Court Opinion

ID: 9577335
Source: CourtListenerOpinion
Date Created: 2023-08-21 21:33:58.159928+00
Date Added: 2024-06-11T13:20:21.073331
License: Public Domain

O’CONNELL, J.,
specially concurring.
I concur in the result but I do not accept the majority’s reasoning. The majority opinion rests upon two alternative grounds. The first ground assumes that even if the transaction between the state and the Building Authority has the characteristics of a lease rather than a sale, the arrangement is invalid because the Building Authority (a public corporation) is under the control of the state and is created solely for the purpose of accomplishing what the state itself cannot do, namely the pledging of the state’s credit beyond the constitutional limit by the issuance of bonds, the money from which is then used to construct the buildings ostensibly leased to the state. The opinion "lifts the corporate veil” on the ground that the Building Authority is simply a "subterfuge” to circumvent the constitutional restriction.
It does not advance the analysis of the problem to *156say that the public corporation in this case is a "subterfuge,” because all corporations are "subterfuges” in the sense that they are artificial "persons” recognized by the law so that real persons can accomplish ends they could not accomplish otherwise. The fact that a corporation is completely under the control of its creators does not vitiate the device. Thus, a subsidiary may be completely dominated by its parent corporation, and may exist simply as a bookkeeping device to minimize taxes or escape some other burden or disadvantage by interposing a separate "corporate veil.” Yet the law respects the corporate form which is created.
It is obvious, then, that "control” of a corporation is not enough to warrant lifting the veil. The majority opinion reasons, however, that the veil must be lifted in the present case because the control is reserved for an invalid purpose, i.e., the over-pledging of the state’s credit through the issuance of bonds. This, I believe, begs the constitutional question before us.
The transaction set up under the statute can, on one hand, be looked at as a device by which the state is indirectly issuing bonds and thus pledging the credit of the state; or, on the other hand, as a plan by which the state is leasing property from a corporation, the state having no obligation to pay anything to the bondholders; its only obligation being to pay rentals over a period of twenty years. Whether the arrangement is seen as the former or the latter of these devices would, it seems to me, depend upon whether the arrangement permitted under the statute makes it possible for the state to create an indebtedness under the lease greater than that contemplated by the constitutional amendment.
In Oregon we must begin with the fact that the people authorized the legislature to pledge the credit of the state over and above the $50,000 limitation to the extent of a promise to pay rent for a period not to exceed twenty years. The majority would agree that *157this is a grant of power to the legislature to pledge the credit in an amount equal to twenty times the annual rental, however great that sum may be. If the legislature wished to rent buildings at a cost of one million dollars a year, it is free to do so under our constitution, although the effect would be, in theory, to pledge the credit of the state in the amount of $20,000,000. The limitations inherent in the use of a leasing device are where the majority must begin its analysis.
Quite apart from the Oregon Building Authority Act, the legislature would be authorized to enter into an agreement with an owner of land, let us say, a private corporation, by the terms of which the corporation would agree to issue bonds to raise money with which it would construct a building for the purpose of leasing it to the state for twenty years. A guarantee by the state to pay the rentals to the bondholders would not raise any additional constitutional problem because the constitutional provision authorizing leases up to twenty years assumes that the state is bound for the entire amount of the rental over the entire term of the lease.
If the same arrangement is made except that we substitute a public corporation for the private corporation, the same result should obtain (assuming, as the majority must in developing its first rationale, that the transaction is a lease within the meaning of the constitution). The central issue in this case is whether, irrespective of the corporate form, the lease arrangement authorized by the statute permits the state to evade the constitutional debt limitation.
Does the statute permit such an overpledging by the state? I believe that it does and therefore I concur in the opinion. The reason the constitutional limit can be exceeded by the statutory scheme is that the constitutional amendment was intended to relax the original $50,000 limitation only to the extent of permitting the state to obligate itself in an amount *158which any one would be obligated to pay under a twenty year lease where the rental represents a fair approximation of the reasonable rental value of the property. The scheme devised under the statute does not hold the state within these bounds. The annual payments called for under the lease to the state have no necessary relationship to the reasonable rental value of the property leased. The annual rental payments represent a twentieth part of whatever amount it will cost to construct the building to be leased, an amount which, in the usual case, would represent a greater obligation of the state than the sum of the annual rentals.
Moreover, in a normal leasing arrangement, the lessee has the economic option of terminating an undesirable lease without extreme cost where the premises can be easily re-let. Practically speaking, this minimizes the economic risk of leases and is consistent with the constitutional exception of leases from the general debt limitation bar. Where, as here, the circumstances indicate that there is little chance of re-letting in the event of a default, entering the lease is inconsistent with the risk protection purposes of the constitutional provisions.