BALLY MANUFACTURING CORPORATION, A DELAWARE CORPORATION, APPELLANT, v. NEW JERSEY CASINO CONTROL COMMISSION, RESPONDENT.
Supreme Court of New Jersey
March 17, 1981
325 | 85 N.J. 325 | 426 A.2d 1000
Argued December 1, 1980
Argued December 1, 1980—Decided March 17, 1981.
Laurel A. Price, Deputy Attorney General, argued the cause for amicus curiae Attorney General of New Jersey (John J. Degnan, Attorney General of New Jersey, attorney; Laurel A. Price and Robert J. Clark, Deputy Attorneys General, on the brief).
The opinion of the Court was delivered by
SULLIVAN, J.
This appeal by Bally Manufacturing Corporation (Bally) presents the question of the legality of a regulation adopted by the New Jersey Casino Control Commission (Commission) which, in substance, prohibits a licensed casino from acquiring more than 50% of its slot machines from any one manufacturer.
Bally‘s basic contentions on appeal are that the regulation is beyond the power and authority given the Commission under the Casino Control Act,
The following background is pertinent to consideration of the issues presented.
Declaring what the public policy of the State is with regard to casino operations, the act, inter alia, states:
An integral and essential element of the regulation and control of such casino facilities by the State rests in the public confidence and trust in the credibility and integrity of the regulatory process and of casino operations. To further such public confidence and trust, the regulatory provisions of this act are designed to extend strict State regulation to all persons, locations, practices and associations related to the operation of licensed casino enterprises and all related service industries as herein provided. In addition, licensure of a limited number of casino establishments, with the comprehensive law-enforcement supervision attendant thereto, is further designed to contribute to the public confidence and trust in the efficacy and integrity of the regulatory process. [
N.J.S.A. 5:12-1(b)(6) ]Since the economic stability of casino operations is in the public interest and competition in the casino operations in Atlantic City is desirable and necessary to assure the residents of Atlantic City and of this State and other visitors to Atlantic City varied attractions and exceptional facilities, the regulatory and investigatory powers and duties conferred by this act shall include the power and duty to regulate, control and prevent economic concentration in the casino operations and the ancillary industries regulated by this act, and to encourage and preserve competition. [
N.J.S.A. 5:12-1(b)(12) ]
In the main, it is the construction of the provisions of paragraph (12), principally those referring to the power and duty of the commission to ”prevent economic concentration in the casino operations and the ancillary industries regulated by this act, and to encourage and preserve competition,” that is at issue in this appeal.
The proposed regulation was published in the New Jersey Register as required by the Administrative Procedure Act. 11 N.J.R. 108 (1979). Multiple letters, comments and memoranda were received by the Commission in response to this publication. Bally requested an evidentiary hearing, but was advised by letter that the Commission would consider the proposed regulation under its rule making authority and would be acting in its quasi-legislative capacity. The letter stated that presentation of factual testimony through witnesses would be inappropriate but that arguments of counsel would be permitted.
The proposed regulation was considered by the Commission on June 20, 1979 at a public hearing. Counsel for the respective interested parties, including Bally, were heard on the need for and the legality of the proposed regulation. One of the matters discussed was whether a factual basis had to be established for whatever percentage was fixed. After considering the material submitted and hearing argument in the matter, the Commission
(a) Unless otherwise approved by the Commission, no more than 50% of the slot machines used in any casino in this State to conduct gaming shall have been manufactured by any one manufacturer or by any enterprise under the direct or indirect control of said manufacturer.
(b) The Commission may modify the said limitation of subsection (a) of this section upon a finding that the casino licensee or applicant for a casino license has made a good faith effort to seek out and obtain slot machines from more than the single manufacturer and that a number of adequate slot machines sufficient to comply with the said limitation are not reasonably available for such use in the said casino.
(c) A casino licensee or an applicant for a casino license may seek modification of the limitation of subsection (a) of this section by filing a verified petition with the Commission alleging sufficient facts to satisfy the standards set forth in subsection (b) of this section.
(d) In response to such a verified petition, the Commission may decide the request summarily, elicit further information from the petitioner or other interested persons, set the matter down for a hearing or adopt such other procedure as may be appropriate under the circumstances. [
N.J.A.C. 19:46-1.32 ]
Shortly thereafter Bally filed a Notice of Appeal and a motion for direct certification. This Court granted Bally‘s motion on May 29, 1980. 84 N.J. 447 (1980).
Bally argues that the regulation is invalid because the Casino Control Act does not authorize the Commission to fix mathematical market shares. It points out that the act, which it describes as “one of the most comprehensive pieces of industry legislation in effect in New Jersey,” specifies percentages and fixed numbers in numerous areas where it intended that they be used. According to Bally, had the Legislature intended to impose an arithmetical quota upon the sale of slot machines, it would have supplied the desired percentage or, at the very least, indicated that a percentage limitation was desired. Bally also contends that the statutory powers given the Commission to prevent economic concentration and encourage and preserve competition, relate only to the well established principle of “monopoly” in antitrust law. It argues that mere market leadership resulting from customer preference is not contemplated by the act and,
We find Bally‘s contentions lack merit. The act specifically provides that “casino operations are especially sensitive and in need of public control and supervision.”
In prohibiting “economic concentration” in the casino industry, the Legislature was concerned with the fact of economic concentration in casino operations. Its intent was to prevent economic domination in any area related to the industry. As noted, slot machines are vital to gambling operations. If one manufacturer were permitted to dominate this field, casinos would be largely dependent on one source of supply not only for the purchase of machines but also for replacement parts and servicing. Such economic power would have the clear potential for unfair advantage.3 In addition, chaos in casino operations could result if this one manufacturer ever ceased to be a supplier because of economic difficulties or loss of its manufacturer‘s license. Therefore, our conclusion is that the regulation in question is within the framework of the broad powers conferred on the Commission by the act.
Bally next argues that the Commission‘s action was knowingly and purposefully targeted against Bally as the one entity affected by the regulation. Since the Commission enact-
The Casino Control Act requires that Commission regulations “shall be adopted, amended, and repealed in accordance with the provisions of the ‘Administrative Procedure Act.‘”
a proceeding . . . in which the legal rights, duties, obligations, privileges, benefits or other legal relations of specific parties are required by constitutional right or by statute to be determined by an agency by decisions, determinations, or orders, addressed to them or disposing of their interests, after opportunity for an agency hearing. [
N.J.S.A. 52:14B-2(b) ]
Bally maintains that since it was the target of the regulation and the only manufacturer whose rights were affected by the proposed Commission action, it was entitled to the evidentiary hearing on the basis not only of
In this regard, Bally lists a number of alleged factual issues before the Commission with respect to which it contends that it should have been allowed to present evidence. In essence though, Bally‘s argument is that it was entitled to a hearing on the question whether its “market leadership” was achieved through the quality of its product and customer preference rather than as a result of predatory practices. Bally charges
Bally misconstrues the purpose of the regulation. It is not directed at Bally. The restriction applies to any manufacturer who, for whatever reason, occupies a dominant position in the slot machine market in New Jersey. At present, Bally is in that position but should another manufacturer develop an improved type of machine with strong market appeal,4 the regulation would apply equally to that producer.
The Commission‘s action was founded on certain basic facts which were not in dispute: (1) the slot machine market was dominated by one manufacturer, (2) there was an absence of significant competition in the sale of slot machines, and (3) slot machines are an important source of casino revenues. In light of these facts, the Commission was obligated to take action to prevent “economic concentration” in the slot machine market and to “encourage and preserve competition.” The Commission was not interested in the reasons for the then existing situation in such a sensitive industry. It was the fact of market domination and the resultant “economic concentration” which concerned the Commission. Therefore, this was not a contested case requiring an evidentiary hearing and findings of fact. It was, as Bally was advised, an exercise of the Commission‘s rule making authority. See Heir v. Degnan, 82 N.J. 109, 119 (1980). Since the regulation was not “directed” at Bally, as previously noted, but was rather a policy decision based on undisputed facts, principles of fair play and administrative due process did not require the evidentiary hearing mandated in Cunningham v. Dept. of Civil Service, 69 N.J. 13 (1975).
The proposition stated in the title of this section is obvious but has to be stated because a good deal of law that bears on the proposition is confused. Some courts tend to assume that one who has vital interests at stake in a controversy is for that reason entitled to the protection of trial procedure, whether or not facts are in dispute.
The law clearly is, at a most elementary level, that because a trial is a process for taking evidence subject to cross-examination, and because taking evidence is not appropriate except on disputed facts, trial procedure is not required on issues of law, policy or discretion. [2 Davis, supra, § 12.2 at 409-410]
This is precisely the situation in the instant case. As we have noted, the Commission‘s action was founded on basic undisputed facts. Applying these facts in light of its statutory obligation to prevent economic concentration is such a sensitive and important area of the gambling industry, the Commission, after complying fully with the requirements of the Administrative Procedure Act, adopted the policy expressed in
Bally further contends that, at the very least, the Commission should have established some basis for the 50% limitation and afforded the manufacturer an opportunity to challenge that basis and present countervailing proofs. Absent such an opportunity, Bally claims the 50% limitation is arbitrary and a denial of due process.
Bally‘s final argument is that the regulation violates state and federal antitrust laws. The contention that the regulation offends the New Jersey Antitrust Act,
Subsequent decisions, upholding the ruling in Parker v. Brown, have refined the standards for finding antitrust immunity for state action. See, e. g., Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975); Cantor v. Detroit Edison Co., 428 U.S. 579, 96 S.Ct. 3110, 49 L.Ed.2d 1141 (1976); Bates v. State Bar of Arizona, 433 U.S. 350, 97 S.Ct. 2691, 53 L.Ed.2d 810 (1977); New Motor Vehicle Bd. of Calif. v. Orrin W. Fox Co., 439 U.S. 96, 99, 99 S.Ct. 403, 58 L.Ed.2d 361 (1978). The United States Supreme Court most recently reviewed the Parker v. Brown doctrine in California Liquor Dealers v. Midcal Aluminum, 445 U.S. 97, 100, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980). Considering the development of that doctrine in the subsequent decisions regarding antitrust immunity for state action, the Court in Midcal stated:
These decisions establish two standards for antitrust immunity under Parker v. Brown. First, the challenged restraint must be “one clearly articulated and affirmatively expressed as state policy“; second, the policy must be “actively supervised” by the State itself. [445 U.S. at 105, 100 S.Ct. at 943, 63 L.Ed.2d at 243 (citation omitted)]
Reviewing the facts of the instant case, we conclude that these standards have been fully satisfied so that the regulation falls within the antitrust immunity established by Parker v. Brown and its progeny. First, as we have already held, the regulation is clearly authorized, indeed required, by the expression of State policy contained in the Casino Control Act.
Finding no merit in any of the issues raised by Bally on appeal, we conclude that
HANDLER, J., concurring.
I concur in the opinion of the majority of the Court. I write separately to emphasize certain principles of administrative law relating to the rulemaking authority of administrative agencies. These principles, which underlie today‘s decision upholding the actions of the Casino Control Commission, are codified in our Administrative Procedure Act,
Most administrative agencies, in the discharge of their regulatory responsibilities, are empowered to make determinations by either promulgating a “rule” or rendering an “adjudication.” This authority must be exercised in accordance with the standards of the Administrative Procedure Act (APA).
The Casino Control Commission is fully subject to the strictures of the APA.
a proceeding . . . in which the legal rights, duties, obligations, privileges, benefits or other legal relations of specific parties are required by constitutional right or by statute to be determined by an agency by decisions, determinations, or orders, addressed to them or disposing of their interests, after opportunity for an agency hearing. [
N.J.S.A. 52:14B-2(b) ]
A “rule” is an “agency statement of general applicability and continuing effect that implements or interprets law or policy or describes the organizational procedure or practice requirements of any agency.”
Administrative agencies enjoy a great deal of flexibility in selecting the proceedings most suitable to achieving their regulatory aims. This is contemplated by the law that created the Office of Administrative Law,
L.1978, c. 67, amending the Administrative Procedure Act and establishing the Office of Administrative Law to conduct hearings in contested cases provides, in § 9 (N.J.S.A. 52:14F-7), that it is the prerogative of the agency heads “to determine whether a case is contested . . . ” It is the statutory obligation of the Director of the Office of Administrative Law, inter alia, to “develop uniform standards . . . (regulating) the conduct of contested cases and the rendering of administrative adjudications” (N.J.S.A. 52:14F-5e) and to “advise agencies concerning their obligations under the Administrative Procedure Act. . . . ” (N.J. S.A. 52:14F-5 h).
Indeed, additional procedural choices are available in the form of declaratory rulings and advisory opinions,
These provisions and guidelines recognize the important authority placed in administrative agencies in fulfilling their regulatory responsibilities. The procedural choice as between adjudication and rulemaking is an aspect of that delegated authority and lies within the informed discretion of administrative agencies. These considerations, therefore, strongly counsel judicial deference to the administrative choice between adjudication and rulemaking.1
The significance of the choice between rulemaking and adjudication is that it affects the procedure that must be followed in reaching an ultimate agency determination. In particular, as crystallized by the contentions on this appeal, the choice between rulemaking and adjudication has important ramifications in terms of the kind of agency hearing that must be undertaken in the matter. Thus, the type of hearing required for purposes of developing an evidential foundation for the eventual agency disposition may differ markedly depending upon whether that disposition is rulemaking or adjudication.
Generally, adjudication is the preferred, if not required, mode where there exist disputed issues of fact which must be resolved in order to determine the rights, duties, obligations, privileges, benefits or other legal relations of specific parties.
The selection between adjudication and rulemaking is based not only upon the form or effect of the final disposition, such as the number of persons affected or its retroactive or prospective effect. The choice ultimately is a matter of which procedure is best tailored to achieve the goals and functions of the agency in the given case. See
In the matter at hand, Bally Manufacturing Corporation argues that the Casino Control Commission acted beyond the limits of its discretion in proceeding by rulemaking instead of adjudication. Bally bases its position on the ground that it was the target of the regulation and the only manufacturer whose rights were affected by the proposed Commission action. It contends that the rights and privileges of a “specific” party were determined, bringing the proceedings within the APA definition of a “contested case,”
Such a concept of specific rulemaking, as a specialized subset of rulemaking in general, is well established in the lexicon of federal administrative law. See
Here, the proceedings of the agency have the essential features of legislation necessary for rulemaking to be a valid procedural choice. The rule promulgated by the Casino Control Commission has future or prospective effect. It does not purport to resolve an extant dispute or determine adversary claims. It does not constitute a disposition of particular interests through a retroactive determination. See
The validity of the procedural policy choice, however, does not end the inquiry posed in this case. While a full blown hearing in the adjudication sense may not be required, the agency must still determine the appropriate type of hearing that is to be conducted within the relevant procedural mode selected. Thus, even though the procedural choice, as here, involved rulemaking, the hearing procedures to be followed must still be ascertained
As earlier noted, in the hearing of a contested case involving adjudication in its classic sense certain procedural features must be present. These include reasonable notice, the right to present evidence and to confront adverse evidence, factual findings based upon sufficient and reliable evidence derived exclusively from the record, the opportunity to present argument on all
In contrast, the requirements for a hearing in the general rulemaking mode may be considerably different. The statute does not require more than written notice and the opportunity to comment by affected parties, see
Nevertheless, applying these principles to the matter at hand, the rulemaking procedure employed and followed by the Commission in this case was adequate, fair and proper. All that was reasonably necessary in the context of this case was for interested parties, even the party specifically affected, to be given an opportunity to present their positions. Nothing more than written presentations to the Casino Control Commission by Bally was required for the simple, yet cogent, reason, as fully explicated by the majority, ante at 333-334, that no material issue of fact existed for which an evidentiary hearing, a more thorough record, or further findings of fact could prove helpful or more fruitful in informing the agency as a basis for its ultimate determination.
These principles, I believe, underlie the opinion of the majority of the Court and I, therefore, join its decision.
PASHMAN, J., dissenting.
I am in general agreement with the majority‘s conclusions regarding the scope of the Commission‘s authority to prevent economic concentration and the exemption of the Commission‘s regulations from the Sherman Act. In implementing the policy announced in
In spite of my agreement on these issues, I must dissent from the majority‘s holding that Bally was not entitled to an evidentiary hearing before the Commission made its final decision. Since I would find the regulation invalid for lack of an adequate hearing, I decline to decide whether the fifty percent rule is arbitrary and capricious in violation of Bally‘s due process rights.
In reaching its conclusion that Bally was not entitled to an evidentiary hearing, the majority characterizes the Commission‘s action as “a policy decision based on undisputed facts” and concludes that the proceeding was rule making exempt from the requirement of an evidentiary hearing. Labeling the proceeding rule making only begs the question. The majority disregards the significance of facts which it apparently concedes: that the Commission was reacting to Bally‘s domination of the domestic slot machine market and that at present only Bally is adversely affected by the Commission‘s decision. When agency action directly affecting a single party masquerades as a general rule, I believe that principles of procedural due process require an evidentiary hearing.
Ordinarily, a rule making proceeding is directed at a general factual setting or a class of similarly situated persons. In such a case, an individual‘s complaint of hardship will not entitle him to an evidentiary hearing, see Heir v. Degnan, 82 N.J.. 109, 119 (1980), and his interests will be subordinated to the welfare of the general public, Willapoint Oysters v. Ewing, 174 F.2d 676, 693 (9th Cir.), cert. denied, 338 U.S. 860, 70 S.Ct. 101, 94 L.Ed.
However, where agency action has an exceptional and immediate effect on a particular person, due process entitles the affected person to a hearing no matter what form of proceeding the agency chooses. Philadelphia Co. v. Securities and Exchange Commission, supra, 175 F.2d 808, vacated as moot, 337 U.S. 901, 69 S.Ct. 1047, 93 L.Ed. 1715 (1949); see Londoner v. Denver, 210 U.S. 373, 28 S.Ct. 708, 52 L.Ed. 1103 (1908); Cunningham v. Department of Civil Service, 69 N.J. 13 (1975). As a leading commentator has reasoned, the affected person “should be entitled to a hearing, regardless of . . . the nature of the facts in dispute. . . . From the point of view of the individual concerned, . . . it is the fact that a judicial decision affects him particularly, upon individual grounds, that makes the decision of substantial impact. Even if agency action is legislative under the time test [in that it is prospective in application], if it is particular in its applicability, its effect is much the same as that of an adjudicatory decision.” B. Schwartz, Administrative Law 204 (1976). Justice Handler has ably supported this principle in his concurring opinion. Ante at 345-46.
Rate making proceedings are the most obvious illustration of this rule. Even though setting utility rates is a legislative rather than a judicial function, Public Service Coordinated Transport v. State, 5 N.J. 196, 214 (1950), when a public utility commission determines the rates that a particular company may charge, due process requires that the agency make its decision only after an evidentiary hearing. Railroad Commission v. Pacific Gas & Electric Co., 302 U.S. 388, 393, 58 S.Ct. 334, 337, 82 L.Ed. 319, 322 (1938). This rule is incorporated into the administrative law of this State. See
On previous occasions, this Court has emphasized the need for an evidentiary hearing where administrative action is directed at a specific party or situation, even if the action is rule making. In Boller Beverages, Inc. v. Davis, 38 N.J. 138 (1962), the Court noted that “special rulings,” in which an administrator interprets a statute or regulation for the future guidance of all persons who may be affected, “may partake of both rule-making and adjudication.” Id. at 154. Addressing the proper procedure to be followed in making these rulings, the Court stated that “if the ruling is directed at a specific situation involving a single interest, the dissatisfied party should also be first entitled to a trial type hearing in the agency.” Id. at 155. More recently, in Cunningham v. Department of Civil Service, supra, we held that the “crucial questions” determining the right to an evidentiary hearing are “whether the fact finding involves a certain person or persons whose rights will be directly affected, and whether the subject matter at issue is susceptible to the receipt of evidence.” 69 N.J. at 22.
The majority would have the right to an evidentiary hearing depend on the existence of disputed facts. Ante at 334. I have no quarrel with the general proposition that an evidentiary hearing is “not required on issues of law, policy or discretion.” 2 K. Davis, Administrative Law Treatise § 12.2 at 410 (2d ed.
Applying these principles to the present case, I would find that the Casino Control Commission‘s rule is invalid. Although the “fifty percent” rule is phrased in general terms, there is no doubt that at the present it affects only Bally. Only Bally will lose business. The Commission itself acknowledged in a prepublication version of its statement of policy that the rule was directed at Bally‘s domination of the market. The transcript of the public hearings held before the rule was promulgated furnishes further evidence that this rule has an individualized impact on Bally and was drafted in response to Bally‘s market leadership.
The record in this case also indicates that the rule has already affected Bally‘s sales. When Desert Palace of New Jersey requested permission to purchase 1,500 slot machines from Bally, the Commission limited the purchase to no more than 843 machines, half the number that Desert Palace would be allowed to have in operation in its casino.
Furthermore, the subject matter of the proceeding----whether Bally‘s present market dominance will adversely affect the economic stability of casino operations in New Jersey—is susceptible to development in an evidentiary hearing. It may be true, as the majority asserts, ante at 333, that some of the facts on which the Commission‘s decision was based are undisputed. But conclusions to be drawn from these facts concerning the potential harm to the New Jersey casino industry are very much in
It is perhaps rare that administrative action that is framed in general terms will exert an immediate effect on a particular person and no one else. Nevertheless, where, as here, individualized action is taken under the guise of a general rule, the ordinary principle of representative government, that no individual has a right to an evidentiary hearing before legislative action is taken, must yield to an equally fundamental principle—that an individual has a right to participate in government action that exceptionally affects him.
For these reasons, I dissent from the judgment of the majority and would remand to the Commission for an evidentiary hearing.
For affirmance—Justices SULLIVAN, CLIFFORD, SCHREIBER, HANDLER and POLLOCK—5.
For remandment—Justice PASHMAN—1.
Notes
The case here arguably involves the converse situation to that described inContested cases resolve questions relating to the rights, entitlements, and obligations of specific parties even in large, but defined, groups. They do not deal with broad policy issues affecting entire industries or large and undefined classes of people. In some instances an agency‘s matters may be contested cases (judicial) in part and uncontested cases (legislative or regulatory) in part. It is necessary in each such matter to determine whether the issues can be fruitfully separated or whether the needs of fairness, efficiency, and thoroughness require the issues to be handled in a single, integrated proceeding.