State Ex Rel. Clark v. Applebaums Food Markets, Inc.

106 N.W.2d 896, 259 Minn. 209, 1960 Minn. LEXIS 676

• Court: Supreme Court of Minnesota
• Decided: December 23, 1960
• Docket: 38,164
• Status: Published

Opinions

Knutson, Justice.

This is an appeal from an order granting a temporary injunction.

The action arises out of an alleged violation of our statutes, formerly designated as “Minnesota Unfair Discrimination and Competition Act,” now more popularly referred to as the “8% law.” In order to have the facts involved in this proceeding in clear perspective, it is necessary to have in mind the applicable statutes.

Minn. St. 325.04, as far as here material, reads:

“Any retailer * * * engaged in business within this state, who sells, offers for sale or advertises for sale, any commodity, article, goods, wares, or merchandise at less than the cost thereof to such vendor, or gives, offers to give or advertises the intent to give away any commodity, article, goods, wares, or merchandise for the purpose or with the effect of injuring a competitor or destroying competition, shall be guilty of unfair discrimination; and, upon conviction, subject to the penalty therefor provided in section 325.48, subdivision 2.”¹

Section 325.06 provides a number of exceptions to § 325.04 and, as far as material here, reads:

“The provisions of section * * * 325.04 * * * shall not apply to any sale made:

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“(4) In an endeavor made in good faith to meet the legal prices of a competitor selling the same commodity, articles, goods, wares, or merchandise in the same locality or trade area.

“The price of a retail competitor which is less than eight percent above the manufacturer’s published list price less his published trade discounts where the manufacturer publishes a list price, or in the absence of such a list price less than eight percent above the actual current delivered invoice or. replacement cost without deducting customary cash discounts plus the amount of any excise or sales tax shall be prima facie evidence that it is not a legal price, within the meaning of this section.

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“Any retailer * * * may request the commissioner of the department of business development to ascertain and disclose to him, the current manufacturer's published list price less published trade discounts on any commodity, article, goods, wares, or merchandise, and it shall then be the duty of the commissioner of the department of business development, within 48 hours of such request, to ascertain and disclose to the person making such request, the current manufacturer’s published list price less published trade discounts.

“Failure to make such request by any person before reducing his price on any commodity, article, goods, wares, or merchandise below his cost shall be prima facie evidence of not acting in good faith within the meaning of this paragraph.” (Italics supplied.)

Section 325.52, as far as material, reads:

“Any sale made by the retail vendor at less than eight percent above the manufacturer’s published list price, less his published trade discounts, where the manufacturer publishes a list price; or, in the absence of such list price, at less than eight percent above the actual current delivered invoice or replacement cost, without deducting customary cash discounts, plus, in either case, the amount of any excise or sales tax imposed on such merchandise subsequent to the purchase thereof and prior to the resale thereof, for the purpose or with the effect of injuring a competitor or destroying competition, shall be prima facie evidence of the violation of sections 325.02 to 325.07.

“No prosecution shall be had nor any action at law for damages or injunctive relief shall lie where the vendor sells at a price not less than 15 percent above the manufacturer’s published list price, less his published trade discounts, where the manufacturer publishes a list price; or, in the absence of such a list price, at not less than 15 percent above the current delivered invoice or replacement cost, without deducting customary cash discounts, plus, in either case, the amount of any excise or sales tax imposed on such merchandise subsequent to the purchase thereof and prior to the resale thereof.”

Section 325.49, as far as material, reads:

“In addition to the penalties provided in section 325.48, subdivision 2, clause (1), the courts of this state are hereby vested with jurisdiction to prevent and restrain violations of sections 325.02 to 325.07. Any person, partnership, corporation, or association damaged, or who is threatened with loss or injury, by reason of a violation of these sections shall be entitled to sue for and have injunctive relief in any court of competent jurisdiction against any damage or threatened loss or injury by reason of a violation thereof and for the amount of the actual damages to him, if any. In order to obtain such injunctive relief it shall not be necessary to allege or prove that an adequate, remedy at law does not exist.”²

Section 362.14, subd. 3, reads:

“In addition to the penalties provided by law for violation of the laws referred to in subdivision l,³ specifically and generally, where injunctive relief is not otherwise provided by law, the courts of this state are vested with jurisdiction to prevent and restrain violations of those laws. Whenever it shall appear to the satisfaction of the commissioner that any of those laws is being violated, or is about to be violated, he shall be entitled, on behalf of the state, to sue for and have injunctive relief in any court of competent jurisdiction against any such violation or threatened violation without abridging the penalties provided by law.”

Two actions were brought by the commissioner seeking injunctive relief to restrain the violation of § 325.04. In one action, designated as File No. 311,202, the commissioner of the Department of Business Development alleged that defendant had violated the “8% law” when it advertised or sold certain goods at a price below defendant’s cost on February 15, 17, 18, and 22, 1960. In this action defendant answered, alleging that the sales so made were made in an effort in good faith to meet the legal price of a competitor. In the other action, designated as File No. 311,203, the commissioner alleged that defendant violated the same act on March 7 and 9, 1960, and on other dates, by advertising for sale many products below defendant’s cost and also by advertising that it would give away merchandise and trading stamps.

The two actions were consolidated for trial. Defendant contends that the consolidation was improper, but in view of the result arrived at, herein we need not determine that question. It may be admitted, for the purpose of this decision, that defendant sold or advertised for sale merchandise at less than eight percent above its cost, and it may also be admitted that defendant has not applied to the commissioner for a determination of the manufacturer’s published list price under § 325.06.

The trial court granted a temporary injunction restraining defendant from selling or advertising for sale such goods in violation of these statutory provisions. This appeal is from such order. A brief was filed amicus curiae, in which the constitutionality of the “8% law” is challenged. The questions presented for our determination are: (1) Did the commissioner establish a prima facie case that would justify the issuance of a temporary injunction? (2) May amici curiae raise the constitutionality of the statute involved when that issue is not raised by the parties to the litigation?

Most of the questions raised here are controlled by our decision in State, by Clark, v. Wolkoff, 250 Minn. 504, 85 N. W. (2d) 401. At the time that case was presented, § 325.04 prohibited sales below cost “for the purpose or with the effect of injuring competitors and destroying competition.” (Italics supplied.)

This provision was amended by L. 1957, c. 822, § 2, so as to prohibit sales below cost “for the purpose or with the effect of injuring a competitor or destroying competition.” (Italics supplied.)

Prior to the amendment, in order to establish a violation of § 325.04 it was necessary that it be shown that the sale was below cost and was made for the purpose or with the effect of both injuring competitors and destroying competition. Since the amendment, it is enough to show that sales were made below cost for the purpose or with the effect of either injuring a competitor or destroying competition. In other respects this section remained as it was when the Wol-koff case was decided. In that case we said (250 Minn. 507, 85 N. W. [2d]404):

“* * * Not every sale below cost is condemned under Minnesota law. Such an offer or sale must be accompanied by a certain purpose or have a certain effect. * * *

«* * * If a court finds from competent and sufficient evidence that the challenged offer or sale was not, in fact, made with the requisite dual purpose nor had such effect, then it must find that there is no violation.”

The same is true now, in that the court must find a prohibited sale, coupled with the purpose or effect of either injuring or destroying competition.

The commissioner now asks us to adopt the so-called doctrine of incipiency, under which injunctive relief is available upon a simple showing of threatened injury to a competitor by sales below cost without any showing of the purpose or effect of such sale or that it has destroyed competition. We do not believe that our statute may be so construed. Adoption of such theory would require us to overrule the Wolkoff case. Section 325.06 deals only with defenses to an alleged violation of § 325.04. Before such defenses can come into play it is essential that a prima facie case of violation be established. Similarly, § 362.14, subd. 3, if it is applicable here, permits injunctive relief for a violation or threatened violation of § 325.04, but it must first appear that there has been a violation or that the statute is about to be violated before such injunctive relief is available. A mere sale below cost, absent the requisite statutory purpose or effect, is not a violation or threatened violation. To hold that a mere sale below cost is illegal might well run into .serious constitutional objections.⁴ Under the statute construed in the Wolkoff case, it was necessary that a sale below cost be coupled with the purpose and effect of injuring competitors and destroying competition. As we said above, it is now sufficient if such sale is coupled with the purpose or effect of injuring a competitor or destroying competition. Section 362.14, subd. 3, was in existence at the time we decided the Wolkoff case exactly as it is now. The doctrine of incipiency is no more applicable now than it was then.

It follows that, before a temporary injunction can be justified, there must be established at least a prima facie violation of § 325.04 which would, if proved upon a trial, justify a permanent injunction.

Applying these rules to the record before us, has such prima facie showing of a violation or threatened violation been established? We think not. The affidavits submitted in support of the motion for a temporary injunction speak in generalities only. In effect, all that they establish is that some sales have been made below the permissible statutory price and that some giveaway programs have either been carried out or advertised and that such actions by chain stores generally hurt the independent stores. The strongest showing made in any affidavit is in that of Joseph F. Kielsa where, among other things, he says:

“* * * My volume has dropped 20% in the last two weeks due to the type of advertising by Knowlan, Kingpin, and Johnson, such as items sold under cost. This also includes Applebaums.”

Even in this affidavit, and it is true of all the others, it does not appear that deponent operates a store in the vicinity of any store operated by defendant or that he was injured by such defendant. No showing at all has been made that the sales complained of were made for the purpose or effect of injuring a competitor or destroying competition. We assume that it might be safely said that all competition in a manner injures all other competitors in that advertising and reduction in cost of goods sold at any level are intended for the purpose of attracting additional customers, but such sales, unless they are contrary to our statutes, are not illegal. All that has been shown here is that sales have been made at a price lower than the cost of such goods plus eight percent.

The commissioner claims that, under §§ 325.06 and 325.52, a sale below cost is prima facie a violation. By the language of § 325.52, sales below cost must be coupled with the purpose or effect of injuring a competitor or destroying competition. It is only then that it becomes prima facie evidence of a violation of § 325.04. This statutory language is so clear that it needs no exposition. Nor is it for us to take out of the statute language included by the legislature.

Obviously, § 325.06 applies only to sales. It does not apply to giveaway programs. There would be no good reason for applying to the commission for a determination of the costs of goods that are to be given away. A careful reading of the statute renders the position of the commissioner untenable. Section 325.06 sets up defenses to a violation under § 325.04. When a vendor seeks to establish a defense, failure to request a determination of the manufacturer’s price, as permitted by § 325.06, establishes prima facie lack of good faith. But before these defenses come into play, there must be a prima facie showing of a violation. Such showing is entirely lacking here.

It follows that injunctive relief prior to trial was not justified. The commissioner may be able to establish a violation that will justify an injunction upon a trial, but, based on the record before us, no such showing has been made.

A brief filed amicus curiae in behalf of Red Owl Stores challenges the constitutionality of the act. Neither of the litigants has raised this issue. Amicus curiae may not do so.⁵ Consequently, we do not pass on this question.

Since the above opinion was written, we are confronted by a dissent. By ignoring the language of § 325.04 as to what is a violation or threatened violation of the act, the dissent would give the commissioner carte blanche authority to procure an injunction to prevent whatever he might construe as a violation. Whether there has been a violation or threatened violation of the act is a judicial question. Before an injunction may issue under § 362.14, there must be at least a prima facie showing of a violation or threatened violation of § 325.04. Such a showing, as we have pointed out above, is entirely lacking here. Apparently the dissent is not concerned with the rights of defendant but only with granting to the commissioner authority which obviously the legislature did not intend. To justify a finding of a prima facie showing of a violation or threatened violation of § 325.04, the dissent relies on a part of § 325.06, which deals only with defenses to violations of § 325.04 and does not spell out what is a violation thereof. Section 325.52 defines what is prima facie evidence of a violation of §§ 325.02 to 325.07, and the pertinent language is:

“Any sale made by the retail vendor * * * for the purpose or with the effect of injuring a competitor or destroying competition, shall be prima facie evidence of the violation of sections 325.02 to 325.07.” (Italics supplied.)

The dissent would have us ignore the italicized language above and hold that any sale below the specified price is prima facie unlawful. The legislature obviously does not agree or it would not have included the language italicized above.

This section was amended by L. 1957, c. 822, by changing the language “injuring competitors” to “injuring a competitor” to conform to the change made in § 325.04. Otherwise there was no change in the establishment of a prima facie case.

Then, again, the dissent, by a misconstruction of our decision in State, by Clark, v. Wolkoff, 250 Minn. 504, 85 N. W. (2d) 401, seeks to impute to the legislature an intent which it obviously did not have in amending § 325.04. In the first place, the amending act (L. 1957, c. 822) became effective on April 27, 1957. Our decision in the Wolkoff case was issued on October 4, 1957, long after the legislature had adjourned. It is true that the case was pending in this court at the time the act was approved. It was argued orally here on April 10, 1957, a few days before the act became effective. The pending amendment later adopted by the legislature was not called to the attention of this court in the briefs or oral argument at any time prior to the decision of the case. It is pure speculation that the legislature had knowledge of the case pending before us when the amendment was adopted. In order to justify the assumption that the law was amended as a result of the pending case or the decision thereon later issued, we would have to indulge in just that kind of unwarranted speculation. In any event, the only change made by the amendment, as far as material here, was to change the language “injuring competí-tors and destroying competition” to “injuring a competitor or destroying competition.” The only effect of the amendment was that prior thereto it was necessary to show that the sale was made for the purpose or effect of both injuring competitors and destroying competition. Subsequent to the amendment it was sufficient to show that the sale was made for the purpose or with the effect of either injuring a competitor or destroying competition. The dissent would have us ignore both. Here, again, obviously the legislature does not agree. In so far as the legislative change is concerned, it does not affect our decision in the Wolkoff case except that now one of the two alternatives must be shown. It follows that before a prima facie case can be made out that would justify the issuance of an injunction one or the other of these two statutory prerequisites must appear. Neither is present here.

Reversed.

1 Section 325.48, subd. 2, provides that willful violation of § 325.04 is a misdemeanor.

2 This proceeding is not brought by a person, partnership, corporation, or association damaged, or who is threatened with loss or injury, by reason of a violation of these sections, so it is doubtful that this section has any application.

3 Subd. 1 includes violation of § 325.04.

4 See, Fairmont Creamery Co. v. Minnesota, 274 U. S. 1, 47 S. Ct. 506, 71 L. ed. 893; Wiley v. Sampson-Ripley Co. 151 Me. 400, 120 A. (2d) 289.

5 2 Am. Jur., Amicus Curiae, § 4; 3 C. J. S., Amicus Curiae, § 3e(2); State ex rel. Board of R. Commrs. v. Martin, 210 Iowa 207, 230 N. W. 540; see, also, 16 C. J. S., Constitutional Law, § 76.