By Kathryn Walter (Altus Law LLC)
EXECUTIVE SUMMARY
When Oregon became a state in 1859, the federal government granted nearly 3.4 million acres to Oregon to hold in trust to fund the public schools. The Elliott State Forest comprises a large portion of Oregon’s trust lands, but because the Elliott State Forest also provides habitat for species listed under the Endangered Species Act (ESA), logging on the Elliott State Forest, a significant source of income to the trust fund, has all but ceased.
The State Land Board (the “Board”) serves as trustee of these lands, and with that designation, has fiduciary obligations to the beneficiaries. The trustee must exercise reasonable care and skill in managing the trust and make trust property productive, must preserve trust property and defend actions that may result in loss to the trust, and must act with absolute loyalty to the beneficiaries. Failure to carry out these duties is a breach of the trustee’s fiduciary duties. Under the management of the Board, the Elliott State Forest lost three million dollars in 2013. This paper explores the following breaches:
- The Board is not prudently managing the trust land assets. Although a trustee is not charged with 20/20 hindsight, the trustee must be able to explain the reasoning behind an investment strategy. Only recently has the State Land Board attempted to understand the value of the Elliott State Forest. Further, the Board has ignored recommendations to divest all trust land holdings. Other assets in the trust have consistently earned strong returns, while the Elliott State Forest declined in value.
- The Board should have known that doing nothing was imprudent. The Board, by its inaction, has breached its duty by failing to dispose of the Elliott State Forest when the opportunity presented itself, and by waiting too long, has left the trust with devalued property. The Elliott State Forest is no different from a stock whose value may fluctuate, but failing to take any action with respect to the asset is a breach of a trustee’s duty of prudent management.
- The Board must protect the trust from loss, including insuring trust property against loss and when facing litigation or other claims implicating the trust. A trustee is also obligated to defend the trust against claims, to avoid claims of liens and other losses, and to pay taxes. Here, the Board failed to fulfill its duties by not negotiating a Habitat Conservation Plan (“HCP”), which would have alleviated the impact of the ESA on the Elliott State Forest. As trustee, the Board is obligated to remove legal impediments from causing a decrease in value of a trust asset. The Board ceased negotiations regarding the HCP prematurely. Negotiating an HCP is within the Board’s authority and, since it is in the best interest of the trust to preserve trust assets, the Board was obligated to pursue such negotiations.
- The appointment of the State Land Board as trustee in Oregon’s constitution, which comprises the Governor, the State Treasurer, and the Secretary of State—the three most political positions in the State of Oregon—likely violated trust principles from the trust’s beginning. A trustee has a duty to act honestly and with undivided loyalty to the interests of the trust and its beneficiaries. By virtue of the Board members’ political roles, the Board members cannot offer undivided loyalty to the beneficiaries because they are beholden to so many competing interests. In this fashion, the composition of the State Land Board and its role in overseeing the trust is improper and a breach of the duty of undivided loyalty.
Kathryn Walter (Altus Law LLC) Attorney, AltusLaw LLC; J.D. Lewis & Clark Law School, 2012; B.S. Environmental Engineering, Massachusetts Institute of Technology. The author wishes to thank Pamela Morris, James Huffman, and John Charles for their contributions to this paper and their thoughtful comments on previous drafts.
