Hon. Dorsey B. Hardeman Opinion No. M- 57
Chairmen
Committee on State Affairs Re: Constitutionality of Senate
Texas Senate Bill 255, as amended.
Austin, Texas
Dear Senator Rardeman:
You have requested our opinion a8 to whether S. B, 255, ar
mended, would be constitutional if enacted by the Legislcrture in
its present form.
In essence this bill prohibits the salt of mtrchandlet, at
wholesale or retail, below the cost thereof when such sale is made
with the purpose or intent to in;lure competition. The stated pur-
DO&S of the bill ie "to saftmard the DUbllC aaainet the creation
br p,erpetuation of monopolies and to foster ana encourage comptti-
tion by prohibiting unfair; dishonest, deceptive, destructive and
fraudulent practices by which fair and honest competition Is
destroyed and prevented. ” Such a purpose is a legitimate object
for the exercise of the police power of the state of Texas. See
Section 26, Article I of the Texas Constitution. See also, Attorney
Ceneralls Opinion WW-1043 (1961 which is concerned with legisla-
tion closely analogous to the b 1 11 now presented.
Thirty-one states have enacted laws prohibiting sales below
co&, and no such law has been held unconstitutional Insofar as the
power of the legislature to prohibit such sales is concerned. How-
ever, the constitutionality of any act of this nature can only be
evaluated by examining its provisions in detail -
” +mven where the power has been conceded
specif~c’provlsions have been Invalidated. There Is
thus substantial indication that the real problem Is
one of draftsmanship, of choosing among diverse statutory
pitfalls and yet accompllsh/Zng7 effective regulation.”
52 Harv.L.Rev. 1142 (1939) Et page 1144. See more
recent casts collected In Lane Distributors v. TiltOn,
81 A.2d 786, pages 795-796 (New Jersey S.Ct. 1951),
accord.
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Hon. Dorsey B. Hardeman, Page 2 (M-57 )
The precise f&ctors, on which the constitutionality of a statute
of this nature turns, are for the most part suggested in an analysis
contained in 52 Harv.L.Rev. 1142 (1939). These factors are listed
in a numerical order below with a discuss1on,following each. The
points are to a large extent overlapping but provide a convenient
frame of reference for discussion:
- The act struck down by the Texas Supreme Court in
the ci,e %? an Antonio Retail Grocers v. LafferQ, 297 S.W.2d 813
(Tex,S.Ct. lg>v) was limit d I ffect to grocery stores alone. The
proposed bill, on the othei haid:! spplies to all retailers and whole-
salers. The act is therefore not unconstitutE81 for promoting
discrimination against any particular trade group and the Lafferty
case is easily distinguished.
Since many.sales below cost cannot be considered
as unfair
2c. F%==
ra e practices
- but are the result of errors in inventory
control, variation in supply and demand, competitive forces or a
combination of the above factors, and further, since a strict pro-
hibition against all sales below cost would require a merchant to
absorb losses which the public interest in preventing monopolization
or promoting competition would not reasonably require; - statutes of
this nature must exempt such transactions as: close-outs in good
faith of part or all of the owner’s stock; bona fide sales of seasonal,
perishable, or deteriorated goods to prevent total loss to the vendor;
and sales made under court order to protect creditors and sales made
to meet legal competition. These requirements 8re met in Sections
8 and 9 of the Proposed Senate Bill 255, as amended.
3. Defi~nition of Cost - Under the proposed bill, cost Is pre-
sumed to be lower of Invoice or market, less any discounts frown
invoice, plus freight, 8 deemed cost of cartage-and any taxes which
are directly attributable to an item (not corporate frsnchise,
incame and ad valorem taxes - i.e, the definition does not include
“overhead taxes” which would not normally be allocated to the sale
of any particular product).
It would be difficult for 8 merchmt accused of violation to
seriously argue that he was prejudiced by application as a
tion of his actual expenses) of the dtf1nit1on provide (J ior Rg;y
under the proposed bill.
The problem of allocating overhead costs - i.e. of assigning
general expenses to particular products and periods - has traditionally
proved a source of dlfflculty in drafting a constitutional definition
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Hon. Dorsey B. Hardeman, Page 3 (M- 57 )
of “cost” since’ Sny resolutlon of the problem, a8 a practical matter,
must be somewhat
. arbitrary. See discussion 57 Y+le.~-law Journal391
st page 394; 52 Harvard Law Review 1142 at page 1147. Such consti-
tutional problems as are inherent In allocating general ovtrhtad
expenses have been avoided under Senate Bill 255, as amended, by
giving the benefit of all doubts to one accused of violation - his
costs are assumed to include no general overhead.
4. Intent - The absence of intent as 8 prerequisite to a finding
of violatY6iii?% held to Invalidate an earlier proposed act of this
nature. Attorney General’s opinion WW-125 (1957). As proof of in-
tent is required to sustain any litigation authorized by the act now
proposed, we find no reason to review WW-123, but simply note it is
inapplicable here.
5. Remedies - Senate Bill 255, 8s amended, dot8 not provide
for criminal penalties s
The presence or absence of such penalties has frequently been
cited as being an important consideration In determiningthe conrtl-
tutionallty of 8 bill of this nature.
See 52 Harv.L.Rev. 1142 (1939) at page 1145:
n ere the exemption Lfor salts below
cost to mei P competition7 is not expressly limited to
legal competition, the i&y is opened to frustration
of the statute if 811 members of the trade may as a
dbfense assert that they were meeting each other’s ll-
leg81 prices- On the other hand, there is hardship
in making the seller ascertain at his peril whether
competing prices are legal. It might be sensible here
to distinguish between defenses in criminal and injunc-
tive proceedings making bona fid b 11 f df t
- ormer but not to the latter. err e(;pzsi: :%:d.y
See also McCormick on Evidence (West 19%) pq 661;
Validity of Statutory Prtsumptlons~
I! *The distribution in civil casts of the burden
of pleading, as between plaintiff and defendant, carrying
with It usually the burden of roceeding with evidence and
the burden of persuasion9... need not be placed upon the
plaintiff under the constitu P ion7 mince there is no
reason for special protection o? o?E party to the civil
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. .
Hon. Dorsey B. Hardeman, Page 4 (M- 57 )
case rather than the other as there Is in criminal
cases. . o
11 .In the,realm of criminal proceedings, however,
the rule’is quite different. The traditional common law
procedure emphasized that the burden of evidence and the
burden of persuasion are upon the government to establish
the guilt of the accused.”
Accord, Twin City Candy and Tobacco Co. Inc. v. B. A. Weisman
CCH, lg6? Trade Regulation Reports, p9 tJ)3$7OU, in Part as
%iOWB:
“Except as to criminal prosecutions where a defen-
dant enjoys a presumption of Innocence and the burden
is on the state, we suggest that the difficulty of proof
. ‘.may be overcome constitutionally by the adoption of
a statute which makes 8 sale below cost prima facie evi-
dence of predatory intent or effect. While there is 8
divlsion of opinion with respect to the validity of such
a provision, the weight of authority, and we believe the
better reasoned decisions, hold there is no constitution81
impediment to requiring that in a civil case the vendor
must prove his below cost sales were made without predatory
intent or effect.” (March 20, 1967.)
As above etsted, the proposed bill 8s amendeddoes not contain
criminal sanctions - thus further doubts as to its constitutionality
may be removed.
Civil penalty sections such as have been provided for tnforce-
ment in the proposed bill (along with Injunctive relief and damages)
are brought to trial under the civil rules of evidence; both the
accused and the state are in the same positions &a litigants in
civil actions; and, therefore, the presumptions of innocence need
not be in full force and effect. Barrington v. State, 407 S.W.2d
467 (Tex.S.Ct. 1.966);Cert. den. U.S. -(F eb . 19b7 1.
Pursuant to the above discussion we answer your qW?atiOn as
follows :
S. B. 259, as amended, meets all tests of constitutionality,
which are normally applied to “Unfair Sales $egislatlonn cmnd, if
enacted, will be constitutional.
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Hon. Dorscy B. Hardernan, Page 5 ,,(N- 57 )
SUMMARY
S. B, 255, as' amended, would be constitutional
if enacted into law by the Legislature..
v&d’truly yours,
Prepared by Larry S. Craddock
Assistant Attorney General,
APPROVED:
OPINION COMMITTEE
Hawthorne Phillips, Chairman
W. V. Geppert, Co-Chairman
Thomas Mack
Robert Owen
Kerns Taylor
Jack Sparks
STAFF LEDALASSISTAIiT
A, J. Carubbi, Jr.
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