Scovill Mfg. Co. v. Skaggs Pay Less Drug Stores

• Decision Date: 29 December 1955
• Citation: 291 P.2d 936,45 Cal.2d 881
• Court: California Supreme Court
• Parties: SCOVILL MANUFACTURING COMPANY, Hamilton Beach Division, a corporation, Plaintiff and Respondent, v. SKAGGS PAY LESS DRUG STORES, a corporation, doing business under the fictitious name of Pay Less Drug Store, Defendant and Appellant. S. F. 18830, 19068.

Page 936

291 P.2d 936

45 Cal.2d 881

SCOVILL MANUFACTURING COMPANY, Hamilton Beach Division, a corporation, Plaintiff and Respondent, v. SKAGGS PAY LESS DRUG STORES, a corporation, doing business under the fictitious name of Pay Less Drug Store, Defendant and Appellant.

S. F. 18830, 19068.

Supreme Court of California, In Bank.

Dec. 29, 1955.

Rehearing Denied Jan. 25, 1956.

Fitzgerald Abbott & Beardsley and Edward B. Kelly, Oakland, for appellant.

Kean & Ingram and Bernard E. Ingram, Los Angeles, for respondent.

Landels & Weigel, Stanley A. Weigel, San Francisco, and Herman T. Van Mell, Chicago, Ill., as amici curiae on behalf of respondent.

SHENK, Justice.

This is an appeal by the defendant Skaggs Pay Less Drug Stores from a judgment in favor of the plaintiff Scovill Manufacturing Company in an action based on the Fair Trade Act of 1931 as amended in 1933 and 1941, §§ 16900-16905, Bus. & Prof.Code. The plaintiff sought to enjoin the retail sale of its products at prices below those specified by it as the producer. There is also an appeal from a prior order granting a temporary injunction in the same case. This order was merged in the judgment, is not appealable and should be dismissed.

The plaintiff has entered into contractual arrangements with its buyers and wholesalers wherein the prices at which certain of its products must be sold are specified. These contracts purport to be in compliance with and not in violation of section 16902 of the Business and Professions Code. That section provides in part: 'No contract relating to the sale or resale of a commodity which bears, or the label or container of which bears, the trade-mark, brand, or name of the producer or owner of such commodity and which is in fair and open competition with commodities of the same general class produced by others violates any law of this State by reason of any of the following provisions which may be contained in such contract: (1) That the buyer will not resell such commodity except at the price stipulated by the vendor. (2) That the vendee or producer require the person to whom he may resell such commodity to agree that he will not, in turn, resell except at the price stipulated by such vendor or * * * vendee.'

The defendant has been selling, offering and advertising for sale, fair trade products of the plaintiff at prices less than those specified in the plaintiff's fair trade contract schedules. Although the defendant is not a party to any of the plaintiff's fair trade contracts, it is claimed that it is nevertheless bound to comply as to prices with the provisions of section 16904 of the Business and Professions Code. That section provides: 'Wilfully and knowingly advertising, offering for sale or selling any commodity at less than the price stipulated in any contract entered into pursuant to this chapter, whether the person so advertising, offering for sale or selling is or is not a party to such contract, is unfair competition and is actionable at the suit of any person damaged thereby.'

The sales contemplated in the present case are transactions which have a substantial effect upon interstate commerce, and in the absence of federal statutory exemptions the contracts imposing fair trade arrangements on such transactions would be in violation of the Sherman Anti-Trust Act, 26 Stat. 209 (1890), 15 U.S.C.A. §§ 1-7, 15 note. However, the Miller-Tydings Amendment thereto, 50 Stat. 693 (1937), 15 U.S.C.A. § 1, provides for such an exemption in the case of voluntary arrangements and in the McGuire Act, 66 Stat. 632 (1952), 15 U.S.C.A. § 45(a), Congress extended the exemption to non-signer provisions of such contracts entered into pursuant to state statutes.

The defendant attacks the constitutionality of both the Fair Trade Act and the McGuire Act. It contends that the Fair Trade Act violates the due process clauses of the state and federal constitutions in that it is an arbitrary and unreasonable exercise of the police power; that it delegates the state's legislative power to commodity producers, and that the meaning of the phrase 'fair and open competition' § 16902, Bus. & Prof.Code, is fatally uncertain. It is claimed that the act unlawfully delegates legislative authority in violation of article IV, section 1 of the California Constitution vesting legislative power in the legislature only. Claims of invalidity based on similar grounds are directed against the McGuire Act. The defendant asserts that the act violates the due process clause of the federal constitution in that it is arbitrary and unreasonable; that the meaning of the expression 'free and open competition' 15 U.S.C.A. § 45(a)(2) is uncertain, and that it constitutes an unlawful delegation of congressional power over interestate commerce to the state legislatures.

All of the constitutional objections raised by the defendant have been expressly or by necessary implication decided against it. In Max Factor & Co. v. Kunsman, 1936, 5 Cal.2d 446, 55 P.2d 177, this court held that the Fair Trade Act, and in particular the provision as to non-signers, was a proper exercise of the police power; that it was not arbitrary nor unreasonable legislation, and that it was not a denial of due process of law nor of the equal protection of the laws. That decision, see also Pyroil Sales Co., Inc., v. Pep Boys, 5 Cal.2d 784, 55 P.2d 194, 1186, was in effect affirmed unanimously by the United States Supreme Court in The Pep Boys, Manny, Moe, & Jack of California v. Pyroil Sales Co., 1936, 299 U.S. 198, 57 S.Ct. 147, 81 L.Ed. 122, on the authority of Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 299 U.S. 183, 57 S.Ct. 139, 81 L.Ed. 109. The last case cited upheld the validity of the Illinois Fair Trade Act, S.H.A. ch. 121 1/2, § 188 et seq., which is substantially identical with the California act.

The validity of the McGuire Act has also been declared as against similar attacks. In Cal-Dak Co. v. Sav-On Drugs, Inc., 1953, 40 Cal.2d 492, 254 P.2d 497, this court recognized the McGuire Act as extending the area of control of fair trade legislation to non-signers engaged in interstate commerce. In Schwegmann Bros. Giant Super Mkts. v. Eli Lilly & Co., 5 Cir., 1953, 205 F.2d 788, the constitutionality of the act and of the Louisiana Fair Trade Act, LSA-R.S. 51:391 et seq., were upheld against charges of deprivation of due process of law and unlawful delegation of congressional powers. During the pendency of the appeal in the present case the Supreme Court refused to review the decision in the Schwegmann case. Schwegmann Brothers Giant Super Market v. Eli Lilly & Co., 346 U.S. 856, 74 S.Ct. 71, 98 L.Ed. 369, rehearing denied 346 U.S. 905, 74 S.Ct. 217, 98 L.Ed. 404. The decision of the Court of Appeals in the Schwegmann case is a clear and unqualified approval of the McGuire Act and we are bound thereby on matters relating to the federal law. Douglas Aircraft Co., Inc., v. Johnson, 13 Cal.2d 545, 90 P.2d 572; In re Smith, 193 Cal. 337, 223 P. 971. The constitutionality of the McGuire Act is therefore no longer open to question for the purpose of the present case.

From the foregoing it also appears that the question whether the Fair Trade Act is a reasonable and non-discriminatory exercise of the police power in the field of interstate commerce has been covered by federal and state legislation and settled by court decisions. It is urged, however, that the changing economic conditions and circumstances since the decision in the Max Factor case as well as experience in the application of fair trade acts since that time have resulted in a general acknowledgment that such legislation no longer serves a proper purpose, and that a trend of recent decisions in other states requires a re-examination of the constitutional questions involved. In the Schwegmann case a similar contention was made and rejected by the Court of Appeals. Schwegmann Bros. Giant Super Mkts. v. Eli Lilly & Co., supra, 205 F.2d 788, 790.

Fair trade legislation containing non-signer provisions substantially the same as those first adopted in California has since been enacted in forty-four of our sister states. Only in the states of Texas, Vermont and Missouri has such legislation not been enacted. In sixteen states the legislation has been upheld by their courts of last resort. Burroughs Wellcome & Co. v. Johnson Wholesale Perfume Co., 1942, 128 Conn. 596, 24 A.2d 841; Max Factor & Co. v. Kunsman, 1936, supra, 5 Cal.2d 446, 55 P.2d 177; Klein v. National Pressure Cooker Co., 1949, 31 Del.Ch. 459, 64 A.2d 529; Pepsodent Co. v. Krauss Co., 1942, 200 La. 959, 9 So.2d 303; Goldsmith v. Mead Johnson & Co., 1939, 176 Md. 682, 7 A.2d 176, 125 A.L.R. 1339; W. A. Sheaffer Pen Co. v. Barrett, 1950, 209 Miss. 1, 45 So.2d 838; General Electric Co. v. Packard-Bamberger & Co., Inc., 1953, 14 N.J. 209, 102 A.2d 18; Bourjois Sales Corp. v. Dorfman, 1937, 273 N.Y., 167, 7 N.E.2d 30, 110 A.L.R. 1411; Lilly & Co. v. Saunders, 1939, 216 N.C. 163, 4 S.E.2d 528, 125 A.L.R. 1308; Borden Co. v. Schreder, 1947, 182 Or. 34, 185 P.2d 581; Burch Co. v. General Electric Co., 1955, 382 Pa. 370, 115 A.2d 361; Miles Laboratories, Inc., v. Owl Drug Co., 1940, 67 S.D. 523, 295 N.W. 292; Frankfort Distillers Corp. v. Liberto, 1950, 190 Tenn. 478, 230 S.W.2d 971; Sears v. Western Thrift Stores of Olympia, Inc., 1940, 10 Wash.2d 372, 116 P.2d 756; Weco Products Co. v. Reed Drug Co., 1937, 225 Wis. 474, 274 N.W. 426. In five states the highest courts have held their fair trade acts to be partially or totally invalid. Liquor Stores, Inc., v. Continental Distilling Corp., Fla.1949, 40 So.2d 371; Grayson-Robinson Robinson Stores, Inc., v. Oneida, Ltd., 1953, 209 Ga. 613, 75 S.E.2d 161; Shakespeare Co. v. Lippman's Tool Shop Sporting Goods Co., 1952, 334 Mich. 109, 54 N.W.2d 268; McGraw Electric Co. v. Lewis & Smith Drug Co., 1955, 159 Neb. 703, 68 N.W.2d 608; Union Carbide & Carbon Corp. v. White River Distributors, Inc., Ark.1955, 275...