Texas Lottery Commission and Linda Cloud, Executive Director v. Scientific Games International, Inc. and Pollard Banknote Limited

• Court: Court of Appeals of Texas
• Decided: February 21, 2003
• Docket: 03-02-00439-CV
• Status: Published

Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-02-00439-CV

Texas Lottery Commission and Linda Cloud, Executive Director, Appellants

v.

Scientific Games International, Inc. and Pollard Banknote Limited, Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT NO. GN201204, HONORABLE MARGARET A. COOPER, JUDGE PRESIDING

OPINION

In February 2002, the Executive Director of the Texas Lottery Commission publicly

announced that she would begin to take into account a vendor=s anticipated economic impact on the state in

awarding contracts worth over $100,000. Scientific Games International, Inc. (SGI) and Pollard Banknote

Limited, two out-of-state companies that design and manufacture instant-ticket games for state lotteries,

sought a declaratory judgment that the Commission lacks the authority to adopt this new policy. The trial

court agreed with SGI and Pollard and granted summary judgment in their favor. We hold that the Texas

Lottery Commission may not consider a vendor=s anticipated economic impact on the state when making its

procurement decisions and affirm the summary judgment. BACKGROUND

SGI and Pollard each design and manufacture instant-ticket games for state lotteries. SGI is

incorporated in Georgia, where it produces its instant tickets. Pollard is a Canadian company that produces

its instant tickets in both Canada and the United States. Neither SGI nor Pollard produces tickets in Texas.

The design and manufacture of instant-ticket games is a highly specialized business.

Worldwide, there are only three or four companies qualified to produce instant tickets to Texas=s

specifications. These companies include SGI, Pollard, and Oberthur Gaming Technologies (OGT), a

French company with a manufacturing plant in San Antonio.

In 1999, these three companies competed for a three-year contract to provide the Texas

Lottery=s instant-ticket games. Considering the cost to the state and the quality of the product, the

Executive Director awarded SGI the contract and Pollard the back-up contract. OGT protested the

award. See 16 Tex. Admin. Code ' 401.103 (2002). OGT argued that the Commission should broadly

interpret the government code provisions setting out its procurement authority to allow it to consider the

overall economic impact on the state that would result from awarding the contract to an in-state bidder. The

Executive Director disagreed, determining that consideration of economic impact would violate her duty to

Apromote competition to the maximum extent possible@ in Commission procurement procedures. Tex.

Gov=t Code Ann. ' 466.101(a) (West 1998). She also relied on a statutory requirement that the

Commission favor an in-state bidder only to break a tie when the cost to the state and quality of the product

are identical in competing bids. See id. ' 466.106(a) (West 1998). The Commission affirmed the

determination of the Executive Director.

2 The Commission maintained this position until February 2002. That month, it held a public

meeting to consider adding a potential vendor=s economic impact on the state to the factors it considers

when awarding a contract. The agenda for the meeting indicated that the discussion was prompted by

recent amendments to section 2155.074 of the government code.1 Section 2155.074 is part of a statute

that governs the procurement policies of the Texas Building and Procurement Commission and some other

state agencies. In 2001, the legislature passed an amendment to allow these agencies to consider a potential

vendor=s economic impact on the state when making their procurement decisions. See Act of May 17,

2001, 77th Leg., R.S., ch. 1422, ' 14.16, 2001 Tex. Gen. Laws 5021, 5068 (codified at Tex. Gov=t Code

Ann. ' 2155.074(b)(8) (West Supp. 2003)). Section 2155.074 is specifically not applicable to the

Lottery Commission, which is governed by its own procurement statute. See Tex. Gov=t Code Ann. '

466.105(a) (West 1998) (Lottery Commission not subject to general procurement statute, including

government code section 2155.074).

After hearing comments of the Commission=s staff and interested parties, the Executive

Director reversed her longstanding policy and announced that the Commission would now consider the

Apotential vendor=s economic impact on the state@ in awarding contracts worth over $100,000, beginning

with the upcoming procurement for instant-ticket games.

1 The relevant agenda item stated, AReport, possible discussion and/or action on the implementation of government code, ' 2155.074(b)(8) relating to a vendor=s economic impact to Texas in connection with a procurement.@

3 SGI and Pollard sued the Commission to enjoin consideration of economic impact on the

state in the imminent instant-ticket procurement. They also sought a declaration that the Commission lacks

the statutory authority to consider economic impact on the state in any of its procurement decisions. The

trial court granted the temporary restraining order. The parties then filed cross-motions for summary

judgment. The court granted SGI and Pollard=s joint motion and denied the Commission=s motion.

DISCUSSION

The Commission claims that the trial court erred in granting SGI and Pollard=s joint motion

because (1) SGI and Pollard lack standing, and (2) the Commission does have the statutory authority to

consider potential economic impact on the state in making its procurement decisions.

Standing

The issue of standing is a legal question which we review de novo. El Paso Cmty.

Partners v. B&G/Sunrise Joint Venture, 24 S.W.3d 620, 624 (Tex. App.CAustin 2000, no pet.).

Standing is a component of subject-matter jurisdiction and is therefore essential to a court=s power to

decide a case. Texas Ass=n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 444-45 (Tex. 1993);

Benker v. Texas Dep=t of Ins., 996 S.W.2d 328, 330 (Tex. App.CAustin 1999, no pet.). To

establish standing, one must show a justiciable interest by alleging an actual or imminent threat of

injury peculiar to one=s circumstances and not suffered by the public generally. Benker, 996

S.W.2d at 330; see also Hunt v. Bass, 664 S.W.2d 323, 324 (Tex. 1984).

4 The Commission claims that SGI and Pollard lack standing. It argues that they have failed

to show how any injury they might suffer differs from that of the public at large. It also contends

that SGI and Pollard have shown only a speculative, not an actual or imminent threat of injury. We

find the Commission=s arguments unpersuasive.

As outlined above, the Commission announced that it was amending its historical

procurement process to include a potential vendor=s anticipated economic impact on the state as a

factor in its evaluation of certain bids, including contract proposals for instant-ticket games. It is

uncontested that only three or four companies worldwide qualify to bid for instant-ticket-game

contracts. One of those companies, OGT, has a manufacturing plant in Texas and would

unquestionably benefit from the Commission=s consideration of a bidder=s likely economic impact

on the state, an evaluation that would no doubt disadvantage SGI and Pollard, which do not have

plants in Texas. Both OGT and the appellees have indicated that they intend to bid at the

Commission=s next instant-ticket-game procurement.

The public at large is not qualified to bid on lottery contracts; manufacture of

instant-ticket games is a major part of SGI and Pollard=s business; inclusion of an economic-

impact factor would benefit OGT at the expense of SGI and Pollard. These facts are more than

sufficient to show an actual or imminent threat of injury peculiar to the appellees= circumstances

and not suffered by the public generally. SGI and Pollard unquestionably have standing. We

overrule the Commission=s third issue.

Commission Authority

5 We now turn to the question of whether the trial court erred in granting summary judgment

in favor of SGI and Pollard. Because the propriety of a summary judgment is a question of law, we review

the trial court=s decision de novo. Natividad v. Alexsis, Inc., 875 S.W.2d 695, 699 (Tex. 1994); Texas

Dep=t of Ins. v. American Home Assurance Co., 998 S.W.2d 344, 347 (Tex. App.CAustin 1999, no

pet.). The standards for reviewing a motion for summary judgment are well established: (1) the movant for

summary judgment has the burden of showing that no genuine issue of material fact exists and that it is

entitled to judgment as a matter of law; (2) in deciding whether there is a disputed material fact issue

precluding summary judgment, evidence favorable to the nonmovant will be taken as true; and (3) every

reasonable inference must be indulged in favor of the nonmovant and any doubts resolved in its favor.

Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985). The Commission does not

rely here on arguments that it raised below, but challenges the legal sufficiency of the grounds

alleged in SGI and Pollard=s motion for summary judgment.2 See McConnell v. Southside Indep.

Sch. Dist., 858 S.W.2d 337, 343 (Tex. 1993).

An administrative agency has only those powers conferred upon it by clear and

unmistakable language. Public Util. Comm=n v. City Pub. Serv. Bd., 53 S.W.3d 310, 315 (Tex.

2001). When the legislature expressly confers a power on an agency, it also impliedly intends

2 Normally, when the trial court grants one party=s motion for summary judgment and denies the other, we review both motions and if we find that the trial court erred, we will reverse and render the judgment that the trial court should have rendered. See Bradley v. State ex rel. White, 990 S.W.2d 245, 247 (Tex. 1999). In its brief, the Commission asks that we reverse the trial court=s summary judgment in favor of SGI and Pollard and render judgment in its favor. But at oral argument the Commission conceded that it was only challenging the legal sufficiency of SGI and Pollard=s summary-judgment grounds.

6 that the agency have whatever powers are reasonably necessary to fulfill its express functions or

duties. Public Util. Comm=n v. GTE-Southwest, Inc., 901 S.W.2d 401, 407 (Tex. 1995). An

agency may not, however, exercise what is effectively a new power on the theory that such

exercise is expedient for the agency=s purposes. Id.

Section 466.101(a) of the government code provides that:

The [E]xecutive [D]irector [of the Lottery Commission] may establish procedures for the purchase or lease of facilities, goods, and services and make any purchases, leases, or contracts that are necessary for carrying out the purposes of this chapter. The procedures must, as determined feasible and appropriate by the [E]xecutive [D]irector, promote competition to the maximum extent possible.

Tex. Gov=t Code Ann. ' 466.101(a). Section 446.101(b) provides that A[i]n all procurement decisions, the

[E]xecutive [D]irector shall take into account the particularly sensitive nature of the lottery and shall act to

promote and ensure . . . the objective of producing revenues for the state treasury.@ Id. ' 466.101(b). The

Commission argues that consideration of economic impact both promotes competition and fulfills the

legislative objective of producing revenues for the state treasury. We disagree.

The Commission=s arguments are partially based on a narrow interpretation of how it

proposes to measure a bidder=s economic impact on the state. It claims that its upcoming request for

proposal would have measured economic impact entirely in terms of additional full-time positions and wages

that performance of the winning proposal would add to the state.3 The Commission then contends that

3 The Commission has appended to its brief a document purporting to be the request for proposal that it would have issued had it not been enjoined by the trial court. It also filed a motion to supplement the appellate record with this document. Because the document was not part of the record

7 consideration of economic impact actually promotes competition because Aall vendors who bid will be

required to seek the best way to increase the number of employees in Texas, resulting in an impact on

Texas=s economy.@ This argument depends on an unreasonable interpretation of the words Apromote

competition@ in the context of this statute. See Southwestern Life Ins. Co. v. Montemayor, 24 S.W.3d

581, 583 (Tex. App.CAustin 2000, pet. denied) (A[i]mplications of statutory intent are forbidden if

the legislature =s intent can be gathered from a reasonable interpretation of the statute as

written@). Under the Commission=s reading of the statute, the language requiring the Executive Director to

Apromote competition to the maximum extent possible@ does not substantively restrict the criteria the

Commission may consider in its procurement procedures. The Commission instead implies that

Apromot[ing] competition@ means only that each potential bid must be evaluated under the same criteria.

Such a broad reading of the word Acompetition@ is misplaced in the context of a statute addressing

procurement policies. See Texas Workers= Comp. Ins. Fund v. Del Indus., Inc., 35 S.W.3d 591, 593

(Tex. 2000) (construing statute in context of express statutory scheme developed by legislature).

In enacting competitive-bidding statutes, the legislature seeks to maximize competition for

government contracts in order to obtain the best work or product at the lowest practicable price. See

Texas Highway Comm=n v. Texas Ass=n of Steel Importers, 372 S.W.2d 525, 527 (Tex. 1963). An

below, we denied the motion. See Tex. R. App. P. 34.5(c).

Relatedly, we reject the Commission=s argument in its fourth issue that it was improper to grant summary judgment in favor of SGI and Pollard because the record did not contain a request for proposal implementing its new policy. SGI and Pollard sought and received a declaration that the Commission could not utilize any economic impact factor in its procurement decisions. Their summary-judgment proof was legally sufficient to prove this proposition.

8 agency subject to a competitive-bidding statute is therefore limited in its procurement decisions to

considerations relating to quality or price in the absence of explicit statutory authority to consider additional

factors. Cf. id. Section 466.101(a) requires the Commission to promote competition to the maximum

extent possible and does not explicitly grant the Commission the authority to consider factors other than

quality or price. We reject the Commission=s contention that considering economic impact actually

promotes competition.

The Commission next claims section 466.101(b) requires the Executive Director to take

into account the objective of producing revenues for the state treasury in making her procurement decisions.

See Tex. Gov=t Code Ann. ' 466.101(b). The Lottery Commission is somewhat unique in that it exists in

order to produce revenues for the state by selling Achances@ to receive a prize. See id. ' 466.002(5) (West

1998). Section 466.101(b) simply requires the Commission to consider its bottom line when awarding

contracts. That is, it requires the Executive Director to consider the objective of producing revenues for the

state treasury from the lottery itself. See id. ' 466.101(b). By lowering its expenses through the use of

competitive bidding, the Commission will ensure higher revenues for the state treasury through the operation

of the lottery. Section 466.101(b) does not authorize the Commission to jeopardize lottery revenues to

favor other economic benefits such as increased employment in the state or increased collection of franchise

taxes.

Other provisions of the government code confirm our conclusion that the legislature did not

intend to authorize the Commission to consider the general economic impact on the state in making its

procurement decisions. In section 466.106(a), the legislature has stated that the Commission may give a

9 preference to goods produced in this state only when the cost and quality of competing bids are equal. 4

When the legislature has spoken so directly, an agency may not act in a way that effectively nullifies the

legislature=s pronouncement, even though the matter may fall within the general regulatory field of that

agency. See, e.g., Central Educ. Agency v. Sellhorn, 781 S.W.2d 716, 718 (Tex. App.CAustin 1989,

writ denied). The legislature has determined that a potential bidder=s Texas location is relevant only when

the cost and quality set out in competing bids are equal. See Tex. Gov=t Code Ann. ' 466.106(a).

However, by favorably considering a bidder=s potential economic impact on the state, the Commission will

in fact create an in-state preference unrelated to cost or quality.

The Commission now argues that by giving credit only to a bidder who creates new jobs in

Texas (its alleged measure of economic impact, which is not part of the record before this court), it would

not be favoring an in-state bidder. The Commission asserts a distinction without a difference. Even if its

restricted policy were before us, which it is not, we would reject the assertion that such a measure of

economic impact would not advantage in-state bidders and thus run afoul of section 466.106(a). Simply

put, by considering economic impact in the bidding process, the Commission would not be promoting

competition to the maximum extent possible, as section 466.101(a) requires. We overrule the

Commission=s first two issues.5

4 The Commission has interpreted the term Acost,@ as used in this statute, to mean the price at which the Executive Director can purchase goods or services. See 16 Tex. Admin. Code ' 401.101(a)(16) (2002). 5 We reject the Commission=s argument the section 315.003 of the government code indicates that the legislature intended the Commission to consider economic impact in its procurement decisions. See Tex. Gov=t Code Ann. ' 315.003 (West 1998) (stating that Athe continuing policy of this state is to maintain and

10 create conditions that will sustain and promote the economy, employment, and economic opportunities for the people of Texas@). Chapter 315 requires a state agency, when requested by the Lieutenant Governor or Speaker of the House, to prepare an economic-impact statement for pending legislation that directly affects that agency. See id. ' 315.002-004 (West 1998). It has nothing to do with agency procurement policies. See id. The general statement of policy that the Commission relies on does not expand any agency=s procurement authority.

11 Having determined that the trial court did not err in declaring that the Commission lacked

statutory authority to consider economic impact on the state in making its procurement decisions, we need

not address the Commission=s contention that such policy is consistent with its own rules. See Tex. R. App.

47.1.

CONCLUSION

The Commission is subject to a competitive-bidding statute. Absent explicit statutory

authority to the contrary, it must base its procurement decisions on factors relating to quality and price.

Because the Commission does not possess the statutory authority to consider the general economic impact

on the state in making its procurement decisions, we affirm the summary judgment in favor of SGI and

Pollard.

Bea Ann Smith, Justice

Before Chief Justice Law, Justices B. A. Smith and Puryear

Affirmed

Filed: February 21, 2003