Arkansas Tobacco Control Bd. v. Sitton

• Decision Date: 06 May 2004
• Docket Number: No. 03-414.,03-414.
• Citation: 166 S.W.3d 550
• Parties: ARKANSAS TOBACCO CONTROL BOARD v. Brenda SITTON.
• Court: Arkansas Supreme Court

Page 550

166 S.W.3d 550

ARKANSAS TOBACCO CONTROL BOARD v. Brenda SITTON.

No. 03-414.

Supreme Court of Arkansas.

May 6, 2004.

Mike Beebe, Att'y Gen., by: Arnold M. Jochums, Ass't Att'y Gen., Little Rock, for appellant.

Gill, Elrod, Ragon, Owen, & Sherman, P.A., by: John P.Gill, Little Rock, for appellee.

Lax, Vaughan, Fortson, McKenzie & Rowe, P.A., by: Grant E. Fortson, Little Rock, for amicus curiae.

JIM HANNAH, Justice.

The Arkansas Tobacco Control Board (ATCB) appeals a decision of the Pulaski County Circuit Court finding that in the absence of the ATCB adopting regulations defining the statutory terms "trade discounts" and "rebate," the Unfair Cigarette Sales Act (UCSA) prohibition against rebates is void for vagueness as applied in this case. We affirm the circuit court and hold that a person of ordinary intelligence is not on fair notice of whether payments to Dodge Stores (Dodge)¹ were permitted "trade discounts" or prohibited "rebates." Therefore, the UCSA is unconstitutional as applied in this case.

Facts

A retailer complained to the ATCB that Dodge was retailing cigarettes at a price below the price allowed by law. The alleged violation reported to the ATCB was the sale of two packs of Marlboro cigarettes for $5.18. According to the testimony of Charlie Davis, director of the ATCB, the retail price of the Marlboro cigarettes absent discounts to the retailer should have been $6.48. Davis stated that he visited the Dodge store in Hot Springs to investigate the allegation that cigarettes were being sold below the retail price allowed by law. Upon Davis's arrival, store manager John Flurry confirmed that the two packs of Marlboro cigarettes were being sold for $5.18 plus tax. When asked why the price was so low, Flurry contacted Dodge's accountant Diane Floyd, who informed Davis that Dodge received a $1.00 "rebate" from the manufacturer and a five cent "discount" from the wholesaler McLane.

Davis testified that Floyd's statement that Dodge received a "rebate" that caused him to refer the matter to Greg Sled of the ATCB for an investigation into whether Dodge was receiving prohibited "rebates."

At the time of these events, Dodge had a "Distribution Service Agreement" with McLane Company, Inc. Under the terms of the agreement, Dodge agreed to purchase products and services needed to run the stores, such as deli foods, candy, snacks, tobacco products, health and beauty aids, and so on. The agreement required payment for products and services within seven days of the statement date. Under the agreement, cigarettes were billed separately from other products and services. Exhibit "B" to the agreement set out billing on cigarettes and contains a table that shows the charges in each state. The price in Arkansas is set out as "FAIRTRADE" rather than a stated price. This is a reference by McLane to the fact that Arkansas has a fair-trade law on cigarettes and price is controlled by law.

According to the testimony of James Billingsley, accounting officer for Dodge in Arkansas, the retail price of cigarettes in Arkansas is the basic cost plus 6%. Billingsley testified that "basic cost" is calculated by taking the "invoice price less manufacturer trade discount less wholesaler trade discount...." According to Billingsley, "The state minimum price is calculated by invoice price less trade deduction plus 6%." Sled examined Dodge's pricing documents and testified that:

The Dodge Store document refers to Cigarette Allowance. On my summary I used the word rebate. I believe the payment was a rebate. It was a check paid back to Dodge Stores from McLane. If it had been an allowance it would have been taken off the invoice. But since it did not show up on the invoice and it was a totally separate transaction involving a check paid back, I consider it a rebate. Also, Ms. Floyd called it a rebate. Later she called it something else.

Sled also testified that "Evidence that the alleged rebates injured or impaired or destroyed competition is that a complaint came from a competitor."

After the hearing before the ATCB, the board concluded that payments by McLane to Dodge of $1.00 for each carton sold to Dodge constituted an illegal "rebate." The board ordered Dodge to pay a civil penalty of $225,000 based on $1000 for each violation and suspended Dodge's tobacco permits for thirty days. Dodge sought review in circuit court asserting that the UCSA as applied to Dodge was unconstitutional. The circuit court noted that neither "trade discount" nor "rebate" is defined in the UCSA, and that although the ATCB is free to define both terms, it has only chosen to define "rebate," which is broadly defined to include financial incentives, credit, inducements, allowances, compensation, "other benefit," or "Tying Agreements." The circuit court concluded that in the absence of the ATCB adoption of a definition of "trade discount," and based on the above noted facts, "a person of ordinary intelligence is not on fair notice of whether the payments to Plaintiffs were permitted `trade discounts' or prohibited `rebates.'" The circuit court held that this UCSA prohibition against "rebates" is void for vagueness as applied in this case. The State has appealed this decision of the circuit court.

Standard of Review

Where a party appeals a decision of an administrative agency, this court reviews the decision of the agency rather than the decision of the circuit court. H.T. Hackney, Co. v. Davis, 353 Ark. 797, 120 S.W.3d 79 (2003). However, the appeal in this case is from a decision of the circuit court declaring that the UCSA is unconstitutional as applied. The present case is therefore not an appeal from a decision of the ATCB.

The issue of the constitutionality of the statutes and regulations had to be raised before the board. Arkansas Contractors Licensing Bd. v. Pegasus Renovation, 347 Ark. 320, 64 S.W.3d 241 (2001). However, an administrative agency lacks the authority to decide the issue of the unconstitutionality of a statute. A.T. & T. v. Arkansas Pub. Serv. Comm'n., 344 Ark. 188, 40 S.W.3d 273 (2001). The ATCB rightly declined to decide the issue of constitutionality.

The issue of the constitutionality of the UCSA was raised before the ATCB and, thus, the issue was preserved for consideration by the circuit court. Pegasus Renovation, supra. The issue presented by this appeal is whether the circuit court erred in declaring the UCSA unconstitutional as applied. All statutes are presumed constitutional and we resolve all doubts in favor of constitutionality. Ester v. Nat'l. Home Ctrs., Inc., 335 Ark. 356, 981 S.W.2d 91 (1998). The party challenging a statute's constitutionality has the burden of proving that the act is unconstitutional. Id. Further, when considering the validity of a rule or regulation, this court gives the same presumption of validity it would give to a statute. McLane Co. v. Davis, 353 Ark. 539, 110 S.W.3d 251 (2003).

Void for Vagueness

The circuit court declared that "a person of ordinary intelligence is not on fair notice of whether the payments to Plaintiffs were permitted `trade discounts' or prohibited `rebates.'" A law is unconstitutionally vague under due process standards if it does not give a person of ordinary intelligence fair notice of what is prohibited. Night Clubs, Inc. v. Fort Smith Planning Comm'n, 336 Ark. 130, 984 S.W.2d 418 (1999); Craft v. City of Fort Smith, 335 Ark. 417, 984 S.W.2d 22 (1998). Similarly, a statute is void if it is so vague and standardless that it allows for arbitrary and discriminatory enforcement. Craft, supra.

A statute is constitutional if the language conveys sufficient warning when measured by common understanding and practice. Night Clubs, supra. However, a statute also must not be so vague and standardless that it leaves judges free to decide, without any legally fixed standards, what is prohibited and what is not on a case by case basis. Thompson v. Ark. Soc. Servs., 282 Ark. 369, 669 S.W.2d 878 (1984).

The ATCB first argues that the UCSA was not void on its face. Citing Linder v. Linder, 348 Ark. 322, 72 S.W.3d 841 (2002), the ATCB argues that the circuit court found that the UCSA was void on its face and argues that to uphold this finding, Dodge had to show "that under no circumstances can the statute be constitutionally applied." Dodge argues that the challenge is not that the UCSA is void on its face. Dodge's Petition for Review filed in the circuit court asserted that the definitions of trade discounts and rebates applied in this case were overly broad, vague and ambiguous, and in violation of the United States and Arkansas Constitutions. The circuit court considered not only the UCSA but also the ATCB's regulations and its application of the UCSA and the regulations. The challenge was thus that the statute and regulation were void as applied to Dodge.

Regarding constitutionality as applied, we stated in Ghegan v. Weiss, 338 Ark. 9, 991 S.W.2d 536 (1999):

In numerous cases, we have held that a litigant has standing to challenge the constitutionality of a statute if the law is unconstitutional as applied to that particular litigant. Morrison v. Jennings, 328 Ark. 278, 943 S.W.2d 559 (1997); Hamilton v. Hamilton, 317 Ark. 572, 879 S.W.2d 416 (1994); Medlock v. Fort Smith Serv. Fin. Corp., 304 Ark. 652, 803 S.W.2d 930 (1991). The general rule is that one must have suffered injury or belong to a class that is prejudiced in order to have standing to challenge the validity of a law. Morrison, supra; Medlock, supra. Stated differently, plaintiffs must show that the questioned act has a prejudicial impact on them. Tauber v. State, 324 Ark. 47, 919 S.W.2d 196 (1996); Garrigus v. State, 321 Ark. 222, 901 S.W.2d 12 (1995).

Ghegan, 338 Ark. at 14-15, 991 S.W.2d 536. The ATCB applied the terms of the statute and its regulations to Dodge in deciding that the funds received from McLane were prohibited rebates and assessed a $225,000 civil penalty. At issue is the...