United States v. Spotless Dollar Cleaners

• Decision Date: 31 March 1934
• Citation: 6 F. Supp. 725
• Parties: UNITED STATES v. SPOTLESS DOLLAR CLEANERS, Inc.
• Court: U.S. District Court — Southern District of New York

6 F. Supp. 725

UNITED STATES v. SPOTLESS DOLLAR CLEANERS, Inc.

District Court, S. D. New York.

March 31, 1934.

Martin Conboy, U. S. Atty., of New York City (Francis H. Horan, of Washington, D. C., and John F. Davidson, Edward J. Ennis, and Irvin C. Rutter, all of New York City, of counsel), for the United States.

S. Frederick Placer, of New York City (Martin W. Littleton and Isadore Paul, both of New York City, of counsel), for defendant.

KNOX, District Judge.

The court is here asked to restrain defendant, pendente lite, from performing certain retail dry-cleaning and dyeing services within New York Trade Area No. 12, which includes this city, at prices that are below certain minimums established for such services under article VI, section 3 (h), of the Code of Fair Competition for the Cleaning and Dyeing Trade, approved by the President on November 8, 1933.

Jurisdiction is invoked under the provisions of title 1, of the National Industrial Recovery Act (Public No. 67, 73d Congress 15 USCA § 701 et seq.), approved June 16, 1933, and particularly under section 3 (c) of the act (15 USCA § 703 (c). This latter section reads: "(c) The several district courts of the United States are hereby invested with jurisdiction to prevent and restrain violations of any code of fair competition approved under this chapter; and it shall be the duty of the several district attorneys of the United States, in their respective districts, under the direction of the Attorney General, to institute proceedings in equity to prevent and restrain such violations."

Defendant, a New York corporation, is engaged in operating thirty-two stores within the city of New York, at which the service of dry-cleaning and processing incidental thereto are offered for sale to the public. Fabrics and clothing which defendant receives from customers patronizing its stores are delivered for cleansing to Empire Cleaners & Dyers, Inc., a New Jersey corporation, which maintains a wholesale processing plant at Edgewater, N. J., upon the westerly side of the Hudson river. The complaint declares that this corporation and the defendant are "owned and controlled by substantially the same persons either through common stock ownership or through ownership of a controlling interest in the stock of one corporation by the other corporation, and are managed and conducted by substantially the same executive officers as a single business enterprise."

Under the code the minimum retail price for dry-cleaning a suit of men's clothing is 70 cents. For a similar service to a woman's dress, the minimum code price is 75 cents. Defendant performs like services upon such garments for charges of 39 and 45 cents, respectively, and threatens to continue so to do.

The government avers that, due to the relationship existing between defendant and Empire Cleaners & Dyers, Inc., the method of retailing the dry-cleaning services in controversy constitutes interstate commerce. In reality, it is said defendant's business must be viewed as made up of the sales of services performed in New Jersey to persons in New York, who purchase the same. This alleged feature of the case is stressed by statements that all garments are transported to and from the retail stores in New York and the cleaning plant located in New Jersey, and that money, credits, etc., from customers in New York are ultimately transferred to the corporation in New Jersey. The complainant further contends that defendant's low prices for the services sold affect interstate commerce, in that substantial portions of dry-cleaning services of which residents of New York avail themselves are purchased from members of the cleaning and dyeing trade who operate from locations situated in states adjoining New York, and who are therefore in active competition with defendant. Therefore retail prices charged by defendant have an immediate and necessary effect towards reducing both retail and wholesale prices of competitors. This leads to (1) an obstruction to the free flow of interstate commerce and a consequent diminution thereof; (2) a decrease in the ability and requirement of members of the trade to purchase machinery, naphtha, chemicals, and other supplies required to carry on business; (3) a decrease in employment among workers in the industry, and an impairment in their standards of labor, accompanied by a decline in the power of the workers to purchase and consume industrial and agricultural products, customarily moving in interstate commerce; and (4) a frustration of the purposes and policy of the National Industrial Recovery Act.

Complainant's bill then proceeds to call attention to the existing emergency in commercial and industrial life, and says that it has affected the cleaning and dyeing trade with particular adversity. Until the approval of the code, continues the pleading, the industry was in chaotic condition. There was widespread unemployment with excessively low wages paid to, and unduly long hours imposed upon, those who still held jobs. Failures of service merchants were numerous, and the trade generally reeked with trade wars and other vicious trade practices. These conditions, the allegations continue, are now improving, but, if defendant is to be permitted to continue to maintain its present low prices the improvement will be arrested, and such advantages as have been gained will be lost. A continuance of defendant's conduct will attract business from members of the trade who adhere to code prices and inevitably will result in destructive price wars, with all their attendant evils.

To prevent these potentialities, the court is asked to employ its injunctive process.

Defendant's answer to the complaint consists of a general denial, together with the following specific defenses:

"First: That defendant is engaged wholly and solely in intrastate commerce as adjudicated by the Supreme Court of the State in an action entitled, `Cleaners' & Dyers' Board of Trade, Inc., and Joseph Goldstein, etc., Plaintiff, against Spotless Dollar Cleaners, Inc., Defendant,' (the defendant here) 150 Misc. 699, 270 N. Y. S. 153 and also by a judgment of the Court of Special Sessions of the City of New York, County of New York in a proceeding entitled, `People of the State of New York against Spotless Dollar Cleaners, Inc., defendant' (also defendant here).

"Second: That defendant employs 250 employees in its stores, and has invested large sums of money in such establishments and has built up a good will of great value; that it has many competitors similarly situated; that the trade is divided into two branches, rendering two distinct types of service, — one a `cash and carry,' the other, — a `call and delivery' service. Defendant engages in the former. Thirty percent of the entire retail cleaning and dyeing trade in the United States is of the `cash and carry' variety, and that, as between the two types of service, the Code fails to make a proper price differential and that, if defendant be compelled to comply with the minimum prices of the code, which are said to be arbitrary, unjust and discriminatory, it will be financially ruined, and thus be deprived of fundamental constitutional rights.

"Third: That defendant secures a fair return and profit upon its investment at the prices it charges for dry-cleaning services, and that it pays its employees wages which are at least equal to, and more than the minimums specified by the code, and that such employees have worked no more than the maximum number of hours therein prescribed.

"Fourth: That defendant is engaged in a strictly private business which is not vested with any public interest. Neither does it endanger the public health, welfare and morals of the people, either of the community in which it does business, or of the United States. It denies any right in the National Code Authority to fix prices at which its services shall be sold. In this connection the constitutionality of the National Industrial Recovery Act is bluntly challenged."

That the cleaning and dyeing business is an important "service industry" which makes a worthwhile contribution to the sum total of the nation's commercial activities is clear. In dollar volume, the business rose from $53,000,000 in 1919 to $201,000,000 in 1929. Over the same period, the wages of workers within the industry increased from seventeen and one-half millions of dollars to almost seventy-six millions. In 1932, when the pall of depression had settled leadenly over all the land, these wages declined to forty millions, a sum still far from negligible. Within metropolitan communities, the dry-cleaning agency in closest touch with customers is the retail store and small tailor shop. When clothing and fabrics are carried to, or collected by, a representative of the store or shop, the greater quantity thereof is sent to a wholesale cleansing plant in which the retail dealer, generally speaking, has no proprietary interest. Seventy per cent. of the trade in this city is so handled. The remainder passes through establishments which have an interest, more or less clearly defined, in the wholesale processing plant. Defendant's organization falls within the latter category.

Complainant's affidavits declare that over the past few years competitive conditions in the industry have been severe. In 1930, price wars broke out in various sections of the country. At or about this time the standard prices obtained in Chicago for cleaning men's suits and women's dresses were $1.75 and $2, respectively. A cleaner in Springfield, Ill., where wage scales were lower and where union labor did not hold sway, started a parcel post cleaning service at half prices. Numerous small city dealers followed his example. A cut price shop was opened in Chicago, and the rates of established dealers were forced to $1 per garment. A labor lockout followed, and was succeeded by a reduction in the wages of employees. Cut rate stores in Chicago successfully insisted...