House of Seagram, Inc. v. Assam Drug Co., 10662

• Citation: 176 N.W.2d 491,85 S.D. 27
• Decision Date: 16 April 1970
• Docket Number: No. 10662,10662
• Parties: , 1970 Trade Cases P 73,147 The HOUSE OF SEAGRAM, INC., Calvert Distillers Company, Central Division, Plaintiff and Appellant, v. ASSAM DRUG COMPANY and Fred Assam, Defendants and Respondents.
• Court: Supreme Court of South Dakota

Page 491

176 N.W.2d 491

85 S.D. 27, 1970 Trade Cases P 73,147

The HOUSE OF SEAGRAM, INC., Calvert Distillers Company, Central Division, Plaintiff and Appellant, v. ASSAM DRUG COMPANY and Fred Assam, Defendants and Respondents.

No. 10662.

Supreme Court of South Dakota.

April 16, 1970.

Willy, Pruitt & Matthews, Acie W. Matthews, Sioux Falls, for plaintiff and appellant.

Myrabo & Weisensee, Tony Weisensee, Canton, John A. Shaeffer, Flandreau, for defendants and respondents.

HOMEYER, Judge.

This action was brought by the plaintiff to permanently enjoin the defendants from advertising, offering for sale, or selling certain alcoholic beverages distributed by it to South Dakota wholesalers and bearing the Calvert name, brand, or trademark, at less than minimum retail prices which it had established or would thereafter establish for such products pursuant to the South Dakota Fair Trade Law, SDCL 37--9.

The question presented for determination by this appeal is the constitutionality of such law as it pertains to nonsigners of 'fair trade' price maintenance contracts. The court below held the Fair Trade Law unconstitutional and denied the injunction. Plaintiff has appealed.

There is little dispute in the facts. Plaintiff, the House of Seagram, Inc., acting through its Calvert Distillers Company, Central Division, is the exclusive distributor to wholesalers located in South Dakota of alcoholic beverages, bearing the Calvert name, brand, or trademark which it either owns or controls. It sells only to its wholesalers in South Dakota who in turn sell directly to retailers among whom are the defendants. Calvert products are advertised, distributed and sold in South Dakota in free and open competition with similar products of the same general class distributed and sold by others in the state.

Plaintiff entered into 'fair trade' price maintenance contracts with various retailers doing business in South Dakota, but not with the defendants. Minimum retail sales prices for Calvert products were established by plaintiff and the defendants were given notice and had knowledge of such prices. They have willfully and knowingly advertised and offered for sale and sold Calvert products at less than the minimum prices established by plaintiff under the 'fair trade' law and such acts are not within any exceptions contained in the law.

South Dakota enacted a Fair Trade Law in 1937 ¹ and its constitutionality was almost immediately attacked. By its decision in Miles Laboratories, Inc. v. Owl Drug Co., 1940, 67 S.D. 523, 295 N.W. 292, this court upheld the law largely upon the ground that it did not violate Art. XVII, § 20 of the South Dakota Constitution, commonly known as the anti-trust and antimonopoly clause. Incidental mention was also made of Sections 2 (due process) and 18 (privileges or immunities) of Art. VI. Contention that these sections were violated was said to be without merit with minimal discussion. The court said Fair Trade Laws had been enacted in 44 states and upheld in all instances when submitted to courts of last resort including the Supreme Court of the United States. Old Dearborn Distributing Company v. Seagram-Distillers Corporation, 299 U.S. 183, 57 S.Ct. 139, 81 L.Ed. 109, 106 A.L.R. 1476 is cited as well as decisions from state courts in California, Illinois, New York, New Jersey, Wisconsin, Maryland and North Carolina.

The pattern of upholding the law appears to have continued, seemingly influenced by the Old Dearborn decision, ² until 1949 when the Florida Supreme Court decided to depart from precedent and held its Fair Trade Law unconstitutional as an unreasonable exercise of the police power. Liquor Store, Inc. v. Continental Distilling Corp., Fla., 40 So.2d 371. Since then many more states have done likewise on the same or other grounds. See Annot., 60 A.L.R.2d 420, Validity, under state constitutions, of nonsigner provisions of Fair Trade Laws and the Later Case Service Supplement thereto. Also an article on this topic appearing in the South Dakota Law Review, Vol. 13, page 113.

An excellent history and analysis of the Fair Trade Law is contained in Bulova Watch Company v. Zale Jewelry Company of Cheyenne, 1962, Wyo., 371 P.2d 409. It need not be repeated here. The author of the opinion says 46 states had fair trade laws similar or identical to the Wyoming Fair Trade Law when the opinion was written. Seventeen states had held the law constitutional. Twenty states had held it unconstitutional. Six states were without decisions thereon. Four states had enacted no fair trade laws. Nebraska had held its Fair Trade Law unconstitutional and then it was repealed by the legislature so it had no fair trade law. Virginia was considered in an uncertain category.

Since the Wyoming opinion, Ohio which originally had held its Fair Trade Law unconstitutional, after an amendment in 1959, has held it constitutional. ³ Pennsylvania which is listed as upholding the law has since reversed itself. ⁴ Making current the line score and computations so painstakingly prepared by the author of the Wyoming opinion it appears that there are now 22 states which have held Fair Trade Laws similar to the South Dakota Act unconstitutional and 17 states which have held them constitutional. Five states ⁵ have no fair trade law. Four states ⁶ are without decision and two states, Virginia and Ohio, because of changes in statutes, should not be classified.

After a careful review of Miles Laboratories v. Owl Drug Co., supra, we are convinced that our decision in that case as it applied to nonsigners of price maintenance agreements is erroneous. We thus join Washington and Pennsylvania as jurisdictions which have receded from prior holdings with respect to the Fair Trade Law. We believe, as the Pennsylvania court did, that our former decision may have been influenced and perhaps prompted by Old Dearborn and the Act upheld largely by relying on that decision as precedent. We approve what the Pennsylvania court said in Olin Mathieson Chemical Corp. v. White Cross Stores, Inc., supra, 199 A.2d at page 267:

'Old Dearborn, as a careful study will bear out, is not precedent for the proposition that the nonsigner clause in a state price fixing statute, delegating legislative power to private individuals, does not violate the state constitution. See, 1 Davis, Administrative Law Treatise, Section 2.14 (1958); Note, Fair Trade and the State Constitution--A New Trend, 10 Vand.L.Rev. 415 (1957), and Conant, Resale Price Maintenance, Constitutionality of Non Signer Clauses, 109 U. of Pa.L.Rev. 539 (1961).'

Old Dearborn stands for the proposition that fair trade laws such as we had in this state are not in violation of any of the provisions of the federal constitution. However, manifestly the question remains for us to decide whether it offends any of the provisions of our own constitution and we are under no compulsion to follow the United States Supreme Court in that regard. Zale-Las Vegas, Inc. v. Bulova Watch Company, supra. As the court said in Cox v. General Electric Co., 211 Ga. 286, 85 S.E.2d 514, 519, the determination of whether the Fair Trade Law violates the constitution of Georgia 'is one of the few powers left to States to decide for themselves regardless of what the Supreme Court of the United States may or may not have decided.'

In jurisdictions where fair trade acts have been held unconstitutional it was generally on grounds that legislative power had been unlawfully delegated or that they constituted an improper use of the police power and bore no reasonable relationship to public health, safety or welfare. Sometimes courts have held that they violated both or for other or additional reasons. ⁷ We choose to predicate our decision on an unlawful delegation of legislative power. In so doing we recognize a considerable number of state courts have held to the contrary and have cited Old Dearborn as precedent. They appear in the annotation cited supra. However, we agree with the Minnesota court in saying that to us those authorities seem unsound. ⁸

Regulation of wages and prices is a legislative function to be exercised by an elected legislative body. The power and authority to do so may be delegated to other governmental officers or agencies to a limited extent provided understandable standards are adopted to guide the officer or agency in the exercise of that power. Art. III, Section 1, Constitution of South Dakota; Boe v. Foss, 76 S.D. 295, 77 N.W.2d 1; Livestock State Bank v. State Banking Commission, 80 S.D. 491, 127 N.W.2d 139. However, the legislature may not delegate to private persons discretionary power to fix wages, prices or rates. Any attempt to do so creates a new and private government and violates an essential concept of our democratic society and is constitutionally invalid. Schryver v. Schirmer, S.D., 171 N.W.2d 634; Application of Northwestern Bell Telephone Co., 69 S.D. 36, 6 N.W.2d 165; Quality Oil Co. v. E. I. Du Pont De Nemours and Company, 185 Kan. 488, 322 P.2d 731. Thus, acting without a hearing and without judicial review permitted, private groups could oppress an unwilling minority to the full limit of the power delegated. One of the main grounds for holding unconstitutional the National Industrial Recovery Act was that it delegated to private industry trade groups the power to fix wages and prices in the poultry slaughtering industry. A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 55 S.Ct. 837, 79 L.Ed. 1570. Concerning this power, Chief Justice Hughes wrote at page 537, 55 S.Ct. at page 846:

'But would it be seriously contended that Congress could delegate its legislative authority to trade or industrial associations or groups so as to empower them to enact the laws they deem to be wise and beneficent for the rehabilitation and expansion of their trade or industries? Could trade or industrial associations or groups be constituted legislative bodies for that purpose because...