Opinion
CAL-DAK SAV-ON
4-3-1952
CO. v.DRUGS, Inc. * Civ. 18842.
O'Connor & O'Connor, Los Angeles, for appellant. Wright, Wright, Green & Wright, Loyd Wright and Herschel B. Green, Los Angeles, for respondent.
CAL-DAK CO.
v.
SAV-ON DRUGS, Inc.
April 3, 1952.
Hearing Granted May 29, 1952.
O'Connor & O'Connor, Los Angeles, for appellant.
Wright, Wright, Green & Wright, Loyd Wright and Herschel B. Green, Los Angeles, for respondent.
McCOMB, Justice.
Plaintiff instituted an action for an injunction to restrain defendant from selling plaintiffs commodity at a price less than the retail fair trade price and for damages as a result of sales made by defendant. From an order denying a preliminary injunction, plaintiff appeals.
Facts: Plaintiff, a California corporation, with its principal place of business in the City of Colton, California, manufactures a waist-high aluminum tube clothes basket under the trade name of 'Sav-ur-Bak' Clothes Basket. Plaintiff also maintains an office in the City of Chicago, Illinois, and sells and distributes its commodity throughout the United States through jobbers and/or distributors selected by plaintiff in conformity with an interstate marketing arrangement and price fixing plan nationwide in scope.
Prior to the sales, by a California jobber, of plaintiff's commodity to defendant, a California corporation with its principal place of business in the City of Los Angeles, plaintiff had executed contracts with retailers in California for the sale of its basket, type 610 at a stipulated fair trade price of $3.95, and type 614 at a stipulated fair trade price of $5.45. There was no contract between plaintiff and defendant for the sale of plaintiff's commodity at the stipulated fair trade price.
Defendant purchased from one of plaintiff's jobbers in California baskets manufactured by plaintiff at its Colton plant which were delivered from the plant to defendant. This merchandise was offered for sale and was sold by defendant at less than the stipulated fair trade price, to wit, type 610 was told for $3.05 and type 614 for $4.89.
Question: Were the sales of the commodity manufactured by plaintiff in California and sold through its California jobber to defendant for resale to the consuming public in Los Angeles an intrastate transaction subject to control by the state legislature, or did the transactions have an effect upon interstate commerce as sales which were a part of plaintiff's general national merchandising and price fixing plan for the sale of its commodity subject to the control of the United States Congress?
The sales were interstate in their character, subject to the control of the United States Congress, and the fair trade laws of the state of California are inapplicable.
Plaintiff relies principally upon the decision in Max Factor & Co. v. Kunsman (1936) 5 Cal.2d 446, 55 P.2d 177, in support of his contention that the transactions here involved were intrastate, subject to the fair trade laws of California and were not interstate, subject to regulation by Congress.
In Max Factor & Co. v. Kunsman, supra, it was held that the resale of cosmetics in California which were manufactured in an eastern state and brought into this state for resale did not influence interstate commerce and were governed by the California Fair Trade Practice Act and not by the Sherman Act. The decision was affirmed by the United States Supreme Court. It is to be noted this case was decided in 1936, prior to the adoption of the Miller-Tydings Amendment in 1937 to the Sherman Anti-Trust Act and before the decision in Schwegmann Bros. v. Calvert Distillers Corp. (1951) 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035.
Plaintiff contends that, since the transactions occurred within the State of California, the cause is controlled by the decision in Max Factor & Co. v. Kunsman, supra, 5 Cal.2d 446, 55 P.2d 177. Such contention is unsound for the reason plaintiff's California and interstate sales are interdependent. For example, plaintiff's profits on its sales in the State of California, if all its commodities were sold at the fair trade prices fixed by it, might be sufficiently great to permit it to sell its commodity in other states at a price below the cost of manufacture in competition with manufacturers in other states and thus remain in business; on the other hand, it might fix a resale price below the cost of manufacture but because of the sales in other states where it did not have competition it might make a sufficiently large profit to stay in business. It is obvious that in either event its various transactions are interrelated and each transaction irrespective of the state has a bearing upon the transactions in other states and thus influences interstate commerce.
Plaintiff's method of operation when viewed as a whole constitutes interstate commerce. Its product is manufactured in California; its sales are made to jobbers and distributors throughout the United States for resale therein; a substantial portion of its commodity is sold to Jewel Tea Company in Illinois for resale throughout the several states; its commodities are all made at the same plant by the same employees and out of the same raw materials. Thus it is evident that its intrastate and interstate operations are so interlocked it is not possible, so far as their 'effect' on interstate commerce is concerned, to segregate and isolate sales made to California jobbers as distinguished from sales made to other jobbers and distributors in the various states. All these sales pertain to interstate commerce.
Plaintiff's argument that the products they seek to enjoin defendant from selling at reduced prices were manufactured in California and never left the state and thus have not entered the stream of interstate commerce is not controlling here since it is sufficient if interstate commerce is influenced by plaintiff's sale to defendant. (United States of America v. Frankfort Distillers, 324 U.S. 293, 296, 65 S.Ct. 661, 89 L.Ed. 951, 956; Mandeville Island Farms v. American Crystal Sugar Co., 334 U.S. 219, 234, 68 S.Ct. 996, 92 L.Ed. 1328, 1339.)
Although price fixing agreements by plaintiff, engaged in interstate commerce, may purport to touch only resales within the State of California, it does not follow that they do not influence interstate commerce and bring the transactions within the scope of the Sherman Act. The tendency of permitting plaintiff to keep up the price of their product within this state is to enable them similarly to keep up the price of the same product in other states. Conversely, if plaintiff is unable to maintain the price level fixed by them within this state, the effect may well be to lower the price at which their product is resold in adjoining states.
In Mandeville Island Farms v. American Crystal Sugar Co., supra, the United States Supreme Court held the Sherman Act was violated by a restraint relating to intrastate or local activities because of its actual or threatened effect upon interstate commerce. The court said, 334 U.S. at page 234, 68 S.Ct. at page 1005, (92 L.Ed. 1328, 1339), 'For, given a restraint of the type forbidden by the Act, though arising in the course of intrastate or local activities, and a showing of actual or threatened effect upon interstate commerce, the vital question becomes whether the effect is sufficiently substantial and adverse to Congress' paramount policy declared in the Act's terms to constitute a forbidden consequence. If so, the restraint must fall, * * *.'
Because plaintiff was engaged in interstate commerce and its intrastate business had an effect upon interstate commerce, so called fair trade prices may not be enforced against nonsigners of agreements with plaintiff and the rule announced in Schwegmann Brothers v. Calvert Distillers Corp., supra, hereinafter discussed is applicable.
Schwegmann Bros. v. Calvert Distillers Corp. (1950), supra, is a case in which merchandise was shipped from without the state in which it was sold to wholesalers and jobbers in another state who in turn sold to retailers in that state, who then sold to consumers. The court considered the entire problem as to the source and origin of the merchandise, as well as the transactions in the state where they were ultimately sold in determining whether the transactions involved interstate commerce. In holding that they did, and that enforcement of a price fixing arrangement against a nonsigner violated the Sherman Anti-Trust Act, Mr. Justice Douglas, speaking for the court, 341 U.S. 384, 71 S.Ct. at page 746, 95 L.Ed. at page 1043 said: 'It is clear from our decisions under the Sherman Act [July 2, 1890], 26 Stat. 209, [ch. 647] 15 U.S.C.A. §§ 1-7, 15 note, that this interstate marketing arrangement would be illegal, that it would be enjoined, that it would draw civil and criminal penalties, and that no court would enforce it. Fixing minimum prices, like other types of price fixing, is illegal per se. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129; Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 71 S.Ct. 259. Resale price maintenance was indeed struck down in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502. The fact that a state authorizes the price fixing does not, of course, give immunity to the scheme, absent approval by Congress.'
In the Schwegmann case in answering the argument that the producers' agreements with retailers to sell their products at a minimum price were binding upon nonsigners who sold the manufacturer's product at a cut rate price by virtue of the Miller-Tydings Amendment, enacted in 1937, the court said, 341 U.S. 384, 71 S.Ct. at page 747, 95 L.Ed. at page 1045, '* * * If a distributor and one or more retailers want to agree, combine, or conspire to fix a minimum price, they can do so if state law permits. Their contract, combination, or conspiracy--hitherto illegal--is made lawful. They can fix minimum prices pursuant to their contract or agreement with impunity. When they seek, however, to impose price fixing on persons who have not contracted or agreed to the scheme, the situation is vastly different. That is not price fixing by contract or agreement; that is price fixing by compulsion. That is not following the path of consensual agreement; that is resort to coercion.' (Italics added.)
It is evident that the decision in Schwegmann Bros. v. Calvert Distillers Corp., supra, insofar as the facts here involved are concerned, overrules the earlier result reached in Max Factor & Co. v. Kunsman, supra.
The foregoing conclusion is in accord with decisions in the following cases: National Labor Rel. Board v. Cowell Portland Cement Co., 9 Cir., 148 F.2d 237; Loveman, Joseph & Loeb v. National Lab. Rel. Board, 5 Cir., 146 F.2d 769; J. L. Brandeis & Sons v. National Lab. Rel. Board, 8 Cir., 142 F.2d 977; National Labor Relations Board v. Richter's Bakery, 5 Cir., 140 F.2d 870; and Butler Bros. v. National Labor Relations Board, 7 Cir., 134 F.2d 981.
In National Labor Relations Board v. Gluek Brewing Co., 8 Cir., 144 F.2d 847, the court said in discussing the scope of the National Labor Relations Act, at page 854: 'The scope of the Act is as broad as the power of Congress over commerce. (Citations omitted.) It expressly covers all situations 'affecting' interstate commerce. § 2(7), 29 U.S.C.A. § 152(7). The dividing line is not whether a particular business is essentially intrastate but, in the situation in that business before the court, 'what is the relation between the activity or condition and the effect' on interstate commerce. (Citations omitted.) Thus 'it follows that no form of state activity can constitutionally thwart the regulatory power granted by the commerce clause to Congress. Hence the reach of that power extends to those intrastate activities which in a substantial way interfere with or obstruct the exercise of the granted power''.
In United States v. Wrightwood Dairy Co., 315 U.S. 110, 119, 62 S.Ct. 523, 526, 86 L.Ed. 726, 732, the court said: 'The commerce power is not confined in its exercise to the regulation of commerce among the states. It extends to those activities intrastate which so affect interstate commerce, or the exertion of the power of Congress over it, as to make regulation of them appropriate means to the attainment of a legitimate end, the effective execution of the granted power to regulate interstate commerce.'
Also, 315 U.S. 110, 62 S.Ct. at page 529, 86 L.Ed. at page 736 it stated, 'We think it clear that Congress, by the provisions of § 8c(1) [7 U.S.C.A. § 608c(1)], conferred upon the Secretary authority to regulate the handling of intrastate products which by reason of its competition with the handling of the interstate milk so affects that commerce as substantially to interfere with its regulation by Congress; and that the statute so read is a constitutional exercise of the commerce power. Such was the view expressed in United States v. Rock Royal Co-operative, Inc., supra (Citations omitted.) We adhere to that opinion now.'
Again in Wickard v. Filburn, 317 U.S. 111, 63 S.Ct. 82 at page 88, 87 L.Ed. 122 at pages 134, 135, in discussing the commerce clause, the court said:
'Once an economic measure of the reach of the power granted to Congress in the Commerce Clause is accepted, questions of federal power cannot be decided simply by finding the activity in question to be 'production' nor can consideration of its economic effects be foreclosed by calling them 'indirect.' The present Chief Justice has said in summary of the present state of the law: 'The commerce power is not confined in its exercise to the regulation of commerce among the states. It extends to those activities intrastate which so affect interstate commerce, or the exertion of the power of Congress over it, as to make regulation of them appropriate means to the attainment of a legitimate end, the effective execution of the granted power to regulate interstate commerce. * * * The power of Congress over interstate commerce is plenary and complete in itself, may be exercised to its utmost extent, and acknowledges no limitations other than are prescribed in the Constitution. * * * It follows that no form of state activity can constitutionally thwart the regulatory power granted by the commerce clause to Congress. Hence the reach of that power extends to those intrastate activities which in a substantial way interfere with or obstruct the exercise of the granted power.' (Citations omitted.) * * *
'In the Shreveport Rate Cases (citations omitted) the Court held that railroad rates of an admittedly intrastate character and fixed by authority of the state might, nevertheless, be revised by the Federal Government because of the economic effects which they had upon interstate commerce. The opinion of Mr. Justice Hughes found federal intervention constitutionally authorized because of 'matters having such a close and substantial relation to interstate traffic that the control is essential or appropriate to the security of that traffic, to the efficiency of the interstate service, and to the maintenance of the conditions under which interstate commerce may be conducted upon fair terms and without molestation or hindrance.'' (Citations omitted.)
Finally in Atlantic Co. v. Citizens Ice & Cold Storage Co., 5 Cir., 178 F.2d 453, in discussing the question of the effect of the Sherman Act it was stated at page 457: 'It may not any longer be doubted that the power of Congress and the scope of the Sherman Act's coverage 'extends to those activities intrastate which so affect interstate commerce, or the exertion of the power of Congress over it, as to make regulation of them appropriate means to the attainment of a legitimate end, the effective execution of the granted power to regulate interstate commerce.' It remains true, however: that the distinction between intrastate and interstate commerce still exists; that 'it is the effect upon the interstate commerce or its regulation, regardless of the particular form which the competition may take, which is the test of federal power'; and that the question of whether the effect on interstate commerce is substantial is still a determining one.'
In the foregoing cases the courts held the various acts in which the parties engaged influenced interstate commerce. Since the facts involved in the case at bar had even a more obvious effect on interstate commerce than those mentioned above, the trial court, in line with the policy of our government, of not drawing invidious distinctions between its citizens, properly held plaintiff in the present case was engaged in interstate commerce and rightly denied its application for an injunction against defendant.
For the foregoing reasons the order is affirmed.
MOORE, P. J., and FOX, J., concur. --------------- * Subsequent opinion 254 P.2d 497. 1 The applicable statutes of California are: A. The Cartwright Anti-Trust Law (Stats.1907, p. 984; amended by Stats.1909, p. 593 [Deering's Gen.Laws 1931, Act 8702]), B. Section 16902 of Chapter 3 of the Business and Professions Code which reads in part as follows: 'No contract relating to the sale or resale of a commodity which bears, or the label or container of which bears, the trademark, brand, or name of the producer or owner of such commodity and which is in fair and open competition with commodities of the same general class produced by others violates any law of this State by reason of any of the following provisions which may be contained in such contract: '(1) That the buyer will not resell such commodity except at the price stipulated by the vendor. '(2) That the vendee or producer require the person to whom he may resell such commodity to agree that he will not, in turn, resell except at the price stipulated by such vendor or by such vendee. * * *' C. Section 16904 of Chapter 3 of the Business and Professions Code which reads thus: 'Advertisements and sales of commodities below contract price. Wilfully and knowingly advertising, offering for sale or selling any commodity at less than the price stipulated in any contract entered into pursuant to this chapter, whether the person so advertising, offering for sale or selling is or is not a party to such contract, is unfair competition and is actionable at the suit of any person damaged thereby.' 2 The Miller-Tydings Amendment, 15 U.S.C.A. § 1, reads: '* * * Provided, That nothing contained in sections 1-7 of this title shall render illegal, contracts or agreements prescribing minimum prices for the resale of a commodity which bears, or the label or container of which bears, the trade mark, brand, or name of the producer or distributor of such commodity and which is in free and open competition with commodities of the same general class produced or distributed by others, when contracts or agreements of that description are lawful as applied to intrastate transactions, under any statute, law, or public policy now or hereafter in effect in any State, Territory, or the District of Columbia in which such resale is to be made, or to which the commodity is to be transported for such resale, and the making of such contracts or agreements shall not be an unfair method of competition under section 45 of this title: Provided further, That the preceding proviso shall not make lawful any contract or agreement, providing for the establishment or maintenance of minimum resale prices on any commodity herein involved, between manufacturers, or between producers, or between wholesalers, or between brokers, or between factors, or between retailers, or between persons, firms, or corporations in competition with each other. Every person who shall make any contract or engage in any combination or conspiracy declared by sections 1-7 of this title to be illegal shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding $5,000, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court. July 2, 1890, c. 647, § 1, 26 Stat. 209; Aug. 17, 1937, c. 690, Title VIII, 50 Stat. 693.' 3 The Sherman Anti-Trust Act, 15 U.S.C.A. § 1, reads in part: 'Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal: * * *.'