A Legal Analysis of Oregon’s Trust Obligations in Managing the Elliott State Forest

November 1, 2014 0
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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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.

Read the entire report here.

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.

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