lb: Y GICNERA

April 2'1,1959

Honorable Reagan R. Huffman, Chairman OpinionNo. WW-609 Liquor Regulations Committee House of Representatives Re: Constitutionalityof Austin, Texas ?&use Bill 353, 56th Legislature, relating to establishment of minimum sales price in the sale of spiritous liquors.

Dear Sir:

Your request of March 25, 1959 reads as follows:
"Please consider this letter as a request from the House of Representatives LiquorRegulation Committee for a ConstitutionalOpinion on the enclosed House Bill 353 by Representative,Day. "By unanimous vote of the above Committee this Bill has been sent to ybu for'your opinion'asto its constitutionality. This Committeewould also humbly request your opinion as to!whether this Bill would be constitutional If amended to ,state that no retail liquor dealer could sell under wholesale prices."

We will turn our considerationto your first question, namely, whether the Bill as written is constitutional.

Article 666-57 of Section 1, H. B. 353, reads as follows:
"ARTICLE 666-57 - POLICY 

### OFTEE STATE: It is hereby declared to be'the policy of the State of Texas to stabilize liquor prices for,the purpose of stabilizingpublic revenues and an end of avoiding price wars which would materially affect the revenues of the State, attempts at monopolies and the demoralizationof the legally controlled sales of liquors in this State which grows out of unfair pricp manipulations."
The following quotationsare taken from House Bill 353 as pertaining to the setting of a minimum price:HonorableReagan H. Huffman, Page 2. (~~-609)

"ARTICLE 665-58 - SALE ANI IMPROPERPRICES PROHIBITEDD:No wholesaler or retailer of spiritousor vinous liquors as they are defined in Article 

### 666-3A of this chapter, shall sell any such liquors in this State, except at the prices herein fixed.
"ARTICLE 666-59 - THE WHOLESALER'S SELLING PRICE: The wholesaler's sellingprice to the retailer shallbe his cost as defined in this Act, plus a minimum mark-up of 13% of cost on liquor, cordials, liqueurs, specialties, sparklingand stillwines, and he shall deliver such liquors to the retailersat such pricewithout additional price for delivery.
"ARTICLE 

### 666-60-RETAILER'S SELLING PRICE: The retailer's selling price shall be his cost as defined in this Act, plus a minimum mark-up of 

### 305 of cost on liquors, cordials, liqueurs and specialties, and 

### 50%on all wines.
'ARTICLE666-61 -WHOLESALER'S COST DEFINED: The cost to the wholesaler is the actual invoiced price which he pays for the merchandise,and **as** determined by the Board's Administrator,plus State and Federal taxes, plus actual freight and cartage cost incurred in delivery to him.
"ARTICLE 666-62 - RETAILER'S C0ST.DEFINF.D:The cost to the retailer is the actual invoicedprice which he pays to the wholesaler.
"ARTICLE 666-63 - SELLING PRICE DISPLAYED BY RETAILER - DISCOLWS: No retailer shall expose any of such alcoholic beverages for.salewithout showing the selling price thereof in easily read figures, and it shallbe unlawful for any retailer to offer such merchandise for sale at any other figure, except that, in case lots (of not less than 2.40 gallon) the retailer may grant a discount of not more than 10% of such retail prices.
"ARTICLE 

### 666-6~- SALE ATREDUCEDPRICES: Wholesalers and retailersmay make close-out sale or sales of damaged goods at reduced prices under such regulationsas t&Board's Administrator shall prescribe.
*t~~~~~~ 666-65 -REBATES, LOANS, OR GIFTS - AC-.

Honorable Reagan R. Huffman, Page 

### 3. (w-609)

CESS TO BOOKS AND RECORDS: Any rebates, loans, gifts or other special inducements offered, given, or accepted by eitherwholesaler or retailer, shall be considered evasions of the requirementsof this Act, and the Board'sAdministratorand his agents shall have full access to all of the books and records of wholesalers and retailersand common carriers at all times for the purpose of detecting and proving such evasions.."
Under the Texas Liquor ControlAct,Article 

### 666-41, Vernon's Annotated Penal Code, these provisionsare to be enforcedby both civil and criminal sanctions.

Section 19 of Article 1 of the Texas Constitutionreads:

"No citizen of this State shall be deprived of life, liberty, property, privileges, or immunities,or in any manner disfranchised,exceptby the due course of the ' law of the land."

Due process of law not also substantiveprotection. It the substance of legislationand only includesproceduralprotection,but is a direct constitutionalrestraint upon means that a legislative curtailmentof be justifiedby a resultantbenefit to the personal or property rightsmust public welfare. Thus the due process guaranty does, not restrain the State in the exercise of its legitimatepolice powers. See City of New Braunfels v. Waldschmit, lop T. 302, 

### M7.S. W. 

### 303 (1918). Houston & Tex. Cent. Ry.. co. v. Dallas, 

### 98T. 

### 396,84 S.W. 

### 648 (1905). Both liberty and property are subject to the exercise of these powers.

Nevertheless, the exercise of the police powers is not unrestricted, but is limited to enactmentshaving reference to the public health, comfort, safety and welfare. It must not be arbitrary,unreasonable, or patentlybeyond the necessities of the case, and the means which it employs must have a realiand substantialrelation to the object sought to be attained. See Spann v. City of Dallas, 111 T. x50/235 S.W. 

### 513 (1921), Houston & T. C. Ry. Co. v. City of Dallas, supra;American Federation of LBbor v. Mann, Civ. App., 

### 188S.W.2d 

### 276 (1945).

The Federal Constitution, in the fifth and fourteenthamendments, also provides against deprivationof life, liberty or propertywithout due process of law, the fourteenthamendmentby its languagebeing applicable to prevent the states from carrying out such a deprivation. It has been held by Texas Courts that the clause of the Texas Constitution,to the extent that it is identicalwith'the fourteenthamendment,has placed upon the powers of the state legislaturethe same restrictionsas those which have been held,tobe imposedby the language of that amendment of the Federal Constitution. Mellinger v. City of 'Houston,

### 68T. 

### 37,3SW.2@ (1887 

### ‘1.Honorable Reagan R. Huffman, Page 4. 

### (w-609)

In Neel v. Texas Liquor Control Board, 259 S.W.2d 312 (Civ.App. 

### 1953),the Court announced these guides as to the validity of regulations under the state'spolice power.

"'Thepolice power of the state extends only to such measures as are reasonable,and the general rule is that all police regulationsmust be reasonableunder all ., circumstances. In every case it must appear that the means adopted are reasonablynecessary and appropriate for the accomplishmentof a legitimate object falling within the domain of the police power. A statute to be : ~.'. within this power must be reasonable in its operation upon the personswhom it affects asd not unduly oppressive. The validity of a police regulation therefore primarily depends on whether under all the existing circumstancesthe regulation is reasonable or arbitrary and whether it is really designed to accomplish a purpose properly fallingwithin the scope of the police power.' 

### 6 R.c.L., ConstitutionalLaw, Paragraph 

### 226.

"We take the following from the Case of Houston & T. c. R. CO. v. Dallas, 

### 98Tex. 

### 396,84 S.W 

### 648 653, 70 L.R.A. 

### 850: 'Thepower is not an arbitrary on:, but has its limitations. It is commensuratewith, but does not exceed, the duty to provide for the real needs of the people in their health, safety, comfort,and convenience as consistentlyas may be with private property rights. As those needs are extensive,various, and indefinite, the power to deal with them is likewisebroad, indefinite,and impracticableof precise definition or limitation'.

"It has been further stated: 'Inorder to sustain legislative interferenceby virtue of the police power, under either a statute or a minicipal ordinance, it is necessary that the act shouldhave some reasonable relation to the subjects included in such power, and the law must tend, in a degree that is preceptibleand clear, toward the preservation of the public welfare, 01‘ toward the prevention of some offense or manifest evil, or to the furtherance of some objectwithin the scope of the police power. * * *' 

### 6R.C.L., Constitutional Law, Paragraph 227."

In Attorney General Opinion O-3242 these principleswere applied to hold fixedminimum prices for barber servicesunconstitutionalbecause "first, there was not a discernable, substantialand legitimate relation between the means adopted by the bill and the legitimate object of the exercise of the police power, to wit, the protection or the improvement of the public health, safety,morals, or generalwelfare.".

HonorableReagan R. Huffman, Page 

### 5. (~-609)

In SchwegmannBrothers v. Louisiana Board of Alcoholic Beverage Control, 

### 216La. 

### 148 43 SO. 2d 

### 248 14A.L.R. 2d 

### 680 (La. Sup. 

### 1949), the Louisiana Suprem; Court had bef&e it a very similar statutewhich reads in part as follows:

"(6) 'Cost',invoiceprice to dealer plus ~ freight or cartage, if not included in the invoice, without any deduction for any discounts or conces: sions of any kind, plus all taxes
. . . "Section 

### 24

. . . . "(a) The wholesaler'sminimum sellingprice to a retailer shallbe his cost, as herein defined, plus 

### 15son liquor; 20s on cordial liquers. and specialties;and 

### 15%on sparklingand still wines. "(b) The retailer!? minimum selling price shall be his cost, as herein defined,plus 

### 33 l/3$on liquor, 

### 45%on cordials, liquers and specialties;and 

### 50%on sparklingand stillwines.".

In applying the principles announced in the Neel case, supra, the Louisiana Supreme Court in the Schwegmann Brothers case page 

### 258had this tomsay: "Now, in applying the above test, the following

questionsmust be answered: Is there a real and substantial relationbetween the mandatoryminimum mark ups of the statuteand the preventing of injury to the economic, social and moral well being of the people of the state? Are those means (themark ups) reasonably necessary and appropriate for the accomplishmentof the legitimate object or purpose which the statute announces (regulationand control of the,traffic)? "Appellants,of course;answer these~questions in the affirmative, they maintain that the minimum mark ups are designed, in'the interest of temperance, to prdtect the people from the temptations of cheap liquor due to cut-throat competition;to eliminate excessive consumption of strong drink that results from price wars; and to prevent certainmoral abuses brought about by low liquor prices. Appellee, onthe other hand, answers in the negative. It states, to quote from counsel's brief, as follows: 'Act

### 360,it is submitted, is aimed at the ordinary hazards of competition incidentto any business; price competitionand credit risks. It bears no real and substantialrelation to the publicwelfare,Honorable Reagan R. Huffman, Page 

### 6. (~~-609)

but is preferential legislation for certain favored groups in the liquor industry.'
II

. . . "But assuming for the sake of argument that liquor pricewars are possible of occurrence in this state and that stringentregulationsto prevent them are needed, we do not agree that the mandatory mark ups providedby Act 

### 360of 1948 constituteappropriatemeans for the achievement of that purpose. True, these are fixed percentages that the wholesale and retail dealersmust add to their costs (the enforcement of the addition is charged to the LouisianaBoard of Alcoholic Beverage Control) resultingusually in uniform prices on the effectedbeverages among the dealers of each class

. . . .Nevertheless the statute omits the stipulationof a mandatorymark up for the manufacturer or distiller respectinghis sales to the wholesaler, and, by reason of the omission, such producer (or producers)very easilymight instigate and sustain the occasion of a price war. There is nothing in Act 

### 360of 1948, or otherwise to our knowledge, to prevent a distiller (or a combination of distillers) from placing his product on the 'market at mere cost plus tax (withoutprofit) in competitionwith others who seek profits on their merchandise. If such is done, and it is possible to do, the purchasingwholesaler and his vendee, the retailer, need only add to their respective costs the required mark ups, and there could result the discussed cut throat competitionand price war (with cheap liquor to the consumer)which the statute,appellantsmaintain, purposes to avoid.

. . . "From all of which we conclude that the provisions of Act 360 of 

### 19948 which relate to the mandatory tiinimum

mark u;s (Sections l(s), 24 and 26) do not tend, in a degree that is perceptibleand clear,&toward the accomplishment of the announced purpose of the statute,namely the regulation and control of the liquor traffic so that it 'maynot cause injury to the economic, social and moral well-being of the people of the State.' They, in otherwords, are inappropriatefor the achievement of the legitimate object described in the statute. Accordingly,we hold that such provisionsare manifestly unreasonable,’
:.

Honorable Reagan R. Huffman, Page 

### 7. (~-609)

within the contemplationof the state's police power, and,hence, are unconstitutional in that they violate the due process clauses of our state and federal constitutions."
Article 

### 666-2of the Texas Liquor ControlAct contains the object and purposes for which the Act was passed. This Section reads as follows:
"This entireAct shallbe deemed an exercise of

the police power of the state for the protection of the welfare, health, peace, temperance, and safety of the people of the state,and all its provisions shall be liberally construed for the accomplishmentof that purpose".
Now, in looking at the announced objects of House Bill 

### 353as contained in Article 

### 666-7,as above set out, we find the announced objects to be: (1) To stabilize liquor prices for the purpose of stabilizing public revenues;

(2) Avoiding price wars which materially affect revenues; 

### (3) Attempts at monopolies and demoralizationof legally controlled sales of liquorswhich grow out of unfair p&e manipulations.

As above noted the liquor field is regulated under the state's police power. Therefore, the questionpresents itselfas.to whether H. B. 

### 353 is a ligitimate exercise of this power. As was stated in the Neel case, supra, it must appear that the means adopted are reasonablynecessary and appropriate for the accomplishmentof a ligitimate object falling within the domain of the police power.

As to whether the police power can be used to stabilizepublic revenues and avoid price wars which would materially affect the revenues, the following principleswould seem important. The police power cannotbe used for the purpose alone of raising revenue. 9 Tex. Jur. p. 513. While the police power is exercised only forthe purpose of promoting the public welfare, and, although this end may be"attainedby taxing or licensing occupations,the objectmust always be regulationand not the raising of 'revenue. 16 c.J.s., p. 

### 891. Insofaras the announced objects or purposes of H. B. 

### 353are directed at stabilizingrevenues, itwould be the use of the police power for the purposes and.objectiveswhich do not lie within such power and would thereforebe an unwarranted use thereof. With regard to the announced objects or purposes of "avoidtigpricewars" and "attempts at monopolies and demoralizationof the legally controlled sales of liquors in this State which grow out of unfair price manipulations",we.findHonorableReagan R. Huffman, Page 

### 8. (w-609)

that the means of requiringa minimum percentagemark up at the wholesale and retail level as adoptedby Il. B. 

### 353has no discernible, substantial,and logical relation to the legitimate objects of the exercise of the police power, to wit, the protection or improvementof the public welfare, health, peace, temperance and safety. Since the bill omits the manufacturer or distiller from price regulation, suchmanufacturers or distillersare provided the power to easily instigateor sustain the occasion of a price war, which by reason of the wholesalers and retailers being required to have a minimum mark up would be carried directly to the public (see discussion taken from SchwegmannBrothers case, supra,page 

### 6 of this opinion). All adjustment of prices through competitionwould thus be thwarted.

The,conclusionnecessarily follows then that R. B. 

### 353does not meet the required test for a valid exercise of the police power since, as above pointed out, the means adopted are not ,reasonably necessary and appropriate for accomplishment of a legitimate object fallingwithin the domain of the police powers.

It shouldbe pointed out that H. B. 

### 353does not include all the elements of legislationpopularlyknown as "FairTrade" ads and that this opinion does not rule on the constitutionalityof any other such legislation.

As to those portions of R. B. 

### 353which do not apply to a minimum mark up requirement,namely, maximum number of licenses; locationswithin five mile limits; cancellationof unused licenses; renewal of permits; and location on same streets;we find no authority holding that such regulations are an unreasonable regulationunder the police power.

We turn now to your second question inwhich you ask our opinion as to "whether this bill (H.B. 

### 353)would be constitutionalif amended to state that no retail liquor dealer could,sellunder wholesale prices".

We cannot pass on the constitutionalityof a provisionwhich has not yet been drafted and presented to us for examination.

SUMMARY
The provisions of H.B. 

### 353that pertain to the establishment and enforcement of a minimum sales price of spiritous liquors for wholesalers and retailers are not a valid exercise of the police power. The provisions regulatingmaximum number of licenses; locationswithin five mile limits; cancellationof. ,,

Honorable Reagan R. Huffman, Page 9. 

### (~~-609)

unused licenses; renewal of permits; location on same streets; are constitutional.
Very truly yours,


### WILLWILSON Attorney General

. .

By:

&H:aw
APPROVED:
OPINION COMMITTEE:
Geo. P. Blackburn, Chairman
C. K. Richards C. Dean Davis Elmer McVey PaulW. Floyd, Jr.
REVIEWED FOR THE ATTORNEY GENEBAL BY: W. V. Geppert