"We conclude that the district court erred," the panel said its ruling on Monday, noting that the decision followed specific input the judges sought from Utah's Supreme Court about the timely filing of legal challenges under state law. The ruling sends the case back to Benson for dismissal.
The disputed trust holds most of the property in the twin border towns of Colorado City, Arizona, and Hildale, Utah, where most church members have historically lived. Other assets are in British Columbia.
In 2010, Utah's high court dismissed the state case, saying the FLDS had waited too long to challenge the trust takeover. That dismissal should have precluded Benson from hearing the case at all, the appeals court judges said in their ruling.
Salt Lake City attorney Rod Parker, who represents the sect, said he was not sure what the church would do next. It could seek a rehearing of the case before the full appeals court or file an appeal with the U.S. Supreme Court.
"I don't think this necessarily ends the federal litigation," Parker told Reuters.
Jeffs, 56, is incarcerated in Texas after being sentenced to life plus 20 years in 2011 on sexual assault convictions related to his underage marriages with two sect girls. Despite incarceration, Jeffs is said to remain in control of the sect.
The sect practices polygamy in arranged marriages and has an estimated 10,000 followers in North America. It shares religious roots with the Salt Lake City-based Church of Jesus Christ of Latter-day Saints, but the mainstream Mormon church denounced polygamy in 1890 as a condition of Utah's statehood and does not affiliate with the FLDS or any other polygamous sect.
(Editing by Cynthia Johnston and Paul Simao)
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