TO:

Board of Regents

FROM:

LeRoy H. Schramm, Chief Legal Counsel

RE:

Settlement of Land Board Lawsuit—Item No. 105-101-R1199

DATE:

November 18-19, 1999

Background

Since 1994 the Board of Regents has been involved in a dispute with the Land Board (comprised of the Governor, Attorney General, Secretary of State, Auditor and the Superintendent of Public Instruction) over which board had the authority to sell University real property. The 1995 Legislature enacted a statute that gives the two Boards a kind of dual responsibility for approving such sales. The Regents have since 1995 followed the new statutory procedure and approximately a half dozen land sales have been approved by both Boards under this new procedure.

However, the 1995 legislation said nothing about the several dozen land sales the Regents made from 1972 through 1995. Even after the passage of the new legislation the legal validity of these older sales was still contested by a majority of Land Board members (the Governor being a lone voice in dissent). Finally, in early 1998 the Land Board and the Attorney General brought suit against the Regents, the MSU Foundation and one private party who had purchased land (formerly University land) from the Foundation. The focus of the suit was a series of land sales and exchanges between the Regents and the MSU Foundation between 1981 and 1990. The land at issue included land just west of the main campus in Bozeman as well as several other agricultural parcels that had been deeded to the Foundation by donors. The Land Board challenged the Regents’ authority to make the sales, questioned whether the Regents had received full market value for the property and asserted that the Foundation’s transfer of certain lands to the Regents was inconsistent with conditions the donors had placed on their gifts. The Regents and the Foundation denied that any of these assertions were correct and moved to dismiss the suit on a number of grounds.

In February of this year, the presiding district court judge in Bozeman dismissed all the claims against the Regents on the grounds that the statute of limitations had run. At the same time he dismissed all claims against the Foundation because, among other reasons, the Land Board had improperly failed to name all the parties who now held land that had been passed in the 1981-1990 transactions. He dismissed the charges against the Foundation "without prejudice" meaning that they could be refiled if the Land Board chose to name all necessary parties. The Land Board and the Attorney General appealed the entire district court decision to the state Supreme Court. There, as required by Court rules, the parties entered into mandatory mediation. This process began in late spring and has recently been concluded successfully.

Attached hereto is the set of documents that together comprise the settlement negotiated by legal counsel for the Attorney General and the Land Board, the Regents, the MSU Foundation and Clair Daines, Inc. (the only third party purchaser named as a defendant). The MSU Foundation governing board approved the settlement on October 29, 1999. The Land Board is scheduled to review the agreement at its meeting of November 15, 1999 and act on it at its meeting of December 20, 1999.

The Agreement Summarized

The centerpiece of the agreement is a commitment by the Foundation to provide $3,000,000 to MSU over the next 5 years to assist MSU in the construction of a new livestock research building. This commitment is made in response to a request from President Malone stating that this project is a high priority for MSU. However, because it would be inappropriate to mandate funds for a project not yet off the drawing board (nor approved by the Regents) the settlement agreement provides that if the livestock research building does not get off the ground, the $3,000,000 may be "put to such uses as the Regents, after consultation with the Foundation, deem to be both in the long-term best interests of the College of Agriculture and which are consistent with the binding instructions of the donor or donors (including, but not limited to, student and faculty research, student scholarships, capital construction and equipment acquisition) . . ."

The Foundation has until December 31, 2004 to fulfill the $3,000,000 commitment. Until the commitment is fulfilled the Foundation will give prior notice to the Attorney General of the sale of any of the lands that were at issue in this lawsuit.

The Land Board and the Attorney General agree that they will not again challenge the legal propriety of, not only the sales at issue in the current suit, but any land sale made by the Regents between 1972 and 1995.

Finally, the parties will ask the Supreme Court to dismiss the appeal and to remand the matter back to the district court for the entry of a consent decree terminating the litigation and incorporating the terms of the settlement agreement.

Recommendation

This settlement closes a long and contentious chapter in the Regents’ relations with the Land Board. In doing so, it avoids the possibly significant monetary costs attendant to continuing the litigation. Even if the district court decision were to be upheld by the Supreme Court there would be no guarantee that a suit would not be refiled against the Foundation and the third party purchasers not currently named in the suit. The settlement also removes the cloud on the titles of all parties who purchased University land from 1972 to 1995. Finally, while the settlement does dictate the use of the certain Foundation assets it does so in a manner that does not unduly infringe on the Regents’ authority to set University priorities and is consistent with the purposes and goals of the Foundation.

Thus, both I and the Commissioner of Higher Education recommend approval of this settlement.

xc: Commissioner Crofts

President Malone