Sperry & Hutchinson Co. v. California State Bd. of Pharmacy

• Decision Date: 30 March 1966
• Citation: 50 Cal.Rptr. 489,241 Cal.App.2d 229
• Court: California Court of Appeals Court of Appeals
• Parties: The SPERRY AND HUTCHINSON COMPANY, a corporation, Plaintiff and Respondent, v. The CALIFORNIA STATE BOARD OF PHARMACY, an administrative body, etc., et al., Defendants and Appellants. Civ. 22878.

Page 489

50 Cal.Rptr. 489

241 Cal.App.2d 229

The SPERRY AND HUTCHINSON COMPANY, a corporation, Plaintiff and Respondent, v. The CALIFORNIA STATE BOARD OF PHARMACY, an administrative body, etc., et al., Defendants and Appellants.

Civ. 22878.

District Court of Appeal, First District Division 3, California.

March 30, 1966.

Thomas C. Lynch, Atty. Gen., Gerald F. Carreras, Deputy Atty. Gen., San Francisco, for appellants.

W. Burleigh Pattee, Bruce M. Casey, Jr., Chickering & Gregory, San Francisco, for respondent.

SALSMAN, Justice.

This is an appeal from a judgment on the pleadings. The respondent, Sperry and Hutchinson Company, commenced the action by filing a complaint seeking both declaratory relief and an injunction. ¹ Appellants' demurrer to the complaint was overruled. Appellants filed an answer and a cross-complaint seeking injunctive relief against respondent. A demurrer to the cross-complaint was sustained without leave to amend. Respondent's motion for judgment on the pleadings was granted.

The parties agree that the decisive issue on appeal is the validity of a 1962 amendment to the board's regulation 1765, which prohibits the giving of trading stamps by pharmacists on purchase of prescription drugs. If that amendment is invalid on any ground urged, then the judgment must be affirmed. As will appear, we have concluded that the amendment is invalid upon at least one ground relied upon by respondent, and for that reason, affirm the judgment.

Respondent is in the business of licensing retail merchants, including pharmacists, in a plan which it calls its 'Co-Operative Cash Discount' system. It involves the sale to merchants of the widely known 'S & H green stamps'; advertising of the fact that particular merchants give such stamps with cash purchases, and maintenance of redemption facilities for redemption of stamps in cash or merchandise. It is alleged and not denied that at the time appellants adopted the amendment to regulation 1765 respondent had in effect more than 900 contracts with California pharmacists who had agreed to buy and issue S & H stamps.

Regulation 1765, adopted by appellant State Board of Pharmacy, appears as Title 16, California Administrative Code. ² As originally adopted, the regulation made no reference to the giving of trading stamps by pharmacists. When the Board proposed to amend the regulation to prohibit pharmacists from giving trading stamps it held a hearing on its proposal. Respondent appeared at the hearing and objected to the amendment, but the Board nevertheless adopted it. Respondent then instituted this action to prevent the Board from enforcing the amended regulation.

Appellants' first major point on appeal is that the complaint failed to state a cause of action, and it was therefore error to overrule its demurrer. Appellants contend that respondent has no sufficient interest to permit it to maintain this action. Appellants point out that respondent is not subject to the regulation; that the Board can take no disciplinary action against it or impose any sanctions upon it. Appellants cite and rely upon such cases as Associated Boat Industries v. Marshall, 104 Cal.App.2d 21, 230 P.2d 379; Parker v. Bowron, 40 Cal.2d 344, 254 P.2d 6; Funeral Dirs. Ass'n v. Board of Funeral Dirs., 67 Cal.App.2d 311, 154 P.2d 39, and Ex-Cell-O Corporation v. City of Chicago, 7 Cir., 115 F.2d 627. But most, if not all, of the cases cited by appellants are readily distinguishable from our case, or are not controlling upon us. Thus in the Associated Boat case the plaintiff was merely a trade association having no financial interest in the outcome of the controversy described in the complaint. The same is true of the Funeral Directors case. In the Parker case, the plaintiff sought a writ of mandate to compel city officials to fix a salary or wage for all city employees in certain classifications, but the plaintiff did not plead that he was an employee of the city, a resident or taxpayer therein, or that he would benefit if salaries were fixed as demanded, or suffer if relief was denied. The court properly held that the plaintiff had no standing to sue.

Appellants place great emphasis upon Ex-Cell-O Corporation v. City of Chicago, supra, 115 F.2d 627. In that case one plaintiff was a manufacturer of machines for the production of paper milk containers. A second plaintiff was a manufacturer of paper milk containers sold to dairies in the City of Chicago. In their action they sought to have the court declare that a certain ordinance of the city did not prohibit the use of paper milk containers, or if it did, that it was invalid. The court agreed that the plaintiffs had a pecuniary interest in the interpretation of the ordinance but concluded that the interest of both plaintiffs was remote and indirect and that they therefore had no standing to sue. Relief was denied.

The Ex-Cell-O case, however, has its critics. It has been described as harsh and questionable. (See Borchard, Declaratory Judgments, 2d ed. 1941, pp. 50, 53.) In Joint Anti-Fascist Refugee Committee v. Clark, 85 U.S.App.D.C. 255, 177 F.2d 79 and International Workers Order v. McGrath, 86 U.S.App.D.C. 287, 182 F.2d 368, the lower court cited and relied upon the Ex-Cello-O case, but in Joint Anti-Fascist Refugee Committee v. McGrath, 341 U.S. 123, 71 S.Ct. 624, 95 L.Ed. 817 both of these decisions were reversed. It is true that some courts have cited Ex-Cell-O with approval (see Beauty Hall, Inc. v. State Board of Cosmetology, 418 Pa. 225, 210 A.2d 495) but we are not compelled to apply its rule here.

It seems clear to us that respondent is an 'interested person' within the meaning of Government Code section 11440, ³ as well as Code of Civil Procedure section 1060, and hence has standing to maintain this action. Respondent's interest in the application of amended regulation 1765 is obvious and direct. It sells trading stamps to retail merchants. It has over 900 contracts with pharmacists in this state for the purchase of its product. If the amended regulation is enforced, respondent will effectively be deprived of the benefit and profit to be derived from such contracts. It seems idle to contend, as appellants seem to do, that the regulation in no way interferes with respondent's right to Sell its trading stamps, even to pharmacists--that all that is prohibited here is the mere Giving of the stamps by pharmacists. This argument is based in part upon the reasoning advanced in the Ex-Cell-O case. We cannot accept this view. Applied here, the reasoning in Ex-Cell-O would destroy a large segment of respondent's business while in form seeming to preserve it. We believe the allegations of respondent's complaint show that it is directly affected by the Board's regulation, and hence that respondent has standing to challenge its validity. (See Chas. L. Harney, Inc. v. Contractors' Board, 39 Cal.2d 561, 564, 247 P.2d 913; Annotation, 'Interest necessary to maintenance of declaratory determination of validity of statute or ordinance', 174 A.L.R. 549.)

Appellants also attack the complaint on the ground that its allegations demonstrate that respondent's trading stamps represent a cash discount and that Business and Professions Code section 651 prohibits licensed pharmacists from offering to sell or render any service upon a representation that the commodity or service is at a discount from the average fee or price then regularly charged by licensees or other persons. Thus, appellants argue, the complaint attempts to sanction violation of a penal statute, and hence states no cause of action. But as will appear, section 651 must be read in the light of later enacted Business and Professions Code section 17780, ⁴ which section repeals all laws and parts of laws directly or indirectly regulating the distribution of trading stamps in this state, with exceptions therein noted.

In the trial court respondent contended that the Board's amendment to regulation 1765 was invalid on four grounds. The court upheld all of these objections and based its judgment and injunction upon each of them. As we have previously said, at least one of respondent's points is well taken and requires us to affirm the judgment. Since this is so, it becomes unnecessary to discuss other contentions of the parties with respect to the validity of the amendment.

In support of its motion for judgment on the pleadings respondent correctly argued that the Legislature has preempted the field of trading stamp regulation, and hence the attempted regulation of that activity by appellants is invalid.

In 1959 the Legislature added chapter 3 to division 7, part 3 of the Business and Professions Code. This chapter contains sections 17750 through 17780. The result of these sections is to regulate the activities of trading stamp companies, including the issuance and redemption of trading stamps. Section 17780 repeals all laws and parts of laws now effective in this state, to the extent that they '* * * directly or indirectly regulate the distribution or redemption * * *' of trading stamps. This language, it appears to us, precludes appellants' attempted administrative regulation prohibiting its licensees from distributing trading stamps.

Appellants seek to justify the amendment to the regulation by reference to Business and Professions Code sections 4008 and 4008.2. ⁵ Section 4008 grants the Board authority to make rules and regulations relating to the practice of pharmacy '* * * not inconsistent with the laws of this State * * *.' But sections 4008 and 4008.2 must be read in the light of section 17780. When this is done it is apparent that section 17780 relieves the appellant Board of any power it may have had previously under sections 4008 and 4008.2 to regulate the issuance of trading stamps by pharmacists. Section 17780 is a later enactment than either section 4008 or 4008.2 and specifically treats the subject of trading stamp companies and the issuance and...