PropertyProf Blog

Editor: Stephen Clowney
Univ. of Arkansas, Fayetteville

A Member of the Law Professor Blogs Network

Tuesday, February 23, 2010

Wyoming Attorney General Prevents the Wrongful Termination of a Perpetual Conservation Easement

After over six years of litigation, a case involving a Wyoming county’s attempted termination of a perpetual conservation easement has settled, with the conservation easement remaining in full force and effect on the burdened land.

Background

In 1993, Paul and Linda Lowham donated a conservation easement as a tax-deductible charitable gift to the Board of County Commissioners of Johnson County, Wyoming, for the purpose of preserving and protecting in perpetuity the conservation values of a 1,043-acre ranch located in the county. The Lowhams claimed a large federal charitable income tax deduction based on the estimated value of the easement. The Board later transferred the easement to the Scenic Preserve Trust, a § 501(c)(3) organization created and governed by the Board.

In 1999, the Lowhams sold the land, subject to the perpetual easement, to the Dowds. The Dowds were aware they were purchasing the land subject to a perpetual conservation easement. The Dowds were also aware that a third party owns the minerals underlying the land and, as is common in the west, the third party has the right to reasonable access to the surface of the land to extract its minerals. When an energy company later prepared to drill for coalbed methane on the land, the Dowds requested that the Board terminate the conservation easement. The Board passed a resolution in which it agreed to do so, and then executed a quitclaim deed transferring the conservation easement to the Dowds for purposes of terminating the easement. The Board received no compensation for the termination of the easement, and no determination was made that the mineral development had or would render the continued protection of the land’s conservation values “impossible or impracticable.”

In 2002, a resident of the county, Hicks, filed suit alleging, inter alia, that the Board breached its fiduciary duties to both the easement donor and the public by agreeing to terminate the conservation easement without court approval obtained in a cy pres proceeding. Hicks also argued that the minimal drilling that had occurred on the property had not rendered continued protection of land’s conservation values impossible or impractical. As it turned out, the ranch was not a good place for coalbed methane development, and the impact of the limited drilling on both the conservation and development values of the land was minimal. The Wyoming Attorney General was notified of this case and given the opportunity to intervene, but declined to become involved, explaining that “the interests of the public, as the beneficiaries of the conservation easement,” were already being represented by the litigants.

In 2007, the Wyoming Supreme Court dismissed Hicks’s case on the ground that Hicks, a mere resident of the county, did not have standing to sue. The court, however, invited the Wyoming Attorney General, as supervisor of charitable trusts in the state of Wyoming, to reassess his position with regard to the case. See [Hicks v. Dowd, 157 P.3d 914 (Wyo. 2007)]. For an NPR story on the case up to this point, see http://www.npr.org/templates/story/story.php?storyId=88038482.

In the summer of 2008, the Wyoming Attorney General responded to the Wyoming Supreme Court’s invitation and filed suit against the Board and the Dowds. Like Hicks, the Wyoming Attorney General argued that the Board had violated its fiduciary duties by agreeing to terminate the conservation easement without court approval obtained in a cy pres proceeding. The Attorney General requested that the Board’s attempted termination of the conservation easement be declared null and void. The Attorney General and some conservation organizations were also concerned that the Board’s actions, if upheld, could render conservation easements in Wyoming nondeductible. Federal tax law requires that the conservation purpose of a tax-deductible conservation easement be “protected in perpetuity.” I.R.C. § 170(h)(5)(A). For their part, the Dowds argued that “[t]here is nothing special about a conservation easement when it comes to termination,” and that conservation easements can be modified or terminated by simple agreement of the then owner of the land and the government or nonprofit holder of the easement. 

Settlement

While the Motions for Summary Judgment in the case were pending, the parties to the case agreed to settle. On February 10th, 2010, the District Court Judge signed a Stipulated Judgment [Download Stipulated Judgment Salzurg v Dowd] approving the settlement, which declares that:

(i) the resolution passed by the Board was of no legal effect insofar as it purported to authorize the Board to transfer the conservation easement to the Dowds;

(ii) the Board’s quitclaim deed purporting to transfer the conservation easement to the Dowds was null and void and of no effect; and

(iii) the original deed of conservation easement remains in full force and effect with minor amendments as set forth in the Judgment. See [Stipulated Judgment]

The settlement represents a victory for the Wyoming Attorney General as well as the public, which is investing heavily in what it assumes are perpetual conservation easements. It also represents a victory for conservation easement donors, who are willing to significantly reduce the value of their land in large part because of a strong personal connection to—and the promise of permanent protection of—that land.

For a recent article discussing the case and including relevant portions of the Wyoming Attorney General’s Motion for Summary Judgment as an Appendix, see Nancy A. McLaughlin & W. William Weeks, Hicks v. Dowd, Conservation Easements, and the Charitable Trust Doctrine: Setting the Record Straight, 10 Wyo. L. Rev. 73 (2010) [Available at http://ssrn.com/abstract=1542648].

Nancy McLaughlin

[Comments are held for approval, so there will be some delay in posting]

http://lawprofessors.typepad.com/property/2010/02/wyoming-attorney-general-prevents-the-wrongful-termination-of-a-perpetual-conservation-easement-.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef01310f31e083970c

Listed below are links to weblogs that reference Wyoming Attorney General Prevents the Wrongful Termination of a Perpetual Conservation Easement :

Comments

Post a comment