Twin City Candy & Tobacco Co. v. A. Weisman Co.

• Decision Date: 20 March 1967
• Docket Number: Nos. 40287,40188,s. 40287
• Citation: 276 Minn. 225,149 N.W.2d 698
• Parties: TWIN CITY CANDY AND TOBACCO COMPANY, Inc., Appellant, v. A. WEISMAN COMPANY, Respondent. MINNESOTA CANDY & TOBACCO DISTRIBUTORS ASSOCIATION, Appellant, v. A. WEISMAN COMPANY, Respondent.
• Court: Minnesota Supreme Court

Page 698

149 N.W.2d 698

276 Minn. 225

TWIN CITY CANDY AND TOBACCO COMPANY, Inc., Appellant, v. A. WEISMAN COMPANY, Respondent.

MINNESOTA CANDY & TOBACCO DISTRIBUTORS ASSOCIATION, Appellant, v. A. WEISMAN COMPANY, Respondent.

Nos. 40287, 40188.

Supreme Court of Minnesota.

March 20, 1967.

Rehearing Denied April 11, 1967.

Syllabus by the Court

1. Where the issues framed and relief sought in a wholesaler's action to enjoin violations of the Unfair Cigarette Sales Act are decisive of the claims of a trade association asserted in a separate suit, it is not necessary for the court to pass on the question of whether the association had standing to sue.

2. Statutes prohibiting sales below cost are a valid exercise of the state's police power, provided the constitutional rights of vendors are adequately protected.

3. Lack of a requirement of predatory intent or effect in a statute prohibiting sales below cost is not cured by a recitation in the preamble that all such sales are made with that intent or effect.

4. Minnesota Unfair Cigarettes Sales Act, Minn.St. 325.64, et seq., prohibiting sales of cigarettes at less than cost, Held to be an unconstitutional denial of due process without the qualification that only sales made with the intent or effect of injuring a competitor or destroying competition shall be illegal.

5. Although the burden of proof can not be shifted to the defendant in criminal prosecutions, statutes prohibiting sales below cost may constitutionally require that in civil cases the vendor shall prove that below-cost sales made by him were without predatory intent or harmful effect.

Joseph Robbie and Peter J. Lindberg, Minneapolis, for appellants.

Maslon, Kaplan, Edelman, Joseph & Borman, and Ralph Strangis, Minneapolis, for respondent.

OPINION

OTIS, Justice.

Two actions against the same defendant have been consolidated on appeal. One has been brought by a nonprofit trade association to enjoin violations of the Minnesota Unfair Cigarette Sales Act, and the other, by a wholesale distributor, to obtain an injunction and damages.

1. The trial court held that the trade association, Minnesota Candy & Tobacco Distributors Association, was without standing to bring the action, and we are asked to determine the propriety of that order. Because the issues raised and the relief sought in the action brought by Twin City Candy and Tobacco Company, Inc., are decisive of the claims of the trade association, we hold that the association's standing does not present a question which it is necessary to review, and we therefore decline to do so.

2. With respect to the action brought by Twin City Candy and Tobacco Company, Inc., the trial court initially granted a temporary injunction. This prompted defendant to move for an order declaring unconstitutional the Minnesota Unfair Cigarette Sales Act (hereinafter referred to as the Cigarette Act). The trial court granted the motion, treating it as one for summary judgment. Plaintiff appeals from the judgment of dismissal which was thereupon entered.

Plaintiff and defendant are wholesale distributors of cigarettes in the Twin Cities area. During the summer of 1965 one of defendant's salesmen approached a customer of plaintiff's and offered to sell him cigarettes at 5cents a carton less than the actual invoice cost. Following these overtures defendant did sell plaintiff's customer 454 cartons below cost, which plaintiff alleges resulted in a direct loss of profits amounting to $1,212.18. Plaintiff further alleges that these sales were in willful and deliberate violation of the Cigarette Act and, if repeated, will destroy plaintiff's business. Accordingly, plaintiff seeks to enjoin defendant from further violations and in addition prays for damages.

The pertinent provisions of the Minnesota Unfair Cigarette Sales Act are as follows:

Minn.St. 325.64. 'The legislature finds that unfair, dishonest and fraudulent business practices exist in transactions involving the sale of, or offer to sell, cigarettes in the wholesale and retail trades in this state and are demoralizing and disorganizing the said trades.

'Offering for sale, or Sale of cigarettes below cost in the wholesale and retail trade is declared by the legislature to have the intent or effect of injuring a competitor, destroying or lessening competition, and is deemed an unfair and deceptive business practice and an unfair method of competition.

'Such practices affect collection of taxes and license fees imposed on distributors, wholesalers, retailers, and persons engaged in the sale of cigarettes.

'It is hereby declared to be the policy of the state of Minnesota and the purpose of sections 325.64 to 325.76 to protect the public by prohibiting such sales.' (Italics supplied.)

§ 325.67. 'Subdivision 1. It shall be unlawful for any wholesaler or retailer to offer to sell, or sell, at wholesale or retail, cigarettes at less than cost to such wholesaler or retailer, as the case may be, as defined in sections 325.64 to 325.76. Any wholesaler or retailer who violates the provisions of this section shall be guilty of A misdemeanor.

'Subd. 2. Evidence of advertisement, offering to sell or sale of cigarettes by any wholesaler or retailer at less than cost to him as defined by sections 325.64 to 325.76 shall be evidence of a violation of sections 325.64 to 325.76 In civil cases.' (Italics supplied.)

§ 325.70. 'The provisions of sections 325.64 to 325.76 shall not apply to a sale at wholesale or a sale at retail made (a) in an isolated transaction; (b) where cigarettes are offered for sale, or sold in a bona fide clearance sale for the purpose of discontinuing trade in such cigarettes and said offer to sell, or sale shall state the reason thereof and the quantity of such cigarettes offered for sale, or to be sold; (c) where cigarettes are offered for sale, or sold as imperfect or damaged, and said offer to sell, or sale shall state the reason therefor and the quantity of such cigarettes offered for sale, or to be sold.'

§ 325.71. 'Subdivision 1. Any wholesaler may advertise, offer to sell or sell cigarettes at a price made in good faith to meet the price of a competitor who is selling the same article at the cost to the competing wholesaler as defined by sections 325.64 to 325.76.'

Under § 325.74, any person injured or threatened with injury by a violation of the act may bring an action to enjoin the violation. If any part of the act is held unconstitutional the remainder is deemed severable. § 325.76.

The issue before this court is whether the failure to require proof that sales at less than cost are with the intent or effect of injuring competition renders the statute invalid. We have concluded that it does. ¹ In so holding we have in mind the principles that laws are presumed to be constitutional unless their invalidity is demonstrated beyond a reasonable doubt, and that courts shall exercise with restraint their power to strike down legislation. Dimke v. Finke, 209 Minn. 29, 32, 295 N.W. 75, 78. Nevertheless we are persuaded that considerations of policy, our own precedents, and the overwhelming weight of authority compel a holding that the statute is invalid.

If drafted with appropriate constitutional safeguards it is no longer open to question that legislation prohibiting sales below cost is a proper exercise of the state's police power. ² Virtually every state has adopted a 'fair trade' law in one form or another. ³ The practice of advertising and selling 'loss leaders,' or what have been sometimes described as loss 'misleaders,' ⁴ has been found by legislatures to result in financially strong companies driving weaker competitors out of business, thereby opening the door to the monopolies which the law is designed to prevent. The charge is made that sales at less than cost by chain stores result in regional discrimination because the loss to the vendor in one community must be recouped by excessive charges in another. A further justification for the statute is the likelihood of deception arising from the public's notion that if one item is sold below cost others will be equally cheap, whereas they may actually be exorbitantly high. ⁵ Whether these and other arguments which center on protecting the consumer are valid, or whether the statutes are essentially designed to protect business from cutthroat competition harmful to it but beneficial to the public, we need not decide. ⁶ The considerations recited are sufficient to support the validity of 'below cost' statutes, if the constitutional rights of vendors are adequately protected.

3. A basic assumption in considering this question is the premise that vendors have a right to deal with their property as they wish and that freedom to contract is a liberty which may not be circumscribed except for compelling reasons. ⁷ Price fixing has been uniformly held to be a denial of due process except where it promotes the general welfare and is thus a subject of the state's police power. ⁸ To regulate prices lawfully there must be a substantial relation between the measures taken and the evil to be suppressed. ⁹ The question then is whether a statute such as ours may creates a conclusive presumption that All sales of cigarettes below cost, not within one of the stated exceptions, are with the intent or effect of injuring a competitor.

Under our Cigarette Act violators are afforded no opportunity to show that a sale is with innocent intent or without predatory effect. This defect may not, in our opinion, be corrected by a mere recitation in the preamble of the statute which amounts to an irrebuttable finding of fact. We have indicated in Berg v. Berg, 201 Minn. 179, 189, 275 N.W. 836, 842, that the preamble is not actually a part of the statute. Beyond that, however, to the extent the recitations in § 325.64 constitute a conclusive presumption, they are unjustified and invalid. Even the legislature does not have the power to declare conclusively what shall...