Title: Skaggs Drug Center v. General Electric Company
Citation: 315 P.2d 967, 63 N.M. 215
Docket Number: 6204
State: new-mexico
Issuer: new-mexico Supreme Court
Date: September 27, 1957

315 P.2d 967 (1957) 63 N.M. 215 SKAGGS DRUG CENTER, a Corporation, Plaintiff-Appellant, v. GENERAL ELECTRIC COMPANY, a Corporation, Defendant-Appellee. MILES LABORATORIES, Inc., Plaintiff-Appellee, v. SKAGGS DRUG CENTER, a Corporation, Defendant-Appellant. No. 6204. Supreme Court of New Mexico. September 27, 1957. W.A. Keleher, John B. Tittmann, and T.B. Keleher, Albuquerque, for appellant. Simms, Modrall, Seymour, Sperling &amp; Roehl, and George T. Harris, Jr., Albuquerque, for General Elect. Co. Rodey, Dickason, Sloan, Mims &amp; Akin, Albuquerque, Cawley &amp; Byron, Elkhart, Ind., for Miles Laboratories, Inc. CARMODY, District Judge. This case involves the questioned constitutionality of the New Mexico Fair Trade Act, being Chapter 44 of the Session Laws of 1937, which now appears as section 49-2-1 et seq., N.M.S.A., 1953. Actually, there are two consolidated cases which were consolidated by the court below and heard as one appeal in this court. Originally the Skaggs Drug Center as plaintiff brought suit in Bernalillo County against the General Electric Company, seeking a declaratory judgment with respect *968 to the Fair Trade Act. The General Electric Company answered and by way of counterclaim sought an injunction against Skaggs Drug Center to prevent it from further sales of General Electric fair traded products at a price below that fixed by the General Electric Company. At about the same time Miles Laboratories, Inc., brought suit against Skaggs Drug Center, seeking an injunction to prevent Skaggs from selling Alka Seltzer and One-A-Day vitamin tablets at a price less than those established by Miles Laboratories. The two cases were consolidated for the purpose of argument, the facts having been stipulated to, and the lower court found the Fair Trade Act to be constitutional and entered injunctions on behalf of both General Electric and Miles Laboratories as against Skaggs Drug Center. It was stipulated below that both General Electric and Miles Laboratories had engaged in extensive national and local advertising and had built up and established a valuable goodwill in their respective trade-marked products, that the products are in fair and open competition in the state of New Mexico with commodities of the same general class manufactured and sold by others, that Skaggs had sold products of both of the corporations at less than the retail prices fixed by them with knowledge of the existing so-called fair trade agreement and the prices fixed thereby, and that Skaggs had advertised in the local newspapers in Albuquerque extensively, calling to the public's attention the fact that the products are available at certain prices which are less than established minimum retail prices. For the purpose of this opinion, Skaggs Drug Center will be referred to as appellant and both General Electric Company and Miles Laboratories, Inc., will be referred to jointly as appellee. A brief background of the fair trade acts is necessary in order to give a clear understanding of the situation which now faces the court. In the early days of the 1930 depression the state of California passed the first fair trade act. The purpose of the California act, and the others passed subsequently, was to "protect trade-mark owners, distributors and the public against injurious and uneconomic practices in the distribution of articles of standard quality under a distinguished trade-mark, brand or name", Cal. Stat. 1931, c. 278, p. 583.[1] The basic theory of this legislation was that there would be injury to the producer in cut-rate sales of his trade-marked goods where the consumer would associate a reduced price with a cheapening of brand quality, or where a distributor, in an effort to attract customers into his store at little or no profit, forces other distributors to match the price reduction and thereby makes it unprofitable for other distributors to carry the other trade-marked brand. The California act as finally amended was sustained by the Supreme Court of California in the frequently cited case of Max Factor and Company v. Kunsman, 5 Cal. 2d 446, 466, 55 P.2d 177, affirmed 299 U.S. 198, 57 S. Ct. 147, 81 L. Ed. 122, and it should be noted that a great many of the subsequent cases from other jurisdictions which sustain the fair trade laws adopt the language of the above case to a very large extent. Subsequent to the original California enactment and principally during the depression years, most of the other states in the Union adopted a similar or identical law, until at the present time 45 states have enacted this type of legislation, only Texas, Missouri, and Vermont having resisted such an enactment, by reason of constitutional provision or otherwise. It is of interest to note that the so-called fair trade acts have been before the highest appellate courts of 27 states, and in 16 of the states the legislation has been sustained as constitutional, and in 11 as unconstitutional; however, these figures by themselves are almost meaningless because of the varying constitutional provisions in the different states and also by reason of the fact that the various courts have ruled either favorably or unfavorably, as the case may be, *969 on widely differing theories. In addition to state decisions, the Supreme Court of the United States has been called upon on several occasions to rule upon these laws and the principal case relied upon by the proponents of the laws is the Old Dearborn Distributing Company vs. Seagram-Distillers Corporation, 299 U.S. 183, 57 S. Ct. 139, 81 L. Ed. 109. This was an opinion by Mr. Justice Sutherland, which was the unanimous opinion of the court. Basically, the court's decision in this case is that the ownership of a trade-mark and goodwill constitutes property in a real sense, and injury to which, as with other species of property, is subject to litigation; that price cutting by retail dealers is injurious to the goodwill and business of the producer and distributor and injurious to the general public as well. It is interesting to note that the New York Court of Appeals which originally held the fair trade acts unconstitutional, Doubleday, Doran &amp; Co. v. R.H. Macey &amp; Co., 269 N.Y. 272, 199 N.E. 409, 103 A.L.R. 1325, one year later, following the Old Dearborn decision, supra, ruled the fair trade laws constitutional in a very short opinion, Bourjois Sales Corp. v. Dorfman, 273 N.Y. 167, 7 N.E.2d 30, 110 A.L.R. 1411, in effect merely adopting the ruling of the Supreme Court of the United States. Actually, most of the states whose highest courts affirmed the constitutionality of the statutes did so in the 1930 and early 1940 era. Conversely, the greater bulk of the decisions declaring the statute unconstitutional have been by rulings of appellate courts in more recent years, although, of course, there are exceptions to both of the above statements. The section of the statute involved appearing in the N.M.S. Annotated (1953) Compilation, § 49-2-2, is as follows: The basic attack on the statute over the years in practically all courts has been upon the theory that § 2 of the acts provides that the sale of the trade-marked items at a price less than that stipulated to is a violation of the act, whether the seller is a party to the stipulated price contract or not. This is referred to throughout the various decisions as a "vertical agreement", fixing the resale prices of a commodity. Thus, in theory at least, if a manufacturer of a trade-marked article has a contract with one retailer in a state which fixes the minimum price, then all other retailers in that state selling the same product are bound thereby. It can be readily seen that such a provision is readily amenable to considerable litigation, the manufacturer or distributor contending that it is valid in order to protect his property interest in the trade-mark or goodwill, and the retailer who wishes to sell the same for less contending that he is the owner of the property and should be able to sell it at whatever price he desires. The above is a very great simplification of the problem. It should be mentioned that the so-called non-signer or vertical provision of the Fair Trade Act has been determined by the Supreme Court of the United States as in violation of the Sherman Anti-Trust Act, 15 U.S.C.A. §§ 1-7, 15 note. See Schwegmann Brothers v. Calvert Distillers Corp., 341 U.S. 384, 71 S. Ct. 745, 95 L. Ed. 1035, 1045 and prior cases cited therein. Shortly after this decision in 1951 Congress passed the McGuire Act, 15 U.S.C.A. § 45, 66 Statute 632, for the specific purpose of exempting the non-signer provision from the prohibition of the Sherman Act. So much for the background of the present controversy. Appellant contends, in the first instance, that the Fair Trade Act violates Article 4, § 38 of the New Mexico Constitution, this being the restraint-of-trade provision, which is as follows: Appellant's argument is that at the time this provision was written into the New Mexico Constitution in 1911 the Sherman Anti-Trust Act had been in effect for twenty years, and that the Supreme Court of the United States had ruled that the Sherman Act prohibited as an illegal combination in restraint of trade the type of price-fixing scheme which is provided for in the Fair Trade Act, Dr. Miles Medical Co. v. John D. Park and Sons Co., 220 U.S. 373, 31 S. Ct. 376, 55 L. Ed. 502, and that, therefore, the members of the Constitutional Convention in writing the Constitution had in mind the Sherman Act and the decisions of the Supreme Court of the United States with respect thereto. This argument at first blush would appear sound, were it not for the fact that the Territorial Legislature in 1891 had passed a law which provided in part as follows: It should be noted that the 1891 law which was passed a year after the Sherman Act specifically contained the word "price", which is neither in the Sherman Act nor in our constitutional provision; therefore, it would seem to follow that, if the makers of the Constitution were cognizant of the provisions and decisions with respect to the Sherman Act, they were certainly familiar with or knew the contents of the acts of the Territorial Legislature which were in effect at the time of the Constitutional Convention. It does not sound reasonable that the members of the Constitutional Convention failed to consider the verbiage of the law of 1891 so as to include the same in the Constitution and yet considered decisions under the Sherman Act. We cannot agree with counsel that in 1911 the makers of our Constitution intended to include the words, "price control", in our Constitution, nor do we see why the same should be placed therein by implication. To us it is obvious that the constitutional prohibition contained in Article IV, § 38 is aimed at preventing such monopolies and combinations as would, in effect, result in a practically complete destruction of competition. To our view, the act in question does not have that prohibitive effect and it is, therefore, determined that the so-called Fair Trade Act does not violate the afore-mentioned section of our Constitution Appellant next contends that the Fair Trade Act deprives the appellant of property without due process of law, in violation of Article II, §§ 4 and 18 of the Constitution of the State of New Mexico. These particular sections are as follows: This, to our view, raises a much more serious question than that above disposed of. It is on this point particularly that the courts of so many of our sister states have announced rulings diametrically opposed to each other, some courts ruling that the general welfare of the public would be served by such statutes and other courts ruling absolutely adversely and contrary-wise. Some of the more outstanding cases sustaining the constitutionality of the acts are Max Factor and Company v. Kunsman, supra; Burroughs Wellcome &amp; Co. v. Johnson Wholesale Perfume Co., 128 Conn. 596, 24 A.2d 841; Johnson &amp; Johnson v. Weissbard, 121 N.J. Eq. 585, 191 A. 873; *971 Sears v. Western Thrift Stores of Olympia, Inc., 10 Wash. 2d 372, 116 P.2d 756; Burche Co. v. General Electric Company, 382 Pa. 370, 115 A.2d 361. So also some, but not all, of the decisions of the states holding to the contrary are Miles Laboratories, Inc., v. Eckerd, Fla., 73 So. 2d 680; Cox v. General Electric Company, 211 Ga. 286, 85 S.E.2d 514; General Electric Co. v. Wahle, 207 Or. 302, 296 P.2d 635; Olin Mathieson Chemical Corp. v. Francis, 134 Colo. 160, 301 P.2d 139. In addition, there are extensive annotations in A.L.R., the two latest of which are to be found at 125 A.L.R. 1335 and 19 A.L.R.2d 1139. A great deal of the conflict arises by reason of the fact that court after court, regardless of its final holding, mentions the question of the economic philosophy of the fair trade acts. The courts which have sustained the same generally state that it is a question for the legislature to determine as to whether the economic policy as set out by the acts is wise or unwise, and that it is not a judicial function to determine this policy. Many courts and many of the individual judges will disagree as to the economic theory and it is our feeling that almost every court which has ruled upon this problem has had to draw the line between judicial responsibility and legislative policy, as stated by the Supreme Court of California in the Max Factor and Co. case, supra [5 Cal. 2d 446, 55 P.2d 181]: The California court in this case also stated: Finally, in this case the court said: Diametrically opposed to this is the decision of the Supreme Court of Florida, which, in Miles Laboratories, Inc., v. Eckerd, supra, stated the following [73 So.2d 682]: Numerous decisions could be cited giving both sides of the argument, but with such a wealth of conflicting authorities, it is *972 felt that no useful purpose would be gained by the citation and quotation from many of the cases from our sister states. It is contended by appellees that Arnold v. Board of Barber Examiners, 45 N.M. 57, 109 P.2d 779, 786, places this court in the class of those courts which have refused to strike down the fair trade acts, in which this court said: It should also be mentioned that in the Arnold case this Court quoted the Supreme Court of Minnesota, State v. McMasters, 204 Minn. 438, 283 N.W. 767, with approval as to the following statement: It should be borne in mind, with respect to the Arnold case, that there this court determined that the business concerned directly affected public health and it is, therefore, not directly analogous to the present case and is not authority upon which the court should rule in the instant case. It should not require any argument whatsoever to point out that the sale of electric irons having a General Electric label can in no sense affect the public health. Of course, it might be claimed that the sale of vitamin pills or alkaline tablets could in a sense affect public health, but it is not believed that they do in the sense intended by the framers of our Constitution. In fact, a great many of the articles which come under the Fair Trade Act have little or no relation to the public health in any sense. (See Shakespeare Co. v. Lippmann's Tool Shop Sporting Goods Co., 334 Mich. 109, 54 N.W.2d 268), in which the article in question was a trade-marked line of fishing tackle and in which case the Michigan court in a very well reasoned opinion concluded that the sale of fishing tackle was not in any wise affected with the public interest. The Supreme Court of Georgia in Cox v. General Electric Company, supra, in commenting upon the decisions of other states as to the fair trade acts, made the following very pertinent statement [211 Ga. 286, 85 S.E.2d 519]: So also the Supreme Court of Oregon in General Electric Co. v. Wahle, supra, in an extremely well considered opinion held that the Fair Trade Act was void as an arbitrary and unreasonable interference with private property rights beyond the police power of the state, having no reasonable relation to public morals, health, safety or general welfare. Particularly on the issue of the police power, the Court stated at pages 644 and 645 of 296 P.2d, the following: A very recent decision by the Supreme Court of the State of Colorado which to our view states the modern trend with respect to the holdings of courts on this subject and contains language the reasoning of which we feel should be adopted in New Mexico, in Olin Mathieson Chemical Corp. v. Francis, supra, at page 152 of 301 P.2d, the court said: This case is a suit in equity, and it should always be borne in mind that equity regards the substance, rather than the form. In substance, therefore, what is the real purpose of the Fair Trade Act? No matter what high-sounding terms are used, such as "free and open competition", "unfair competition," and "protection of good will", it is a matter of common knowledge that it is a price-fixing statute, designed primarily to destroy competition at the retail level. The high-sounding phrases used with respect to the trade-mark owners are simply excuses and not a reason for the law. In the Old Dearborn case, supra, the court's final conclusion was that a non-signer was subject to the price-fixing provisions of the act, upon the theory that such individual, such as the appellant here, by purchasing the trade-marked goods with knowledge of the fair trade contract, impliedly assented to the contract and by such implied assent ratified, became a party to, and was bound by, the contract. This theory has been adopted by the courts which sustain the constitutionality of the statutes. In other words, they say that this is not a price-fixing statute. To us, this is an unrealistic view and to say that it is not a price-fixing statute is to deny the obvious. Once the price is fixed by contract or contracts between the manufacturer and the retailer or retailers, the non-signer is bound and the price becomes a fixed price to the non-signer. If this power of the owner of trade-marked goods to set the price at which the non-signer must sell is not the power to fix prices, then what is it? However, the courts sustaining the acts, including the Supreme Court of the United States, in effect, have been adhering to the form of the statute and overlooking the substance. This we do not feel is a proper view. Although we fully realize the fact that several courts are not in complete accord upon the questions discussed in this opinion, nevertheless, we are of the opinion that the better reasoning and logic are to be found in those decisions above quoted at some length which have declared the Fair Trade Acts unconstitutional and void. It should be noted that this particular statute is in no wise a revenue producing measure, nor does the state, as such, become a party to its effect in any way. If such were the case, an entirely different line of authority would have to be considered, but, inasmuch as this is not true, there is no necessity in lengthening this opinion by a discussion of this subject. In view of the above, it will be determined that § 2, Chapter 44 of the Laws of 1937 (§ 49-2-2, N.M.S.A. 1953) is unconstitutional and void as an arbitrary and unreasonable exercise of the police power without any substantial relation to the public health, safety, or general welfare insofar as it concerns persons who are not parties to contracts provided for in § 1, Chapter 44, Laws of 1937 (§ 49-2-1, N.M.S.A. 1953). Appellants have raised several additional questions, particularly with respect to the contention that the statute is unconstitutional by reason of being an unconstitutional *975 delegation of legislative power to individuals, as establishing special-class legislation and granting special privileges and immunities and as having a defective title. These points not being necessary for this decision, they are specifically not ruled upon by the court. Neither will the court rule upon the appellant's contention that the statute is violative of the Sherman Act, either before or as amended by the McGuire Act. The District Court of Bernalillo County will be reversed with directions to vacate its judgments heretofore entered and to enter a judgment in conformity with this opinion. It is so ordered. LUJAN, C.J., and SADLER and COMPTON, JJ., concur. KIKER, J., absent from the state not participating. [1] Now West's Ann.Bus. &amp; Prof.Code, § 16900 et seq.