    OPFKE OF THE ATTORNEY GENEML   STATE OF TEXilS

    JOHN    CORNYN




                                            October 17,200O




The Honorable Rip Aver&t                             Opinion No. JC-0296
Chair, Financial Institutions Committee
Texas House of Representatives                       Re: Whether a manufacturer of bingo equipment
P.O. Box 2910                                        and a distributor ofbingo equipment may agree to
Austin, Texas 78768-2910                             the price at which the distributor will sell or lease
                                                     bingo equipment to a charity (RQ-023%JC)


Dear Representative   Averitt:

         You ask whether a manufacturer of bingo equipment and a distributor of bingo equipment
may agree to the price at which the distributor will sell or lease bingo equipment to a charity.
Although we do not opine on the legality of any particular contract, we conclude that an agreement
of this kind is prohibited by section 2001.556 of the Occupations Code.

         The Bingo Enabling Act, chapter 200 1 of the Occupations Code (the “Act”), closely regulates
the bingo industry, generally prohibiting the conduct of bingo games except by persons licensed
under the Act. See TEX. Oct. CODE ANN. 9 2001.551 (Vernon 2000). The Act provides that only
certain religious, charitable, and civic organizations may be licensed to conduct bingo. See id.
$5 2001.101-. 107 (subchapter C, license to conduct bingo). Licensed authorized organizations must
deposit hmds derived from the conduct ofbingo in a special account, and must disburse a percentage
of the receipts for charitable purposes on a quarterly basis. See id. $5 2001.45 l-.459 (subchapter J,
bingo accounts and use of proceeds). The Lottery Commission, which administers the Act, is
broadly authorized to “exercise strict control and close supervision over all bingo conducted in this
state so that bingo is fairly conducted and the proceeds derived from bingo are used for an authorized
purpose.” Id. 5 2001.05 1(b).

         The Act carefully regulates the relationship between manufacturers of bingo equipment,
distributors of bingo equipment, and persons licensed to conduct bingo. See id. $4 2001.002(2)
(defining “authorized organization”), (9) (defining “distributor”), (16) (defining “manufacturer”);
,101 (religious, fraternal, veterans and other charitable organizations eligible for license to conduct
bingo); see also id. 5 2001,551(b)(3), (4) (other persons authorized to conduct bingo).               A
manufacturer must be licensed and may not be a distributor, see id. $3 2001.201, .202(6), and a
distributor must be licensed and may not be a manufacturer, see id. 5s 2001.206, .207(6). Under
section 2001.407 of the Act, a licensed manufacturer may furnish, by sale or otherwise, bingo
The Honorable     Kip Averitt   - Page 2            (X-0296)




equipment or supplies only to a licensed distributor, with certain very limited exceptions. See id.
§ 2001.407(a) (prohibition), (d) (exception to prohibition providing that licensed organization
may lease or purchase certain equipment directly from a licensed manufacturer); see also id.
5 2001.257(b) (“A system service provider may purchase goods or services from a licensed
manufacturer.“).   Similarly, a licensed distributor may not furnish by sale, lease or otherwise, bingo
equipment or supplies to a person other than a licensed authorized organization, another licensed
distributor, or a person authorized to conduct bingo. See id. 5 2001.407(b). Finally, with certain
exceptions, a licensed authorized organization or a person authorized to conduct bingo may not
obtain by purchase or otherwise bingo equipment or supplies from a person other than a licensed
distributor. See id. 5 2001.407(e); see also id. 5 2001.407(f) (p ermitting occasional sale of certain
items between licensed authorized organizations).

       You ask about section 2001.556, which prohibits price fixing by manufacturers,       distributors,
and suppliers of bingo equipment, providing:

                       (a) A manufacturer, distributor, or supplier may not by express or
                  implied agreement with another manufacturer or distributor fix the
                  price at which bingo equipment or supplies used or intended to be
                  used in connection with bingo conducted under this chapter may be
                  sold.

                      (b) The price ofbingo supplies and equipment in the competitive
                  marketplace shall be established by the manufacturer, distributor, or
                  supplier and may not be established in concert with another
                  manufacturer, distributor, or supplier.

Id. 5 2001.556.

        You ask about section 2001.556 in relation to a particular contract, which you inform us
contains the following provision:

                  [Manufacturer] will establish customer pricing arrangements. No
                  credits, discounts. or any other promotional allowances shall be
                  allowedwithout [manufacturer’s] explicit approval. Distributor will
                  handle all customer collections.    Distributor will remit to [manu-
                  facturer] for all revenue due less commission due Distributor on a
                  weekly basis along with a cash receipt report. [Manufacturer] shall be
                  entitled to audit the books of Distributor on a reasonable basis and
                  upon reasonable notice to Distributor.       Any such audit shall be
                  limited to only such information as shall be specifically required to
The Honorable Rip Averitt        - Page 3               (JC-0296)




                 verify the gross receipts received         by Distributor    from customers
                 governed by this Agreement.’

This office does not review or construe specific contracts. See, e.g., Tex. Att’y Gen. Op. Nos.
JC-0032 (1999) at 4 (contract interpretation beyond purview of this office); DM-383 (1996) at 2
(interpretation of contract not appropriate function for opinion process); DM- 192 (1992) at 10 (“This
office, in the exercise of its authority to issue legal opinions, does not construe contracts.“); JM-697
(1987) at 6 (“review of contracts is not an appropriate function for the opinion process”). Therefore,
we answer your questions generally and do not express any opinion with respect to the contract
giving rise to your query.

         First, you ask whether “a manufacturer ofbingo equipment and a distributor ofbingo equip-
ment [may] agree, expressly or by implication, as to the price at which the distributor will sell
the bingo equipment to a charity?” Request Letter, note 1, at 2. We conclude that section
2001.556’s price-fixing prohibition applies to price fixing agreements between manufacturers and
distributors.

        When construing a statute, this office must give effect to the legislature’s intent. See TEX.
GOV’TCODEAIW.     $5 311.021, ,023 (Vernon    1998);MitchellEnergy    Corp. v.Ashworth, 943 S.W.2d
436,438 (Tex. 1997). To give effect to legislative intent, we construe a statute according to its plain
language. See RepublicBank Dallas, N.A. v. Interkal, Inc., 691 S.W.2d 605, 607-08 (Tex. 1985);
Bouldin Y. Bexar County Sheriffs CivilServ. Comm ‘n, 12 S.W.3d 527,529 (Tex. App.-San Antonio
1999, no pet.). We may also consider, among other things, the circumstances under which a statute
was enacted, former statutory provisions, including laws on the same or similar subjects, and the
consequences of a particular construction. See TEX. GOV’T CODE ANN. 5 3 11.023 (Vernon 1998).

         We believe it is clear from the plain language of section 2001.556 that it prohibits price
fixing agreements between manufacturers and distributors. Again, section 2001.556 provides that
“[a] manufacturer, distributor, or supplier may not by express or implied agreement with another
manufacturer or distributor fix the price at which bingo equipment or supplies used or intended to
be used in connection with bingo conducted under this chapter may be sold.” TEX. OCC. CODE ANN.
5 2001.556(a) (Vernon 2000) (emphasis added). In addition, subsection (b) of section 2001.556
states that “[tlhe price of bingo supplies and equipment in the competitive marketplace shall be
established by the manufacturer, distributor, or supplier and may not be established in concert with
another manufacturer, distributor, or supplier,” id. 5 2001.556(b) (emphasis added), reiterating that
each manufacturer, distributor, and supplier must act independently in establishing prices. This
reading of section 2001.556(b) is supported by the language of its statutory predecessor, section 13d
of former article 179d of the Revised Civil Statutes, which provided that:




         ‘Letter from Honorable Kip Averin, Texas State Representative, Chair, Financial Institutions Committee, to
Honorable John Comyn, Texas Attorney General at 2 (June 1, 2000) (on file with Opinion Committee) [hereinafter
Request Letter].
The Honorable Kip Averitt      - Page 4            (JC-0296)




                         A manufacturer, distributor, or supplier may not, by express
                or implied agreement with another manufacturer, distributor, or
                supplier, fix the price at which bingo equipment, devices, or supplies
                used or intended to be used in connection with any bingo game
                conducted under this Act may be sold. Theprice ofthese items in the
                competitive marketplace shall be established by the manufacturer,
                distributor, or supplier and may not be established directly or
                indirectly in concert with one another.

Act ofMay 25,1983,68th Leg., R.S., ch. 575, $I11,1983 Tex. Gen. Laws 3443,3464, repealedand
codifiedby ActofMay 13,1999,76thLeg.,R.S.,          ch. 388, $5 1,6,1999Tex. Gen. Laws 1431,2354,
2439 (emphasis added); see also TEX. GOV’T CODE ANN. 5 311.023(2), (3), (4) (Vernon 1998)
(authorizing court in construing statute to consider circumstances under which statute enacted,
legislative history, and former statutory provisions).

          Although its prohibition against “tix[ing] the price” of bingo equipment is reminiscent of
antitrust law, we do not believe that antitrust law should guide our construction of section 2001.556.
First, the language of section 2001.556 is not modeled on Texas antitrust law. Section 2001.556
prohibits all express and implied price fixing agreements, regardless of their effect, whereas the
state’s antitrust statute, chapter 15 of the Business and Commerce Code, the Texas Free Enterprise
and Antitrust Act of 1983, generally looks to the economic effect of an arrangement. Compare TEX.
OCCCODEANN. ~2001.556(Vemon2000),                with TEX.BUS.&COM.CODEANN. 5 15,05(a)(Vemon
Supp. 2000) (“Every contract, combination, or conspiracy in restraint of trade or commerce is
unlawful.“) (emphasis added), (h) (“In any lawsuit alleging a contract, combination, or conspiracy
to fix prices, evidence of uniform prices alone shall not be sufficient to establish a violation of
Subsection (a) of Section 15.05.“); DeSantis v. Wackenhut Corp., 793 S.W.2d 670,687 (Tex. 1990)
(under Business and Commerce Code section 15.05(a) “[s]ome restraints, because oftheir inherently
pernicious effect upon competition, are per se unreasonable, while others are not and must be
analyzed under the rule of reason”); see also TEX. BUS. & COM. CODE ANN. 5 15.05(c) (Vernon
Supp. 2000) (“It is unlawful for any person to sell, lease, or contract for the sale or lease of any
goods, whether patented or unpatented, for use, consumption, or resale or to fix a price for such use,
consumption, or resale or to discount from or rebate upon such price, on the condition, agreement,
or understanding that the purchaser or lessee shall not use or deal in the goods of a competitor or
competitors of the seller or lessor, where the effect of the condition, agreement, or understanding
may be to lessen competition substantially in any line of trade or commerce.“) (emphasis added),
(d) (“It is unlawful for any person to acquire, directly or indirectly, the whole or any part of the stock
or other share capital or the assets ofany otherperson or persons, where the effect ofsuch acquisition
may be to lessen competition substantially in any line of trade or commerce.“) (emphasis added).

         Second, the legislative history of section 2001.556 suggests it should not be construed as an
antitrust provision. Indeed, the difference in language between section 2001.556 and chapter 15 of
the Business and Commerce Code is especially significant because the state’s antitrust statute was
The Honorable         Kip Averitt   - Page 5              (X-0296)




substantially revised in 1983 by the Sixty-eighth Legislature,’ the same legislature that enacted the
statutory predecessor to section 2001 .556.3 Had that legislature intended section 2001.556 merely
to reflect antitrust concerns, we believe the language of section 2001.556 would be closer to the
language of the antitrust statute. Moreover, given that the Sixty-eighth Legislature was fully aware
of the existence and substance of antitrust law, we believe that the legislature must have intended
section 2001.556 to have ameaning separate and apart from antitrust law and did not intend section
2001.556 to be merely redundant of antitrust law. See TEX. GOV’T CODE ANN. $5 311.021(2)
(Vernon 1998) (“In enacting a statute, it is presumed that           the entire statute is intended to be
effective.    .“); .023(2), (5) (p roviding that court in construing statute may consider circumstances
under which statute was enacted and consequences of a particular construction).

          Third, section 2001.556 appears to have a different purpose than antitrust law. Although the
legislative history is silent with respect to the purpose of section 2001.556,4 it appears that this
provision is concerned less with free enterprise and competitive pricing than with strict regulation
of manufacturers and distributors of bingo equipment and their relationships with persons who
conduct bingo. Other provisions in the Bingo Enabling Act reflect this regulatory goal. See, e.g.,
TEX. Oct. CODE ANN. 5 2001.407 (Vernon 2000) (governing commercial relationships               between
manufacturers, distributors, and persons who conduct bingo); id. $8 2001.201-,218 (subchapter E,
licensing of manufacturers and distributors).     In this regard, section 2001.556 is unlike antitrust
provisions and very like section 102.75 of the Alcoholic Beverage Code, a provision in the Beer
Industry Fair Dealing Law, which prohibits a beer manufacturer from “Iix[ing] or maintain[ing] the
price at which a distributor may resell beer.” TEX. ALCO. BEV. CODE ANN. 3 102.75(3)           (Vernon
1995). The purpose of the Beer Industry Fair Dealing Law is not only to assure competitive prices,
but also to assure the independence of beer distributors and to regulate the contractual relationship
between manufacturers and their distributors.       See id. $ 102.72 (purpose of Beer Industry Fair
Dealing Law). Section 2001.556 appears animated by the same regulatory purpose. In addition,
section 2001.556 may also be intended to maximize the amount of bingo proceeds generated by


             2See Act of May 26, 1983, 68th Leg., RX, ch. 519, $ 1, 1983 Tex. Gen. Laws 3010 (enacting    Texas Free
Enterprise     and Antitrust Act of 1983 in chapter 15 of the Business and Commerce Code).

         ‘See Act of May 25, 1983, 68th Leg., R-S., ch. 575, 5 11, 1983 Tex. Gen. Laws 3443,3464     (enacting   article
179d, section 13d of the Revised Civil Statutes).

          ‘See, e.g., SENATE COMM. ON ECON. DEV., BILL ANALYSIS, Tex. S.B. 741, 68th Leg., R.S. (1983); HOUSE
COMM.ONWAYS&MEANS,BILLANALYSIS,T~X.               S.B. 741,6SthLeg.,     R.S. (May 19,1983); Hearings on Tex. S.B. 741
Before the Senate Comm. on Econ. Da, 68th Leg., R.S. (Apr. 5, 1983) (t a p e available from Texas State Library and
Archives); Hewings on Tex. S.B. 741 Before the House Subcomm. on Revenue, 68th Leg., R.S. (Apr. 13, 1983) (tape
available from House Audio Video Services); Hearings on Tex. S.B. 741 Before the House Comm. on Ways & Means,
68th Leg., R.S. (Apr. 20, 1983) (tape available from House Audio Video Services); Debate on Tex. S.B. 741 on the
Floor q-the Senate, 68th Leg., R.S. (Apr. 11, 1983) (t a p e available from Texas State Library and Archives); Debate
on Tex. S.B. 741 on the Flooroffhe   House, 68th Leg., R.S. (May 20, 1983) (t ap e available from House Audio Video
Services); FISCAL NOTE, Tex. S.B. 741, 68th Leg., R.S. (Mar. 28, 1983); see also HOUSE STUDY GROUP, SPECIAL
LEGISLATIVE REPORT No. 88, UPDATES OF SIGNIFICANT ACTS OF THE 67~~ LEGISLATURE, at 3 l-33 (Jan. 13, 1983)
(L~~~~-O~~~~~B~~~~,H.B.~);HOUSECOMM.ONINTERGOVERNMENTALAFFAIRS,BILLANALYSIS,T~~.H.B.~~~~,~~~~
Leg., R.S. (May 15, 1981) (1981 bingo enabling legislation that died in the House); HOUSE STUDY GROUP, SPECIAL
LEGISLATIVE REPORT No. 74, MAJOR ISSUES OF THE 67~~ LEOISLATURE, at 66.67 (July 27, 1981).
The Honorable    Rip Averitt   - Page 6            (JC-0296)




groups authorized to conduct bingo, some of which must be used for charitable purposes, by
ensuring the fair pricing of bingo equipment.      See, e.g., TEX. OCC. CODE ANN. 3 2001.051(b)
(Vernon 2000) (giving Texas Lottery Commission broad authority to “exercise strict control and
close supervision over all bingo conducted in this state so that bingo is fairly conducted and the
proceeds derived from bingo are used for an authorized purpose”); id. $5 2001.45 l-.459 (subchapter
.I, governing bingo accounts and use of proceeds).

         In sum, based on the plain language of section 2001.556, the language of its statutory
predecessor, its legislative history and apparent purpose, we conclude that section2001.556prohibits
price fixing agreements between manufacturers and distributors of bingo equipment. Accordingly,
in answer to your first question, we conclude that section 2001.556 prohibits a manufacturer and a
distributor from agreeing on the price that a distributor will charge for the sale ofbingo equipment.

         You also ask whether “a manufacturer of bingo equipment and a distributor of bingo
equipment [may] agree, expressly or by implication, that the distributor may not unilaterally
allow any discounts, credits or other promotional allowances to a charity in connection with the
purchase        of bingo equipment?’ Request Letter, supra note 1, at 3. A contract provision that
prohibits unilateral discounts, credits, and allowances ~ terms that affect the ultimate price paid by
the consumer - may have the same effect as an agreement to fix prices. In prohibiting implied as
well as express price fixing, we believe it is clear that the legislature intended to prohibit terms
that tix prices both directly and indirectly. See TEX.OCC. CODEANN. § 2001.556(a) (Vernon 2000)
(“A manufacturer, distributor, or supplier may not by express or implied agreement with another
manufacturer or distributor fix the price) (emphasis added); see also TEX. GOV’T CODE ANN.
§ 311.023(l), (5) (Vernon 1998) (“In construing a statute              a court may consider among
other matters the         object sought to be attained        [and the] consequences of a particular
construction        .“). Therefore, we conclude that the section 2001.556 prohibition extends to an
agreement between a manufacturer and a distributor preventing a distributor from offering without
the approval of the manufacturer price discounts, credits, or other promotional allowances, as each
ofthese arrangements affects the price paid by the purchaser ofbingo equipment. We also note that,
in requiring the manufacturer’s approval of discounts, credits, and allowances, such an agreement
may lead to discussions between the manufacturer and distributor that constitute price fixing.

         With respect to these questions, you also ask whether our answers would vary “if the bingo
equipment is leased, rather than sold?” Request Letter, supra note 1, at 3. Although subsection (a)
of section 2001.556 refers to the price at which bingo equipment “may be sold,” and could be
construed as limited to sales, subsection (b) of that provision states more broadly that “[tlhe price
of bingo supplies and equipment in the competitive marketplace shall be established by the
manufacturer,    distributor, or supplier and may not be established in concert with another
manufacturer, distributor, or supplier.” TEX.Oct. CODEANN. 5 2001.556(b) (Vernon 2000). Based
on the broad language of subsection (b), which is not limited to sales, we conclude that the section
2001.556 prohibition on price fixing applies to pricing of bingo equipment generally, and applies
to the pricing of leases as well as sales. See TEX. GOV’T CODEANN. 5 3 11.021(2), (3), (5) (Vernon
1998) (“In enacting a statute, it is presumed that:   (2) the entire statute is intended to be effective;
The Honorable    Rip Averitt     - Page 7            (JC-0296)




(3) a just and reasonable      result is intended;     (5) public interest is favored over any private
interest.“).

         Finally, you ask “[gliven the facts stated in this letter and Texas law, is the contract provision
cited above unenforceable?”      Request Letter, supra note 1, at 3. As a general rule, the courts of this
state will not enforce an illegal contract. See Plumlee v. Paddock, 832 S.W.2d 757, 759 (Tex.
App.-Fort Worth 1992, writ denied) (citing Lewis v. Davis, 199 S.W.2d 146,148-49 (Tex. 1947)).
As we have noted, however, this office does not review or construe particular contracts. Whether
a specific contract provision is unenforceable is an issue that must ultimately be resolved by a court.
The Honorable   Kip Averitt   - Page 8          (X-0296)




                                         SUMMARY

                        A contract provision between a manufacturer       of bingo
                equipment and a distributor ofbingo equipment agreeing to the price
                at which the distributor will sell or lease bingo equipment would
                violate section 2001.556 of the Occupations Code.




                                              Attorney General of Texas



ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVIN
Deputy Attorney General - General Counsel

SUSAN D. GUSKY
Chair, Opinion Committee

Mary R. Crouter
Assistant Attorney General - Opinion Committee
