McLane Co., Inc. v. Davis
| Decision Date | 12 June 2003 |
| Docket Number | No. 02-1057.,02-1057. |
| Citation | 110 S.W.3d 251 |
| Parties | McLANE COMPANY, INC. v. Charlie DAVIS, Director of the Arkansas Tobacco Control Board, the Arkansas Tobacco Control Board, and Earl Gill Wholesale, Inc. |
| Court | Arkansas Supreme Court |
Williams & Anderson, LLP, by:Peter G. Kumpe, Stephen B. Niswanger, and Clifford P. Block, Little Rock, for appellant.
J. Leon Johnson, Att'y Gen., by: Arnold M. Jochums and Connie M. Carroll, Ass't Att'ys Gen., for appellees.
Lax, Vaughan, Fortson, & McKenzie, P.A., by: Grant E. Fortson, Little Rock, for appellee/intervenors.
This case was previously on appeal before us as McLane v. Weiss, 332 Ark. 284, 965 S.W.2d 109 (1998)(McLane I), and the facts leading up to this litigation are thoroughly set out there. We review only those facts necessary to understand the issues raised in this second appeal.
McLane Company, Inc., a Texas corporation, is a wholly-owned subsidiary of Wal-Mart Stores, Inc. McLane is a wholesaler of cigarettes and other products, and is licensed to do business in Arkansas. This legal dispute began in 1995 when McLane contacted the Department of Finance & Administration (DFA), requesting the DFA to repeal a regulation, Miscellaneous Tax Regulation 1988-2, that it promulgated pursuant to Arkansas's Unfair Cigarette Sales Act, Ark.Code Ann. §§ 4-75-701-713 (Repl.1996) (hereinafter the Act).1 The Act was enacted in 1951, and its declared purpose is to promote fair and honest competition by prohibiting the sales of cigarettes below cost in the wholesale or retail trades that are made with the intent of injuring competitors or destroying or substantially lessening competition. The Act defines cost to wholesalers as the wholesaler's basic "cost of cigarettes" plus the "cost of doing business," as evidenced by the standards and methods of accounting regularly employed by the wholesaler. See § 4-75-702(11)(A). The Act further provides that, in the absence of proof of a lesser or higher "cost of doing business" by the wholesaler making the sale, the "cost of doing business" shall be presumed to be two percent (2%) of the basic cost of cigarettes to the wholesaler plus cartage to the retailer outlet, which cartage cost in the absence of proof of a lesser or higher cost, shall be presumed to be three-fourths of one percent (.75%) of the wholesaler's basic cost of the cigarettes. See § 4-75-702(5)(B).
As previously mentioned, the Board in 1988 adopted Regulation 1988-2, which provides, among other things, that a wholesaler's cost of doing business is presumed to be four percent (4%), not the two percent (2%) set out in the Act. The Board promulgated 1988-2 under the authority of § 4-75-706(a)(1) and (2)(A), which empowers the Board to undertake and make cost surveys for the state or trading area which the Board's director defines and approves. When McLane contacted the Board about nullifying the Regulation's 4% requirement, it submitted to the Board a detailed and lengthy cost analysis that purportedly supported a lesser cost of doing business than either the presumed 2% specified in the Act or the presumed 4% set by the Regulation. After the Board reviewed McLane's proof, the Board's Director approved and established a lesser doing-business cost at one-half of one percent (.5%) of the basic cost of cigarettes.
The Director's approval of McLane's request resulted in the Board's promulgating Miscellaneous Tax Regulation 1995-5, which established that a wholesaler's cost is .5% of the basic cost of cigarettes. On October 25, 1995, the Director notified McLane that McLane could commence selling cigarettes at the new minimum price. However, on November 1, 1995, McLane's competitors filed suit in the Chicot County Chancery Court, requesting the Board be prohibited from implementing the new Regulation 1995-5 until such time as the Board developed administrative rules and procedures to review the statutorily mandated proof required to establish a wholesaler's cost of doing business. Although McLane was not a party to the suit, the Chicot County Chancery Court granted the relief McLane's competitors sought, and the Board subsequently rescinded its earlier approval of McLane's new cost-of-doing-business amount of .5%.
Next, in 1996, McLane filed this suit in Pulaski County Chancery Court against the Board's Director, and alleged the Act and Regulation 1988-2 were overbroad and unconstitutional deprivations of McLane's due process rights. McLane's competitors (hereinafter Intervenors) were allowed to intervene, and the Director and Intervenors successfully defended the constitutionality of the Act and the Regulation. In holding the two laws constitutional, the trial court granted the Intervenors' motion for summary judgment, denied McLane's summary judgment motion, and dismissed McLane's complaint. McLane appealed the chancery court's decision, and this court held that, on their face, both the Act and Regulation afforded McLane due process, and therefore, the laws were constitutional. See McLane, 332 Ark. at 298, 965 S.W.2d 109.
After deciding the constitutional issue, our court turned its attention to McLane's remaining alternative arguments, bearing on its contention that Regulation 1988-2 is invalid because it was facially inconsistent with the Act, and, at the very least, a question of material fact existed as to whether the Board acted arbitrarily when it adopted the Regulation. This court ultimately sided with McLane's position that the Pulaski County Chancery Court had erred in ruling on these arguments in the Intervenors' favor by granting their motion for summary judgment. Accordingly, we reversed and remanded for further proceedings to determine how and under what authority the Board acted when it determined and increased the basic cost of cigarettes to be 4%. Id. at 301, 965 S.W.2d 109.
On February 11, 2002, the Intervenors filed a motion for protective order in response to McLane's interrogatories, requests for production, and notice of deposition. After a hearing on February 13, the chancery court issued its protective order on February 25. Proceedings in this case were delayed until March 27, 2002, at which time the Pulaski County Chancery Court held a final hearing. The court's final order was filed and entered on June 24, 2002, wherein the chancellor declared the definition of "basic cost" contained in Regulation 1988-2 was void, but the remaining provisions of the Regulation were separable and therefore valid and enforceable as consistent with the Act. McLane now brings this appeal, setting out four primary points for reversal.
Before addressing McLane's arguments, we note our standard of review when considering the validity of a rule or regulation. That standard is set out in Department of Human Services v. Berry, 297 Ark. 607, 764 S.W.2d 437 (1989), as follows:
[T]he court must give the regulation the same presumption of validity as it would a statute. See Rowell v. Austin, 276 Ark. 445, 637 S.W.2d 531 (1982). In reviewing the adoption of regulations by an agency under its informal rule-making procedures, a court is limited to considering whether the administrative action was arbitrary, capricious, an abuse of discretion or otherwise not in accordance with the law. Arkansas Pharmacists Ass'n v. Harris, 627 F.2d 867 (8th Cir.1980). A court will not attempt to substitute its judgment for that of the administrative agency. Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971). A rule is not invalid simply because it may work a hardship, create inconveniences, or because an evil intended to be regulated does not exist in a particular case.
(Emphasis added.)
We now consider McLane's first argument, wherein it claims the promulgation and enforcement of Regulation 1988-2 is ultra vires of the Act. The Intervenors and Board initially respond by stating that McLane failed to argue in McLane I that the Board's regulatory increase of the presumptive cost of doing business to 4% from the 2% called for in the Act was ultra vires; consequently, that issue in McLane I becomes the law of the case. Citing Alexander v. Chapman, 299 Ark. 126, 771 S.W.2d 744 (1989), Intervenors and the Board contend that all questions which were actually presented, or which could have been presented, in the first appeal are barred in this second appeal. Furthermore, the Intervenors urge that, not only did McLane not argue in McLane I that the increase of the presumptive cost of doing business to 4% was ultra vires, but McLane also is barred by the doctrine of judicial estoppel, because McLane took the inconsistent position in the first appeal that the Board could change the presumed percentage if the Board supported the change with a cost survey. The Intervenors and the Board fail to recognize that this second argument was made as an alternative one in the event this court rejected its ultra vires argument. We disagree that McLane is barred by either of these doctrines.
In McLane I, McLane expressly argued that the 4% markup in the 1988-2 Regulation was void, and this court specifically recognized that argument, noting McLane's argument that this Regulation was invalid because it was facially inconsistent with the Act. In that first appeal, we further stated that, at the very least, a question of fact existed as to whether the Board acted arbitrarily and capriciously when it promulgated the Regulation. We expressed our concern in light of our settled law that an agency has no right to promulgate a rule or regulation contrary to a statute or Act which is involved in this case. McLane, 332 Ark. at 298, 965 S.W.2d 109.
In addition, the Board and Intervenors in McLane I had summarily concluded that because the Board had interpreted the Act to permit the Board to promulgate the Regulation to establish a higher cost, the Board's actions in doing so should be deemed reasonable; however, our court...
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