Carey v. Lincoln Loan Co., CC 9706-04753.

• Citation: 157 P.3d 775,342 Or. 530
• Decision Date: 12 April 2007
• Docket Number: No. SC S53242.,No. CC 9706-04753.,No. CA A117696.,CC 9706-04753.,CA A117696.,SC S53242.
• Parties: David Lee CAREY and Tanya Maria Carey, Husband and Wife, Respondents on Review, v. LINCOLN LOAN CO., an Oregon corporation, Petitioner on Review.
• Court: Supreme Court of Oregon

157 P.3d 775

342 Or. 530

David Lee CAREY and Tanya Maria Carey, Husband and Wife, Respondents on Review, v. LINCOLN LOAN CO., an Oregon corporation, Petitioner on Review.

No. CC 9706-04753.

No. CA A117696.

No. SC S53242.

Supreme Court of Oregon.

Submitted on the Record November 14, 2006.

Decided April 12, 2007.

On review from the Court of Appeals.^*

Ridgway K. Foley, Jr., of Green & Markley, P.C., Portland, filed the brief for petitioner on review. With him on the brief was Steven E. Benson, Portland.

John M. Berman, Tigard, filed the brief for respondents on review.

Mary H. Williams, Solicitor General, Salem, filed the brief for amicus curiae State of Oregon. With her on the brief was Hardy Myers, Attorney General.

Before DE MUNIZ, Chief Justice, and GILLETTE, DURHAM, BALMER, KISTLER, and WALTERS, Justices.^**

BALMER, J.

Is the Court of Appeals lawfully constituted? Defendant Lincoln Loan Co. argues that it is not, because — in defendant's view — the provision of the Oregon Constitution that purports to authorize the legislature to establish courts was improperly adopted in 1910. It therefore follows — again, in defendant's view — that, when the legislature created the Court of Appeals by statute in 1969, it had no authority to do so. For that reason, defendant asserts, the Court of Appeals decision in this case, which reversed a trial court judgment in favor of defendant, is invalid and must be vacated. The Court of Appeals rejected defendant's argument that that court was improperly established and ruled against defendant on the merits. For the reasons set out below, we affirm the decision of the Court of Appeals.

I. BACKGROUND

Plaintiffs David Carey and Tanya Carey purchased a house from defendant pursuant to a land sale contract that included various provisions that made it difficult for plaintiffs to sell the house to a third party. Plaintiffs later brought this declaratory judgment action, arguing that those provisions violated statutes applicable to loan agreements of that kind and that a provision in plaintiffs' loan agreement with defendant that limited plaintiffs' ability to prepay the contract was an impermissible restraint on alienation. Plaintiffs asserted that those contract provisions rendered the loan agreement unconscionable and unenforceable. The trial court granted plaintiffs' motion for summary judgment, but the Court of Appeals reversed. Carey v. Lincoln Loan Co., 165 Or.App. 657, 998 P.2d 724 (2000). The Court of Appeals held that defendant was entitled to judgment on some of the claims; however, it also concluded that plaintiffs' claim that the contract provisions were unconscionable was not susceptible to summary judgment. Id. at 671, 998 P.2d 724. Accordingly, the court remanded the case to the trial court for further proceedings.

On remand, the trial court determined that the provisions were not unconscionable. Plaintiffs appealed. Defendant responded to that appeal by challenging the Court of Appeals' jurisdiction to hear the appeal. Defendant argued that Article VII (Amended) of the Oregon Constitution — which provides, in part, that "[t]he judicial power of the state shall be vested in one supreme court and such other courts as may from time to time be created by law" (emphasis added) — was improperly adopted by the voters in 1910. Defendant based that argument on several constitutional provisions that we describe below. Without Article VII (Amended) in place, defendant claimed, the legislature had lacked the authority to create the Court of Appeals because Article VII (Original), which establishes the judicial power of the state, did not grant the legislature that authority.¹ Therefore, defendant argued, the Court of Appeals was unconstitutionally established and lacked subject matter jurisdiction to consider plaintiffs' appeal.

The Court of Appeals rejected defendant's argument, holding that, even if the adoption of Article VII (Amended) were flawed, subsequent amendments to that article cured any defect in the adoption of the provision authorizing the legislature to create new courts. Carey v. Lincoln Loan Co., 203 Or.App. 399, 407-15, 125 P.3d 814 (2005). The Court of Appeals then proceeded to the merits of plaintiffs' appeal and held that some of the contractual provisions were unconscionable. We granted defendant's petition for review to consider defendant's challenge to the constitutionality of the legislation that created the Court of Appeals.

II. DEFENDANT'S CHALLENGE TO ARTICLE VII (AMENDED)

We first note that defendant raised the issue presented here in Lincoln Loan Co. v. City of Portland, 340 Or. 613, 136 P.3d 1 (2006). There, this court declined to reach the merits of defendant's argument, because that action was a collateral attack on a judgment in a separate action that had been litigated fully and in which defendant had participated without challenging the Court of Appeals' jurisdiction. Accordingly, this court concluded that defendant was barred by claim preclusion from challenging the earlier judgment.

Id. at 630, 136 P.3d 1. Here, however, we do reach defendant's argument that the Court of Appeals was improperly established and, for the reasons discussed below, reject it.²

In Lincoln Loan, this court summarized the basis for defendant's challenge to the validity of the Court of Appeals:

"[Defendant] asserts that the procedure by which the voters adopted Article VII (Amended) in 1910 suffered from three constitutional defects. For that reason, according to [defendant], Article VII (Amended) never became part of the Oregon Constitution, and Article VII (Original) `remains in full force and effect today.' Article VII (Original), section 1, provides, in part, that `[t]he Judicial power of the State shall be vested in a Supr[e]me Court, Circuit[ ] Courts, and County Courts * * *.' That provision also refers to justices of the peace and to municipal courts. However, Article VII (Original) does not mention or provide for an intermediate Court of Appeals and does not authorize the legislature to create a Court of Appeals — or, indeed, any court. In contrast, Article VII (Amended), section 1, provides, in part:

"`The judicial power of the state shall be vested in one supreme court and in such other courts as may from time to time be created by law. * * *'

"`The legislature created the Court of Appeals in 1969. Or. Laws 1969, ch. 198. If Article VII (Amended), section 1, is a valid part of the Oregon Constitution, then the legislature had the authority to create the Court of Appeals, and [defendant's argument] fails. If Article VII (Amended), section 1, is not a valid part of the Oregon Constitution, then the legislature had no authority to create the Court of Appeals, [and] the Court of Appeals had no authority to reverse [the trial court judgment in defendant's favor].'"

340 Or. at 616-17, 136 P.3d 1 (emphasis in original).

Defendant argues that the 1910 initiative petition that created Article VII (Amended) was adopted unconstitutionally because it (1) encompassed more than one constitutional amendment, but did not permit voters to vote separately on each amendment, in violation of Article XVII, section 1, of the Oregon Constitution; (2) was enacted without compliance with the canvass and proclamation requirements of Article XVII, section 1, of the Oregon Constitution; and (3) failed to set forth the full text of the proposed constitutional amendment, in violation of Article IV, section 1(2)(d), of the Oregon Constitution.

III. VALIDATION OF ARTICLE VII (AMENDED) BY SUBSEQUENT AMENDMENTS

A. Post-1910 Amendments to Article VII (Amended)

Defendant's argument is directed at Article VII (Amended) as it was presented to the voters in 1910.³ However, defendant first raised this issue in this case in 2004, when it moved to dismiss plaintiffs' appeal on the ground that the Court of Appeals was improperly established and therefore lacked jurisdiction to consider that appeal. Article VII (Amended), as it now appears in the Oregon Constitution, is not the same as it was when Article VII (Amended) was adopted in 1910. The article has been amended 10 times over the course of almost a century; it has been construed in dozens of decisions issued by this court; and the legislature has enacted many statutes based upon the authority conferred by that article. This case thus is different from Armatta v. Kitzhaber, 327 Or. 250, 959 P.2d 49 (1998), and other recent cases considering challenges to constitutional amendments based on alleged procedural irregularities in their adoption. Those cases all were filed relatively soon after the challenged amendments had been approved by the voters and before the voters had made changes to the challenged constitutional provisions or the legislature had enacted statutes based upon them. As the Court of Appeals noted in this case, "The issue before us is not whether [the] challenge would have succeeded in 1910 but whether it will succeed today." Carey, 203 Or.App. at 408, 125 P.3d 814.

Put differently, defendant's challenge to the validity of the Court of Appeals depends not on whether the Court of Appeals would have been a validly created entity if it had been established on the effective date of the 1910 constitutional amendment, but rather on whether the Court of Appeals is a valid entity now.⁴ Accordingly, we first examine the changes that the voters have made to Article VII (Amended) since 1910. In doing so, we shall assume, without deciding, that the initial adoption of Article VII (Amended) in 1910 was defective in one or more of the particulars asserted by defendant. We shall then consider whether the post-1910 amendments, either because of the content of those changes themselves or with respect to their effect on Article VII (Amended) as a whole, provide a valid constitutional basis for the legislation creating the Court of Appeals.

As adopted in 1910, Article VII (Amended) consisted of sections 1 through 7.⁵...