Title: Coats v. ODOT

State: oregon

Issuer: Oregon Supreme Court

Document:

Filed:  September 26, 2002
IN THE SUPREME COURT OF THE STATE OF OREGON
R.L. COATS,
Respondent on Review,
	v.
STATE OF OREGON
acting by and through its
Department of Transportation
and by and through its
Bureau of Labor and Industries,
Petitioner on Review.
(TC 97CV0285MS; CA A105379; SC S48298)
	On review from the Court of Appeals.*
	Argued and submitted March 14, 2002.
	Robert M. Atkinson, Assistant Attorney General, Salem,
argued the cause for petitioner on review.  Denise G. Fjordbeck,
Assistant Attorney General, filed the brief.  With her on the
brief were Hardy Myers, Attorney General, and Michael D.
Reynolds, Solicitor General.
	Martin E. Hansen, of Karnopp, Petersen, Noteboom, Hansen,
Arnett, & Sayett, LLP, Bend, argued the cause and filed the brief
for respondent on review.  With him on the brief was Josh Newton.
	Before Carson, Chief Justice, and Gillette, Durham, Leeson,
Riggs, and Balmer, Justices.**
	BALMER, J.
	The decision of the Court of Appeals is vacated, and the
case is remanded to the Court of Appeals for further proceedings.
	*Appeal from Deschutes County Circuit Court, Michael C. Sullivan, Judge. 170 Or App 32, 11 P3d 258 (2000).
	**De Muniz, J., did not participate in the consideration or
decision of this case.
		BALMER, J.
		This case presents the question whether, in a breach of
contract action, a circuit court has subject matter jurisdiction
to review the validity of agency rules that the parties have
incorporated as contract terms.  The Court of Appeals assumed
without discussion that the circuit court has such jurisdiction. 
Coats v. ODOT, 170 Or App 32, 11 P3d 258 (2000).  We conclude
that, although the circuit court in this case had jurisdiction to
consider plaintiff's claims that defendant breached the parties'
contract, it lacked jurisdiction over plaintiff's rule
challenges.  We therefore vacate the Court of Appeals' decision
and remand the case for further proceedings.
FACTS


Plaintiff is a contractor who constructs and repairs
public highways in Oregon.  On March 21, 1997, plaintiff
contracted with the Oregon Department of Transportation (ODOT) to
pave a portion of State Highway 20 in Deschutes County (the
highway project). The parties' contract was subject to Oregon's
prevailing wage statute, ORS 279.350(1), which provides: 
		"The hourly rate of wage to be paid by any
contractor or subcontractor to workers upon all public
works shall be not less than the prevailing rate of
wage for an hour's work in the same trade or occupation
in the locality where such labor is performed. * * *"
The parties do not dispute that the highway project was a "public
work" (1) or that ORS 279.350(1) applied here.
		The Oregon Bureau of Labor and Industries (BOLI) had
promulgated administrative rules construing ORS 279.350(1) to
apply to all workers at the "site of work." (2)  See OAR 839-016-0004(19). (3)  Plaintiff and ODOT agreed to incorporate those rules
as terms of their contract. (4)  As explained below, central to the
parties' contract dispute in this case are two subsections of a
BOLI rule that identified the circumstances under which rock
quarries, or so-called "borrow pits," would be considered part of
the "site of work." (5)  First, subsection (b) of OAR 839-016-0004(19) provided:
		"* * * [B]orrow pits * * * are part of the site of
work provided they are dedicated exclusively, or nearly
so, to the performance of the contract or project, and
are so located in proximity to the actual construction
location that it would be reasonable to include them. 
Such facilities which are established by a supplier of
materials for the project after the opening of bids
shall be deemed to be dedicated exclusively to the
performance of the contract or project."
(Emphasis added.)  Subsection (c) of the same rule provided the
following exception:		"* * * [B]orrow pits * * * which are established
by a supplier of materials for the project before
opening of bids and not on the project site, are not
included in the site of work.  Such permanent,
previously established facilities are not part of the
site of work, even where the operations for a period of
time may be dedicated exclusively, or nearly so, to the
performance of a contract or project."
(Emphasis added.)
		In 1995, plaintiff had obtained a permit from the
Oregon Department of Geology and Mineral Industries (DOGMI) to
mine bentonite on a specified portion of real property that he
owned.  That property is about 10 miles from the site of the
highway project.  Two years later, after ODOT had opened bids on
the contract for the highway project, plaintiff submitted a map
of that property to DOGMI, which designated as a "hard rock
quarry" a new area 1,000 feet south of the area approved for
mining bentonite.  Plaintiff then established a quarry in the
newly designated area.  
		Plaintiff proceeded with work on the highway project,
using his newly established hard rock quarry to supply the
aggregate required for the project.  During construction,
plaintiff did not pay prevailing wages to quarry workers who
produced rock for the project or to truck drivers who transported
rock from the quarry to the construction site.  
		On May 9, 1997, BOLI sent plaintiff a letter notifying
him that, if he failed to pay prevailing wages to the workers
producing and hauling rock for the highway project, the agency
would consider placing him on a "List of Ineligibles" that would
bar him from bidding on public works projects in the future. (6) 
BOLI based that action on its conclusion under OAR 839-016-0004(19)(b) that plaintiff had established his hard rock quarry
after the opening of bids on the highway project and, therefore,
that the quarry was "deemed to be dedicated exclusively to the
performance of the contract" and part of the "site of work"
subject to the prevailing wage requirements of ORS 279.350(1). (7)  
PROCEEDINGS BELOW
		Upon receipt of BOLI's letter, plaintiff filed a
complaint against the state, by and through ODOT and BOLI,
seeking a declaratory judgment that BOLI's rules requiring him to
pay prevailing wages to the quarry workers and truck drivers
were, among other things, invalid.  More specifically, plaintiff
asserted that BOLI's rules incorrectly interpreted ORS
279.350(1), which requires that he pay prevailing wages to only
those workers "upon [the] public work[]."  In plaintiff's view,
the word "upon," as used in that statute, connotes direct
geographic proximity to the work site, and BOLI had exceeded its
authority by promulgating rules that construed ORS 279.350(1) to
cover workers producing and hauling rock from a borrow pit
located 10 miles from the highway project.  Plaintiff also sought
a restraining order to enjoin BOLI from "following through on its
threat" to prevent plaintiff from bidding on future public works
projects.
		The state moved to dismiss the complaint for lack of
subject matter jurisdiction, citing Alto v. State Fire Marshall,
319 Or 382, 876 P2d 774 (1994), for the proposition that a
circuit court lacks jurisdiction to review the validity of agency
rules in the context of a declaratory judgment action.  While
that motion was pending, ODOT withheld payments on the contract. 
Plaintiff then filed an amended complaint in which he alleged
that he had complied with the terms of the contract, including
the prevailing wage rules, and that ODOT's decision to withhold
payments was a breach of the parties' contract.  In addition,
because ODOT's decision was based on a determination that
plaintiff had failed to comply with the prevailing wage rules,
plaintiff argued that the circuit court had acquired subject
matter jurisdiction to review the validity of those rules under
this court's decision in Hay v. Oregon Dep't of Transportation,
301 Or 129, 719 P2d 860 (1986).  ODOT counterclaimed for breach
of contract, and both parties then moved for summary judgment.
		In his summary judgment motion, plaintiff asserted that
ODOT could not bind him to contract terms that consisted of
invalid BOLI rules.  In the alternative, plaintiff argued that he
had complied with the contract because BOLI's rules, properly
interpreted, excluded the workers at issue from the prevailing
wage requirement.  In that regard, plaintiff argued that,
contrary to BOLI's conclusions, he had not established his borrow
pit after the opening of bids on the highway project, for
purposes of OAR 839-016-0004(19)(b).  As noted, under OAR 839-016-0004(19)(c), borrow pits that were "previously established
facilities" were not included in the "site of work" and, thus,
were not subject to the prevailing wage requirements.  Plaintiff
contended that the hard rock quarry, although new, was
nonetheless part of a "previously established facility" --
namely, the previously established bentonite mine.  For that and
other reasons, plaintiff claimed that his wage payments to
workers at the hard rock quarry had complied with the BOLI rules
and, therefore, also had complied with the terms of the contract.
		The state responded that BOLI's rules were valid and
that, even if they were not, plaintiff was bound by them because
they were terms of his contract with ODOT.  Further, the state
argued that plaintiff was well aware of BOLI's rules and the
manner in which that agency interpreted them when he signed the
contract and that plaintiff, after signing the contract, could
not challenge the facial validity of BOLI's rules, or that
agency's interpretation that the rules applied to the workers
involved here, in a claim for breach of contract.
		The circuit court granted plaintiff's motion for
summary judgment and denied the state's motion.  That court
declined to address plaintiff's rule challenge, accepting instead
plaintiff's alternative argument that the hard rock quarry was
part of a "permanent, previously established [facility]" under
OAR 839-016-0004(19)(c) and, therefore, that it was not included
as part of the "site of work."  Accordingly, the circuit court
held that plaintiff had complied with the terms of his contract
with ODOT and that he was not required to pay his quarry workers
or truck drivers prevailing wages. (8)
		The state appealed.  The Court of Appeals affirmed the
judgment of the circuit court, although that court decided
instead to address plaintiff's rule challenge.  Applying
principles of administrative law, the Court of Appeals agreed
with plaintiff's assertion that the phrase "upon all public
works," as used in ORS 279.350(1), requires contractors to pay
prevailing wages to only those who are working in "close
proximity" to the actual construction site.  Coats, 170 Or App at
40.  Then, although holding that BOLI's rules were not invalid
facially, the court reasoned that BOLI's interpretation of its
rules in a manner that required plaintiff to pay prevailing wages
to workers at a borrow pit 10 miles from the construction site
was inconsistent with ORS 279.350(1) and, therefore, implausible. 
Id. at 40-41.  As a result, the Court of Appeals concluded that
plaintiff was not required to pay prevailing wages to those
workers and that his failure to do so was not a breach of his
contract with ODOT.  Id. at 41.  Because the court determined
that BOLI's application of its rules to plaintiff was based on an
implausible interpretation of those rules, it expressly declined
to reach the issue that the circuit court had decided -- "whether
plaintiff's rock quarry was 'established * * * before opening of
bids' and therefore not subject to the prevailing wage law under
OAR 830-016-004[(19)](c)."  Id.  We allowed the state's petition
for review.
DISCUSSION


On review, the parties continue their disagreement over
the validity of BOLI's rules, and the state argues that the Court
of Appeals erred in concluding that BOLI had applied its rules
improperly.  However, after reviewing the record and procedural
history of this case, we conclude that the case presents problems
of subject matter jurisdiction that limit our consideration of
the issues that the parties have argued and that the Court of
Appeals decided.  When a question of subject matter jurisdiction
presents itself at any stage of a proceeding, whether on the
motion of a party or on the court's own motion, it is the court's
duty to address it.  See City of Lake Oswego v. Mylander, 301 Or
178, 180, 721 P2d 433 (1986) (so stating). 
		As noted above, although plaintiff named ODOT in his
amended complaint for breach of contract and asserted that he had
complied with the contract's prevailing wage requirements, his
complaint also challenged the validity of BOLI's rules
interpreting the prevailing wage statute.  The amended complaint
is problematic, because the appropriate forum for review of
agency rules depends on the type of rule challenge a plaintiff
brings and the context in which the challenge is brought. 
Circuit courts have jurisdiction to review agency rules in
certain circumstances, but, as we discuss below, the necessary
circumstances are not present here.  Accordingly, because the
circuit court in this case never had jurisdiction to review the
validity of BOLI's rules, either on their face or as applied to
plaintiff (and, in fact, did not do so), it was error for the
Court of Appeals to base its decision on such a review.  See
Dippold v. Cathlamet Timber Co., 98 Or 183, 188, 193 P 909 (1920)
(if court lacks jurisdiction, it is court's duty, on its own
motion, to refuse to proceed further).
		Statutes, and decisions of this court, identify several
ways in which a plaintiff may seek judicial review of an
administrative rule.  The Administrative Procedure Act (APA), ORS
183.310 to 183.500, provides that the validity of an agency rule
is subject to judicial review either "upon a petition by any
person to the Court of Appeals," ORS 183.400(1), or 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," ORS 183.400(2).  See Hay, 301 Or
App at 136-37.  Neither subsection of ORS 183.400 provided the
circuit court with jurisdiction over the rule challenge in this
case.  ORS 183.400(1) authorizes review of agency rules in the
Court of Appeals, not in the circuit court.  ORS 183.400(2)
provides a basis for circuit court jurisdiction only "upon review
of an order" or "upon enforcement of such rule or order." 
Plaintiff does not claim that BOLI had initiated an enforcement
action against him for failure to pay prevailing wages on the
contract at issue here.  Nor does he argue that BOLI issued a
reviewable final order.  Indeed, there is evidence only that BOLI
had sent plaintiff a letter stating that it would "consider
taking action" that might affect plaintiff's ability to bid on
future contracts if plaintiff failed to pay prevailing wages in
accordance with BOLI's rules.  That letter made no final
determination with regard to plaintiff's duty to pay the
prevailing wage rate, nor did it preclude further action by BOLI
to enforce the prevailing wage rate law, if necessary. (9)  The
letter itself thus could constitute neither a final order nor the
"enforcement of [a] rule or order in the manner provided by law." 
ORS 183.400(2).
		This court also has recognized that a circuit court has
jurisdiction to consider a challenge to an administrative rule
when the rule's validity is "at issue" in a "separate civil
action" properly before the circuit court.  Hay, 301 Or at 138. 
As previously noted, at the circuit court, plaintiff argued that
the court had acquired jurisdiction over his rule challenge under
Hay.  For the reasons that follow, however, we do not agree that
Hay provides a basis for jurisdiction here.
		The plaintiffs in Hay were owners of a beachfront hotel
who filed nuisance and trespass claims in circuit court against
ODOT for authorizing parking in front of their hotel.  301 Or at
132.  ODOT moved for summary judgment, arguing that it was acting
pursuant to an agency rule that allowed ODOT to regulate
vehicular traffic on the beach and that resolution of the
plaintiffs' claims necessarily required a determination of the
validity of that rule, which the plaintiffs could obtain only
from the Court of Appeals under ORS 183.400(1).  Id. at 134. 
This court noted, however, that "ORS 183.400(1) is not exclusive
on its face," id. at 137, and that to require the plaintiffs
first to petition for review of ODOT's rule in the Court of
Appeals before they filed a civil action in circuit court for
monetary relief "would unnecessarily delay and confuse this
state's system for the judicial review of agency acts."  Id. at
138.  For those reasons, this court held that the circuit court
had jurisdiction to review the validity of ODOT's rule, even
though the requirements of ORS 183.400 otherwise were not met. 
However, the court emphasized that its decision "[did] not mean
that anyone who dislikes a rule may challenge that rule in
circuit court; ORS 183.400(1) authorizes the Court of Appeals to
hear such a challenge."  Id.  Instead, the court concluded that a
circuit court has jurisdiction to hear an administrative rule
challenge in a manner not provided for under the APA "[o]nly when
a party places a rule's validity at issue in a separate civil
action * * *."  Id. at 138.
		Plaintiff argued in circuit court that the Hay
exception applies here because he has placed the validity of
BOLI's rules "at issue" in a separate civil action for breach of
contract.  In other words, plaintiff claimed that judicial review
of the validity of BOLI's rules is necessary to resolve whether
plaintiff or ODOT breached the parties' contract.  Plaintiff,
however, is mistaken.  He seeks to challenge the validity of
state agency rules that, earlier, he had agreed to as contract
terms. (10)  Even if plaintiff could not be forced to comply with
those rules by operation of law, he nonetheless could bind
himself to do so by contract, as he did here.  See Vulcan Arbor
Hill Corp. v. Reich, 81 F3d 1110, 1115 (DC Cir 1996) (federal
prevailing wage statute enforceable against party, regardless of
whether applicable by force of law, when party had agreed to
application of statute by contract); Woodside Village v. Sec. of
U.S. Dep't of Labor, 611 F2d 312, 315 (9th Cir 1980) (same). 
Instead, the only relevant question is whether BOLI's rules are
applicable to plaintiff as contract terms. (11)  The validity of
BOLI's rules, therefore, is not relevant to, or "at issue" in,
plaintiff's breach of contract action. 
		Because the validity of BOLI's rules is not relevant to
resolving whether ODOT is liable for breach of contract -- i.e.,
because the validity of the rules is not "at issue" --
plaintiff's rule challenge does not satisfy the exception to the
jurisdictional requirements of ORS 183.400 that this court
identified in Hay, 301 Or at 138.  The circuit court, therefore,
lacked jurisdiction to review BOLI's rules.
		The circuit court did not, however, lack jurisdiction
to hear other aspects of plaintiff's breach of contract action. 
The issue remains whether the circuit court correctly concluded,
with respect to plaintiff's alternative claim, that the exception
to prevailing wage coverage contained in OAR 839-016-0004(19)(c)
applied to the quarry workers and truck drivers at issue as a
matter of contract.  As we previously noted, the text of that
rule provided:
		"* * * [B]orrow pits * * * which are established
by a supplier of materials for the project before
opening of bids and not on the project site, are not
included in the site of work.  Such permanent,
previously established facilities are not part of the
site of work, even where the operations for a period of
time may be dedicated exclusively, or nearly so, to the
performance of a contract or project."
(Emphasis added.)  The circuit court concluded that plaintiff's
quarry workers and truck drivers came within the exception
contained in that rule, ruling at oral argument on the motions
for summary judgment as follows:
		"Based on the uncontroverted facts from the
affidavits and the exhibits, the mining site owned by
[plaintiff] was established prior to the opening of
bids.  The fact that a different kind of material was
taken from the actual hole or a different kind of
material other than the rock, is irrelevant.  It was
taken from the mining site.  I think these are all
facts that are uncontroverted."
The circuit court's interpretation of OAR 839-016-0004(19)(c) as
a term of the contract provided the basis for its subsequent
conclusion that plaintiff had complied with that contractual
provision, had not breached the contract, and was entitled to
summary judgment.  That contract interpretation, rather than the
administrative law issue that the circuit court did not (and
could not) reach, also is the legal issue that the Court of
Appeals should have considered on review.  We remand to give that
court the opportunity to do so.
		The decision of the Court of Appeals is vacated, and
the case is remanded to the Court of Appeals for further
proceedings.



1. 	ORS 279.348(3) provides:
		"'Public works' includes, but is not limited to,
roads, highways, buildings, structures and improvements
of all types, the construction, reconstruction, major
renovation or painting of which is carried on or
contracted for by any public agency to serve the public
interest but does not include the reconstruction or
renovation of privately owned property which is leased
by a public agency."

2. 	BOLI administers and enforces the prevailing wage laws,
ORS 279.348 to 279.380, and has statutory authority to adopt
rules necessary to do so, ORS 651.060(4).

3. 	All references to the Oregon Administrative Rules refer
to the 1997 compilation, which applied when the contract at issue
was formed.  BOLI's definition of "site of work" is now found at
OAR 839-016-0004(23).

4. 	The contract expressly incorporated ODOT's "Standard
Specifications," which require compliance with state labor rules. 
See Oregon Department of Transportation, Standard Specifications
for Highway Construction § 00170.00, 54 (1996) (contractors of
public works must "[c]omply with all laws, ordinances, codes,
regulations and rules * * * that relate to the work or to those
engaged in the work").  As noted, the parties agree that this
contract was subject to prevailing wage requirements; the dispute
concerns what the prevailing wage statute and regulations
require.

5. 	The parties do not distinguish among the terms "mine,"
"quarry," "borrow pit," and "pit," or among the terms "rock,"
"hard rock," gravel," and "aggregate," notwithstanding the
different meanings, in some contexts, of those words.  Because no
party argues that any differences in meaning are relevant to the
issues in this case, we ignore any such differences in this
opinion. 

6. 	ORS 279.361(1) provides that "[t]he commissioner [of
BOLI] shall maintain a written list of the names of those
contractors and subcontractors determined to be ineligible under
this section and the period of time for which they are
ineligible."

7. 	Other than the warning letter of May 9, 1997, there is
no evidence in the record that BOLI took any enforcement action
against plaintiff.

8. 	At oral argument on the motions for summary judgment,
the trial judge stated, "As far as I'm concerned, if this site
had not been opened prior to the opening of the bids, then I
would have ruled the other way."

9. 	Under ORS 279.355(4), the commissioner of BOLI may
"initiate legal proceedings against employers to enjoin future
failures to pay required prevailing wages * * *."  ORS 279.365(1)
further authorizes the commissioner to bring a civil action
	"to require a public agency under a public contract
with a contractor to withhold twice the wages in
dispute if it is shown that the contractor or
subcontractor on the contract has intentionally failed
or refused to pay the prevailing rate of wage to
workers employed on that contract and to require the
contractor to pay the prevailing rate of wage and any
deficiencies that can be shown to exist because of
improper wage payments already made.  In addition to
other relief, the court may also enjoin any such
contractor or subcontractor from committing future
violations."
The commissioner also has available other means of enforcing the
prevailing wage requirements.  ORS 279.361; ORS 279.370; ORS
652.332.

10. 	Plaintiff does so even though, as reflected in his
affidavit, he appears to have been aware of the manner in which
ODOT intended BOLI's rules to apply.  He stated that he had
"several lawsuits pending against [ODOT and BOLI]" in which he
had raised similar issues.  He identified two other contract
disputes, both of which apparently arose before he signed the
contract at issue here.

11. 	We note that there might be circumstances in a breach
of contract action in which the validity of an agency rule that
the parties had incorporated as a contract term is "at issue." 
For example, contracting parties might agree that rules later
determined to be invalid will not be binding as contract terms. 
There is no evidence of such an agreement in this case.