District of Columbia v. Kraft

35 App. D.C. 253, 1910 U.S. App. LEXIS 5889

• Court: District of Columbia Court of Appeals
• Decided: May 10, 1910
• Docket: No. 2118
• Status: Published

Opinions

Mr. Chief Justice Shepard

delivered the opinion of the Court:

Assuming that the statute does not apply in the case of bona fide co-operative associations, or of merchants making discounts or presenting actual articles directly to their customers, we fail to see that the co-operative association belongs in either class. We will consider, first, the co-operative feature. In a general-sense a co-operative society or corporation is one organized on the principle of a joint-stock company, where the members share in the profits in proportion to their contributions, and may or may not obtain a discount on their individual purchases. ■'■ ‘This society is clearly not one of that kind. The admitted members pay a fee of 25 cents annually for the privilege of receiving stamps on their purchases, — a privilege which the other corporations whose case has been heard with this extends to all persons without charge. But these members are rigidly excluded from any participation in the profits of the corporation; that goes to its stockholders exclusively. These profits accrue from the sale of stamps to the merchants. A rough estimate of these profits, according to the statement of the stamps sold and redeemed during a little more than one year since the organization of the-corporation, shows that they amount to about $12,000. All that a member of this so-called co-operative society gets back is his membership fee, less its proportion of the cost of obtaining members. The only benefit they are supposed to obtain is the redemption price of the stamps received on their several purchases from merchants dealing in the stamps, which benefit is extended, without charge, by other stamp companies, as we have seen, to all purchasers from merchants handling their stamps. This system falls far short of constituting a bona fide co-operative society. The only other substantial difference between this scheme and that declared unlawful in the Lcmsburgh Case is this: In that case there was no redemption of stamps in cash, or in less quantities than 990; in this the stamps .sold for $3.50 per thousand are redeemable in cash at the option of the holders at the. rate of $2 per thousand, and in any quantity not less than fivé. This feature makes, the scheme -«-more advantageous than the other, but does not differentiate it. In substance they are the same.

A vigorous attack has been made on the act as unconstitutional, because it is an unreasonable interference with the freedom of trade and contract. While that question was decided in the LansbwrgJi Case, we are asked to reconsider it, on the ground that the soundness of that decision has been denied in many cases in other jurisdictions. We have carefully examined those decisions, and find that very few of them go to the extent claimed for them. They may be separated into the following classes: (1) Those in which the statute involved prohibited lotteries and gift enterprises without defining the acts constituting the same; and it was held that the giving of trading stamps was neither a lottery nor a gift enterprise, within the ordinary meaning of the terms. State v. Shugart, 138 Ala. 86, 100 Am. St. Rep. 17, 35 So. 28; Humes v. Little Rock, 138 Fed. 929.

(2) Cases holding that statutes prohibiting merchants from giving premiums, vouchers, gifts, etc., to purchasers of their goods, are in excess of legislative power. State v. Dalton, 22 R. I. 77, 48 L.R.A. 775, 84 Am. St. Rep. 818, 46 Atl. 234; People v. Gillson, 109 N. Y. 389, 4 Am. St. Rep. 465, 17 N. E. 343; State v. Dodge, 76 Vt. 197, 56 Atl. 983, 1 A. & E. Ann. Cas. 47; Ex parte Drexel, 147 Cal. 763, 2 L.R.A. (N.S.) 588, 82 Pac. 429, 3 A. & E. Ann. Cas. 878; State v. Ramseyer, 73 N. H. 31, 58 Atl. 958, 6 A. & E. Ann. Cas. 445; Leonard v. Bassindale, 46 Wash. 301, 89 Pac. 879; Young v. Com. 101 Va. 853, 45 S. E. 327.

In some of those cases the court went beyond the question actually involved, and declared that the trading stamp business of third parties could not be lawfully prohibited. In others, as in State v. Dalton, the court expressly limited its decision to the case of the merchant giving premiums, and declined to say that the legislature might not prohibit the'business of trading stamp companies.

(3) Cases analogous to those in class 1, which hold that the statute did not apply to the giving of premiums, simply because it was limited to those which embraced a gambling feature. Com. v. Emerson, 165 Mass. 146, 42 N. E. 559; Com. v. Sisson, 178 Mass. 578, 60 N. E. 385.

(4) Cases in which the statute or municipal ordinance imposed a license tax; some holding that the power to license had not been conferred on the municipality; some that the exercise of the power in the particular case was unreasonable and oppressive; others, that, as applied to a licensed merchant, the license requirement was inapplicable, because the giving of premiums by such merchants was but an incident of their regular business, and not a separate business as such. Winston v. Beeson, 135 N. C. 271, 65 L.R.A. 167, 47 S. E. 457; Hewin v. Atlanta, 121 Ga. 723-729, 67 L.R.A. 795, 49 S. E. 765, 2 A. & E. Ann. Cas. 296; Ex parte Hutchinson, 137 Fed. 949, 137 Fed. 950; Com. v. Gibson Co. 125 Ky. 440, 101 S. W. 385; Montgomery v. Kelly, 142 Ala. 552, 70 L.R.A. 209, 110 Am. St. Rep. 43, 38 So. 67.

In some of these the courts, expressly declined' to pass upon the legality of the trading stamp business, which question was not involved. (121 Ga. 729). The case of O’Keeffe v. Somerville, 190 Mass. 110, 112 Am. St. Rep. 316, 76 N. E. 457, 5 A. & E. Ann. Cas. 684, may be put in this class, but there the license tax was held unconstitutional, because the trading stamps were not “goods, wares, merchandise, or commodities,” to which the special taxing power was limited by the Constitution of Massachusetts. See also State v. Walker, 105 La. 492, 29 So. 973, -in which a statute prohibiting trading stamps, etc., was held unconstitutional, because the object of the act was not expressed in the title, as required by a provision of the State Constitution.

(5) Cases of injunction'by trading stamp companies against others interfering with their business. Sperry & H. Co. v. Brady, 134 Fed. 691; Sperry & H. Co. v. Temple, 137 Fed. 992; Sperry & H. Co. v. Louis Weber & Co. 161 Fed. 219. No prohibitory statute was involved.

(6) Cases in which the validity of legislation prohibiting the trading stamp business was discussed and involved and expressly denied. Ex parte Drexel and Leonard v. Bassindale, supra; Denver v. Frueauff, 39 Colo. 20, 7 L.R.A. (N.S.) 1131, 88 Pac. 389, 12 A. & E. Ann. Cas. 521. The California and Washington cases appear to us to involve nothing more than the particular question stated in class 2, supra, and for that reason are ranged thereunder. The general question of the power to prohibit trading stamp concerns, as such, was not necessarily involved. In the Colorado case, the city ordinance went beyond the power conferred by the Constitution and an act of the legislature, which were limited to “lotteries” and “gift enterprises,” neither of which terms embraced the giving of trading stamps as premiums on purchases. This point was the only one necessarily involved, and the case is in fact identical with that of Winston v. Beeson (Class 4, supra). A recent decision of the supreme court of Minnesota seems to decide the question directly. State ex rel. Simpson v. Sperry & H. Co. 111 Minn. 378, — L.R.A.(N.S.) —, 126 N. W. 120.

Of the cases cited on behalf of the District of Columbia, but one directly upholds the doctrine of the Lansburgh Case, which is quoted from and approved. Humes v. Ft. Smith, 93 Fed. 857; State v. Hawkins, 95 Md. 133, 93 Am. St. Rep. 328, 51 Atl. 850, does not involve the direct question presented here.

Before proceeding to consider the question necessarily involved in this case, in the light of some applicable decisions of the Supreme Court of the United States relating to the exercise of the police power limiting the freedom of contract, we will briefly consider a point that has been relied on as showing the legitimate character of the trading stamp business. It has been argued, and in some of the cases cited it has been suggested, that the trading stamp companies are engaged in advertising the merchants contracting with them; and it is contended that this business, in that respect, is similar to that of the ordinary newspaper. Certainly, the right of the advertiser and the newspaper to contract for this purpose has never been questioned. The newspaper is a time-honored institution, indispensable in civilized' society. It gives the current news on all subjects of public interest, and in addition opens its pages to advertisers. The merchant purchases his space and presents the advantages of his business. Undoubtedly the cost of this, advertising is an expense that must be added to the cost of carrying on the business, and borne along with other incidental expenses. No way can be devised by which the cost of transportation and the legitimate handling of produce or goods in the transfer from producer to consumer can be entirely eliminated.

In the case at bar the advertising feature is a mere pretense; it is of the stamp dealer rather than of the merchant. To induce the purchase of stamps, the stamp company circulates many copies of its books, which contain a directory of the names and locations of the merchants under contract with it to deliver its stamps with purchases. It is a notice to these persons where they can procure stamps, and where and how they can procure the redemption of the same when obtained. This is of prime importance to the stamp company. The trading stamp concerns are not engaged in the advertising business, or as agents for advertisers. As said in the Lansburgh Case, they “are not merchants engaged in business, as that term is commonly understood. They are not dealers in ordinary merchandise, engaged in a legitimate attempt to obtain purchasers for their goods by offering fair and lawful inducements to trade. Their business is the exploitation of nothing more or less than a cunning device. With no stock in trade, but that device and the necessary books and stamps and so-called premiums with which to operate it successfully, they have intervened in the legitimate business carried on in the District of Columbia, between seller and buyer, not for the advantage of either, but to prey upon both. They sell nothing to the person to whom they furnish the premiums. They pretend simply to act for his benefit and advantage by forcing their stamps upon a perhaps unwilling merchant. •* * * The merchant who yields to their persuasion .does so 'partly in the hope of obtaining the customers of others, and partly through fear of losing his own, if he declines.” We see no reason for withdrawing or qualifying the foregoing observations in the light of the evidence in this case, for, as said before, the businesses are the same, notwithstanding some immaterial differences. It has been argued that there was no evidence to show that the stamps were forced upon perhaps unwilling merchants. That is true, but the courts may take notice of evident conditions and results of trades and business. That merchants are unwilling to enter into the scheme, and regard the same as an unjustifiable imposition, is borne out by the charge made in the same argument that certain merchants of the District had employed counsel who had aided the corporation counsel in the preparation of these cases. This charge would not have been made, if unsupported by the facts, and it was not denied. The police power of Congress in the District of Columbia, upon the exercise of which this statute rests, is substantially the same under the 5th Amendment as that which may be exercised by the states under the limitations of the 14th Amendment. As was said in the Lansburgh Case: “The comprehensive scope of the police power, as exercised in our day, and under our form of constitutional government, has been developed by the process of evolution. Rapid increase in population, wonderful inventions, from time to time, followed by vast material development and advances in the arts' of civilization, have introduced novel situations and begotten difficulties for the solution of one generation, that were unanticipated, and often undreamed of even, by the most advanced minds of the generation next preceding. As a necessary consequence, the boundaries of the police power in its application to the property, business, and personal liberty of the individual citizen have never been definitely settled, so as to furnish a certain guide for all eases that may present themselves for legislative or judicial determination.” This idea has been better expressed by Maeterlinck in “The Life of the Bee,” in the form of a fundamental principle of social development. Lie says: “In proportion as society organizes itself and rises in the scale, so does a shrinkage enter the private life of each one of its members. Where there is progress, it is the result only of a more and more complete sacrifice of the individual to the general interest.” See Otis v. Parker, 187 U. S. 606-609, 47 L. ed. 323 — 328, 23 Sup. Ct. Rep. 168; McGuire v. Chicago, B. & Q. R. Co. 131 Iowa, 340-354, — L.R.A.(N.S.) —, 108 N. W. 902.

Hence: “It is always easier to determine whether a particular case comes within the general scope of the power, than to give an abstract definition of the power itself, which will be in all respects accurate.” Stone v. Mississippi, 101 U. S. 818, 25 L. ed. 1079. In a later case it was said: “It is undoubtedly true that it is the right of ever^ citizen of the United States to pursue any lawful trade or business, under such restrictions as are imposed upon all persons of the same age, sex, and condition. But the possession and enjoyment of all rights are subject to such reasonable conditions as may be deemed by the governing authority of the country essential to the safety, health, peace, good order, and morals of the community. Even liberty itself, the greatest of all rights, is not unrestricted license to act according to one’s own will. * * * The right to acquire, enjoy, and dispose of property is declared in the Constitutions of the several States to be one of the inalienable rights of man. But this declaration is not held to preclude the legislature of any State from passing laws respecting the acquisition, enjoyment, and disposition of property. What contracts respecting its acquisition and disposition shall be valid, and what void or voidable; when they shall be in writing, and when they may be made orally; and by what instruments it may be conveyed or mortgaged, — are subjects of constant legislation. And as to the enjoyment of property, the rule is general that it must be accompanied with such limitations as will not impair the equal enjoyment by others of their property. Sic utere tuo ut dlienum non Icedas is a maxim of universal application. Eor the pursuit of any lawful trade or business the law imposes similar conditions. Eegulations respecting them are almost infinite, varying with the nature of the business.” Crowley v. Christensen, 137 U. S. 86-89, 34 L. ed. 620 — 623, 11 Sup. Ct. Rep. 13.

That there are bounds to forced individual “shrinkage,” in order to prevent its development into sheer arbitrary oppression and tyranny, under our system of government, all must admit. The difficulty lies in the practical ascertainment of those boundaries. The legislature is the judge in the first instance, but when its act is an unmistakable invasion of individual liberty and right, the courts will intervene to arrest its enforcement. In a recent case, a statute of a State was upheld which made, it unlawful to screen coal dug by miners before weighing the same for determining their compensation, and prohibiting them from waiving the benefit of the act by contract with the mining company. McLean v. Arkansas, 211 U. S. 539, 5 L. ed. 315, 29 Sup. Ct. Rep. 206. After referring to Allgeyer v. Louisiana, 165 U. S. 578, 41 L. ed. 832, 17 Sup. Ct. Rep. 427, — a ease strongly relied on by tbe defendant in error, —it was said by Mr. Justice Day, who delivered the opinion of the majority of the court: (p. 545). “But in many cases in this court the right of freedom of contract has been held not to be unlimited in its nature, and when the right to contract or carry on business conflicts with laws declaring the public policy of the State, enacted for the protection of the public health, safety, or welfare, the same may be valid, notwithstanding they have the effect to curtail or limit the freedom of contract. It would extend this opinion beyond reasonable limits to make reference to all the cases in this court in which qualifications of the right of freedom of contract,have been applied and enforced.” Some of those cases will be mentioned later. lie then quotes the following extract from Gundling v. Chicago, 177 U. S. 183, 44 L. ed. 725, 20 Sup. Ct. Rep. 633: “Regulations respecting the pursuit of a lawful trade or business are of very frequent occurrence in the various cities of the country, and what such regulations shall be, and to what particular trade, business, or occupation they shall apply, are questions for the State to determine, and their determination comes within the proper exercise of the police power by the State, and unless the regulations are so utterly unreasonable and extravagant in their nature and purpose, that the property and personal rights of the citizen are unnecessarily, and in a manner wholly arbitrary, interfered with or destroyed without due process of law, they do not extend beyond the power of the State to pass, and they form no subject for Federal interference.” The learned justice then proceeds with the discussion as follows: “It is then the established doctrine of this court that the liberty of contract is not universal, and is subject to restrictions passed by the legislative branch of the government in the exercise of its power to protect the safety, health, and welfare of the people. It is also true that the police power of the State is not unlimited, and is subject to judicial review, and when exerted in an arbitrary or oppressive manner, such laws may be annulled, as violative of rights protected by the Constitution. While the courts can set aside legislative enactments upon this ground, the principles upon which such interference is warranted are as well settled as is the right of judicial interference itself. The legislature, being familiar with local conditions, is, primarily, the judge of the necessity of such enactments. The mere fact that a court may differ with the legislature in its views of public policy, or that judges may hold views inconsistent with the propriety of the legislation in question, affords no ground for judicial interference, unless the act in question is unmistakably and palpably in excess of legislative power.” See also Williams v. Arkansas, April 4th, 1910, 217 U. S. 79, 54 L. ed. 673, 30 Sup. Ct. Rep. 493. One of the cases reviewed in Me-Lean v. Arkansas is not distinguishable in principle from the case at bar. Knoxville Iron Co. v. Harbison, 183 U. S. 13, 46 L. ed. 55, 22 Sup. Ct. Rep. 1. In that it was held that an act of the legislature of Tennessee, requiring the redemption in cash of store orders or other evidences of indebtedness, issued by employers in payment of wages due employees, did not conflict with any provision of the Constitution of the United States protecting the right of contract. Had the statute in this case, instead of prohibiting the business, required redemption to be made in cash at the rate of the purchase price of the stamps, it would have been practically identical with the State statute upheld in that case,• and yet its effect, by destroying the ' profits of the trading stamp associations, would necessarily be to put an end to the business.

The whole country is now agitated by the increased cost of ^ living that has grown to alarming proportions, and legislative bodies are inquiring into its causes with a view, if possible, of providing remedies for the mischief. While there is difference of opinion as regards the chief source, all concur in the opinion "that every introduction of superfluous middlemen, and consequent unnecessary charges between producer and consumer, undoubtedly contribute to swell the stream to overflowing. Had the statute under consideration been passed at the present session of Congress, it would be regarded as intended to promote the public welfare in this respect. Ihcugh enacted many years ago, when the mischief was not great, it answers the purpose of to-day.

Now, what are the conditions presented by the facts in this case? An entirely unnecessary middleman, for his own profit solely, has injected himself between the regular merchant on the one hand, and his customers on the other. He receives $3.50 for every thousand stamps issued to the customers, and redeems such as may be presented, in goods or in cash at $2 per thousand. By this means the corporation represented by the defendant in error has in the first year of its intervention received about $12,000, which should have either been retained by the merchant or received by his customers.

Several other concerns being engaged in the same business, their profits are probably as great, if not greater. We have then this large sum of money annually taken from the merchant and his customers,, and added to the gross cost of living of all of the people of the District, without return. Is it not for the public welfare, in the juridical sense of the term, to prohibit such an undertaking ? We think that it is. Must this public welfare be sacrificed to the unlimited freedom of contract invoked in this case, to protect the right to prey upon local commerce? We think not.

With this we will close a discussion that has been carried to an unusual length. Our excuse is the importance of the principle involved, and the great conflict of authority relating to it, which may furnish ground for a writ of certiorari to remove the case to the Supreme Court of the United States, where alone the vexed question may be settled.

It follows that the Police Court erred in sustaining the motion to quash the information, and its judgment must therefore be reversed, with costs, and the cause remanded for further proceedings in conformity with this opinion. Reversed. - -