Mr. J

..Winston Krause Chairman Texas Lottery Commission Post Office Box 16630 Austin, Texas 78761-6630

Dear Chairman Krause: 

### KEN PAXTON ATTORNEY GENERAL OF TEXAS

May 16, 2018

OpinionNo. KP-0202 Re: Whether the rights that a grandfathered bingo commercial lessor holds under a commercial lessor license maybe transferred to another entity under the license transfer provisions ofthe Bingo Enabling Act (RQ-0199-KP)

You ask about whether a grandfathered bingo commercial lessor licensee may transfer certain rights under the Bingo EnablingAct ("Act"). 1 As background, you tell us grandfathered licenses originated with the 1989 passage of HouseBill 2260. See RequestLetterat 1. House Bill 2260 amendedtheActto providethatnewlylicensed commercial lessors may directly lease to only one bingo conductor organization. See Act ofMay 29, 1989, 71st Leg., R.S., ch. 238, § 8(n), 1989 Tex. Gen. Laws 1107, 1114. House Bill 2260 also provided that

apersonwho was licensed as a commercial lessor on June 10, 1989, whose license has been kept in effect since that date, and who is otherwise eligible for the license may renew the license as a commercial lessor ofbingo premises according to the terms ofthe license as those terms existed on June 10, 1989. Act ofMay 29, 1989, 71st Leg., R.S., ch. 238, § 8(0), 1989 Tex. Gen. Laws 1107, 1114. Under House Bill 2260, a commercial lessor subject to this grandfathering provision could "renew the license to provide for not more than the same number of licensed authorized organizations to conduct bingo on the premises as was provided by the license on June 10, 1989," but the Legislature removedthis language in 1993. Act ofMay 29, 1989, 71st Leg., R.S., ch. 238, § 8(p), 1989 Tex. Gen. Laws 1107, 1114; amendedbyAct ofMay 6, 1993, 73d Leg., R.S., ch. 286, §§ 6, 26, 1993 Tex. Gen. Laws 1325, 1327, 1335; see ,Request l;etter at 2. You state that in 1995 the Legislature amended the Act to limit the number oflicensed authorized organizations that may

1 See Letter from Mr. J. Winston Krause, Chairman, Tex. Lottery Comm'n, to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (Dec. 7, 2017), https://texasattomeygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter").Mr. J. Winston Krause

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conduct bingo at any bingo premises to seven. Request Letter at 2; seeAct ofMay 29, 1995, 74th Leg., R.S., ch. 1057, § 7, 1995 Tex. Gen. Laws 5222, 5225; see also TEX. 

### 0cc. CODE § 2001.402(c). You explainthat as a result "aGrandfathered Lessor

... may lease directly to (and collect up to $600 rent per bingo occasion from) up to seven licensed bingo conductor organizations, in contrast to a non-grandfathered commercial lessor licensee who may lease directly only to one such organization." Request Letter at 2 (footnotes omitted). You also inform us that historically the Lottery Commission ("Commission"), through its Charitable Bingo Operations Division,2 considered the grandfathered right to lease directly to seven organizations transferrable to a new licensee. Id With this context, you ask five questions about the transfer of a grandfathered commercial lessor license. See id. at 3. ' Your first three questions inquire whether "the grandfathered rights (including the right to lease directly to up to seven licensed bingo conductor organizations) transfer" in three instances: (1) to an unaffiliated third-party licensee; (2) in the instance ofan individual licensee, to a legal entity wholly ownedbythe individual; (3) inthe instance ofa licensee that is a legal entity whollyowned by an individual, to a different legal entity wholly-owned by the same individual. See id. Because a fundamental issue in each ofthese questions is the transferability ofthe grandfathered license's rights, we address them together. The primary goal in construing statutes "isto ascertain and give effectto the Legislature's intent" as expressed ~y the statute's language. See Cadena Comercial USA Corp. v. Tex. Alcoholic Beverage Comm 'n, 518 S.W.3d 318, 325.c...26 (Tex. 2017) (quotation marks omitted). "Where text is clear, [it] is determinative" ofthat intent. Colorado Cty. v. Staff, 510 S.W.3d 435, 444 (Tex. 2017) (quotation marks omitted). The Texas Supreme Court recognizes that "the words the Legislature chooses should be the surest guide to legislative intent." Ojo v. Farmers Group, Inc., 356 S.W.3d 421,436 (Tex. 2011) (quotation marks omitted). Occupations Code section 2001.152, titled "Eligibility," provides, inrelevant part, that: (a) The commissionmay issue a commercial lessor license only to:

(2) a person who leases premises to a single licensed authorized organization that subleases or will sublease the premises to one or more other licensed authorized organizations for the conduct ofbingo; or (3) a person who leases premises for the total control and exclusive use of only one licensed authorized organization as that organization's primary business office.

2See TEX. 0cc. CODE § 2001.051 ("The commission shall execute its authority through a bingo division established by the commission to administer [chapter 200I].").Mr. J. Winston Krause

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(b) Notwithstanding Subsection (a), a person who was a licensed commercial lessor on June 10, 1989, whose license has been in effectcontinuously sincethat date, and who is otherwise eligible for the license mayrenewthe license. TEX. 

### 0cc. CODE § 2001.152.3 By its plain terms, subsection 200l.152(b) permits a licensed commercial lessor to renew the license if certain requisites are met. The "[n]otwithstanding [s]ubsection (a)" language exempts the licensed commercial lessor from the requirements of subsection 2001.152(a), including subsections (a)(2) and (a)(3). See id No language in section 2001.152 applies to the transfer of a license. To the extent this provision is a grandfathering provision, it affects only a commercial lessor license holder's ability to renewthe license. Section 2001.160 authorizes the transfer of a commercial lessor license. See id. § 2001.160. Itprovides that"[o]napproval bythe commission, a licensed commercial lessor may transfer a commercial lessorlicense ifthe personto whomthe license will betransferred otherwise meets the requirements ofthis subchapter." Id. § 2001.160(a). Unlike subsection 2001.152(b), which expressly exemptsthe commercial lessor license holder as ofa specific date from the single lease requirement, subsection 2001.160(a) requires the transferee to meet all requirements of subchapter D. Id. One such requirement is the limit on a commercial lessor license holder to directly lease to only one licensed authorized organization. See id. § 2001.152(a)(2), (3). Thus, a person to whom a commercial lessor license is transferred may lease to only one licensed authorizedorganization, evenifthe licensetransferredwasrenewedunder subsection200l .152(b). Accordingly, theAct's current language allowing the transfer ofa commercial lessor license does not include the right to lease to more than one licensed authorized organization. The Legislature's 2011 changes to subsection 2001.160 bolster this conclusion. Prior to 2011, subsection2001.160requiredthetransferee to "meet[] the requirements ofthis section." Act ofMay 10, 1999, 76thLeg., R.S., ch. 388, § 1, 1999Tex. Gen. Laws 1431, 2333 (emphasis added). In 2011, the Legislature amended subsection 2001.160(a) to require the transferee to "meet[] the requirements ofthis subchapter." Act ofMay 25, 2011, 82d Leg., R.S., ch. 1023, § 2, 2011 Tex. Gen. Laws 2601, 2601 (emphasis added). Withthis change, the Legislature evidenced its intent to subjectthe license transferee to all requirements governing a commercial lessor license, including the lease limitations in subsection 2001.152(a). For these reasons, a court would likely conclude, irrespective ofthetype ofentityreceivingthetransfer, thatatransferofa commerciallessorlicense does nottransferthe grandfatheredrightto leaseto morethanonelicensedauthorized organization. In your fourth question, you ask about the effect on past license transfers approved by the Commission ifthe grandfathered rights under a commercial lessor license cannot be transferred with the license. See Request Letter at 3. You provide no information about the Commission's procedure for approving a license transfer. Thus, as this office did in Attorney General Opinion GA-0505, we assume that the approval ofa transfer that purports to include grandfathered rights

3An "authorized commercial lessor" is "aperson eligible for a commercial license to lease bingo premises under Subchapter D." TEX. 0cc. CODE §2001.002(1). A "licensed authorized organization" means "an authorized organization that holds a license to conductbingo." Id. §2001.002(14). A "licensed commercial lessor" is "aperson licensed to lease premises and act as a commercial lessor." Id. § 2001.002(15). A "person" includes "an individual, partnership, corporation, or other group." Id. § 2001.002(20).Mr. J. Winston Krause

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"isembodiedina Commissionorder." Tex. Att'yGen. Op. No. GA-0505 (2007) at 5-6. Likewise, absent more information, we consider only the broad principles relevant to this question. Chapter 2001 ofthe Occupations Code provides only limited authority to the Commission to reexamine a license afterissuance. See id. at 6. Becausethe Commissionis expresslyauthorized to suspend, amend, or revoke a license, and because no provision in chapter 2001 gives the Commission general authority to reopen a final order granting a license transfer, the Commission does not have such authority. Id. (citing Denton Cty. Elec. Coop. v. Pub. Util. Comm 'n ofTex., 818 S.W.2d 490, 492 (Tex. App.-Texarkana 1991, writ denied) (holding that when a statute authorizes an agencyto amend orrevoke acertificate andprescribesthe methodfor doing so, other powers to reexamine prior orders may not be implied)). Moreover, "an agency's reinterpretation ofa statute
...isnotthekind ofchangedcircumstancesthatwarrantsreopening anadministratively final order." Id.; see Young Trucking, Inc. v. R.R. Comm'n ofTex., 781 S.W.2d 719, 721 (Tex. App.-Austin 1989, no writ) ("An agency can reconsider a final order only ifprovided for by statute or on a showing ofchanged circumstances."). Further, a collateral attack may void an agency orderonlyifthe agency exceededits authorityorthe orderwasprocuredby extrinsicfraud. See Chocolate Bayou Water Co. & Sand Supply v. Tex. Nat. Res. Conservation Comm 'n, 124 S.W.3d 844, 853 (Tex. App.-Austin 2003, pet. denied); Lesikar v. Rappeport, 33 S.W.3d 282, 316 (Tex. App.-Texarkana 2000, pet. denied). Absent changed circumstances or a finding of extrinsic fraud or that the Commission abused its authority, a court would likely not disturb previous Commission orders. As your fifth question, you ask whether the Commission may "change the

... historical practice to conform to the pertinent [Act] provisions without conducting an administrative rulemaking proceeding and adopting a rule describing the changed practice."4 Request Letter at 3. Under the Administrative Procedure Act, a rule is a "state agency statement of general applicability that: (i) implements, interprets, or prescribes law or policy; or (ii) describes the procedure or practice requirements ofa state agency." TEX. Gov'T CODE § 2001.003(6)(A). A rule does not include a "statement regarding only the internal management or organization ofa state agency and not affecting private rights or procedures." Id. § 2001.003(6)(C); see El Paso Hosp. Dist. v. Tex. Health & Human Servs. Comm 'n, 247 S.W.3d 709, 715 (Tex. 2008) ("A presumption favors adopting rules of general applicability through the formal rule-making procedures the APA sets out."). A rule promulgated outside ofthe proper rule-making procedure is voidable. See TEX. Gov'TCODE§ 2001.035(a). Within the definition ofa rule, "general applicability" means "statements that affect the interest ofthepublic atlarge suchthatthey cannotbe giventhe effect oflawwithoutpublic input." ElPaso Hosp. Dist., 247 S.W.3d at 714 (quotingR.R. Comm 'n of Tex. v. WBD Oil & Gas Co., 104 S.W.3d 69, 79 (Tex. 2003)). Texas courts acknowledge the "elusive" distinction between a rule and an agency statementthat concerns only internal management. See Tex. State Bd. of Pharmacy v. Witcher, 447 S.W.3d 520, 529 (Tex. App.-Austin 2014, pet. denied); Slay v. Tex. Comm 'non Envtl. Quality, 351 S.W.3d 532, 546 (Tex. App.-Austin 2011, pet denied). Nonetheless, the opinions offer some guiding principles. Agency statements that "have no legal effect on private persons" are not considered rules. Brinkley v. Tex. Lottery Comm 'n, 986 S.W.2d 764, 770 (Tex.

4"The commission may adopt rules to enforce and administer [chapter 2001]." Id.§ 2001.054.Mr. J. WinstonKrause

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App.-Austin 1999, no pet.); 

### cf R.R. Comm'n ofTex., 104 S.W.3d at 79 (holding, in the adjudication context, that "statements made in determining individual's rights, even ifthe number ofindividualsis large andtheycanbe described as falling within adefinedclass" are notstatements of general applicability). Conversely stated, "agency pronouncements that advise third parties regarding applicable legal requirements

... may be 'interpretations' oflaw that constitute 'rules' under the [ Administrative Procedure Act]." 

### Tex. Dep 

## rofTransp. v. 

### Sunset Transp., Inc., 357 S.W.3d 691, 703 (Tex. App.-Austin 2011, no pet.). Further, "[a]n agency statement interpreting law must bind the agency or otherwise represent its authoritative position in matters that impact personal rights." Id. Yet, a "mere restatement ofa formally promulgated rule" is not a rule. Id. at 703-04. The Commission's change in practice to no longer include grandfathered rights with a commercial lessor license transfer is, considering the above principles, more akin to a rule than not. It is an interpretation oflaw in that it·construes the interplay between Occupations Code sections 2001.152 and 2001.162. Also, such a change is a statement ofgeneral applicability. It will affect private persons by impacting the ability ofcommercial lessor licensees to transfer their property. Moreover, the change is not a statement orpronouncementmade in connection withjust a single individual license transfer. Instead, the change operates to advise third parties, such as commercial lessorlicensees as well as licensed authorized organizations, about legal requirements regarding future transfers ofcommercial lessor licenses. Based onthese characteristics, and given the presumption in favor ofa rule, a court could consider a change in the Commission's practice to be a "rule" for which the Administrative Procedure Act requires formal rule-making procedures.5

5The Commission's formal adoption ofa rule would not ensurejudicial deference to the Commission's interpretation. See Tex. Att'y Gen. Op. No. KP-0115 (20I6) at 5, 7 (recognizing that Texas courts may state that deference "to an agency's construction is appropriate only when the statutory language is ambiguous," but, in their analysis, would instead "[use the] canons of statutory construction to determine for themselves the unambiguous meaning ofa statute").Mr. J. Winston Krause

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SUMMARY Acourtwouldlikely concludethatthe language ofthe Bingo EnablingAct does not authorize the transfer ofa commercial lessor license that includes a grandfathered right to lease to more than one licensed authorized organization. Absentchangedcircumstances ora finding ofextrinsic fraud or that the Lottery Commission abused its authority, a court would likely not disturb previous Lottery Commission orders transferring a commercial lessor license that included the right to lease to more than one licensed authorized organization. A court would likely consider a change in the Lottery Commission's historical practice to be a "rule" within the Administrative Procedure Act requiring formal rule-making procedures.

JEFFREY C. MATEER FirstAssistantAttorney General BRANTLEY STARR Deputy FirstAssistantAttorney General VIRGINIAK. HOELSCHER Chair, Opinion Committee CHARLOTTE M. HARPER Very truly yours,

KEN PAXTON Attorney General ofTexas

AssistantAttorney General, Opinion Committee