DDS No. 11-2-4470

July 3, 2014 (Date Decided)

Judge Ashrafi

For Appellants: Justin Schwam (Weissman & Mintz LLC)

For Respondent State: Beth Leigh Mitchell, Assistant Attorney General (John J. Hoffman, Acting Attorney General) and Gibbons P.C. (Mitchell, Peter J. Torciocollo, Damian V. Santomauro and Kevin W. Weber on the brief).

FOR RESPONDENT NORTHSTAR: Gage Andretta (Wolff & Samson P.C.; Andretta and David M. Dugan on the brief)

The Communications Workers of America, AFL-CIO, and CWA Locals 1033 and 1037, which represent state employees, challenge the constitutionality of the state’s award of a long-term contract to Northstar New Jersey Lottery Group, LLC, a private company, to provide sales and marketing services and to manage other functions of the New Jersey State Lottery. The CWA contends that the contract violates N.J. Const. art. IV, section 7, para. 2(C), which authorizes “the conduct of State lotteries,” and N.J.S.A. 5:9-1 to -25, enacted to implement the establishment of a lottery “to be operated by the State.” It also argues that Northstar’s bid proposal did not conform to the bid specifications because it included an unauthorized management fee in addition to other compensation.

After finding that the CWA does have standing to protest the bid award, the appellate panel concludes that the award did not violate the constitution or the lottery statute.

Finding that the language of the constitutional provision and statute is ambiguous, the panel looks to extrinsic evidence of intent and finds that the New Jersey State Lottery Planning Commission clearly intended that there be flexibility in developing optimal means of operating the lottery through experiment and experience. The panel finds that while the lottery statute must be read to retain in the Lottery Commission and Director authority to determine policy and make major business decisions, it does not require that day-to-day functions must be done by state employees.

Noting that the services agreement with Northstar contains many provisions retaining control of the lottery’s operation with the Lottery Division and Director, the panel finds that the lottery remains a state operation, with certain functions and duties delegated to a private entity. Thus, it holds that the Northstar contract is not a violation of the constitutional amendment that authorized a state lottery or the lottery law.

As to the management fee, the panel notes that the Director of the Division of Purchase and Property viewed the fee as an operational expense of Northstar that was within the specifications of the FRP that would be accounted for in accordance with the terms of the services agreement, and further, that the DPP allowed the fee only after it was reduced and Northstar increased its net income target. The panel concludes that the DPP Director properly exercised her discretion in determining that Northstar’s bid proposal conformed to the bid specifications.