Hartsock-Flesher Candy Co. v. Wheeling Wholesale Grocery Co.

Decision Date14 December 1984
Docket NumberNo. CC939,HARTSOCK-FLESHER,CC939
Citation328 S.E.2d 144,174 W.Va. 538
CourtWest Virginia Supreme Court
Parties, 1984-2 Trade Cases P 66,321 CANDY CO., etc., et al. v. WHEELING WHOLESALE GROCERY CO., etc., et al.

Jones, Williams, West & Jones and Jerald E. Jones, Clarksburg, for plaintiffs.

Phillips, Gardill, Hazlett & Kaiser and Charles J. Kaiser, Jr., Wheeling, for defendants.

Chauncey H. Browning, Jr., Atty. Gen., Donald L. Darling, and Walt Auvil, Asst. Attys. Gen., Charleston, for amicus curiae.

Syllabus by the Court

1. Syllabus Point 2 of State v. Wender, 149 W.Va. 413, 141 S.E.2d 359 (1965), which suggests that our former Cigarette Sales Act, W.Va.Code, 47-13-1 through -15, as well as other sales-below-cost statutes, was a price-fixing statute is disapproved. Furthermore, the language in the text of Wender which indicates that because a commodity is not "affected with the public interest," the legislature may not constitutionally regulate that commodity in this State is also disapproved.

2. The Unfair Practices Act, W.Va.Code, 47-11A-1 through -14, is a rational means of achieving the legitimate legislative goal of promoting healthy competition in this State by penalizing retailers and wholesalers that sell goods below cost in an attempt to destroy competition and does not violate substantive due process concepts of Article III, Section 10 of the West Virginia Constitution.

3. It is appropriate under the Due Process Clause vagueness doctrine to apply a less restrictive test to statutes or ordinances involving economic matters in which criminal penalties are not at issue.

4. "Where economic rights are concerned, we look to see whether the classification is a rational one based on social, economic, historic or geographic factors, whether it bears a reasonable relationship to a proper governmental purpose, and whether all persons within the class are treated equally. Where such classification is rational and bears the requisite reasonable relationship, the statute does not violate Section 39 of Article VI of the West Virginia Constitution." Syllabus Point 7, Atchinson v. Erwin, W.Va., 302 S.E.2d 78 (1983).

5. The Unfair Practices Act, W.Va.Code, 47-11A-1 through -14, does not violate the antitrust provisions of the Sherman Act, 15 U.S.C. § 1, since both acts prohibit sales below cost for the purpose of injuring or destroying competition.

MILLER, Justice:

Four certified questions have been presented, pursuant to W.Va.Code, 58-5-2, relating to the constitutionality of our Unfair Practices Act, W.Va.Code, 47-11A-1 through -14. This case arises from a complaint filed in the Circuit Court of Harrison County by the Hartsock-Flesher Candy Company and others against the Wheeling Wholesale Grocery Company. 1 All of the parties involved are competing wholesalers in northern West Virginia. In its complaint, Hartsock-Flesher alleged that Wheeling Wholesale was selling cigarettes below cost, in violation of W.Va.Code, 47-11A-2, and requested an injunction and treble damages, pursuant to W.Va.Code, 47-11A-9.

Wheeling Wholesale moved to dismiss the complaint, claiming that the Unfair Practices Act was unconstitutional, but this motion was denied by the trial judge. Subsequently, the following four certified questions were presented to the Circuit Court of Harrison County:

(1) Is the Unfair Practices Act unconstitutional under the substantive due process standard established in Article III, Section 10 of the West Virginia Constitution? (2) Is the Unfair Practices Act unconstitutionally vague under Article III, Section 10 of the West Virginia Constitution and the Fourteenth Amendment to the United States Constitution? (3) Is the Unfair Practices Act special legislation in violation of Article VI, Section 39 of the West Virginia Constitution? (4) Is the Unfair Practices Act violative of the Sherman Act (15 U.S.C. § 1)?

The trial judge answered all four questions in the negative, from which ruling Wheeling Wholesale now appeals.

The Unfair Practices Act was adopted in 1939. The legislature's main reason for adopting the Unfair Practices Act is summarized in W.Va.Code, 47-11A-1, which reads, in part: "The sale of goods at less than the cost thereof results in economic maladjustments and tends toward the creation of monopolies, thereby destroying fair and healthy competition and tending toward bankruptcy among merchants who maintain a fair price policy, and is, therefore, an unfair trade practice." W.Va. Code, 47-11A-2, states that it is unlawful for a retailer or wholesaler to sell any product below the cost to the vendor "for the purposes of unfairly diverting trade from or otherwise injuring one or more competitors, and destroying competition." 2 Violations of the Act are punishable through civil and criminal sanctions. W.Va.Code, 47-11A-9 and -11. Since the action brought against Wheeling Wholesale is civil in nature, we will not address the criminal provisions in the Act.

Sales-below-cost statutes have been enacted in a majority of states. 3 Some of these statutes prohibit the sale of all goods and services below cost while others are limited to specific products, such as cigarettes or milk. See 1A R. Callman, The Law of Unfair Competition Trademarks and Monopolies § 7.02 (4th ed. 1981) for a discussion and compilation of these statutes. 4 Most jurisdictions have upheld sales-below-cost statutes as valid constitutional exercises of a state's police power. 5 See generally 1A R. Callman, supra, §§ 7.07 through .23; Annot., 128 A.L.R. 1126 (1940); Annot., 118 A.L.R. 506 (1939). With this brief background discussion, we now turn to the specific issues raised in this case.

I. SUBSTANTIVE DUE PROCESS

Wheeling Wholesale contends that our Unfair Practices Act should be declared unconstitutional as violative of substantive due process under Article III, Section 10 of the West Virginia Constitution, which provides: "No person shall be deprived of life, liberty, or property, without due process of law, and the judgment of his peers." We have recognized in several cases that this provision does include a substantive due process standard. Although this constitutional provision was not mentioned in Syllabus Point 1 of State v. Wender, 149 W.Va. 413, 141 S.E.2d 359 (1965), it was mentioned in the text and its principles summarized in Syllabus Point 1:

"The legislature is vested with a wide discretion in determining what the public interest requires, the wisdom of which may not be inquired into by the courts; however, to satisfy the requirements of due process of law, legislative acts must bear a reasonable relationship to a proper legislative purpose and be neither arbitrary nor discriminatory."

See also DeCoals, Inc. v. Board of Zoning Appeals, W.Va., 284 S.E.2d 856 (1981); Thorne v. Roush, W.Va., 261 S.E.2d 72 (1979); O'Neil v. City of Parkersburg, 160 W.Va. 694, 237 S.E.2d 504 (1977); State ex rel. Harris v. Calendine, 160 W.Va. 172, 233 S.E.2d 318 (1977).

In Wender, our Cigarette Sales Act, W.Va.Code, 47-13-1 through -15, 6 was challenged on the ground that it was unconstitutional. In examining cases from other jurisdictions, we noted that similar sales-below-cost statutes had generally been upheld and after listing several of these cases, stated:

"The general principle derived from these cases is that the prohibition of sales below cost lies within the police power of the state and the legislature is vested with a wide discretion in determining whatever economic policy may be deemed to promote the public welfare, which policy the courts are powerless to override provided the laws passed bear a reasonable relationship to the legislative purpose and are neither arbitrary nor discriminatory." 149 W.Va. at 417, 141 S.E.2d at 362.

Despite this broad statement of deference to legislative judgment, we concluded that since the cigarette industry is not one affected with the public interest, it was a violation of due process under our State Constitution for the legislature to attempt to regulate the sale of cigarettes. Wheeling Wholesale argues that the reasoning used in Wender to invalidate the Cigarette Sales Act should be applied to the Unfair Practices Act. We are unable to agree.

Our holding in Wender is comparable to our decision in State v. Memorial Gardens Development Corp., 143 W.Va. 182, 101 S.E.2d 425, 68 A.L.R.2d 1233 (1957), in which we held that the legislature lacked the authority to regulate the funeral industry. However, Memorial Gardens was reversed in Whitener v. W. Va. Board of Embalmers, W.Va., 288 S.E.2d 543 (1982), where we held that the regulation of the funeral industry is within the legitimate scope of the State's police power. Syllabus Point 2 of Whitener states, in part: "Regulations about how businesses are conducted must simply bear a rational relationship to a legitimate state goal, to be constitutional." We also observed in Syllabus Point 3 of Whitener, quoted in part, that "[i]t is the function of legislatures to determine the wisdom and utility of economic legislation."

The point that needs to be emphasized is that the authority of our legislature to regulate economic matters in this State is quite broad, as we stated in Thorne v. Roush, W.Va., 261 S.E.2d 72, 74 (1979):

"[T]he power of the Legislature to enact laws relating to the public welfare is 'almost plenary' under W.Va. Const. art. 6, § 1, and ... its powers are limited only by express restriction or restrictions necessarily implied by a provision or provisions of our Constitution. Robertson v. Hatcher, 148 W.Va. 239, 135 S.E.2d 675 (1964); State ex rel. County Court of Marion County v. Demus, 148 W.Va. 398, 135 S.E.2d 352 (1964)."

Both Wender and Memorial Gardens are indicative of a time when substantive due process was used by courts to invalidate various laws regulating economic matters. Perhaps the most famous judicial intrusion was by the United States Supreme Court...

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