Salzburg v. Dowd
In 2010, after over six years of litigation, a case involving a Wyoming county’s attempted termination of a perpetual conservation easement 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 the purpose 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 the conservation 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 did not have standing to sue. The court also, 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). In virtually all states, the state attorney general is responsible for overseeing the administration of charitable assets in the state. The attorney general protects the interests of the public in such assets, as well as the interests of donors in ensuring that their charitable gifts are used for the purposes they designated.
In the summer of 2008, the Wyoming Attorney General accepted 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 (including The Nature Conservancy) 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.
Select documents filed by the Wyoming Attorney General in the litigation are set forth below:
Wyoming Attorney General’s Memorandum in Support of Motion for Summary Judgment: Part 1
Wyoming Attorney General’s Memorandum in Support of Motion for Summary Judgment: Part 2
Wyoming Attorney General’s Memorandum in Support of Motion for Summary Judgment: Appendices
Wyoming Attorney General’s Reply to Defendant Dowd’s Motion to Dismiss
The Wyoming Chapter of The Nature Conservancy, which is the nation’s largest land trust and operates in all fifty states, filed a Motion to Intervene or Alternatively a Motion to Appear as Amicus Curiae in support of the Wyoming Attorney General’s position.
The Jackson Hole Land Trust and the Wyoming Stock Growers Agricultural Land Trust also filed Motions to Intervene in the case. While they objected to the termination of the conservation easement, they also objected to the Wyoming Attorney General’s position, arguing, like the Dowds, that conservation easements can be modified or terminated “in the same manner as other easements” (i.e., by mere agreement of the parties thereto). For a critique of their position, see Salzburg v. Dowd: Another Look, 33 Wyo. Law. 50 (2010).
The District Court denied all Motions to Intervene.
Settlement
While the Motions for Summary Judgment in Salzburg v. Dowd were pending, the parties to the case agreed to settle. In February of 2010, the District Court Judge signed a Stipulated Judgment approving the settlement. The Judgment 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 set forth in the Judgment.
The settlement represented a victory for the Wyoming Attorney General as well as the public, which is investing heavily in what are supposed to be permanent conservation easements. The settlement also represented 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 additional articles discussing the case, 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)
Nancy A. McLaughlin & W. William Weeks, In Defense of Conservation Easements: A Response to The End of Perpetuity, co-authored with W. William Weeks, 9 Wyo. L. Rev. 1 (2009)
Nancy A. McLaughlin, Could Coalbed Methane be the Death of Conservation Easements?, 29 Wyo. Law. 18 (2006)