Bedford v. Gamble-Skogmo, Inc.

• Decision Date: 29 May 1939
• Docket Number: 14390.
• Citation: 91 P.2d 475,104 Colo. 424
• Parties: BEDFORD, State Treasurer, et al. v. GAMBLE-SKOGMO, Inc.
• Court: Colorado Supreme Court

91 P.2d 475

104 Colo. 424

BEDFORD, State Treasurer, et al. v. GAMBLE-SKOGMO, Inc.

No. 14390.

Supreme Court of Colorado, En Banc.

May 29, 1939

Error to District Court, City and County of Denver, Robert W Steele, Judge.

Action by Gamble-Skogmo, Incorporated, against Homer F. Bedford State Treasurer of the State of Colorado, and others, for a declaratory judgment with respect to liability of plaintiff for the payment of license fees for the operation of 'Gamble Agency Stores' for the years 1935, 1936 and 1937, wherein defendant filed an answer and cross-complaint seeking judgment for license fees alleged to have accrued during such years. Judgment for plaintiff and defendants bring error.

Reversed and cause remanded with directions.

Byron G. Rogers, Atty. Gen., Elmer P. Cogburn Asst. Atty. Gen., and James W. Creamer, pro se, of Denver, for plaintiffs in error.

Frankberg & Berghuis, of Fergus Falls, Minn., and Hughes & Dorsey and E. G. Knowles, all of Denver, for defendant in error.

KNOUS Justice.

The sole question for determination in this case is whether or not the defendant in error, Gamble-Skogmo, Inc., to which we shall refer as the company, is liable, under the provisions of chapter 216, p. 1090, Session Laws of 1935--an initiated measure adopted by vote of the people in the 1934 general election and commonly referred to as the 'Colorado Chain Store License Law'--for the payment of license fees for the operation of what are called 'Gamble Agency Stores', operated in Colorado for the years 1935, 1936 and 1937. This issue was raised in the district court by the company's complaint in an action seeking a declaratory judgment, to which the plaintiffs in error, for whom we will hereinafter substitute the term state, filed an answer and cross complaint seeking judgment for license fees alleged to have accrued during the said years. The trial court resolved the question in favor of the company and the state seeks a review of the judgment.

The company, a Delaware corporation with its principal office at Minneapolis, Minnesota, during the period here involved, was engaged in the business of selling merchandise such as automobile accessories, electrical appliances, tools, etc., and in this connection operated 230 retail stores in twenty northwestern states; five of these admittedly owned stores were operated in Colorado, were duly licensed under the Colorado law, and no controversy exists with reference to them. In addition to the operation of these five admittedly owned and controlled stores, designated as 'Gamble Stores,' the company sells merchandise to certain locally owned stores in Colorado under a uniform contract arrangement, inaugurated in 1933, by which these stores are given the right to use the name 'Gamble Store Agency.' There were nineteen such agency stores in Colorado during the year 1935; thirty-one during the year 1936, and thirty during the year 1937. The company asserts that these agency stores were wholly individually owned, controlled and operated by the local agency operators as a result of which, as to the company, there is no liability for the graduated license fees on multiple stores imposed by the act. It is the state's contention that the operation of the agency stores was 'ultimately controlled' and 'directed' by the company within the meaning of section 7 of the chain store law, supra, and that these agency stores really constituted a chain of stores under the statute. Section 5 of the act is as follows: 'Every person, firm, corporation, association or co-partnership opening, establishing, operating or maintaining one or more stores or mercantile establishments within this state, under the same general management, supervision or ownership, shall pay the license fees hereinafter described for the privilege of opening, establishing, operating or maintaining such stores or mercantile establishments.'

Section 7, upon which the state principally relies, is as follows: 'The provisions of this Act shall be construed to apply to every person, firm, corporation, association or co-partnership, either domestic or foreign, which is controlled or held with others by majority stock ownership or ultimately controlled or directed by one management or association of ultimate management.'

In 1931, in State Board of Tax Commissioners v. Jackson, 283 U.S. 527, 51 S.Ct. 540, 75 L.Ed. 1248, 73 A.L.R. 1464, 75 A.L.R. 1536, the Supreme Court of the United States, in declaring constitutional an Indiana chain store tax act (chapter 207, Acts 1929), determined that the chain store has many features and advantages which definitely distinguish it from the individual store dealing in the same commodities, and it held that these distinctions afforded a valid basis of classification for the imposition of the tax upon the operation of mercantile establishments graduated according to the number of stores operated. In 1933 this pronouncement was reiterated by that tribunal in Liggett Co. v. Lee, 288 U.S. 517, 53 S.Ct. 481, 77 L.Ed. 929, 85 A.L.R. 699, since which time there has been consistent adherence to the principle by the courts throughout the land.

The constitutionality of such legislation having so been unimpeachably established, the people of Colorado, in adopting the initiated measure here under consideration, proclaimed the public policy in this state on store taxation in 1934 and in 1938 reaffirmed this declaration by voting against its repeal. While the validity of the act is not challenged in this proceeding, the distinctions which constitutionally validated the classification between multiple and single-store operations must be considered of major importance in the construction and application of the act and we proceed on that premise.

By the uniform contract, under which the agency stores operate, the company agrees to sell to the agency operator at prices to be established from time to time by the company, such merchandise as the company regularly carries for sale in its own stores; to make adjustments for any merchandise so sold which in the opinion of the company was defective at the time of sale; to grant to the agency operator the right to paint his store with the distinguishing blue and orange colors used by the company on its 'Gamble Stores'; upon request of the operator, agrees to advise him relative to methods of merchandising, and, upon payment for the same by him, agrees to furnish circulars and other advertising of the same general character used by the company in its regular stores. By the contract the agency operator agrees that, unless otherwise authorized in writing, he will purchase merchandise from the company at one of its stores within the state--usually nearest the agency store--and pay for the goods cash on delivery, or if merchandise is shipped directly from the company's warehouse or other sources, the operator shall pay therefor in advance Before shipment, and that he will constantly exhibit the merchandise bought from the company in the agency store windows and display cases. The operator also agrees to exercise his best efforts to maintain and increase sales of the company's merchandise, and in this connection is given the right to use the name 'Gamble Store Agency' to advertise that the local store is selling merchandise purchased from the company. It is provided that in his business the operator shall not use the words 'Gamble Stores', nor shall he use any words, sign or symbol on or in his store, nor shall he do any act during the term of this contract which in any way shall designate such store as being owned, controlled, supervised, operated or maintained by the company, nor shall the operator have any authority to make any binding agreement on behalf of the company as agent or otherwise. The contract may be terminated by either party on thirty days' written notice to the other. Upon the termination of the contract the operator is required to remove all signs and marks distinguishing such store as a 'Gamble Agency Store', and if painted with the blue and orange colors above mentioned, the operator shall repaint the store so as to remove such distinguishing colors and marks as are used by the company agency stores, otherwise in the event of his failure to do so the company is given the right to effect the obliteration.

The contract next proclaims: '3(e): That the Retailer is an independent merchant who does and shall during the entire term of this contract, solely, own, control, manage, and supervise his own store.' Following which, in conclusion is this paragraph: '(f) In consideration of the agreement herein contained, the Retailer gives to the Wholesaler, upon the termination of this agreement by cancellation by either party or otherwise, an option to buy from the Retailer, within thirty days after such termination of the contract, all salable merchandise purchased from the Wholesaler at the Wholesaler's current wholesale selling prices of such products and/or also an option to purchase any or all of the fixtures in the Retailer's store at the current replacement cost thereof, less reasonable depreciation; and/or an option to take over the unexpired terms of any existing leases covering the store building in which the Retailer does business at the time of such termination. In case of exercising such last option, the Retailer agrees to sign over to the Wholesaler or to whomsoever it directs any such lease or leases.' The testimony, in which there is no serious conflict, discloses that the price paid by the agency store operators for merchandise is determined by the company's own retail...