Little Neck is a spectacular 35-acre oceanfront peninsula overlooking Plum Island and Crane’s Beach that was placed in trust in 1660 to be held and managed by trustees “forever” for the benefit of the Ipswich Public Schools. After years of mismanagement, the trustees have proposed to sell the land at a deeply-discount price to tenants who own cottages on the property and pay annual rent. A group of concerned parents of Ipswich students have intervened in court to stop the sale because it would dramatically reduce future funding of the public schools and it violates the fundamental legal principles under which the land is held in trust.
Who are the “Feoffees” and what is the Ipswich Grammar School Trust?
William Payne left 35 acres of oceanfront property at Little Neck in trust for the Ipswich public schools when he died in 1660, making the Ipswich Grammar School Trust the oldest community land trust in the United States. He left the land in the hands of trustees known as Feoffees and instructed in his will that the land be held in trust “forever” for the benefit of the Ipswich schools and that it “never be sold or wasted.” Pursuant to a state law that has been in force since 1765 those Feoffees now consist of four self-appointed members, who serve for life, and the three eldest members of the Ipswich Board of Selectmen. The land is currently rented to 167 cottage owners at Little Neck and it is the Feoffees’ responsibility to set appropriate rents and manage the land for the exclusive benefit of the Ipswich schools.
What led to the current crisis?
The Feoffees have operated in secret for decades, with no public accountability, and have made only small and sporadic financial contributions to the Ipswich Public Schools in direct violation of their fiduciary duty as trustees. After charging rock-bottom rents for decades, the Feoffees became embroiled in litigation with the tenants when they constructed a wastewater system at Little Neck and tried to abruptly raise rents. To get themselves out of that lawsuit the Feoffees agreed in 2009 to sell Little Neck to the tenants, even though that sale would violate the provisions of William Paine’s will. The proposed sale requires court approval and it may also require approval from the Massachusetts Legislature.
How much money have the Ipswich Public Schools lost as a result of the Feoffees’ mismanagement?
If the Feoffees had been charging fair market rent for lots at Little Neck and had employed professional property management, it would have resulted in more than $1 million in recurring annual contributions to the Ipswich public schools since 1968. The actual distributions provided by the Feoffees has averaged less than $56,000 each year over this period, meaning a total of $45 million in lost school funding since 1968 (in inflation-adjusted 2010 dollars). This analysis is based on the data from four independent appraisals conducted by the Lincoln Property Company, Petersen/LaChance Realty Advisors, LandVest, and Colliers/Meredith & Grew and adjusted for the effects of seasonal usage. Although the appraisals differ significantly on the “market value” of the property if sold, they are in nearly complete agreement about the cash flow that would be generated by Little Neck if it continued to be held in trust as a rental property as required by William Payne’s will.
How did the ownership of Little Neck end up in court?
The Feoffees sued the Attorney General, School Committee and School Superintendent in Essex Probate Court in 2010 seeking approval to “deviate” from William Paine’s will and sell Little Neck to the tenants for $29 million, which is well below the appraised value of the property. The schools made a counterclaim seeking replacement of the Feoffees with a publicly appointed board of trustees. The Feoffees sought a summary judgment from the probate court to approve the sale without a trial, and that motion was strongly opposed by the School Committee and more than 700 citizens who filed an amicus curiae (“friend of the court”) brief. The probate court rejected the request for summary judgment and found that significant facts were in dispute. The case went to trial beginning in early December 2011.
How did a “deal” get made to sell Little Neck without completing the trial?
We may never know the whole story, but the School Committee says that at the beginning of the trial the probate judge indicated that she would approve the sale of Little Neck – even though she had not considered any evidence for resolving the “disputed facts” from summary judgment and had no basis for determining whether a sale was legally permissible – and urged the parties to negotiate an acceptable price. On Saturday, December 17, 2011 the School Committee held an “emergency” meeting, with virtually no public notice, and voted by a narrow 4-3 margin in non-public executive session to authorize a settlement allowing Little Neck to be sold. Voting in favor of sale were O’Flynn, Gresh, Dietz and Loeb. Opposed were Roesler, Bauman and Hopping. Three days later a settlement was announced at a reported price of $32 million, but the so-called “increase” resulted from back rent paid by tenants; those additional funds were owed to the Grammar School Trust and should have been paid to the Ipswich schools regardless of whether a sale ever took place. In the end, the School Committee settled for an amount that was vastly below the market value of Little Neck and terms that had been emphatically rejected by the voters of Ipswich.
Didn’t the School Committee make the best deal they could under the circumstances?
Absolutely not. The School Committee had an exceptionally strong case and the judge’s stated position was completely contrary to established law regarding “reasonable deviation” from the requirements of a trust. Under those circumstances the School Committee could have insisted on completing the trial and would likely have won an appeal if the probate judge had ignored the evidence and ordered a sale.
Aren’t the schools better off having cash to invest instead of relying on trustees to manage the Little Neck property to generate income?
Not even close. After expenses, the new investment trust would have a starting balance of about $22 million. In order to keep the principal balance in pace with inflation, that would allow a net annual investment return of only about 2 percent, or $440,000 per year, before even considering expenses. By contrast, all four appraisers who have evaluated Little Neck (including those hired by the Feoffees and by the current tenants) agree that the value as a rental property is between $37.7 and $42.5 million, and that the property will generate an inflation-protected return well above 4 percent annually. Even after paying for professional property management, even if existing seasonal restrictions are maintained, and even after making debt service payments for the existing wastewater treatment system, Little Neck would generate a net annual cash flow to the schools of approximately $750,000 in the near term. After existing debt on the Little Neck wastewater system is paid off, annual cash flow would increase to at least $1.2 million (in inflation-adjusted 2010 dollars). That means the School Committee gave up nearly half the value of this irreplaceable asset.
What will the impact be on town services and the school population if the sale goes through?
As far as we know the School Committee has never done any analysis of the potential impact to try to answer this basic question. What we do know is that the only way to assure that the 143 units of housing that are currently seasonal remain seasonal is to retain ownership of the land. Our analysis suggests that if a sale were to happen and these units became year-round, the additional costs in the school budget alone could easily absorb all the distributions of the Trust and then some, effectively eliminating any benefit from William Payne’s incredibly generous gift.
The Ipswich schools need money right now. Won’t it harm the schools to drag out this dispute out even longer?
The immediate financial benefits to the schools of the current settlement would only be achieved by spending down the principal balance of the Trust over the next three years, which is harmful to the schools over the long run and violates the explicit requirement in William Paine’s will that the Little Neck asset never be “wasted”. While stretching out the resolution of this case will certainly cause financial strain on next year’s school budget, the likely result is to double annual contributions to the schools in the short run and triple them in the long run – all without the associated costs to the town of year-round conversion of Little Neck. Under the circumstances, it would be irresponsible not to pursue that opportunity to improve our schools – especially when that also preserves the original intent of the trust.
Will the extra delay and legal fees eat up any benefit of continuing the appeals and delaying a settlement of this case?
The appeal process currently being pursued is entirely funded by private donations and benefits from discounted and pro-bono legal counsel who are keenly aware of the legal principles at stake in this case. The School Committee can simply let the appeals process run its course without opposing the Ipswich citizens who have intervened, as both the Selectmen and FinCom have asked. The School Committee has no legal obligation to oppose the citizens group and it is simply wrongful to spend tens of thousands of additional taxpayer dollars for the sole purpose of opposing Ipswich citizens who are trying respect the intent of William Paine’s will and achieve a better result for the school children of Ipswich. The additional legal costs of appeals represent a tiny fraction of the tens of millions of dollars in additional long-terms benefits that would accrue to the schools if the property were kept in trust under professional management. Finally, if the citizen intervention is unsuccessful, the School Committee will still have the settlement agreement that was approved by the probate court.
What happened when citizens tried to intervene in probate court?
Within minutes of the announcement on December 20, 2011 that the School Committee, Feoffees and Attorney General had agreed to a sale of Little Neck, and before that settlement had been approved by the probate court judge, a group of citizen interveners filed a motion to become parties in the case. The interveners argued that the School Committee was no longer effectively representing the interests of children in the Ipswich Public Schools, that the court and other parties were on notice about those citizens concerns as a result of the amicus brief filed that had been filed by nearly 700 Ipswich residents a year earlier, and that no party to the case was arguing to protect the original intent of William Paine’s will. After extensive legal briefs were filed with the court, those motions were argued before the judge for several hours on January 30, 2012. A week later the judge denied the motion to intervene with nothing more than a rubber stamp – with no written explanation whatsoever.
What’s next in the legal process?
The citizen interveners immediately filed an appeal of judgment of the probate court authorizing sale of Little Neck and an appeal of the court’s denial of the citizens’ motion to intervene. The citizen interveners also requested and were denied a “stay” from the Court of Appeals that would have suspended the probate court’s judgment until these important legal issues had been resolved. In the absence of a stay, the Feoffees and cottage owners may only proceed with the sale of Little Neck at their own risk knowing that an appeal is pending and that the sale may subsequently be voided by the courts. If Ipswich voters decided to support our appeal at the Annual Town Meeting on May 8, 2012 then the interveners are prepared to take whatever additional legal action is necessary including a request for review of the case by state’s Supreme Judicial Court.
If the Feoffees claim to be “public” entity doesn’t that make their meetings and records open to the public?
While the Feoffees claim to be “public” to explain their failure to obtain tax-exempt status, they take the completely opposite position and claim to be “private” whenever they are trying to evade oversight by the press and the general public. In response to a citizen complaint the Essex District Attorney’s office launched in an investigation in 2006 and issued a 14-page legal opinion concluding that the Feoffees are, in fact, a “governmental body” whose meetings and records must be open to the public. In their own filings with the Massachusetts Attorney General, the Feoffees say they were created by a vote of Ipswich Town Meeting in 1650, which would make them a public entity. Despite the District Attorney’s ruling, and despite the Feoffees’ own representations to the Attorney General, regular meetings of the Feoffees have never been posted as required by the Massachusetts Open Meeting Law and records have never been made available to the general public as required by the Massachusetts Public Records Act. The Feoffees cite a contrary opinion by a superior court judge on their status as a governmental body, but the judge’s opinion has no legal effect because the case is suspended. The Essex District Attorney and Massachusetts Attorney General both strongly disagreed with the court’s finding and have a pending motion for reconsideration in the event the case is reopened.
Doesn’t the Attorney General have oversight over charitable trusts like the Feoffees?
Attorney General Martha Coakley has a public duty to oversee the Feoffees but her office has never shown any interest in holding the Feoffees accountable. The annual tax returns filed with the AG’s office are a sham because they purport to be copies of Form 990, a tax return and public disclosure statement required of tax-exempt organizations that must be filed annually with the Internal Revenue Service. While genuine Form 990 returns are signed and submitted under the pains and penalties of perjury, the forms that are submitted to the Attorney General by the Feoffees and accepted by her office are unsigned. The AG’s office has repeatedly been made aware of the Feoffees’ breaches of fiduciary duty (failure to collect market-based rents and make regular payments to the schools) and conflicts of interest (such as paying themselves substantial fees and providing favorable rents to family members). As far back as 2001, assistant attorneys general under former AG Thomas Reilly were considering the removal of the Feoffees for breaches of duty; for reasons unknown that effort was never pursued by Attorney General Coakley.