                                              KEN PAXTON
                                         ATTORNEY GENERAL OF TEXAS




                                                 May 16, 2018



Mr. J ..Winston Krause                                    Opinion No. KP-0202
Chairman
Texas Lottery Commission                                  Re: Whether the rights that a grandfathered
Post Office Box 16630                                     bingo commercial lessor holds under a
Austin, Texas 78761-6630                                  commercial lessor license may be transferred to
                                                          another entity under the license transfer
                                                          provisions of the Bingo Enabling Act
                                                          (RQ-0199-KP)

Dear Chairman Krause:

        You ask about whether a grandfathered bingo commercial lessor licensee may transfer
certain rights under the Bingo Enabling Act ("Act"). 1

       As background, you tell us grandfathered licenses originated with the 1989 passage of
House Bill 2260. See Request Letter at 1. House Bill 2260 amended the Act to provide that newly-
licensed commercial lessors may directly lease to only one bingo conductor organization. See Act
of May 29, 1989, 71st Leg., R.S., ch. 238, § 8(n), 1989 Tex. Gen. Laws 1107, 1114. House Bill
2260 also provided that

                 a person who was licensed as a commercial lessor on June 10, 1989,
                 whose license has been kept in effect since that date, and who is
                 otherwise eligible for the license may renew the license as a
                 commercial lessor of bingo premises according to the terms of the
                 license as those terms existed on June 10, 1989.

Act of May 29, 1989, 71st Leg., R.S., ch. 238, § 8(0), 1989 Tex. Gen. Laws 1107, 1114. Under
House Bill 2260, a commercial lessor subject to this grandfathering provision could "renew the
license to provide for not more than the same number of licensed authorized organizations to
conduct bingo on the premises as was provided by the license on June 10, 1989," but the
Legislature removed this language in 1993. Act of May 29, 1989, 71st Leg., R.S., ch. 238, § 8(p),
1989 Tex. Gen. Laws 1107, 1114; amended by Act of May 6, 1993, 73d Leg., R.S., ch. 286, §§ 6,
26, 1993 Tex. Gen. Laws 1325, 1327, 1335; see ,Request l;etter at 2. You state that in 1995 the
Legislature amended the Act to limit the number of licensed authorized organizations that may

         1
         See Letter from Mr. J. Winston Krause, Chairman, Tex. Lottery Comm'n, to Honorable Ken Paxton, Tex.
Att'y Gen. at 1 (Dec. 7, 2017), https://texasattomeygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter").
Mr. J. Winston Krause - Page 2                    (KP-0202)



conduct bingo at any bingo premises to seven. Request Letter at 2; see Act of May 29, 1995, 74th
Leg., R.S., ch. 1057, § 7, 1995 Tex. Gen. Laws 5222, 5225; see also TEX. 0cc. CODE
§ 2001.402(c). You explain that as a result "a Grandfathered Lessor ... may lease directly to (and
collect up to $600 rent per bingo occasion from) up to seven licensed bingo conductor
organizations, in contrast to a non-grandfathered commercial lessor licensee who may lease
directly only to one such organization." Request Letter at 2 (footnotes omitted). You also inform
us that historically the Lottery Commission ("Commission"), through its Charitable Bingo
Operations Division,2 considered the grandfathered right to lease directly to seven organizations
transferrable to a new licensee. Id With this context, you ask five questions about the transfer of
a grandfathered commercial lessor license. See id. at 3.                    '

        Your first three questions inquire whether "the grandfathered rights (including the right to
lease directly to up to seven licensed bingo conductor organizations) transfer" in three instances:
(1) to an unaffiliated third-party licensee; (2) in the instance of an individual licensee, to a legal
entity wholly owned by the individual; (3) in the instance of a licensee that is a legal entity wholly-
owned by an individual, to a different legal entity wholly-owned by the same individual. See id.
Because a fundamental issue in each of these questions is the transferability of the grandfathered
license's rights, we address them together.

         The primary goal in construing statutes "is to ascertain and give effect to the Legislature's
intent" as expressed ~y the statute's language. See Cadena Comercial USA Corp. v. Tex. Alcoholic
Beverage Comm 'n, 518 S. W.3d 318, 325.c...26 (Tex. 2017) (quotation marks omitted). "Where text
is clear, [it] is determinative" of that intent. Colorado Cty. v. Staff, 510 S.W.3d 435, 444 (Tex.
2017) (quotation marks omitted). The Texas Supreme Court recognizes that "the words the
Legislature chooses should be the surest guide to legislative intent." Ojo v. Farmers Group, Inc.,
356 S.W.3d 421,436 (Tex. 2011) (quotation marks omitted).

       Occupations Code section 2001.152, titled "Eligibility," provides, in relevant part, that:

                (a) The commission may issue a commercial lessor license only to:



                    (2) a person who leases premises to a single licensed authorized
                    organization that subleases or will sublease the premises to one
                    or more other licensed authorized organizations for the conduct
                    of bingo; or

                    (3) a person who leases premises for the total control and
                    exclusive use of only one licensed authorized organization as
                    that organization's primary business office.




        2
          See TEX. 0cc. CODE § 2001.051 ("The commission shall execute its authority through a bingo division
established by the commission to administer [chapter 200 I].").
Mr. J. Winston Krause - Page 3                       (KP-0202)



                 (b) Notwithstanding Subsection (a), a person who was a licensed
                 commercial lessor on June 10, 1989, whose license has been in
                 effect continuously since that date, and who is otherwise eligible for
                 the license may renew the license.

TEX. 0cc. CODE § 2001.152. 3 By its plain terms, subsection 200 l.152(b) permits a licensed
commercial lessor to renew the license if certain requisites are met. The "[n]otwithstanding
[s]ubsection (a)" language exempts the licensed commercial lessor from the requirements of
subsection 2001.152(a), including subsections (a)(2) and (a)(3). See id No language in section
2001.152 applies to the transfer of a license. To the extent this provision is a grandfathering
provision, it affects only a commercial lessor license holder's ability to renew the license.

        Section 2001.160 authorizes the transfer of a commercial lessor license. See id.
§ 2001.160. It provides that"[o]n approval by the commission, a licensed commercial lessor may
transfer a commercial lessor license if the person to whom the license will be transferred otherwise
meets the requirements of this subchapter." Id. § 2001.160(a). Unlike subsection 2001.152(b),
which expressly exempts the commercial lessor license holder as of a specific date from the single
lease requirement, subsection 2001.160(a) requires the transferee to meet all requirements of
subchapter D. Id. One such requirement is the limit on a commercial lessor license holder to
directly lease to only one licensed authorized organization. See id. § 2001.152(a)(2), (3). Thus, a
person to whom a commercial lessor license is transferred may lease to only one licensed
authorized organization, even if the license transferred was renewed under subsection 200 l .152(b).
Accordingly, the Act's current language allowing the transfer of a commercial lessor license does
not include the right to lease to more than one licensed authorized organization.

        The Legislature's 2011 changes to subsection 2001.160 bolster this conclusion. Prior to
2011, subsection 2001.160 required the transferee to "meet[] the requirements of this section." Act
of May 10, 1999, 76th Leg., R.S., ch. 388, § 1, 1999 Tex. Gen. Laws 1431, 2333 (emphasis added).
In 2011, the Legislature amended subsection 2001.160(a) to require the transferee to "meet[] the
requirements of this subchapter." Act of May 25, 2011, 82d Leg., R.S., ch. 1023, § 2, 2011 Tex.
Gen. Laws 2601, 2601 (emphasis added). With this change, the Legislature evidenced its intent to
subject the license transferee to all requirements governing a commercial lessor license, including
the lease limitations in subsection 2001.152(a). For these reasons, a court would likely conclude,
irrespective of the type of entity receiving the transfer, that a transfer of a commercial lessor license
does not transfer the grandfathered right to lease to more than one licensed authorized organization.

       In your fourth question, you ask about the effect on past license transfers approved by the
Commission if the grandfathered rights under a commercial lessor license cannot be transferred
with the license. See Request Letter at 3. You provide no information about the Commission's
procedure for approving a license transfer. Thus, as this office did in Attorney General Opinion
GA-0505, we assume that the approval of a transfer that purports to include grandfathered rights
         3
          An "authorized commercial lessor" is "a person eligible for a commercial license to lease bingo premises
under Subchapter D." TEX. 0cc. CODE § 2001.002(1 ). A "licensed authorized organization" means "an authorized
organization that holds a license to conduct bingo." Id. § 2001.002(14). A "licensed commercial lessor" is "a person
licensed to lease premises and act as a commercial lessor." Id. § 2001.002(15). A "person" includes "an individual,
partnership, corporation, or other group." Id. § 2001.002(20).
Mr. J. Winston Krause - Page 4                       (KP-0202)



"is embodied in a Commission order." Tex. Att'y Gen. Op. No. GA-0505 (2007) at 5-6. Likewise,
absent more information, we consider only the broad principles relevant to this question.

         Chapter 2001 of the Occupations Code provides only limited authority to the Commission
to reexamine a license after issuance. See id. at 6. Because the Commission is expressly authorized
to suspend, amend, or revoke a license, and because no provision in chapter 2001 gives the
Commission general authority to reopen a final order granting a license transfer, the Commission
does not have such authority. Id. (citing Denton Cty. Elec. Coop. v. Pub. Util. Comm 'n of Tex.,
818 S.W.2d 490, 492 (Tex. App.-Texarkana 1991, writ denied) (holding that when a statute
authorizes an agency to amend or revoke a certificate and prescribes the method for doing so, other
powers to reexamine prior orders may not be implied)). Moreover, "an agency's reinterpretation
of a statute ... is not the kind of changed circumstances that warrants reopening an administratively
final order." Id.; see Young Trucking, Inc. v. R.R. Comm'n of Tex., 781 S.W.2d 719, 721 (Tex.
App.-Austin 1989, no writ) ("An agency can reconsider a final order only if provided for by
statute or on a showing of changed circumstances."). Further, a collateral attack may void an
agency order only if the agency exceeded its authority or the order was procured by extrinsic fraud.
See Chocolate Bayou Water Co. & Sand Supply v. Tex. Nat. Res. Conservation Comm 'n, 124
S.W.3d 844, 853 (Tex. App.-Austin 2003, pet. denied); Lesikar v. Rappeport, 33 S.W.3d 282,
316 (Tex. App.-Texarkana 2000, pet. denied). Absent changed circumstances or a finding of
extrinsic fraud or that the Commission abused its authority, a court would likely not disturb
previous Commission orders.

        As your fifth question, you ask whether the Commission may "change the ... historical
practice to conform to the pertinent [Act] provisions without conducting an administrative
rulemaking proceeding and adopting a rule describing the changed practice."4 Request Letter at
3. Under the Administrative Procedure Act, a rule is a "state agency statement of general
applicability that: (i) implements, interprets, or prescribes law or policy; or (ii) describes the
procedure or practice requirements of a state agency." TEX. Gov'T CODE § 2001.003(6)(A). A
rule does not include a "statement regarding only the internal management or organization of a
state agency and not affecting private rights or procedures." Id. § 2001.003(6)(C); see El Paso
Hosp. Dist. v. Tex. Health & Human Servs. Comm 'n, 247 S.W.3d 709, 715 (Tex. 2008) ("A
presumption favors adopting rules of general applicability through the formal rule-making
procedures the APA sets out."). A rule promulgated outside of the proper rule-making procedure
is voidable. See TEX. Gov'T CODE§ 2001.035(a).

        Within the definition of a rule, "general applicability" means "statements that affect the
interest of the public at large such that they cannot be given the effect oflaw without public input."
El Paso Hosp. Dist., 247 S.W.3d at 714 (quoting R.R. Comm 'n of Tex. v. WBD Oil & Gas Co., 104
S.W.3d 69, 79 (Tex. 2003)). Texas courts acknowledge the "elusive" distinction between a rule
and an agency statement that concerns only internal management. See Tex. State Bd. ofPharmacy
v. Witcher, 447 S.W.3d 520, 529 (Tex. App.-Austin 2014, pet. denied); Slay v. Tex. Comm 'non
Envtl. Quality, 351 S.W.3d 532, 546 (Tex. App.-Austin 2011, pet denied). Nonetheless, the
opinions offer some guiding principles. Agency statements that "have no legal effect on private
persons" are not considered rules. Brinkley v. Tex. Lottery Comm 'n, 986 S.W.2d 764, 770 (Tex.

        4
            "The commission may adopt rules to enforce and administer [chapter 2001]." Id.§ 2001.054.
Mr. J. Winston Krause - Page 5                       (KP-0202)



App.-Austin 1999, no pet.); cf R.R. Comm'n of Tex., 104 S.W.3d at 79 (holding, in the
adjudication context, that "statements made in determining individual's rights, even if the number
of individuals is large and they can be described as falling within a defined class" are not statements
of general applicability). Conversely stated, "agency pronouncements that advise third parties
regarding applicable legal requirements ... may be 'interpretations' of law that constitute 'rules'
under the [Administrative Procedure Act]." Tex. Dep r of Transp. v. Sunset Transp., Inc., 357
S.W.3d 691, 703 (Tex. App.-Austin 2011, no pet.). Further, "[a]n agency statement interpreting
law must bind the agency or otherwise represent its authoritative position in matters that impact
personal rights." Id. Yet, a "mere restatement of a formally promulgated rule" is not a rule. Id. at
703-04.

        The Commission's change in practice to no longer include grandfathered rights with a
commercial lessor license transfer is, considering the above principles, more akin to a rule than
not. It is an interpretation of law in that it· construes the interplay between Occupations Code
sections 2001.152 and 2001.162. Also, such a change is a statement of general applicability. It
will affect private persons by impacting the ability of commercial lessor licensees to transfer their
property. Moreover, the change is not a statement or pronouncement made in connection with just
a single individual license transfer. Instead, the change operates to advise third parties, such as
commercial lessor licensees as well as licensed authorized organizations, about legal requirements
regarding future transfers of commercial lessor licenses. Based on these characteristics, and given
the presumption in favor of a rule, a court could consider a change in the Commission's practice
to be a "rule" for which the Administrative Procedure Act requires formal rule-making
procedures. 5




          5
           The Commission's formal adoption of a rule would not ensure judicial deference to the Commission's
interpretation. See Tex. Att'y Gen. Op. No. KP-0115 (20 I 6) at 5, 7 (recognizing that Texas courts may state that
deference "to an agency's construction is appropriate only when the statutory language is ambiguous," but, in their
analysis, would instead "[use the] canons of statutory construction to determine for themselves the unambiguous
meaning of a statute").
Mr. J. Winston Krause - Page 6               (KP-0202)



                                       SUMMARY

                       A court would likely conclude that the language of the Bingo
               Enabling Act does not authorize the transfer of a commercial lessor
               license that includes a grandfathered right to lease to more than one
               licensed authorized organization.

                       Absent changed circumstances or a finding of extrinsic fraud
               or that the Lottery Commission abused its authority, a court would
               likely not disturb previous Lottery Commission orders transferring
               a commercial lessor license that included the right to lease to more
               than one licensed authorized organization.

                      A court would likely consider a change in the Lottery
               Commission's historical practice to be a "rule" within the
               Administrative Procedure Act requiring formal rule-making
               procedures.

                                             Very truly yours,




                                             KEN PAXTON
                                             Attorney General of Texas



JEFFREY C. MATEER
First Assistant Attorney General

BRANTLEY STARR
Deputy First Assistant Attorney General

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

CHARLOTTE M. HARPER
Assistant Attorney General, Opinion Committee
