Parents ofArizona public school students, joined later by two school districts, sued the State Land Commissioner and other state defendants, alleging failures to comply with the Arizona-New Mexico Enabling Act by granting easements prior to 1967 over school trust lands. The lawsuit alleged that the Defendants had breached their fiduciary duty by conveying the easements without compensation, and that the easements were void. The Plaintiffs also sought an accounting and declaratory relief. The trial court dismissed the parent plaintiffs for lack of standing, joined the easement holders as defendants, and then dismissed the complaint under the doctrine of laches. The school districts appealed.
The Court of Appeals reversed the laches finding, but affirmed dismissal of the complaint on the alternative ground that the U.S. Supreme Court decision on which Plaintiffs based their claim did not apply retroactively. Before the Supreme Court’s 1967 decision in Lassen v.Arizona ex. rel. Ariz. Highway Dep’t, 385 U.S. 458 (1967), Arizona law held that the State Land Department was not required to receive compensation for easements granted for public highways. The 1967 decision held that such compensation was required for future easements, but expressly declined to decide whether to invalidate earlier easements granted without compensation.
To determine the retroactivity of the Lassen decision, the Arizona Appeals Court applied the balancing test announced in Fain Land & Cattle Co. v. Hassell, 163 Ariz. 587 (1990). The test considers (1) whether the decision establishes a new legal principle by overruling clear and reliable precedent; (2) whether retroactive application will further or retard application of the rule; and (3) whether retroactive application will produce substantially inequitable results. Id. at 596.
Because the Lassen decision overturned established Arizona Supreme Court precedent, the first factor weighed against retroactivity. The second factor, however, weighed in favor of retroactivity because such application would further the intent of the rule, to fund the beneficiaries of state land trust assets. But the third factor weighed heavily against retroactive application because “it would be impossible to undo all the [conveyances] that have transpired and put everyone back in his original position.” The Court reasoned that retroactive application could cause great hardship to many innocent people and disrupt the economy of the state. Because the rule of Lassen did not apply to pre-1967 easements, the complaint failed to state a claim for which relief could be granted.
Judge Vásquez wrote the opinion; Judges Eckerstrom and Espinosa concurred.