State ex rel. Eckles v. Woolley

• Decision Date: 07 October 1986
• Citation: 302 Or. 37,726 P.2d 918
• Parties: STATE ex rel. Frank R. ECKLES, dba Riverview Marina, Petitioner on Review, v. Donna P. WOOLLEY, Claris C. Poppert, Donald J. Cook, Solomon D. Menashe, and H. Dean Pape, Respondents on Review. TC 16-83-00926; CA A28776; SC S31738. . *
• Court: Oregon Supreme Court

Page 918

726 P.2d 918

302 Or. 37

STATE ex rel. Frank R. ECKLES, dba Riverview Marina, Petitioner on Review, v. Donna P. WOOLLEY, Claris C. Poppert, Donald J. Cook, Solomon

D. Menashe, and H. Dean Pape, Respondents on Review.

TC 16-83-00926; CA A28776; SC S31738.

Supreme Court of Oregon,

In Banc. ^*

Argued and Submitted July 9, 1985.

Reassigned Feb. 7, 1986.

Decided Oct. 7, 1986.

Robert Mix, Corvallis, argued the cause and filed the petition for petitioner on review.

Dave Frohnmayer, Atty. Gen., Salem, argued the cause for respondents on review.

LINDE, Justice.

In 1979, the Legislative Assembly replaced the previous State Accident Insurance Fund with a new State Accident Insurance Fund Corporation (SAIF Corporation). Or.Laws 1979, ch. 829. Petitioner, the sole proprietor of an Oregon business insured for workers' compensation coverage with SAIF Corporation, asserts that the statute contravenes the constitutional mandate that "[c]orporations may be formed under general laws, but shall not be created by the Legislative Assembly by special laws." Or. Const. Art. XI, § 2. Petitioner brought this action pursuant to ORS 30.510(3) against the directors of SAIF Corporation, seeking a judgment that SAIF Corporation is "a nullity and non-existent" and further relief consequent thereon. ¹ The circuit court entered a judgment declaring that Oregon Laws 1979, chapter 829, did unconstitutionally create SAIF Corporation by a special law and ordered that SAIF return to the form it had prior to the enactment of that statute. The court stayed its judgment for 180 days and retained jurisdiction over the remaining issues of consequential relief. The Court of Appeals reversed, holding that SAIF Corporation is neither a private corporation nor a municipal corporation and not within the constitutional prohibition. 72 Or.App. 650, 696 P.2d 1153 (1985). We affirm the decision of the Court of Appeals.

Because the legislature undeniably reorganized the State Accident Insurance Fund as a "corporation" by a law which named the corporation and under which no other corporation can be formed, our conclusion requires an historical explanation.

1. The Constitutional Background

Article XI, section 2, of the Oregon Constitution originally provided:

"Corporations may be formed under general laws, but shall not be created by special laws, except for municipal purposes; all laws passed, pursuant to this section, may be altered, amended, or repealed, but not so as to impair, or destroy any vested corporate rights."

The 19th century drafters of the constitution knew "corporations" as institutions for conducting public and communal as well as charitable and educational affairs and also as a legal form for conducting gainful private enterprises, a form that the English and American governments at first created by special charters but later made available by general incorporation laws to replace the earlier joint stock companies. ²

Other sections of Article XI further show the convention's understanding of its distinction in section 2 between the kind of corporations that could "be formed under general laws" and corporations that could be specially created "for municipal purposes." Section 3 limited the liability of "stockholders of all corporations, and joint stock companies" to the amount of their stock subscriptions. Here "all corporations" plainly meant only business corporations, the kind that had stockholders. Section 4 then and now prescribes that "corporations" may not take property under authority of law (by eminent domain) without compensation being first made or secured. This "authority of law" could be and was extended both to municipal corporations and to business enterprises such as railroad or utility companies. Section 5 refers to legislative acts "incorporating towns, and cities." Section 6 forbids the state to "subscribe to, or be interested in the stock of any company, association, or corporation," again presupposing the kind that issues shares of stock ownership. Section 8 forbids the state to "assume the debts of any county, town, or other corporation whatever" (except debts incurred in defending the state), a phrase mingling units of local government and "other" corporations. Finally, section 9 prohibits any "county, city, town, or other municipal corporation" to "become a stockholder in any joint stock company, corporation, or association whatever" or to "raise money for" or "loan its credit to" any such entity. In this section, the governmental "corporation" is squarely juxtaposed to the corporation as a vehicle for private investment.

Perhaps one should not make too much of the diverse uses of the term "corporation" in Article XI. Only sections 1 and 9 were original; the remaining sections were taken from the constitutions of several other states. Nonetheless, it is apparent that the convention used the term both for municipalities ("incorporated" towns and cities) and for private business corporations.

Section 2, the section at issue here, was based on Article XV, section 1, of the Michigan Constitution of 1850. Its object was to eliminate corruption, favoritism, and sectional discrimination in incorporating individual private companies and to open equal opportunities for entrepreneurs to form business corporations with limited liability and ownership of property by successive shareholders. See Nelson v. McArthur, 38 Mich. 204, 207-08 (1878). ³ Interpreting this section, the Michigan court held that incorporation of a county agricultural society to purchase and operate a fairground, among other purposes, fell within the "municipal purposes" permitted by the constitution. Agricultural Society v. Houseman, 81 Mich. 609, 46 N.W. 15 (1890). Other sections of Michigan's constitution referred to "municipal corporations" and defined the term "corporations" to include "all associations and joint stock companies having any of the powers or privileges of corporations not possessed by individuals or partnerships." Mich. Const., Art. XV, § 11 (1850).

The phrase "corporations for municipal purposes" that Oregon's Article XI, section 2, excepted from the prohibition against special charters may have been the same as "municipal corporations" in section 9, or the phrase may have extended to private corporations chartered for "municipal purposes." ⁴ If it included the latter, the exception might have led Oregon's government and courts into extensive debates about the purpose that would allow chartering a private enterprise for "municipal purposes" and whether courts could disqualify any purpose as not properly "municipal." In Cook v. The Port of Portland, 20 Or. 580, 584, 27 P. 263 (1891), the court stated that "municipal purposes" extended beyond the governance of "cities, towns, and villages" in sustaining a law incorporating a specific port district. Before further and perhaps more difficult tests of the phrase arose, however, Article XI, section 2, was amended in 1906 to repeal the exception, and it was further amended in 1910. The relevant sentences now provide:

"Corporations may be formed under general laws, but shall not be created by the Legislative Assembly by special laws. The Legislative Assembly shall not enact, amend or repeal any charter or act of incorporation for any municipality, city or town. * * * "

Or. Const., Art. XI, § 2.

2. Agencies as "Quasi-Corporate" Entities

In a quite different legal context, this court introduced the notion that some unquestionably state-managed programs might, while others might not, have "corporate" status. The Legislative Assembly in 1872 created a "board of directors" to establish the University of Oregon and by an 1876 amendment denominated the board the "Regents of the University." In a suit by creditors of a private association which had conveyed land to the board for a site for the university, Dunn v. State University, 9 Or. 357 (1881), the regents asserted that they were agents of the state and could not be sued. To the plaintiffs' argument that the board of directors was an incorporated body, the defendants responded by citing the prohibition of Article XI, section 2, against laws creating a corporation "except for municipal purposes." The court noted that the legislature had not declared either the university or the board of directors to be a corporation, but "this was not essential." The court agreed with the plaintiffs that the statutes gave the board powers to receive, hold, and convey property that "could not belong to this board of directors unless incorporated"; therefore, a suit could be brought against the regents. Id. at 361. "It is not necessary to decide whether the board of directors * * * is a public or private corporation." Id. at 362. Similarly, the Board of Regents of the State Agricultural College was held to be a "corporation * * * capable of taking and holding the title to real property." Liggett v. Ladd, 23 Or. 26, 45, 31 P. 81 (1892).

After the creation of the State Industrial Accident Commission (the original predecessor of SAIF Corporation) in 1913, the commission defended against an appeal of a rejected compensation claim on the grounds that the commission was an arm of the state and could not be sued. Butterfield v. State Indus. Acc. Com., 111 Or. 149, 223 P. 941, 226 P. 216 (1924). The court noted that the legislature had expressly provided that the commission "in its name may sue and be sued," and continued, superfluously, that the commission was given "other powers exercised by a corporation. * * * It is a creature of the legislature and is a body corporate." Id. at 153, 223 P. 941, 226 P. 216. When a petition for rehearing argued that characterizing the commission as a corporation would make its creation unlawful under Article XI, section 2, the court responded without further explanation that the Workmen's Compensation Act was not a "special act" but a "general statute of the state." Id. at 162, 223 P. 941, 226 P. 216.

The...