State v. Walgreen Drug Co., Civil 4301

• Decision Date: 20 May 1941
• Docket Number: Civil 4301
• Citation: 57 Ariz. 308,113 P.2d 650
• Parties: THE STATE OF ARIZONA, Appellant, v. WALGREEN DRUG CO., a Corporation, Appellee
• Court: Arizona Supreme Court

113 P.2d 650

57 Ariz. 308

THE STATE OF ARIZONA, Appellant, v. WALGREEN DRUG CO., a Corporation, Appellee

Civil No. 4301

Supreme Court of Arizona

May 20, 1941

APPEAL from a judgment of the Superior Court of the County of Maricopa. Arthur T. LaPrade, Judge. Judgment affirmed.

Mr. Joe Conway, Attorney General, and Mr. Earl Anderson, Special Assistant Attorney General, for Appellant.

Mr Charles Bernstein, for Appellee.

Messrs Snell & Strouss, Mr. Mark Wilmer and Mr. George M. Hill Amici Curiae.

OPINION

LOCKWOOD, C.J.

The State of Arizona, plaintiff, filed this action in the superior court of Maricopa County against Walgreen Drug Co., a corporation, defendant. The complaint set forth in substance that defendant had repeatedly violated the provisions of chapter 39, session laws of Arizona, 1939, commonly known as the "Unfair Sales Act," and asked for an injunction against defendant forbidding it from offering to sell any commodities below cost "as said cost is defined by the said chapter 39, session laws of Arizona, 1939, except as said sales may be allowed under the exemptions contained in section 6 of said chapter 39." Defendant moved to dismiss the action because the complaint failed to state facts upon which injunctive relief could be granted. The court, after consideration thereof, granted the motion and the action was dismissed, whereupon the matter was brought before us for review.

The real question before us is whether chapter 39, supra, is a constitutional and valid exercise of the power of the legislature. The chapter declares the policy and purpose of the chapter in section 7 thereof, as follows:

"Declaration Of Policy And Purpose. It is hereby declared that the practice of selling certain items of merchandise below cost in order to attract patronage is generally a form of deceptive advertising and an unfair method of competition in commerce. Such practice causes commercial dislocations, misleads the consumer, works back against the farmer, directly burdens and obstructs commerce, and diverts business from dealers who maintain a fair price policy. Bankruptcies among merchants who fail because of the competition of those who use such methods result in unemployment, disruption of leases, and non-payment of taxes and loans, and contribute to an inevitable train of undesirable consequences, including economic depression, and it is hereby declared to be the policy of this state to protect the well-being of its citizens through the prevention, suppression and elimination of unfair methods of competition. The purpose of this act is to carry out such policy in the public interest."

The legislature then, in section 3 of the chapter, declared certain acts to be a violation of the policy, as follows:

"Unfair Sales And Competition. It is hereby declared that any advertising, offer to sell, or sale of any merchandise, either by retailers or wholesalers, at less than cost as defined in this act, with the intent, or effect, of inducing the purchase of other merchandise, or of unfairly diverting trade from a competitor or otherwise injuring a competitor, impair and prevent fair competition, injure public welfare, and are unfair competition and contrary to public policy and the policy of this act, where the result of such advertising, offer or sale is to tend to deceive any purchaser or prospective purchaser, or to substantially lessen competition, or to unreasonably restrain trade, or to tend to create monopoly in any line of commerce."

And in sections 4 and 5 provided two methods of enforcing it, one by a criminal prosecution, and the other by injunction, the latter being the course followed by plaintiff in the present case.

The argument of defendant is that the chapter is invalid for three reasons (a) that the general principle of fixing prices is unconstitutional, (b) that even if such regulation of business may be within legislative power, the particular chapter is void on the ground that the definition of "cost" set forth therein is indefinite and uncertain, and (c) that it does not require any intent to engage in unfair competition as defined by the chapter to fix a liability for violation thereof.

So far as the legislative right to fix prices to be charged by private business is concerned, we think it has been determined by the well known case of Nebbia v. New York, 291 U.S. 502, 54 S.Ct. 505, 510, 78 L.Ed. 940, 89 A.L.R. 1469. Therein the court considered the entire question of the right of the legislature to regulate prices to be charged by private business. In its opinion it laid down the now existing rules of constitutional law on the subject so plainly and definitely that we quote therefrom somewhat fully:

" These correlative rights, that of the citizen to exercise exclusive dominion over property and freely to contract about his affairs, and that of the state to regulate the use of property and the conduct of business, are always in collision. No exercise of the private right can be imagined which will not in some respect, however slight, affect the public; no exercise of the legislative prerogative to regulate the conduct of the citizen which will not to some extent abridge his liberty or affect his property. But subject only to constitutional restraint the private right must yield to the public need....

"The Constitution does not guarantee the unrestricted privilege to engage in a business or to conduct it as one pleases....

"But we are told that because the law essays to control prices it denies due process. Notwithstanding the admitted power to correct existing economic ills by appropriate regulation of business, even though an indirect result may be a restriction of the freedom of contract or a modification of charges for services or the price of commodities, the appellant urges that direct fixation of prices is a type of regulation absolutely forbidden. His position is that the Fourteenth Amendment requires us to hold the challenged statute void for this reason alone. The argument runs that the public control of rates or prices is per se unreasonable and unconstitutional, save as applied to businesses affected with a public interest; that a business so affected is one in which property is devoted to an enterprise of a sort which the public itself might appropriately undertake, or one whose owner relies on a public grant or franchise for the right to conduct the business, or in which he is bound to serve all who apply; in short, such as is commonly called a public utility; or a business in its nature a monopoly....

"The phrase 'affected with a public interest' can, in the nature of things, mean no more than that an industry, for adequate reason, is subject to control for the public good. In several of the decisions of this court wherein the expressions 'affected with a public interest,' and 'clothed with a public use,' have been brought forward as the criteria of the validity of price control, it has been admitted that they are not susceptible of definition and form an unsatisfactory test of the constitutionality of legislation directed at business practices or prices. These decisions must rest, finally, upon the basis that the requirements of due process were not met because the laws were found arbitrary in their operation and effect. But there can be no doubt that upon proper occasion and by appropriate measures the state may regulate a business in any of its aspects, including the prices to be charged for the products or commodities it sells.

"So far as the requirement of due process is concerned, and in the absence of other constitutional restriction, a state is free to adopt whatever economic policy may reasonably be deemed to promote public welfare, and to enforce that policy by legislation adapted to its purpose. The courts are without authority either to declare such policy, or, when it is declared by the legislature, to override it.... And it is equally clear that if the legislative policy be to curb unrestrained and harmful competition by measures which are not arbitrary or discriminatory it does not lie with the courts to determine that the rule is unwise. With the wisdom of the policy adopted, with the adequacy or practicability of the law enacted...