Kelly v. Zamarello, s. 1255

Citation486 P.2d 906
Decision Date06 July 1971
Docket Number1256,Nos. 1255,s. 1255
PartiesThomas E. KELLY, Commissioner of the Department of Natural Resources, et al., Appellants, v. Peter ZAMARELLO, Neil S. Mackay et al., Appellees. Peter ZAMARELLO, Neil S. Mackay et al., Cross-Appellants, v. Thomas E. KELLY, Commissioner of the Department of Natural Resources, et al., Cross-Appellees.
CourtSupreme Court of Alaska (US)
OPINION

Before BONEY, C. J., and DIMOND, RABINOWITZ, CONNOR, and ERWIN, JJ.

CONNOR, Justice.

This case challenges certain administrative actions of defendants Thomas E. Kelly, Commissioner of Natural Resources, and F. J. Keenan, Director, Division of Lands, in connection with the State of Alaska Competitive Oil and Gas Lease Sale No. 23, held September 10, 1960.

On August 11, 1969, the State of Alaska published its notice of the 23rd Competitive Oil and Gas Lease Sale. The notice of sale contained a description of the 179 tracts offered in the sale, indicated the time and place of the sale, and provided further in part:

'LEASE AWARDS

'A lease will be awarded on each tract to the responsible qualified bidder offering the highest cash bonus for that tract unless all bids on the tract are rejected or a preference right is exercised. If a lease is not issued to a bidder whose bid is retained, the lands in the tract will be held and be subject to nomination and offering at a later sale.

'(b) A double envelope system will be used. * * * The inner envelope shall state on the outside: Name and address of the bidder(s); amount of bonus bid per acre; total amount of bid; and tract designation number. The inner envelope shall contain the bid and the bid deposit. The bid shall be submitted in duplicate on from DL-5 (revised 5/67) or image copy thereof, and shall be accompanied by one or more cashier's or certified checks * * * or money order, or cash or any combination thereof in a total amount of at least 20 percent (20%) of the amount of the bid.

'(c) No executed lease form DL-1 need be included with the bids.

'SUCCESSFUL BIDS

'(d) The royalty rate on production shall be twelve and one-half percent (12 1/2%).'

Plaintiffs submitted bids on 35 of the 179 tracts offered in the sale. 1 These 35 bids offered bonuses in the form of a combination of cash plus a premium royalty rate above the 12 1/2% rate fixed in the notice of sale. 2 In conducting the sale, the defendants sorted through the bids, considering only the cash figure on the outside of the inner envelope of each bid. Once the apparent high cash bid for each tract was located in this manner, the bids showing lower cash offerings were returned to the bidders without further consideration. None of plaintiffs' bids was accepted. Higher cash offerings were made by other bidders on 33 of the 35 tracts on which plaintiffs submitted bids. Plaintiffs' bids on tracts C23-020 and C23-021 were first announced at the sale as the apparent high cash bids for those tracts, but were later rejected by defendants on the ground that they were nonresponsive to the notice of sale.

On September 17, 1969, after the return to plaintiffs of the 33 unsuccessful bids, but before notification of the rejection of the two high bids, plaintiffs filed suit against defendants Kelly, Keenan, and the seventeen oil companies that were the successful high bidders on the 33 tracts. 3 Plaintiffs' complaint alleged that defendants Kelly and Keenan had exceeded their jurisdiction and authority and had misinterpreted the law, first, by failing to recognize plaintiffs as apparent high bidders on the 33 tracts and, second, by failing to consider the extra royalty portions of the bids submitted by plaintiffs. 4 Aplaintiffs sought an injunction restraining defendants from making formal bid awards and, in the alternative, asked the court to review and set aside the administrative acts of defendants Kelly and Keenan. 5

On October 16, 1969, defendants Kelly and Keenan filed, along with their answer to plaintiffs' complaint, a motion for summary judgment. Plaintiffs thereafter moved for partial summary judgment only as to the two apparent high bids on tracts C23-020 and C23-021. After hearing, the superior court granted partial summary judgment for defendants, finding that the 33 bids 'were properly not further considered by defendants Kelly and Keenan, in that said bids were nonresponsive to the Notice of Sale and the leasing regulations and statutes applicable to the 23rd Oil and Gas Lease Sale.' In addition, the lower court granted partial summary judgment for plaintiffs as to their two apparent high bids, finding that these bids were improperly rejected as nonresponsive and remanding them to the Commissioner of Natural Resources for consideration as to the adequacy of the cash bonus offered in the bids. Plaintiffs appeal from the orders granting both summary judgments. Defendants appeal from the order granting partial summary judgment for the plaintiffs.

THE 33 BIDS

Plaintiffs argue that defendants were required by statute to consider both the cash amount and the valud of the extra royalth in ascertaining the highest bid. In pursuing this argument, plaintiffs challenge the validity of certain oil and gas regulations which provide that competitive bidding shall be by cash bonus bids only. 6

Regulations adopted by the Commissioner or of Natural Resources are subject to the rule-making provisions of Alaska's Administrative Procedure Act and must be adopted according to the procedures set forth therein. 7 Among the required procedures for adoption of regulations are notice of the proposed adoption, 8 a public hearing in which any interested person may submit statements to the agency, 9 filing of the regulation, if adopted, with the secretary of state, 10 and publication. 11 AS 44.62.210(a) also provides, in part, 'The state agency shall consider all relevant matter presented to it before adopting, amending or repealing a regulation.' Plaintiffs do not challenge the adoption procedures for the natural resources regulations here attacked, so we may presume that the official duty was regularly performed, 12 and that the challenged regulations were adopted pursuant to the procedures outlined above.

The rule-making function of an administrative agency frequently resembles the legislative process of passing a statute. Each entity determines the need for a particular enactment in light of chosen policies; each has procedures for the expression of views upon the merits of the proposal; and each, after consideration of the relevant policies and arguments, decides whether to adopt the proposed enactment. When administrative rule-making is based upon clear authority from the legislature to formulate policy in the adoption of regulations, the rule-making activity takes on a quasi-legislative aspect. We have held that, under proper standards, such delegations of legislative power to administrative agencies are constitutional. Boehl v. Sabre Jet Room. Inc., 349 P.2d 585 (Alaska 1960).

In the federal system, when an administrative agency is clearly acting in its quasi-legislative rule making capacity, the United States Supreme Court has not substituted its judgment as to the content of the rule or regulation. 13 On the other hand, where it appears that the adoption of a regulation concerns merely the interpretation of a statute, the United States Supreme Court may give the agency's interpretation weight, but such interpretation is not controlling. 14 Professor Davis characterizes the difference in judicial attitude toward certain administrative rules as a distrinction between 'legislative regulations' and 'interpretative regulations.' He had defined 'legislative rule' as 'the product of an exercise of legislative power by an administrative agency, pursuant to a grant of legislative power by the legislative body.' 15 'Interpretative rules', he states, 'are rules which do not rest upon a legislative grant of power (whether explicit or inexplicit) to the agency to make law.' 16 The distinction is not always easy to draw, since as Davis points out, 'Interpretative rules sometimes rest upon statutory authority to issue them. * * *' 17 The distinction can be demonstrated better by examining representative cases than by an abstract definition.

American Telephone and Telegraph Co. v. United States, 299 U.S. 232, 57 S.Ct. 170, 81 L.Ed. 142 (1936), concerned a legislative rule, although the Court did not specifically use that term. Section 220 of the Communications Act of 1934 provided that 'the Commission may, in its discretion, prescribe the forms of any and all accounts, records, and memoranda' for telephone companies subject to the Act. Forty-four telephone companies brought suit challenging the accounting system prescribed by the Federal Communications Commission.

Because Congress had delegated to the Commission the authority to choose a system in its discretion, the Court would not substitute its judgment as to the content of the rule. Upholding the system, the Court stated:

'This court is not at liberty to substitute its own discretion for that of administrative officers who have kept within the bounds of their administrative powers. To show that these have been exceeded in the field of action here involved, it is not enough that the prescribed system of accounts shall appear to be unwise or burdensome or inferior to another. Error or unwisdom is not equivalent to abuse. What has been ordered must appear to be 'so entirely at odds with fundamental principles of correct accounting' (citation omitted) as to be the expression of a whim rather than an exercise of judgment. (citations omitted). Then, too in gauging rationality, regard must steadily be had to the ends that a uniform system of accounts is...

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    ...exceeds the scope of the power delegated by the legislature and will determine whether the regulation is reasonable. Kelly v. Zamarello, 486 P.2d 906 (Alaska 1971). Thus, had this state law ground been presented, the constitutional issue could have possibly been avoided. However, it appears......
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    ...or other analysis of legal relationships about which courts have specialized knowledge and experience" [quoting Kelly v. Zamarella, 486 P.2d 906, 916 (Alaska 1971) ]. Application of this standard permits a reviewing court to substitute its own judgment for that of the agency's, even if the ......
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    ...experience. Consequently courts are at least as capable of deciding this kind of question as an administrative agency.Kelly v. Zamarello, 486 P.2d 906, 916 (Alaska 1971) (citing Rogers Constr. Co. v. Hill, 235 Or. 352, 356, 384 P.2d 219, 222 (1963)).For the above, See State Judicial Review,......
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