opposite.
We now turn to the final step of the analysis. The State is
a party to the contracts, so we cannot defer in the manner of due
process to the State’s judgment of the reasonableness of its
threatened action.88 Instead, we first ask whether the contracts
86
State ex rel. Coleman v. Dear, 55 So. 2d 370, 373-74 (Miss.
1951) (“[T]he exercise of the police power of the State is inherent
in the existence of a government and is not the subject of a
waiver, barter, forfeiture or sale. The State cannot abdicate its
duty as trustee of property in which the whole people are
interested, such as sixteenth section land held by the State as
trustee for schools, any more than the State can surrender its
police power in the administration of government and in the
preservation of peace and order.”).
87
Energy Reserves Group, 459 U.S. at 412.
88
United States Trust Co., 431 U.S. at 25-26.
32
surrender “an essential attribute of [the State’s] sovereignty.”89
If not, we judge the reasonableness and necessity of the
impairment.
The leases do not surrender any essential attribute of the
State’s sovereignty. The leases do not limit the ability of the
State to exercise its jurisdiction or police powers over the land.
Mississippi courts have stated that the State’s duty to the school
lands trust is like a police power that cannot be contracted away.90
But the State has not contracted away its stewardship over the
school lands. As we explained, the leases themselves represent the
State’s fulfillment of its obligation to ensure the funding of
schools.
It is instructive that the Mississippi Supreme Court has noted
that renewable forever leases are, for tax purposes, practically
identical to lands sold by the State.91 Thus, although the State
received the benefit of retaining title to the leased lands, taxes
can be levied against the leaseholders. The State has had the
benefit of being able to tax the leased land—at the market value
89
Id. at 23.
90
Of course, whether state powers are legitimate
justifications for impairment of contracts is a question of
federal, not state, law. We need not decide the extent to which
the State’s trust obligations are like a police power, however, for
its obligations under the trust are not diminished by the renewal
rental rates of the Columbus school lands.
91
See Street v. City of Columbus, 23 So. 773, 774 (Miss.
1898).
33
swelled by the incentive to develop created by the renewal and
price terms—as if it had been sold, while retaining the protection
of the collateral that leasing provides. The leases brought rental
income and encouraged development that allowed the imposition of
property taxes for the benefit of schools.
The leases exercise the State’s power to serve the trust, they
do not limit that power. The State seeks to escape a purely
financial obligation—its agreement to accept fixed rent terms for
the Columbus school lands while reaping the benefits of the land’s
development – an arrangement that proved to be a hedge against
inflationary erosions of rental income, inevitably attended by
increasing land “values.”
In sum, invalidating the renewal rental rates of the leases is
not reasonable and necessary to protect the State’s interest in its
school lands. Mississippi might have followed the familiar path of
granting fee title to land in exchange for its development—a common
practice in the American West and the Mississippi Territory. It is
fair to ask whether in such circumstances the state could now
exercise its police power to alter an incident of fee ownership to
charge market rents in addition to school taxes without
compensating the landowner. In actual fact, the state constructed
a hedge.
34
The State insists, nonetheless, that the Supreme Court’s
decision in City of El Paso v. Simmons92 requires that we reverse
and find no violation of the Contract Clause. We disagree.
Simmons involved a land purchase contract entered into in 1910. At
that time, the Texas State Land Board was authorized to sell state
lands for the benefit of the State’s Permanent Free School Fund.
The sales had generous terms and in practical effect the buyers of
the land had only to put down one-fortieth of the purchase price
and pay interest on the remaining principal in order to keep the
property. But upon failure to pay interest, the statutes
authorized forfeiture of the property back to the State.93 A buyer
retained a perpetual right of reinstatement, however, if he paid
all of the back-interest due.94 In 1941, the legislature changed
the reinstatement law to allow reinstatement only within five years
of forfeiture.95 A buyer who failed to gain reinstatement within
five years brought suit, alleging that the 1941 legislation
violated the Contract Clause.96
The Supreme Court held that the 1941 legislation did not
violate the Contract Clause. The Court emphasized that the measure
92
379 U.S. 497 (1965).
93
See id. at 498.
94
See id. at 498-99.
95
See id. at 499.
96
See id. at 500.
35
was enacted to remedy a substantial abuse of the prior law:
Speculators would enter into contracts to purchase land and then
immediately default. If oil was discovered on their land, they
would exercise their right to reinstatement; otherwise, they would
remain in default.97 In essence, the buyers purchased an option of
infinite duration, obtaining all of the benefits of any substantial
appreciation in the value of the property, while leaving Texas with
the risk that the land would decline in value. This situation
undermined the purpose of the land sale contracts–the funding of
schools.98 Further, it did not serve the purpose of the
reinstatement clause, which was to protect bona fide purchases who
fell behind on payments, not to subsidize speculators.99
The Supreme Court noted that the right to reinstatement “was
not the central undertaking of the seller nor the primary
consideration for the buyer’s undertaking.”100 The Court reasoned
that the right to reinstatement could not have reasonably been
intended to create “an endless privilege” since such a construction
“would render the buyer’s obligations under the contract quite
illusory.”101 The fact that Texas was seeking to sell as much land
97
See id. at 509-13.
98
See id. at 515.
99
See id.
100
Id. at 514.
101
Id.
36
as possible at the time of the sales did not undermine the validity
of its change of policy.102 Most importantly, the Court stated,
“[l]aws which restrict a party to those gains reasonably to be
expected from the contract are not subject to attack under the
Contract Clause, notwithstanding that they technically alter an
obligation of the contract.”103 It then went on to note “the
State’s vital interest in administering its school lands to produce
maximum revenue,” and it concluded that given this interest and the
prior abuses of the law, “a statute of repose was clearly
necessary.”104
This case differs substantially from Simmons. The
reinstatement clause in Simmons operated to frustrate the purpose
of the land sale contract by allowing speculators to buy an option
on the land. An indefinite reinstatement provision, as the Court
noted, rendered the buyer’s obligations “illusory.” Under this
construction Texas would depend on the buyer’s discretion in making
payments. Thus, the purpose of the plan was frustrated from the
outset.
As we have explained, by contrast, in this case the leasing
arrangements guaranteed Mississippi a steady stream of income,
which in fact supported the public school in Columbus for many
102
Id.
103
Id. at 515.
104
Id. at 516.
37
years. The renewable forever provisions created incentives for
substantial investment in the development of leased lands and a
growing tax base to further sustain the schools. Moreover, the
state was left with remedies should the lessee default. The state
got exactly what it needed, and the purpose of the contract was
fulfilled, not frustrated.
V
To summarize: We have jurisdiction over this case. The
current leases are renewals of the original leases executed before
the ratification of the 1890 Constitution. Thus, section 95 of the
1890 Constitution impairs the renewal terms of the lease contracts.
Because voiding the current lease rates on the school lands
substantially impairs the contract rights of the leaseholders, and
the State’s threatened action is not reasonable and necessary, we
affirm the entry of summary judgment against the Secretary
declaring that voiding the Columbus school land leases would
violate the Contract Clause, a declaration that may be enforced by
injunctive relief.
We AFFIRM and REMAND to the district court for further
proceedings including any necessary resolution of disputes over the
entitlement of individual class members to the relief declared by
the district court and today affirmed by this court. We do not
suggest that there will be such disputes. Rather we here make
38
clear that our mandate does not foreclose their resolution by the
district court.
AFFIRMED and REMANDED.
39