People v. Pay Less Drug Store , 25 Cal. 2d 108 ( 1944 )

SHENK, J.

An injunction was sought by the plaintiff to restrain the defendants from violating certain provisions of the Unfair Practices Act (Stats. 1913, p. 508, as amended by Stats. 1937, p. 2395; Deering’s Gen. Laws, 1937, p. 4157, Act 8781). The defendants appealed from the judgment which decreed the plaintiff’s right to the writ of injunction.

The defendants conduct a cash and carry grocery business at 19th Street and Telegraph Avenue in Oakland. The complaint, filed in April, 1940, charged them with selling approximately 400 specified items below cost, and with offering for sale and selling other items as “loss leaders,” with the intent of injuring competitors or destroying competition in violation of the act. The defendants admitted the sales below cost, but denied the charge of intent to injure competitors or destroy competition. They alleged that such sales were made in good faith to meet the “legal” prices of competitors. They also charged that certain sections of the act are unconstitutional.

There was evidence that merchants found by the trial court to be competitors of the defendants were injured by the admitted price cutting below cost. On the issue of their intent, the defendants introduced evidence to the effect that when they opened for business on a specified day they lowered the marked prices on a large number of items to meet the prices on similar items as advertised for that day by their competitors, and that whenever an item was marked below cost it was for the purpose of meeting competitive prices and for no other reason. There was evidence, however, that after the competitors’ prices were raised the defendants continued for periods of weeks or months to sell the items at the below cost prices and at prices lower than the prices of their competitors for similar articles or commodities, and that in many instances the sales below cost were not begun until weeks or months after the similar advertised price of a competitor had been discontinued. The trial court found on sufficient evidence that the defendants did not offer and sell the items below cost in an endeavor in good faith to meet the legal prices of competitors, but that they sold the items below cost for the purpose of destroying the business of competitors, and that the acts of the defendants were causing injury to those competitors and destroying competition. The court also found that the defendants had sold certain articles as “loss leaders.”

Section 3 of the Unfair Practices Act makes it unlawful to sell any article or product at less than cost as defined, for the purpose of injuring competitiors or destroying competition, and subjects the violator to certain penalties. That section also prohibits the sale of “loss leaders,” as defined. Section 5 provides that in all actions brought under the provisions of the statute the proof of one or more acts of selling below cost, together with proof of the injurious effect of such acts, “shall be presumptive evidence of the purpose or intent to injure competitors or destroy competition.” Section 6 provides that the prohibitive provisions shall not apply (a) when the owner in good faith is closing out his stock or is discontinuing a certain article or product, or in sales of seasonal or perishable goods to prevent loss or depreciation, and appropriate notice is given to the public; (b) in the sale .of damaged or deteriorated goods, and notice is given; (c) by an officer acting pursuant to judicial order; (d) in an endeavor made in good faith to meet the legal prices of a competitor selling similar articles in the same locality or trade area in the ordinary channels of trade.

Section 10 permits an action to enjoin acts in violation of the statute. Section 12 contains the usual severability clause relating to judicial pronouncements of uneonstitutionality.

By section 13 the Legislature declares “that the purpose of this act is to safeguard the public against the creation or perpetuation of monopolies and to foster and encourage competition, by prohibiting unfair, dishonest, deceptive, destructive, fraudulent and discriminatory practices by which fair and honest competition is destroyed or prevented. This act shall be liberally construed that its beneficial purposes may be subserved.”

The constitutionality of the purpose and policy of the Legislature in enacting the Unfair Practices Act and of the means employed to subserve the legislative purpose by prohibiting sales below cost made with the intent to injure competitors or destroy competition was upheld generally as a valid exercise of the police power by the decisions of this court in Wholesale Tobacco Dealers Bureau v. National Candy & Tobacco Co., 11 Cal.2d 634 [82 P.2d 3, 118 A.L.R. 486] ; and People v. Black’s Food Store, 16 Cal.2d 59 [105 P.2d 361], (See, also, People v. Kahn, 19 Cal.App.2d Supp. 758 [60 P.2d 596] ; Dunnell v. Shelley, 38 Cal.App.2d 118 [100 P.2d 830]; Green v. Grimes-Stassforth S. Co., 39 Cal.App.2d 52 [102 P.2d 452].)

In the present case the defendant attacks specific provisions of the act. It is contended that the provision of section 5 that proof of sales below cost with “injurious effect” shall be “presumptive evidence” of the prohibited intent is vague and unconstitutional. It is argued that since the statute was enacted for the protection of the public against monopolies, doubt arises as to whether injury to competitors or to the public was intended by the words “injurious effect.” The language of that provision, together with the prohibitive language of section 3 and the declaratory language of section 13, makes it sufficiently clear that the Legislature deemed that injury to a competitor or destruction of competition was an “injurious effect,” and therefore within the ban of the act; and that it was not necessary to await success in the monopolistic effort before the measures provided to safeguard the public interest and welfare could be invoked. These provisions are sufficiently explicit to inform the merchant as to what is prohibited. He is not relegated to conjecture to determine his lawful conduct. There is no uncertainty in the provisions now complained of which could be said to hamper the defendants’ intelligent choice of the course which may lawfully be pursued. Furthermore, an injurious effect is not an essential element of the violation. The violation is complete when sales below cost are made with the requisite intent and not within any of the exceptions. Proof of injurious effect is permitted to be shown with the proof of sales below cost as presumptive or prima facie evidence that the requisite intent existed. The obvious and only effect of this provision is to require the defendants to go forward with such proof as would bring them within one of the exceptions or which would negative the prima facie showing of wrongful intent. They may present facts showing that they were within the express exceptions regardless of actual intent; or they may introduce evidence of another necessity not expressly included to show that sales were made in good faith and not for the purpose of injuring competitors or destroying competition.

It is unnecessary here to consider the defendants’ suggestions' of circumstances other than the expressly designated exceptions, which would justify sales below cost and negative the prima facie showing of unlawful intent. The defendants introduced evidence solely in an attempt to bring themselves within exception (d), which permitted them to make sales below cost in an endeavor in good faith to meet the legal prices of their competitors.

A statutory requirement that the defendant go forward with evidence to rebut a prima facie showing of guilty intent from proof of specified facts is permissible when the result has some rational relation to those facts and the defendant is given a fair opportunity to meet it by evidence. (Morrison v. California, 291 U.S. 82, 88 [54 S.Ct. 281, 78 L.Ed. 664].) That case designates as the test of permissibility that “the state shall have proved enough to make it just for the defendant to be required to repel what has been proved with excuse or explanation, or at least that upon a balancing of convenience or of the opportunities for knowledge the shifting of the burden will be found to be an aid to the accuser without subjecting the accused to hardship or oppression.” Our statute does not withdraw from the accuser the burden of proving a violation, nor does it deprive the defendant of the benefit of the presumption of innocence. Here there was a manifest disparity in convenience of proof and opportunity for knowledge as between the plaintiff and the defendants. The defendants were in the better position to know the intent and purpose of their conduct, which it might be difficult for the plaintiff to prove. The Legislature merely enacted into law what is common in human experience, that when a person causes injury by his acts he should be deemed to intend such consequences unless he can excuse or explain his conduct by facts showing that he had an innocent intent. It was so enacted to avoid the possible conclusion that the accuser, from whom the defendants’ purpose is generally concealed, must produce affirmative evidence of guilty intent in every situation in order to make out a prima facie ease of violation of the act. After proof of the sales below cost and injury resulting therefrom, there is no undue hardship cast upon the defendants to require them to come forward with evidence of their true intent as against the prima.facie showing, or with evidence which will bring them within a specified exception in the act. The power to enact such a provision in appropriate cases has been upheld in this state. (People v. Osaki, 209 Cal. 169 [286 P. 1025]; People v. Associated Oil Co., 211 Cal. 93, 109 [294 P. 717]; People v. Scott, 24 Cal.2d 774, 779 [151 P.2d 517]; People v. Morrison, 125 Cal.App. 282 [13 P.2d 800], appeal dismissed, 288 U.S. 591 [53 S.Ct. 401, 77 L.Ed. 970].) In People v. Osaki, supra, this court reviewed the question fully and recognized, in accord with the decisions of the United States Supreme Court, that to place upon the defendant the duty of introducing facts peculiarly within his knowledge, and hidden from discovery by others, was not inconsistent with the presumption of innocence and was consistent with all the constitutional protections including the right of an accused not to be a witness against himself.

The case of Great Atlantic & Pacific Tea Co. v. Ervin, 23 F.Supp. 70, relied on by the defendants, does not avail them. That case involved a section in a Minnesota statute providing that sales by a retailer at less than 10 per cent above manufacturers’ published list prices less published discounts should be prima facie evidence of a violation of the act. It was held that such sales could not be presumptive evidence of guilty intent because guilty intent did not rationally follow merely from the fact of sales under 10 per cent above list, and that the proof required of the defendant placed upon him a hardship which was regarded as outweighing the advantage to the state. That case did not involve a provision comparable to that contained in our statute. There the prima facie showing resulted where sales were made below an arbitrary percentage above list, regardless of actual cost or injurious effect. The conclusion in that case would probably have been otherwise if the Minnesota statute had been similar to the California act. That assumption is justified in view of the fact that the Minnesota statute was subsequently amended to cure the manifest defects and as amended was upheld in McElhone v. Geror, 207 Minn. 580 [292 N.W. 414].

The defendants contend that the language of subdivision (d) of section 6 is also so indefinite and uncertain as not to permit a person to understand its meaning and that the subdivision is for that reason invalid. They say that no one can tell what territory is embraced in “the same locality or trade area.” They rely on State v. Standard Oil Co., 195 S.C. 267 [10 S.E.2d 778, 785]. That case is not in point. •There a statutory provision prohibited the sale of a “commodity at a lower rate to one purchaser in the same city . . . than is charged for said commodity ... in another section of said city, ...” The court pointed out that discrimination in the same section of the city was not prohibited, and since “section” was not defined it would be impossible to know when the provision was being violated. There is no such difficulty here. In the present case the trial court found the trade area; found that the defendants knew what was their “locality or trade area” within the meaning of the act, and that the complaining competitors were within that locality or trade area. The court thus found that the defendants knew who were their competitors. It is safe to assume that merchants generally know who are their competitors, and from what locality or trade area they draw their customers. The language complained of is shown in this case to be susceptible of practical application without more particular definition. Empirical surmises are not to be substituted for pragmatical results. Until a case is presented which demonstrates the practical unworkability of the language we would not be inclined to accord much weight to arguments based on theory which is contrary to the facts and the court’s findings. Furthermore, if in some cases the “locality or trade area” may be difficult of ascertainment, that fact alone would not render the provision invalid. (McElhone v. Geror, supra, 292 N.W. at p. 419.) Nor is this case like Connally v. General Construction Co., 269 U.S. 385, where it was held that the word “locality” was open to uncertain application. Here we have the word “locality” followed by the words “or trade area,” and from the factual background presented we cannot say that the phrase “locality or trade area” has a connotation difficult of ascertainment by the court or parties. Such a situation distinguishes this from the Connally case.

The defendants contend that they should not be compelled to ascertain the “legal prices” of their competitors before invoking the exception provided by subdivision (d) of section 6 for the reason that it is impossible to ascertain the legal prices of competitors’ goods without an audit of their books. The defendants have assumed an absolute prerequisite. The requirement is not absolute. It is merely that the defendants shall have endeavored “in good faith” to meet the legal prices of a competitor. A similar provision was upheld in State v. Sears, 4 Wn.2d 200 [103 P.2d 337, 345], the court saying “that if a merchant in good faith reduces his prices to meet those of a competitor, who he in good faith believes has a legal price, he will not be violating either the intent or the wording of the act. ’ ’ The provision therefore is not like that involved in Commonwealth v. Zasloff, 338 Pa. 457 [13 A.2d 67, 128 A.L.R 1120] (see, also, State v. Packard-Bamberger & Co., 123 N.J.L. 180 [8 A.2d 291]), holding invalid a provision which exempted the merchant if the price was made “to meet the legal price of a competitor” as an absolute requirement without according him the opportunity of showing his good faith. Here the trial court was justified in concluding that the defendants’ long continued course of selling below cost after the lowered prices were abandoned by their competitors, negatived any possible inference of good faith to be accorded them by their initial lowering of prices below cost.

The defendants contend that the provision defining “loss leader” is indefinite in that it appears not to require the intent to injure competitors or destroy competition in all cases. Inasmuch as the judgment enjoined sales of articles as “loss leaders” only when they diverted trade from or otherwise injured competitors, the defendants are not in a position to complain.

The defendants assert that the requirement that they ascertain their own cost of doing business is grossly impracticable. But here again it must be said that the record does not support the assertion. The trial court found that the defendants’ cost of doing business was 8.03 per cent, and that the ascertainment of its cost of doing business was not impossible. In any event, the defendants conceded that sales of eommodities in some cases were made even below invoice cost. Here, as in Wholesale Tobacco Dealers Bureau v. National Candy & Tobacco Co., supra (at p. 662), where the same contention was made, the factual background for ascertaining whether the provisions for discovery of cost are too uncertain to be susceptible of reasonable application has not been presented, and in the absence of such presentation the issue should not be determined. Also, as pointed out in State v. Sears, supra, 103 P.2d at page 343, with reliance on People v. Kahn, supra, any difficulty in computing cost is a factual one, and statutes are not to be declared invalid because in their application factual difficulties may arise.

Section 10 of the act provides immunity of a defendant or witness brought into court to testify in any action under the statute. The immunity expressly extends to prosecutions for violation of the provisions of the act. The defendants contend that the immunity provided is not commensurate with that granted by the state and federal Constitutions. It is not necessary to determine that question inasmuch as the defendants are not now in a position to claim an immunity privilege.

The defendants contend that the trial court erroneously refused to strike out the hearsay testimony of one witness, given on cross-examination by the defendants, that “Pay Less” was the first to cut the price on one item, and that the failure to strike the testimony was prejudicial. The ruling, if error, did no harm inasmuch as the trial court had before it the defendants’ records and exhibits of advertisements of competitors from which it ascertained the facts and which support its findings.

Finally the defendants contend that the judgment is void for uncertainty. The defendants were enjoined “from offering for sale or selling, contrary to the provisions of section 3 of the Unfair Practices Act, any article or product at less than the cost thereof to the vendor, as cost ... is defined in the Unfair Practices Act, for the purpose of injuring competitors or destroying competition, and further from using any article or product as a ‘loss leader’ as ‘loss leader’ is defined in said Unfair Practices Act, and which diverts trade from or otherwise injures competitors; provided, however,” that the restraint should not apply to sales “made under and pursuant to the provisions of paragraphs (a), (b), (e), (d), or any of them, of section 6” of the act.

Section 10 of the act, as amended in 1939 (Stats. 1939 p. 1424; Deering’s Gen. Laws, 1939 Supp., Act 8781), authorizes an action to enjoin any violation of the provisions of the act, and, in addition, for the recovery of damages. The section, as so amended, further provides that if the court in any such action shall find that the defendant is violating any provision of the act, it shall enjoin him from doing all acts prohibited by the section or sections found to have been violated, and may include any other restraint deemed expedient to insure against the defendant’s committing a future violation of any such section or sections, and the injunction shall cover every article or product and not merely the particular article or product involved in the action.

Prior to the 1939 amendment, section 10, added by Statutes of 1935, page 1549, provided merely that an action might be maintained to enjoin a continuance of any act or acts in violation of any of the provisions of sections 1 to 7.

Had the language of 1935 remained unchanged defendants’ argument might be persuasive to the effect that the injunction couched in the language of the prohibitive provisions involved was too broad and therefore violative of the principles announced in New York, N. H. & H. R. Co. v. Interstate Commerce Com., 200 U.S. 361 [26 S.Ct. 272, 50 L.Ed. 515]; Rust v. Griggs, 172 Tenn. 565 [113 S.W.2d 733, 738]; and Johnson v. Farmer, 41 Cal.App.2d 874, 881 [107 P.2d 959, 108 P.2d 945]. However, the defendants do not maintain that upon the commission of unlawful acts the courts may not provide for restraint of all such and related acts. (See National Labor Relations Board v. Express Publishing Co., 312 U.S. 426, 435-436 [61 S.Ct. 693, 85 L.Ed. 930].) The language of the judgment is not couched in terms restraining violation of the act generally. It contemplates restraint of those acts only which are prohibited by the particular sections found by the court to have been violated by the defendants. In view of the scope fo the injunction required by section 10 as amended, the court was constrained to follow the legislative mandate and did so properly in the language employed. The restraint applies only to acts in violation of the sections here involved.

Other contentions do not require discussion.

The judgment is affirmed.

Gibson, C. J., Curtis, J., Traynor, J., and Schauer, J., concurred.