Remington Arms Co. v. Skaggs

• Decision Date: 05 November 1959
• Docket Number: No. 34720,34720
• Citation: 345 P.2d 1085,55 Wn.2d 1
• Parties: REMINGTON ARMS COMPANY, Inc., Respondent, v. L. Juston SKAGGS and Mary Skaggs, his wife, doing business under the firm name and style of Pay Less Drug Store, and J. W. O'Larey, Appellants.
• Court: Washington Supreme Court

Page 1

55 Wn.2d 1

345 P.2d 1085

REMINGTON ARMS COMPANY, Inc., Respondent, v. L. Juston SKAGGS and Mary Skaggs, his wife, doing business under the firm name and style of Pay Less Drug Store, and J. W. O'Larey, Appellants.

No. 34720.

Supreme Court of Washington, En Banc.

Nov. 5, 1959.

Keith, Winston & Repsold, Spokane, Robert J. McNichols, Spokane, of counsel, for appellants.

Riddell, Riddell & Williams, Seattle, Hamblen, Gilbert & Brooke, Spokane, for respondent.

ROSELLINI, Judge.

This action was brought to enjoin the defendants from selling certain products below the price set by the plaintiff, pursuant to the Washington Fair Trade Act, RCW 19.89.010 et seq. There is no dispute in regard to the facts. The defendants willfully and knowingly advertised, offered for sale, and sold at retail, firearms and ammunition which were manufactured by and bore the trademark, brand, or name of the plaintiff as the producer of the products. The prices at which the defendants advertised, offered for sale, and sold these products were less than the retail prices established by the plaintiff in its contract with other retailers, of which the defendants had knowledge. At the time of trial, the plaintiff had in effect approximately five hundred seventy fair trade agreements with retailers in the state of Washington. All of the contracts are identical and give the plaintiff the sole right to determine and modify the resale price of all products covered by the contracts.

None of the defendants at any time entered into fair trade contracts of any nature with the plaintiff or with any other person. The parties to the action have stipulated that the damage suffered by either party in the event of success in this action, shall be in the sum of one dollar. The plaintiff contends that the defendants are bound to sell at the price fixed for its products by virtue of the 'nonsigner' provision of the Fair Trade Act, Laws of 1937, chapter 176, § 3, p. 685 (RCW 19.89.030), which provides:

'Wilfully and knowingly advertising, offering for sale or reselling any commodity at less than the price stipulated in any contract entered into pursuant to the provision of section 1 of this act, whether the person so advertising, offering for sale of selling is or is not a party to such contract, is unfair competition and is actionable at the suit of any person damaged thereby.' (Italics ours.)

The trial court enjoined the actions of the defendants and granted the plaintiff one dollar in damages. The defendants appeal. We are asked to re-examine Sears v. Western Thrift Stores of Olympia, Inc., 1941, 10 Wash.2d 372, 116 P.2d 756, upholding the constitutionality of this provision.

To obtain the proper perspective for this appeal, we must first look to the act itself. In general, it provides that a producer or owner of a commodity which bears the trademark, brand, or name of the producer or owner of such commodity, and which is in free and open competition with commodities of the general class produced by others, may fix and enter into price maintenance contracts. The 'nonsigner' provision, supra, which provides that willfully and knowingly advertising, or reselling such commodity at less than the price stipulated in a contract of this sort constitutes unfair competition whether such seller is or is not a party to the contract. The act also provides that it shall not apply to any contract or agreement between producers or between wholesalers or between retailers as to sale or resale prices.

In Sears v. Western Thrift Stores of Olympia, Inc., supra, this court held, in accord with the weight of authority, that the act, providing as it did for 'vertical' price fixing rather than 'horizontal' price fixing, did not contravene Art. XII, § 22, of our state constitution, prohibiting monopolies.

The court further held, without discussing the relation of the act to the public welfare, that the nonsigner provision was valid as an exercise of the police power.

Several constitutional objections are raised on this appeal; however, we rest our decision on a re-examination of the latter holding of the Sears case, pertaining to the validity of the provision as an exercise of the police power.

This case is not concerned with the Unfair Practices Act (RCW chapter 19.90) which deals with the unjust discrimination involved in loss leader sales and sales below cost, and prescribes a method of computing cost. See State v. Sears, 1940, 4 Wash.2d 200, 103 P.2d 337. Neither is it concerned with the right of a manufacturer to fix the retail price of its product by contract with the retailer, as was Fisher Flouring Mills Co. v. Swanson, 1913, 76 Wash. 649, 137 P. 144, 51 L.R.A.,N.S., 522.

The United States supreme court, in Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 1936, 299 U.S. 183, 57 S.Ct. 139, 81 L.Ed. 109, sustained the constitutionality of the fair trade act of Illinois, S.H.A. ch. 121 1/2, § 188 et seq., including the nonsigner clause; however, the court recognized that such price fixing was still illegal in interstate commerce, being contrary to the provisions of the Sherman Anti-Trust Act, 26 Stat. 209, 15 U.S.C.A. §§ 1-7, 15 note.

To validate vertical price-fixing agreements, Congress passed the Miller-Tydings Act of 1937, 50 Stat. 693, 15 U.S.C.A. § 1, amending the Sherman Anti-Trust Act; however, in Schwegmann Bros. v. Calvert Distillers Corp., 1951, 341 U.S. 384, 71 S.Ct. 745, 747, 95 L.Ed. 1035, the nonsigner provision was held invalid under the act. The court used the following language:

'* * * If a distributor and one or more retailers want to agree, combine, or conspire to fix a minimum price, they can do so if state law permits. Their contract, combination, or conspiracy--hitherto illegal--is made lawful. They can fix minimum prices pursuant to their contract or agreement with impunity. When they seek, however, to impose price fixing on persons who have not contracted or agreed to the scheme, the situation is vastly different. That is not price fixing by contract or agreement; that is price fixing by compulsion. That is not following the path of consensual agreement; that is resort to coercion.

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'* * * Contracts or agreements convey the idea of a cooperative arrangement, not a program whereby recalcitrants are dragged in by the heels and compelled to submit to price fixing.'

The McQuire Act of 1952, 66 Stat. 632, 15 U.S.C.A. § 45, approved the subjection of nonsigners to price-fixing agreements in interstate commerce, where such restrictions are imposed by state law. This act was upheld in Schwegmann Bros. Giant Super Market v. Eli Lilly & Co., 5 Cir., 1953, 205 F.2d 788, certiorari denied 346 U.S. 856, 74 S.Ct. 71, 98 L.Ed. 369.

The United States supreme court has not decided whether the fact that some states have laws of this type while others do not, tends to create an undue burden on interstate commerce, although it might well be argued that this is the case.

This court held, three judges dissenting, in Sears v. Western Thrift Stores of Olympia, Inc., supra, that the nonsigner clause of the Fair Trade Act was a valid exercise of police power. But, as stated before in this opinion, the court did not point out how the health, safety, morals, or welfare of the public was affected by the legislation.

In 16 C.J.S. Constitutional Law § 195, pp. 939-945, it is stated:

'* * * the limit of a state's exercise of the [police] power is reached when the regulation transcends public necessity. * * *

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'In order that a statute may be sustained as an exercise of the police power, * * * the courts must be able to see that the enactment has for its object the prevention of some offense or manifest evil or the preservation of the public health, safety, morals, or general welfare, that there is some clear, real, and substantial connection between the assumed purpose of the enactment and the actual provisions thereof, and that the latter do in some plain, appreciable, and appropriate manner tend toward the accomplishment of the object for which the power is exercised.

'* * * The legislature may not exercise the police power for private purposes, or for the exclusive benefit of particular individuals or classes. * * *

'A statutory provision which is not a legitimate police regulation cannot be made such by being placed in the same act with a police regulation, or by being enacted with a legislative declaration of a purpose which would be a proper object for the exercise of that power. * * *'

Thus, it is seen that to justify any law upon the theory that it constitutes a reasonable and proper exercise of police power, it must be reasonably necessary in the interest of the health, safety, morals, or welfare of the people. This exercise of police power must pass the judicial test of reasonableness.

After Schwegmann Bros. v. Calvert Distillers Corp., supra, legal scholars re-examined the reasonableness and validity of the fair trade acts in the light of the actual operation of these acts. See 47 Yale L. Jour. 607, 21 Chicago L. Rev. 175, 46 Ill.L.Rev. 349, 60 Yale L. Jour. 929.

In respect to this phase of the problem, the supreme court of Oregon in General Elec. Co. v. Wahle, 1956, 207 Or. 302, 296 P.2d 635, 645, stated:

'In 49 Yale LJ 607 and in 21 Chicago L Rev 175, are to be found exhaustive and well-written articles concerning the Fair Trade statutes by two eminent scholars, viz., Harry Shulman, Sterling Prof. of law, Yale Law School, and Carl H. Fulda, Prof. of Law, Rutgers University, respectively. From the facts and statistics given, the accuracy of which seem beyond question, it is plainly apparent that the consumer is not benefited, but on the contrary is harmed by the operation of the Fair Trade Act. The consumer is the public. He is compelled to pay a higher price for a given commodity in order that the retailer may be guaranteed a higher fixed, and often unreasonable, profit. If professors...