This case challenges certain administrative actions of defendants Thomas E. Kelly, Commissioner of Natural Resources, and F.J. Keenan, Director, Division of Lands, in connection with the State of Alaska Competitive Oil and Gas Lease Sale No. 23, held September 10, 1960.
On August 11, 1969, the State of Alaska published its notice of the 23rd Competitive Oil and Gas Lease Sale. The notice of sale contained a description of the 179 tracts offered in the sale, indicated the time and place of the sale, and provided further in part:
Plaintiffs submitted bids on 35 of the 179 tracts offered in the sale.
On September 17, 1969, after the return to plaintiffs of the 33 unsuccessful bids, but before notification of the rejection of the two high bids, plaintiffs filed suit against defendants Kelly, Keenan, and the seventeen oil companies that were the successful high bidders on the 33 tracts.
On October 16, 1969, defendants Kelly and Keenan filed, along with their answer to plaintiffs' complaint, a motion for summary judgment. Plaintiffs thereafter moved for partial summary judgment only as to the two apparent high bids on tracts C23-020 and C23-021. After hearing, the superior court granted partial summary judgment for defendants, finding that the 33 bids "were properly not further considered by defendants Kelly and Keenan, in that said bids were nonresponsive to the Notice of Sale and the leasing regulations and statutes applicable to the 23rd Oil and Gas Lease Sale." In addition, the lower court granted partial summary judgment for plaintiffs as to their two apparent high bids, finding that these bids were improperly rejected as nonresponsive and remanding them to the Commissioner of Natural Resources for consideration as to the adequacy of the cash bonus offered in the bids. Plaintiffs appeal from the orders granting both summary judgments. Defendants appeal from the order granting partial summary judgment for the plaintiffs.
THE 33 BIDS
Plaintiffs argue that defendants were required by statute to consider both the cash amount and the value of the extra royalty in ascertaining the highest bid. In pursuing this argument, plaintiffs challenge the validity of certain oil and gas regulations which provide that competitive bidding shall be by cash bonus bids only.
Regulations adopted by the Commissioner of Natural Resources are subject to the rule-making provisions of Alaska's Administrative Procedure Act and must be
The rule-making function of an administrative agency frequently resembles the legislative process of passing a statute. Each entity determines the need for a particular enactment in light of chosen policies; each has procedures for the expression of views upon the merits of the proposal; and each, after consideration of the relevant policies and arguments, decides whether to adopt the proposed enactment. When administrative rule-making is based upon clear authority from the legislature to formulate policy in the adoption of regulations, the rule-making activity takes on a quasi-legislative aspect. We have held that, under proper standards, such delegations of legislative power to administrative agencies are constitutional. Boehl v. Sabre Jet Room, Inc., 349 P.2d 585 (Alaska 1960).
In the federal system, when an administrative agency is clearly acting in its quasi-legislative rule-making capacity, the United States Supreme Court has not substituted its judgment as to the content of the rule or regulation.
American Telephone and Telegraph Co. v. United States, 299 U.S. 232, 57 S.Ct. 170, 81 L.Ed. 142 (1936), concerned a legislative rule, although the Court did not specifically use that term. Section 220 of the Communications Act of 1934 provided that "the Commission may, in its discretion, prescribe the forms of any and all
Because Congress had delegated to the Commission the authority to choose a system in its discretion, the Court would not substitute its judgment as to the content of the rule. Upholding the system, the Court stated:
An example of an interpretative regulation is the Alaska case of Whaley v. State, 438 P.2d 718 (Alaska 1968). Dolores Whaley had been discharged from her employment with the State of Alaska and brought suit seeking reinstatement of her position as Correctional Aide at the Anchorage State Jail. The lower court granted summary judgment to the state, having determined that since Mrs. Whaley was a provisional employee she was not entitled to an appeal and hearing before the State Personnel Board. On appeal to this court, appellant Whaley relied on AS 39.25.170, which states in part, "[a]n employee in the classified service who is dismissed, demoted, or suspended for more than 30 working days in a 12-month period" is entitled to a hearing before the personnel board. This court upheld the grant of summary judgment, finding that the Personnel Rules prepared by the Director of Personnel indicated clearly that "employee in the classified service" had been interpreted by the Board to include only employees who had permanent status. We stated at 722:
Certain provisions of the Alaska Administrative Procedure Act provide guidance as to the standard of review for regulations adopted pursuant to an administrative agency's quasi-legislative rule-making function. AS 44.62.020 states in part:
AS 44.62.030 states:
Thus, where an administrative regulation has been adopted in accordance with the procedures set forth in the Administrative Procedure Act, and it appears that the legislature has intended to commit to the agency discretion as to the particular matter that forms the subject of the regulation, we will review the regulation in the following manner: First, we will ascertain whether the regulation is consistent with and reasonably necessary to carry out the purposes of the statutory provisions conferring rule-making authority on the agency. This aspect of review insures that the agency has not exceeded the power delegated by the legislature. Second, we will determine whether the regulation is reasonable and not arbitrary. This latter inquiry is proper in the review of any legislative enactment.
AS 38.05.020(b) (1) of the Alaska Land Act provides that the Commissioner may "establish reasonable procedures and adopt reasonable rules and regulations necessary to carry out" the provisions of the state's land act.
Plaintiffs argue that the clear language of AS 38.05.180(a) requires that the royalty be included along with "such bonus as may be accepted" in ascertaining the highest bidder, and that defendants' regulations providing otherwise are consequently inconsistent with the statute. We cannot agree. The only reasonable construction that can be placed on the statute is that the legislature intended to give the Commissioner broad authority to determine the kind of bonus he will accept. The legislature at the time it passed AS 38.05.180(a) was undoubtedly aware that under competitive bidding procedure, different forms of bonuses might be offered. It did not itself prescribe a particular form, but instead provided that competitive bidding shall be "under general regulations," and that lands shall be leased upon the payment of "such bonus as may be accepted by the commissioner." The plain language of the statute shows that royalties were to be fixed independently of the acceptance of the highest bonus.
Our next point of inquiry is whether, in light of the purposes of AS 38.05.180 (a), the challenged regulations are reasonable and not arbitrary. It is clear that the provisions of AS 38.05.180(a) were intended to insure that leases on valuable oil and gas producing state lands will be made available to the public on a fair and equitable basis, that the state will be adequately compensated for its natural resources, and that the state's resources are developed in an orderly fashion. For the Commissioner to decide that these purposes are furthered by providing for bidding by cash bonus cannot be said to be unreasonable. Cash bonuses allow the Commissioner and the Director of the Division of Lands to determine quickly and easily which bid is the highest. A successful bidder who ultimately becomes a lessee of oil and gas rights must be able to feel that his lease will not be subject to attack. He will quite naturally be reluctant to invest large sums of money into drilling and recovery operations if he anticipates long court battles to determine the true value of his bid. Delays of that kind do not comport with orderly development of resources.
Similarly, it is not unreasonable for the Commissioner to determine that it is in the state's best interest to receive compensation for the leases immediately upon the award of the lease, rather than to wait for uncertain sums to arrive in the form of premium royalties. Plaintiffs would have this court substitute its judgment on the merits of cash bidding, but this we will not do.
The Commissioner's judgment on this matter no doubt reflects consideration of scientific and economic data well within the field of expertise of the Department of Natural Resources. In selecting cash bidding and a 12 1/2% royalty rate as the best policy for the state, the Commissioner no
It may well be that the prospect of recovering large amounts of oil from these tracts is most promising. Yet other factors would have to be weighed in determining the terms of sale. Problems inherent in the marketing of the oil and gas, including transportation of the product over long distances, would have to be considered. The overall economics of the oil and gas industry, on a national and international basis, and the estimated future demand for oil and gas as a basic energy source, might well have to be considered in fixing terms of sale which would yield maximum fulfillment of Alaska's avowed public policy. For all we know, a high royalty rate and a low cash bonus bid might impede the extraction and marketing of the resource, thereby defeating orderly development of the oil and gas at the best long-term compensation to the state and its citizens. But these are problems of public policy the resolution of which is soundly placed in the legislative and executive branches of government, not the judiciary.
To plunge the courts into such an evaluative process, before a lease could be awarded in response to a bid, would surely lead to such interminable delay in the award of leases as to defeat the whole program of resource development. The very economic data to be evaluated might change so rapidly that final judicial action would be most difficult to achieve. This illustrates why the judicial process does not lend itself to the solution of such problems of policy formulation.
The use of cash bonus bids is consistent with the definitions of "bonus" that courts have formulated. Plaintiffs have cited several cases which define "bonus" to mean cash plus royalty. Defendants, on the other hand, accurately point out that "bonus" has been defined a number of different ways. The case of Griffith v. Taylor, 156 Tex. 1, 291 S.W.2d 673, 676 (Texas 1956), had this to say about the definition of "bonus":
Obviously, defendants have chosen the concept of "bonus" most commonly encountered in the oil and gas industry, and in so doing have acted neither unreasonably nor arbitrarily.
Therefore, we hold that in considering only the cash portion of plaintiffs' 33 bids, defendants acted pursuant to valid regulations which provided that a lease would be awarded to the bidder offering the highest cash bonus. Since other bids on the 33 tracts contained higher cash offerings than plaintiffs' bids, the defendants acted properly in determining that the high cash bids on those 33 tracts were the apparent high bids, not plaintiffs' bids. We sustain the result reached by the superior court, but do not adopt its reasoning, since we find that
Plaintiffs urge finally that summary judgment was improper as to the 33 bids, because of the complex important public issues that were at stake, and cite Ault v. Alaska State Mortgage Association, 387 P.2d 698 (Alaska 1963), in support of their argument. This Court found summary judgment improper in Ault not only because important public issues were involved, but also because we found the evidence presented in support of the motion to be inadequate since "it affords us no basis for resolving the questions raised by the appellant's eight specifications of error." The opinion also states at 701-702:
We believe the record in this case was adequate and that no "genuine issue as to any material fact" existed.
THE TWO APPARENT HIGH BIDS
The bids submitted by plaintiffs Boyko, Zamarello and Mackay on tracts C23-020 and C23-021 were rejected by the Department of Natural Resources in a decision dated September 29, 1969, signed by the Acting Director of the Division of Lands, and stating in part as follows:
The two bids were substantially identical, and both were submitted on the state's Form DL-5, revised May, 1967.
Plaintiffs included lease forms with both bids, although the notice of sale indicated that this was not necessary.
Plaintiffs argued successfully in the superior court and argue now on appeal that the offer of the additional royalty should not have rendered the bids nonresponsive to the notice of sale requiring bidding by cash bonus only. Plaintiffs contend that the offer of the additional royalty was contained only in the lease form, not in the bid itself. Therefore, since defendants' notice of sale indicated that the lease form need not be included with the bid, the offered extra royalty should have been considered mere surplusage.
We find that the superior court erred in substituting its judgment for that of the Department of Natural Resources both as to the Department's finding that the bids themselves contained the offer of the additional royalty and as to the finding that the bids were nonresponsive. The decision by the Department of Natural Resources is a proper one for application of the reasonable basis standard of judicial review.
The Oregon Supreme Court in Rogers Construction Co. v. Hill, 235 Or. 352, 384 P.2d 219 (1963), discussed the problems of judicial review of administrative decisions. In that case the Public Utilities Commissioner had applied Oregon's highway use tax to certain of plaintiff's construction equipment, finding that under the Oregon statute the equipment was "capable of being used upon any public highway in
In reaching its decision to apply the substitution of judgment standard of judicial review, the court recognized two distinct types of administrative decisions on questions of law. One type involves questions in which the particularized experience and knowledge of the administrative personnel goes into the determination. When this type of question is presented to the court for review, deference should be given to the administrative interpretation, since the expertise of the agency would be of material assistance to the court. "The amount of deference will vary depending upon the apparent degree of reasonableness of the administrative decision and the degree to which the problem involves knowledge peculiar to an industry, business, etc." 384 P.2d at 222, 235 Or. at 356.
The other kind of case presents questions of law in which knowledge and experience in the industry affords little guidance toward a proper consideration of the legal issues. These cases usually concern statutory interpretation or other analysis of legal relationships about which courts have specialized knowledge and experience. Consequently, courts are at least as capable of deciding this kind of question as an administrative agency.
The decisions rendered by our court reflect this distinction. In Northern Corporation v. Saari, 409 P.2d 845 (Alaska 1966), this court substituted its judgment for that of the Workmen's Compensation Board as to the proper legal definition of "arising out of and in the course of" employment. We similarly substituted judgment on questions of law in Aleutian Homes v. Fischer, 418 P.2d 769 (Alaska 1966), deciding the proper definition of "occupational disease." In Cook v. Alaska Workmen's Compensation Board, 476 P.2d 29 (Alaska 1970), we afforded the Board's interpretation of statutes prescribing the rules of evidence to be followed in workmen's compensation hearings little, if any, weight. All of these cases presented questions of law which had been decided by courts in a large number of cases.
Representing the other class of questions of law is the recent case of Pan American Petroleum Corp. v. Shell Oil Co., 455 P.2d 12 (Alaska 1969). There we applied a narrower standard of review to a decision by the Commissioner of Natural Resources, the standard being what is called the "reasonable basis" approach. The Commissioner had found that Pan American had made the "first discovery of oil or gas in commercial quantities in a geologic structure"
Application of the reasonable basis test is extremely useful where the administrative action under review resembles executive as opposed to legislative or judicial activity. Agency decisions such as the one reviewed in Pan American and the decision here under review clearly have nothing to do with the agency's rule-making function. To the extent that the decision-making process in Pan American and the case here required application of law to facts, the decisions might be
The reasonable basis approach, in the review of agency action which is essentially executive in character, recognizes that the application of law to facts in an administrative setting may require techniques quite different from those traditionally associated with judicial functions. The United States Supreme Court has used the reasonable basis approach in cases where it appeared to the Court that the agency was particularly well suited to draw the necessary factual and legal conclusions.
While the type of administrative expertise in the case at bar differs somewhat from that in the Pan American case,
Applying the reasonable basis standard, we cannot say that the finding of nonresponsiveness lacked either substantial support in the record or a reasonable basis in law. As to the factual aspect of the finding, the form of plaintiffs' bids easily supports an inference that plaintiffs intended that the offer of the added royalty be considered a part of the bid itself. The exhibit attached to both bids stated, "This is a combination cash bonus and Extra Royalty Bid, whereby bidders offer a cash bonus of $1.50 per acre * * * plus a total royalty * * * of 37.5% * * *." On the face of the bids, reference was made to this exhibit in the space provided for "Amount of Bid." It was, therefore, error for the superior court to substitute its judgment and regard the extra royalty as mere surplusage.
There is considerable authority to the effect that public policy requires carefully drawn public competitive bidding standards and strict compliance with such standards. The basic theory behind such holdings is expressed in Inn Operations, Inc., v. River Hills Motor Inn Co., 152 N.W.2d 808, 817 (Iowa 1967):
The Court of Appeals for the District of Columbia Circuit in Superior Oil Company v. Udall, 133 U.S.App.D.C. 198, 409 F.2d 1115 (1969), in an opinion by now Chief Justice Burger, held that the Secretary of the Interior could not award an oil and gas lease to a bidder who had failed to sign the bid, where an authorized officer of the Bureau of Land Management had previously rejected the bid. In reaching its decision, the court emphasized the importance of strict compliance with bidding procedures, and quoted with approval the following excerpt from an opinion by the Comptroller General:
The court went on to say:
The superior court, therefore, erred in overturning the decision of the Department of Natural Resources which declared plaintiffs' bids to be nonresponsive to the notice of sale.
The judgment of the superior court granting partial summary judgment for defendants is affirmed. The judgment of the superior court granting partial summary judgment for plaintiffs is reversed and remanded with directions to reinstate the decision of the Department of Natural Resources dated September 29, 1969, rejecting plaintiffs' bids on tracts C23-020 and C23-021.
Affirmed in part, reversed in part.
11 Alaska Admin. Code, § 505.51 states:
"12.5% ROYALTY, $10,000.00 PER ACRE BONUS: "Royalty $57,600,000.00 Bonus 25,600,000.00 * These estimates are based on ______________ 300' of saturated pay sand (½ TOTAL 83,200,000.00 that reported in some Prudhoe Bay wells), a recovery of 200 "37.5% ROYALTY, $1.50 PER ACRE BONUS: barrels of oil per acre foot of pay sand and a price of $3.00 per "Royalty $172,800,000.00 barrel at the well head." Bonus 3,840.00 _______________ TOTAL 172,803,840.00
In addition, the exhibit proposed to add to the terms of the lease a commitment to drill a test well "on said leased premises, or an adjoining lease" within three years from the date of execution of the lease.