San Ann Tobacco Co. v. Hamm

• Decision Date: 10 October 1968
• Docket Number: 3 Div. 265
• Citation: 217 So.2d 803,283 Ala. 397
• Parties: SAN ANN TOBACCO COMPANY, Inc., et al. v. Phillip HAMM, Commissioner of Revenue.
• Court: Alabama Supreme Court

Page 803

217 So.2d 803

283 Ala. 397

SAN ANN TOBACCO COMPANY, Inc., et al. v. Phillip HAMM, Commissioner of Revenue.

3 Div. 265.

Supreme Court of Alabama.

Oct. 10, 1968.

Rehearing Denied Jan. 16, 1969.

T. J. Carnes, Albertville, and Earl Gillian, Montgomery, for appellants.

MacDonald Gallion, Atty. Gen., Willard W. Livingston and Wm. H. Burton, Asst. Attys. Gen., and White E. Gibson, Jr., of Lange, Simpson, Robinson & Somerville, Birmingham, for appellee.

MERRILL, Justice.

This case was originally assigned to another member of the court and was reassigned to the author of this opinion on July 29, 1968.

This appeal is from a decree holding the Alabama Unfair Cigarette Sales Act, as amended, constitutional and denying the relief sought by complainants and appellants, San Ann Tobacco Company, Inc., hereinafter called Tobacco Company, and San Ann Service, Inc., hereinafter called Service Company.

The bill, as amended, was a suit for declaratory judgment against the Commissioner of Revenue of the State of Alabama, alleging that a justiciable controversy existed between the parties over the price at which Tobacco Company could sell cigarettes; assailing the constitutionality of the Alabama Unfair Cigarette Sales Act, as amended, and relief from the enforcement of the Act.

After demurrer to the bill was overruled, appellant Tobacco Company sought relief pendente lite, and at a hearing the court found from the testimony that Tobacco Company was not complying with the Act in that it was selling cigarettes at retail in Jefferson County and in other counties in this state at prices below cost to it as a retailer with the obvious intent to injure its competitors and a destroy or substantially lessen competition as prohibited by the Act.

The bill was then amended to show a controversy over whether Tobacco Company pany was selling cigarettes below cost as defined in the Act, and alleging that they proposed to sell or offer for sale at their retail filling stations in Jefferson County a pack of cigarettes at a price of 1cents below the cost of cigarettes to it and its cost of doing business in connection with the purchase of one gallon of gasoline at the gasoline stations where the cigarettes were sold, and by adding San Ann Service, Inc., as a party complaint. The respondent's answer was in effect a general denial and the general issue.

After a hearing, the trial court rendered a decree holding the Alabama Unfair Cigarette Sales Act valid and constitutional in all aspects challenged by the bill, holding that the two corporate complainants 'are one,' that complainants had failed to prove their cost of doing business, that complainants had sold cigarettes as a retailer at below cost as defined in the Alabama Unfair Cigarette Sales Act with the intent to injure competitors, destory or substantially lessen competition, holding that the proposed sale of cigarettes in connection with the purchase of gasoline would be unlawful under the Act and that the Act so construed was valid, holding that complainants did not come into equity with clean hands, denying all relief and dismissing the bill.

The Alabama Unfair Cigarette Sales Act is Act No. 805, Acts of Alabama 1951, and listed as Tit. 57, § 83(1) et seq., 1958 Recompilation. The Act was amended in 1965 by Act No. 78, Acts of Alabama 1965, p. 105, Second Special Session.

This court held the original Act to be constitutional on its face, Simonetti, Inc. v. State ex rel. Gallion, 272 Ala. 398, 132 So.2d 252, and appellants do not attack that holding. But appellants do argue that one part of the 1965 amendment does render the Act unconstitutional on its face.

The pertinent part of § 3(a) (Tit. 57, § 83(3)) of the original Act provided:

'It shall be unlawful for any wholesaler or retailer, with intent to injure competitors, destroy or substantially lessen competition, to advertise, offer to sell, or sell at wholesale or retail, cigarettes at less than cost to such wholesaler or retailer as the case may be.'

This sentence was amended in 1965 and we emphasize the five additional words added which are pertinent to this decision:

'It shall be unlawful for any wholesaler or retailer with intent to injure competitors, destroy or substantially lessen competition, Or with the effect thereof, to advertise, offer to sell or sell at wholesale or retail cigarettes at less than cost to such wholesaler or retailer as the case may be, * * *.'

We quote excerpts from the decision in Simonetti, Inc. v. State ex rel. Gallion, supra:

"The present bill directly alleges a dual or cumulative specific intent to 'injure competitors And destroy or substantially lessen competition' and that respondent's advertising, offers to sell, and sale of cigarettes at wholesale have been 'at less than cost to said respondent.' These are considered to be allegations of ultimate, issuable facts, sufficient for the purpose of pleading, since the respondent's actual intent in fact, its costs, and its selling prices are presumably matters within its knowledge, and greater particularity would not seem to be required either to frame the issue or inform respondent of the charge against which it is required to defend. By these allegations, the State as complainant assumes a heavy burden of proof, since it must be proof of far more than mere intent of injury to competitors or 'unfairness' of competition. It must also prove, under the construction placed upon the Act, a selling below cost with the specific intent of destroying or substantially lessening competition, since the Act, if valid at all, can only be held so as an exercise of the police power of the state over intrastate commerce to the end of inhibiting practices tending toward monopolization.

* * *

* * *

"This Court is of the opinion that there is a valid distinction between 'competitive price-cutting' and 'intentionally destructive' price cutting, for the purpose of application of our constitutional principles. One of the declared intentions of the legislature in this Act is to safeguard the public against creation of monopoly. Not only is that within the scope of police power, but the exercise of that power is affirmatively enjoined upon the legislature by Section 103 of the Constitution. The factual examples of the Lindsey (Memphis Steam Laundry-Cleaners v. Lindsey, 192 Miss. 224, 5 So.2d 227) and Bastrop (Tooke & Reynolds v. Bastrop Ice & Storage Co., 172 La. 781, 135 So. 239) cases vividly show that intentional and deliberate cutting of prices below cost has been and can be a technique or weapon of monopolization. This Court cannot say that the declared intent is so far removed from the prohibited practice as to make it a mere masquerade, upon and from the very face of the Act itself.

"The the Court is further of the opinion that, in a business not affected with a public interest, as that concept abides in the law of the State of Alabama, the legislature cannot regulate competitive pricing policies by declared standards of 'fair competition,' and undertake merely to umpire pricing practices with reference to such standards above the level of selling of commodities below cost with injurious intent in a business which may be susceptible of monopolization which a community.

"If mere 'injury' to competitors were to serve as the basis for invoking the police power over prices, and was the only basis for the Act's operation, it would not be constitutional under our cases. All competition is intentional and all competitors necessarily injure all other competitors in the same field, except in rare cases of unrestricted and totally elastic markets. Competition is a struggle to win. Whatever one does to attract customers to him, in inelastic markets, is necessarily 'injury' to others in the field. To set a criterion of cost does not help the situation. Whether a price cutter sells below cost of acquisition or below that plus the cost of doing business, or below both these costs plus a profit so small as to scarcely yield a living for himself and his family, some injurious result would accrue to competitors who feel that they have a right to expect a reasonable profit. When a merchant air conditions or remodels his store, or provides parking, or exceptionally pleasant treatment for his customer, or more liberal credit than is ordinarily extended, it is done, in a loose sense, to 'injure' competitors, who cannot or will not meet these conditions, though such merchant be a man of however much good will.'

This court's conclusions were:

"1. Under the Kelly-Hunter line of decisions in this state, the legislature cannot, consistently with Sections 1 and 35 of the State Constitution, regulate competitive prices or prohibit bona fide competitive price cutting in businesses not affected with a public interest, merely in the interest of fairness in competition.

"2. The legislature may, however, exercise the police power of the state to inhibit creation of monopolies, whether the business concerned is affected with a public interest or not.

"3. The selling of cigarettes below cost with intent to injure competitors and thereby destroy or substantially lessen competition may be a practice which tends toward creation of monopoly, and is within the police power of the state whether or not the business be affected with any public interest as such.

"4. The Court cannot say, as a matter of law, or demurrer, that the provision contained in the first sentence of Section III(a) of the Unfair Cigarette Sales Act is unconstitutional, null and void, upon its face.

"5. In order for the Act to fairly subserve the purpose of inhibition of monopoly, as distinguished from the purpose of merely procuring 'fair' competitive prices as an end in itself, the Act must be construed so as to require the dual, conjunctive, or cumulative intent to injure competitors And destroy or substantially lessen competition.

"In other words, where the comma occurs between the words 'competitors...