Dikeou v. Food Distributors Ass'n, 14547.

• Decision Date: 12 November 1940
• Docket Number: 14547.
• Parties: DIKEOU et al. v. FOOD DISTRIBUTORS ASS'N.
• Court: Colorado Supreme Court

108 P.2d 529

107 Colo. 38

DIKEOU et al. v. FOOD DISTRIBUTORS ASS'N.

No. 14547.

Supreme Court of Colorado, En Banc.

November 12, 1940

Rehearing Denied Dec. 23, 1940.

Error to District Court, City and County of Denver; Henry A. Hicks Judge.

Action by the Food Distributors Association against James Dikeou and another, copartners, doing business as Dikeou Brothers, to enjoin the sale of cigarettes below their cost with intent to injure competitors and destroy competition in violation of Laws 1937, p. 1280, § 1 et seq. To review a judgment for plaintiff, defendants bring error.

Affirmed.

BURKE J., dissenting.

E. V. Holland and Max Zall, both of Denver, for plaintiffs in error.

Quiat Ginsberg & Creamer, of Denver, for defendant in error.

OTTO BOCK, Justice.

The question here presented is whether plaintiffs in error, to whom we will herein refer as defendants, wholesalers in the tobacco business, sold cigarettes below their cost, with intent to injure competitors and destroy competition, in violation of chapter 261, page 1280, Session Laws of 1937 designated as the Unfair Practices Act. The trial court found that they did and accordingly entered a decree and judgment enjoining them from such further practices. Defendants, seeking reversal, have sued out a writ of error. The pertinent sections of the act here involved are as follows:

'Section 3. It shall be unlawful for any person, partnership, firm, corporation, joint stock company, or other association engaged in business within this State, to sell, offer for sale or advertise for sale any article or product, or service or output of a service trade for less than the cost thereof to such vendor, or give, offer to give or advertise the intent to give away any article or product, or service or output of a service trade for the purpose of injuring competitors and destroying competition and he or it shall also be guilty of a misdemeanor, and on conviction thereof shall be subject to the penalties set out in Section 11 of this act for any such act.

'(a) The term 'cost' as applied to production is hereby defined as including the cost of raw materials, labor and all overhead expenses of the producer; and as applied to distribution 'cost' shall mean the invoice or replacement cost, whichever is lower, of the article or product to the distributor and vendor plus the cost of doing business by said distributor and vendor.

'(b) The 'cost of doing business' or 'overhead expense' is defined as all costs of doing business incurred in the conduct of such business and must include without limitation the following items of expense: labor (including salaries of executives and officers), rent, interest on borrowed capital, depreciation, selling cost, maintenance of equipment, delivery costs, credit losses, all types of licenses, taxes, insurance and advertising. * * *

'Section 5. In any injunction proceeding or in the prosecution of any person as officer, director or agent, it shall be sufficient to allege and prove the unlawful intent of the person, firm or corporation for whom or which he acts. Where a particular trade or industry, of which the person, firm or corporation complained against is a member, has an established cost survey for the locality and vicinity in which the offense is committed, the said cost survey shall be deemed competent evidence to be used in proving the costs of the person, firm or corporation complained against within the provisions of this act. * * *

'Section 10. Any person, firm, private corporation or municipal or other public corporation, or trade association, may maintain in action to enjoin a continuance of any act or acts in violation of sections 1 to 7, inclusive, of this Act and, if injured thereby, for the recovery of damages. If, in such action, the court shall find that the defendant is violating or has violated any of the provisions of sections 1 to 7, inclusive, of this Act, it shall enjoin the defendant from a continuance thereof. It shall not be necessary that actual damages to the plaintiff be alleged or proved. * * *'

The constitutionality of the act is not challenged either in the briefs or assignments of error. Substantially similar acts have been held by four state supreme courts not to be in violation of federal and state due-process-of-law clauses. Wholesale Tobacco Dealers v. National Candy & Tobacco Co., 11 Cal.2d 634, 82 P.2d 3, 118 A.L.R. 486; Associated Merchants v. Ormesher, 107 Mont. 530, 86 P.2d 1031; Rust v. Griggs, 172 Tenn. 565, 113 S.W.2d 733; 86 U. of Pa.L.Rev. 780; State v. Langley, 53 Wyo. 332, 84 P.2d 767. It has been said that the true purpose of acts of this character was to eliminate destructive price competition and the economic effect of the sale of 'loss leaders.' It also has been argued that free competition may as easily be destroyed by the unfair practices of below-cost selling as by combinations in restraint of trade. Whether such arguments are sound or such legislation is wise or unwise, is solely a problem for the lawmakers. It is no necessary to cite the numerous authorities which have so held.

The first contention of counsel for defendants is that defendant in error, which we hereafter designate as plaintiff, lacks the legal capacity to institute and maintain this action, which may be brought under section 10, supra, by 'any person, firm, private corporation or municipal or other public corporation, or trade association.' Plaintiff is a nonprofit corporation organized under our laws, particularly chapter 41, section 174, '35 C.S.A., the pertinent part of which is as follows: 'Corporations, associations and societies (not for pecuniary profit) founded under this chapter, shall be bodies corporate and politic by the name stated in such certificate, and by that name they and their successors shall and may have succession, and shall be persons in law capable of suing and being sued; * * *.' This is sufficient authorization for the maintenance of this action, whether plaintiff be classed as a private corporation or an association. There is no merit to this contention.

There is no dispute concerning the price at which the cigarettes were sold by defendants, or the cost price to them as fixed by the manufacturer. The controversy arises primarily over the question of 'cost of doing business', within the meaning of the act. The term 'cost', as applied to distribution, is defined in the act as 'the invoice or replacement cost, whichever is lower, of the article or product to the distributor and vendor plus the cost of doing business by said distributor and vendor.' It is this plus item with which we here are largely concerned. The validity of sales of popular brands of cigarettes, such as Camels and Luckies, to the retail trade, under a cash-and-carry arrangement, at $1.12 per carton, is challenged. The invoice cost to defendants was $1.25 per carton, less a ten per cent trade discount, making the invoice price $1.125. If there was payment within ten days, there was a cash discount of two per cent, making the cost price per carton $1.1025. The same cash discount was enjoyed by all competitors. This item of cash discount was challenged by plaintiff as not permissible in figuring the cost of the article sold. The evidence shows that this item of cash discount in accounting practice is generally regarded as a financial management income, not a reduction of the cost of goods, but as a compensation for interest on borrowed money, interest on invested capital and to some extent, an offset against credit losses. Of course, if the two per cent discount is deducted from the cost it could not be treated as income. Defendants at the trial did not disclose their bookkeeping methods by presenting their books and showing therefrom how the two per cent cash discount was treated. All they did, for the purpose of the trial, was to introduce a survey covering the period from January 1 to February 10, 1939, which did not reflect their bookkeeping methods, and was admittedly in conflict therewith. Whether there are any merits to the contentions of the parties relative to this item, since this is a comparatively recent law and still in the experimental stage, out of an abundance of caution, we presume for the purposes of this case only, that the cash discount item should be credited to the cost price of the article, which in this event is $1.1025 per carton. Our next problem is to add to this item the 'cost of doing business', in order to determine the full cost, under which defendants were forbidden to sell. If the 'cost of doing business', plus the purchase price paid the manufacturer, is a fraction less than the sale price of $1.12 per carton, the sale would not be below cost. It is asserted by defendants that the 'cost of doing business' in their cash-and-carry department was 1.13 per cent. They add to this the cost of the article, $1.1025, which makes the total cost $1.1138, leaving a margin of profit of .0062. If this evidence deserves credence, defendants were not selling cigarettes below cost. The trial court found otherwise. Was this finding sustained by the evidence? We think it was. This evidence is predicated solely upon a survey made by a registered accountant, not by a certified public accountant, of the business of defendants for the period Before mentioned. The business is conducted on a fiscal period commencing June 1 and ending May 31. During the fiscal year, May 31, 1937, to May 31, 1938, this accountant made at least four financial statements for defendants, but none of them was placed in evidence at the trial. In these statements he did not break down the business into service and cash-and-carry departments. Neither the books of defendants nor the departments were separated in that way. At...