Wolf v. Oregon Lottery Commission

• Decision Date: 27 March 2008
• Docket Number: SC S054681.,CA A125420.
• Citation: 182 P.3d 180,344 Or. 345
• Parties: Larry WOLF, an Oregon elector and president of the Oregon Education Association, Varner Seaman, > Maureen Crawford and Nicholas Blosser, Respondents on Review, v. OREGON LOTTERY COMMISSION and Commissioners Kerry Tymchuk, Bruce Andrews, Stan Robson, and Richard Solomon, in their official capacities, Petitioners on Review.
• Court: Oregon Supreme Court

182 P.3d 180

344 Or. 345

Larry WOLF, an Oregon elector and president of the Oregon Education Association, Varner Seaman, > Maureen Crawford and Nicholas Blosser, Respondents on Review, v. OREGON LOTTERY COMMISSION and Commissioners Kerry Tymchuk, Bruce Andrews, Stan Robson, and Richard Solomon, in their official capacities, Petitioners on Review.

CA A125420.

SC S054681.

Supreme Court of Oregon.

Argued and Submitted November 5, 2007.

Decided March 27, 2008.

On review from the Court of Appeals.^*

Denise G. Fjordbeck, Senior Assistant Attorney General, Salem, argued the cause and filed the brief for Petitioners on Review. With her on the brief were Hardy Myers, Attorney General, and Mary H. Williams, Solicitor General.

Margaret S. Olney, of Smith, Diamond & Olney, Portland, argued the cause and filed the brief for Respondents on Review.

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

GILLETTE, J.

Under Oregon law, any person dissatisfied with an administrative rule promulgated by an Oregon administrative agency may challenge the validity of that rule in an original proceeding filed in the Court of Appeals. ORS 183.400.¹ This is such a case. The Oregon Lottery Commission (the Lottery), after notice and a series of hearings, promulgated a rule, former OAR 177-040-0026 (2004), dealing with the payments that the Lottery would make to businesses (called "retailers") that make video lottery games available to the public.² Among other things, the rule provided that "[t]he compensation amount the Lottery shall pay to a retailer for the sale of video lottery game shares is calculated on a percentage of net receipts during a business year." The rule established two options for payment, with retailers empowered to select which option they wished to use. Petitioners challenged the rule on the ground, among others, that the Lottery did not have statutory authority to promulgate the rule. A panel of the Court of Appeals agreed, and invalidated the rule. Wolf v. Oregon Lottery Commission, 209 Or. App. 670, 149 P.3d 303 (2006). We allowed the Lottery's petition for review and now reverse the decision of the Court of Appeals.

The statute that controls the outcome of this case is ORS 183.400, which sets out the procedure for mounting a facial challenge to administrative rules and describes the scope of judicial review. That statute provides:

"(1) The validity of any rule may be determined upon a petition by any person to the Court of Appeals in the manner provided for review of orders in contested cases. The court shall have jurisdiction to review the validity of the rule whether or not the petitioner has first requested the agency to pass upon the validity of the rule in question, but not when the petitioner is a party to an order or a contested case in which the validity of the rule may be determined by a court.

"(2) The validity of any applicable rule may also be determined by a court, upon review of an order in any manner provided by law or pursuant to ORS 183.480 or upon enforcement of such rule or order in the manner provided by law.

"(3) Judicial review of a rule shall be limited to an examination of:

"(a) The rule under review;

"(b) The statutory provisions authorizing the rule; and "(c) Copies of all documents necessary to demonstrate compliance with applicable rulemaking procedures.

"(4) The court shall declare the rule invalid only if it finds that the rule:

"(a) Violates constitutional provisions;

"(b) Exceeds the statutory authority of the agency; or

"(c) Was adopted without compliance with applicable rulemaking procedures.

"(5) In the case of disputed allegations of irregularities in procedure which, if proved, would warrant reversal or remand, the Court of Appeals may refer the allegations to a master appointed by the court to take evidence and make findings of fact. The court's review of the master's findings of fact shall be de novo on the evidence.

"(6) The court shall not declare a rule invalid solely because it was adopted without compliance with applicable rulemaking procedures after a period of two years after the date the rule was filed in the office of the Secretary of State, if the agency attempted to comply with those procedures and its failure to do so did not substantially prejudice the interests of the parties."

The Court of Appeals began its analysis by observing that, in this case, in challenging the Lottery's rule, petitioners do not contend that the Lottery violated rulemaking procedures; they confine themselves to arguing that the rule exceeded the Lottery's statutory authority, and that it violated the provision of Article XV, section 4(3), of the Oregon Constitution that dictates how the Lottery must spend its proceeds. Wolf, 209 Or.App. at 672, 149 P.3d 303. The court then briefly examined the terms of the challenged rule, which included a tiered compensation scheme that bases compensation on a percentage of net revenues. Id. at 673-74, 149 P.3d 303.

Turning first to the subconstitutional question, see Planned Parenthood Assn. v. Dept. of Human Res., 297 Or. 562, 564-65, 687 P.2d 785 (1984) (describing proper sequence for analyzing challenges to administrative rules), the Court of Appeals focused its analysis on ORS 461.445, the statute that authorizes the Lottery to enact rules like the one in question. That statute provides:

"In establishing its schedule of payments to contractors, the Oregon State Lottery Commission shall undertake to develop a system that maximizes the net revenue to the state for the public purpose consistent with providing a reasonable rate of return for contractors."

(Emphasis added.) The pivotal phrase, the court noted, was the direction to "undertake to develop" the system contemplated by the statute. Wolf, 209 Or.App. at 674, 149 P.3d 303. The Lottery had argued that the word "undertake," which is central to that phrase, means "attempt," so that the statutory directive to the Lottery is to attempt to create a schedule of payments to contractors that "maximizes the net revenue to the state," while providing a "reasonable rate of return" to contractors.

The Court of Appeals rejected the Lottery's view because, it said, to accept that view would render the statute "hortatory." Id. at 674, 149 P.3d 303. Noting that the word "undertake" has a vast array of other meanings beyond "attempt" (such as "guarantee," "promise," "contract," and "covenant"), the Court of Appeals concluded that the word must have a substantive connotation and that the dictionary did not provide an answer. Instead, the court stated,

"[a] more meaningful method of interpreting the term is to ask whether the legislature would enact operative legislation (as opposed to a general, introductory policy statement preceded by a `whereas' clause or its functional equivalent) containing explicit, substantive standards (such as `maximize[] the net revenue' and `reasonable rate of return'), couched in mandatory terms (`shall undertake'), if the legislature's intention was merely to give advice. We conclude that, in context, the term `undertake' imposes a genuine mandate. The Lottery is charged with the duty to develop a system, and to do so subject to an express constraint: to maximize state revenue consistent with providing retailers a reasonable rate of return."

Id. at 675, 149 P.3d 303 (emphasis in original). For that reason, the Court of Appeals rejected the Lottery's argument — that ORS 461.445 merely directs the Lottery to make an effort to devise a system that would maximize net revenues, while providing a reasonable rate of return to retailers.

We do not agree with the Court of Appeals' analysis. It is true, of course, that the legislature, in enacting ORS 461.445, intended to require that the Lottery "establish a compensation system" by rule. But when one views the statute in its entirety, it becomes clear that the word "undertake," as used in the statute, must mean "attempt."

Under ORS 461.445, the Lottery is to "undertake to develop a system" that has two goals, viz., "maximiz[ing] the net revenue to the state" and "providing a reasonable rate of return" to retailers. In that context, the outcome — a "system" — is to be the result of a process — "develop[ment]" — by the Lottery that harmonizes two competing goals. Moreover, interplay of those two goals will differ to some degree for each of the hundreds of retailers with whom the Lottery deals. (Each has different costs in rent, taxes, personnel, and physical facilities, to name only the most obvious examples. Moreover, each of those factors may vary to some degree for each retailer from year to year.) Yet the Lottery's "system" is to be imposed by a set of rules, which are quasi-legislative policy choices of general applicability. See ORS 183.310(9) (defining "rule"). Such rules will, of necessity, affect some retailers differently than others. No system is possible that precisely strikes the statutory balance as to every retailer. Therefore, the statute cannot mean that the Lottery "guarantees," "promises," "contracts," or "covenants" to produce such a system.³ The Lottery must seek to achieve the goals listed in ORS 461.445, but the validity of any "system" the Lottery creates through rules is not contingent upon its meeting the two competing goals vis-à-vis each and every retailer. It follows we believe, that the word "undertake," as used in ORS 461.445, can only mean "attempt," because the best that can be hoped for in a rule (or a series of rules) is a rough approximation of the specified goals. That is, it is the attempt, not the wholly accurate outcome, that the legislature has directed the Lottery to make.

The Court of Appeals, however, appears to have read that word as imposing a more demanding standard, and that, in our view, led to the Court of Appeals' misunderstanding of the scrutiny that it could apply to the system that the Lottery created.

That...