Northeast Phoenix Holdings, Inc. v. Winkleman – 4/22/2008

April 25, 2008

Arizona Court of Appeals Division One Reaffirms State Land Commissioner’s Appraisal Powers and Upholds Commissioner’s Appraisal Method In Connection with .

Northeast Phoenix Holdings, Inc. (“NPH”) petitioned for special action relief from State Land Commissioner Mark Winkelman’s denial of its protest of a proposed auction of state trust lands (the “Auction”). The Court of Appeals exercised mandatory jurisdiction over the special action under A.R.S. § 37-301(C).

In 2007, Jaren Associates #4 (“Jaren”) applied to the State Land Department (“ASLD”) for a 99-year lease of Parcel 3A, a previously undeveloped 112-acre tract of State land in Northeast Phoenix.  Also included in the leasehold to be auctioned were an additional 128 acres of rights-of-way (“ROWs”).  As required by statute, ASLD made preparations, including an independent appraisal of the Parcel, to auction the leasehold.  The appraisal valued the Parcel, including the appurtenant ROWs, at $29 to $32 million.  ASLD’s appraisal manager reviewed the appraisal report and recommended accepting it as written.  Also in preparation for the auction, delegates of the Commissioner prepared a “commercial recommendation sheet,” to submit to the Board of Appeals that valued the Parcel and ROWs at $32 million.

NPH filed a protest of the Auction under A.R.S. § 37-301, alleging that ASLD had failed to appraise the ROWs as required by statute, Arizona’s Constitution, and the Arizona-New Mexico Enabling Act.  In the alternative, NPH claimed that ASLD had not obtained an independent appraisal of the ROWs and that ASLD, by appraising the ROWs together with the 112-acres, had improperly given the ROWs a “zero value.”  The Commissioner denied the protest and NPH’s request for a hearing.  NPH then petitioned for special action and Jaren intervened.

Addressing NPH’s claim that the Commissioner had failed to appraise the ROWs, the Arizona Appeals Court noted that although the Arizona-New Mexico Enabling Act requires that trust lands be appraised prior to auction, it does not mandate any specific appraisal procedures.  Relying on Campana v. Ariz. State Land Dept., 176 Ariz. 288, 292, 860 P.2d 1341, 1345 (App. 1993), which had recognized that the Commissioner “has both the power and the duty to appraise,” the Court held that the Commissioner’s appraisal on the commercial recommendation sheet satisfied the Enabling Act’s appraisal requirement.

Turning to NPH’s claim that the appraisal did not represent the “true value” of the Parcel and ROWs, the Court explained that the appraisal method used by ASLD, (whereby the ROWs and Parcel were valued together) recognized true value, and thus did not violate the Enabling Act’s requirements.  NPH did not suggest that the methodology used would harm the trust or that the Parcel, together with the ROWs, was actually worth more than the $32 million for which the Commissioner appraised it.

Finally, the Court rejected NPH’s argument that the Commissioner had abused his discretion in denying a hearing on the protest because nothing in the statute requires such a hearing, and he did not abuse his discretion here in denying one in this case.

Judge Brown authored the decision in which Judges Kessler and Portley joined.