Okla. Indep. Petroleum Ass'n v. Potts

414 P.3d 351

OKLAHOMA INDEPENDENT PETROLEUM ASSOCIATION, S. Kim Hatfield, and Luke Essman, Petitioners,

v.Ray H. POTTS, Michael O. Thompson, and Mary Lynn Peacher, Respondents.

No. 116,679

Supreme Court of Oklahoma.

FILED March 19, 2018

Amended: March 21, 2018

Robert G. McCampbell, Adam C. Doverspike, and Jake M. Krattiger, GableGotwals, Oklahoma City, Oklahoma, for Petitioners.

Anthony J. Ferate, Edmond, Oklahoma, for Petitioner Oklahoma Independent Petroleum Association.

Joel L. Wohlgemuth, Ryan A. Ray, Alix R. Newman, Norman Wohlgemuth Chandler Jeter Barnett & Ray, P.C., Tulsa, Oklahoma, for Respondents.

COMBS, C.J.

¶ 1 On December 20, 2017, Respondents Michael O. Thompson, Ray H. Potts, and Mary Lynn Peacher (collectively, Proponents) filed Initiative Petition No. 416, State Question No. 795 (IP 416) with the Oklahoma Secretary of State. IP 416 would create a new Article XIII–C in the Oklahoma Constitution. IP 416 contains 8 sections, which Proponents assert will levy a new 5% gross production tax on oil and gas production from certain wells, and provide for the deposit of the proceeds primarily in a new fund entitled the "Oklahoma Quality Instruction Fund" (the Fund). Monies from the Fund will be distributed: 1) 90% to common school districts of the State of Oklahoma to increase compensation and benefits for certified personnel, and the hiring, recruitment and retention thereof; and 2) 10% to the State Department of Education to promote school readiness, and to support compensation for instructors and other instructional expenses in "high-quality early learning centers" for at-risk children prior to entry into the common education system.

¶ 2 Section 1 of IP 416 creates the Fund. Section 2 creates the Oklahoma Quality Instruction Reserve Fund to ensure the Fund always has sufficient resources, and provides mechanisms for the transfer of monies. Section 3 levies a 5% tax on the gross value of the production of oil, gas, or oil and gas from all oil and gas wells spudded after July 1, 2015, during the first thirty-six months of production, commencing with the month of first production, from and after the effective date of the article. Section 4 provides for a $4,000 increase in compensation for certified personnel, including teachers, but excluding superintendents and assistant superintendents. Section 5 provides for the distribution of funds according to the percentage scheme noted in the previous paragraph above. Section 6 attempts to ensure that the new funds will be used to supplement existing funding rather than supplant it, and grants the Board of Equalization the power to specify the amount that was supplanted or replaced, preventing the Legislature from making appropriations until it makes an appropriation to replace the supplanted amount. Sections 7 and 8 provide an effective date and severability provision, respectively.

¶ 3 On January 10, 2018, Petitioners Oklahoma Independent Petroleum Association, S. Kim Hatfield, and Luke Essman (collectively, Protestants), timely filed an Application to Assume Original Jurisdiction in this Court protesting the sufficiency of IP 416 and the basis that it fails to pass constitutional muster.

I.STANDARD OF REVIEW

¶ 4 "The first power reserved by the people is the initiative...." Okla. Const. art. 5, § 2 ; In re Initiative Petition No. 409, State Question No. 785 , 2016 OK 51, ¶ 2, 376 P.3d 250 ; In re Initiative Petition No. 403, State Question No. 779 , 2016 OK 1, ¶ 3, 367 P.3d 472. With that reservation comes "the power to propose laws and amendments to the Constitution and to enact or reject the same at the polls independent of the Legislature, and also reserve power at their own option to approve or reject at the polls any act of the Legislature." Okla. Cost. art. 5, § 1; In re Initiative Petition No. 409 , 2016 OK 51 at ¶ 2, 376 P.3d 250 ; In re Initiative Petition No. 403 , 2016 OK 1 at ¶ 3, 367 P.3d 472. "The right of the initiative is precious, and it is one which this Court is zealous to preserve to the fullest measure of the spirit and the letter of the law." In re Initiative Petition No. 382, State Question No. 729 , 2006 OK 45, ¶ 3, 142 P.3d 400. See In re Initiative Petition No. 349, State Question No. 642 , 1992 OK 122, ¶ 35, 838 P.2d 1.

¶ 5 However, while the fundamental and precious right of initiative petition is zealously protected by this Court, it is not absolute. Any citizen can protest the sufficiency and legality of an initiative petition. In re Initiative Petition No. 409 , 2016 OK 51 at ¶ 2, 376 P.3d 250 ; In re Initiative Petition No. 384, State Question No. 731 , 2007 OK 48, ¶ 2, 164 P.3d 125. "Upon such protest, this Court must review the petition to ensure that it complies with the ‘parameters of the rights and restrictions [as] established by the Oklahoma Constitution, legislative enactments and this Court's jurisprudence.’ " In re Initiative Petition No. 384 , 2007 OK 48 at ¶ 2, 164 P.3d 125 (quoting In re Initiative Petition No. 379, State Question No. 726 , 2006 OK 89, ¶ 16, 155 P.3d 32 ).

¶ 6 This Court has generally refused to declare a ballot initiative invalid in advance of a vote of the people except where there is a clear or manifest showing of unconstitutionality. In re Initiative Petition No. 403 , 2016 OK 1 at ¶ 3, 367 P.3d 472 ; In re Initiative Petition No. 358, State Question No. 658 , 1994 OK 27, ¶ 7, 870 P.2d 782. We have repeatedly emphasized both how vital the right of initiative is to the people of Oklahoma, as well as the degree to which we must protect it:

"Because the right of the initiative is so precious, all doubt as to the construction of pertinent provisions is resolved in favor of the initiative. The initiative power should not be crippled, avoided, or denied by technical construction by the courts. "

In re Initiative Petition No. 403 , 2016 OK 1 at ¶ 3, 367 P.3d 472 (quoting In re Initiative Petition No. 382 , 2006 OK 45 at ¶ 3, 142 P.3d 400 ).

Accordingly, Opponents in this matter bear the burden of demonstrating the proposed initiative petition is clearly and manifestly unconstitutional. In re Initiative Petition No. 403 , 2016 OK 1 at ¶ 3, 367 P.3d 472 ; In re Initiative Petition No. 362, State Question No. 669 , 1995 OK 77, ¶ 12, 899 P.2d 1145.

II.ANALYSIS

¶ 7 Opponents in this matter allege IP 416 is insufficient and must not be submitted to the voters as it stands because it is unconstitutional. Opponents challenge the constitutionality of IP 416 on two grounds: 1) Section 3 of IP 416 creates a retroactive tax in violation of U.S. Const. amend. V ; and 2) IP 416 violates the single-subject requirements of Okla. Const. art. 24, § 1.

A. The new article proposed by IP 416 does not create a retroactive tax in violation of U.S. Const. amend. V.

¶ 8 Opponents assert that IP 416 is unconstitutional because, due to a potential drafting error, the new proposed article creates a retroactive tax in violation of U.S. Const. amend. V.¹ The alleged issue is the language of section 3, which provides in pertinent part:

There is hereby levied a Gross Production Tax of five percent (5%) on the gross value of the production of oil, gas or oil and gas from all oil and gas wells spudded after July 1, 2015, during the first thirty-six (36) months of production, commencing with the month of first production, from and after the effective date of this Article XIII . (Emphasis added).

¶ 9 Opponents allege that because the last sentence of the above-quoted portion of IP 416 specifies "this Article XIII" and not "this Article XIII–C," the tax provision is effective from the effective date of Article XIII and not the new Article XIII–C, creating a retroactive tax because Article XIII has been in effect in various forms for decades. Under Opponents interpretation, the new Article would levy a new five percent tax on the gross value of the production of oil, gas, or oil and gas from all oil and gas wells spudded after July 1, 2015, for the first thirty-six months of production, applicable all the way back to July 1, 2015, itself.²

¶ 10 Because of this problem, Opponents argue IP 416 will levy a retroactive tax in violation of U.S. Const. amend. V, as interpreted by the Supreme Court of the United States. In U.S. v. Carlton , 512 U.S. 26, 30–31, 114 S.Ct. 2018, 129 L.Ed.2d 22 (1994), the Court stated that any retroactive tax legislation must: 1) be supported by a legitimate legislative purpose furthered by rational means; and 2) the period of retroactivity must be modest, lest it run afoul of U.S. Const. amend. V. The Carlton Court upheld as constitutional a piece of retroactive tax legislation that it viewed as curative, and therefore reasonable, with a moderate period of retroactivity:

We conclude that the 1987 amendment's retroactive application meets the requirements of due process. First, Congress' purpose in enacting the amendment was neither illegitimate nor arbitrary. Congress acted to correct what it reasonably viewed as a mistake in the original 1986 provision that would have created a significant and unanticipated revenue loss. There is no plausible contention that Congress acted with an improper motive, as by targeting estate representatives such as Carlton after deliberately inducing them to engage in ESOP transactions. Congress, of course, might have chosen to make up the unanticipated revenue loss through general prospective taxation, but that choice would have burdened equally "innocent" taxpayers. Instead, it decided to prevent the loss by denying the deduction to those who had made purely tax-motivated stock transfers. We cannot say that its decision was unreasonable.

512 U.S. at 32, 114 S.Ct. 2018.³

¶ 11 Opponents admit that the reference to Article XIII rather than Article XIII–C may be a typographical error, but argue this Court lacks the authority to redraft a petition in the same way it is allowed to redraft a ballot title per 34 O.S. Supp. 2015 § 10.⁴ Opponents argue the only remedy is to declare IP 416 insufficient...