Argued October 29, November 1, 2, 1915. Decided March 6, 1916.
Rast v. Van Deman Lewis, ante, p. 342, followed to effect that the State may regulate the use of, and impose license taxes on the privilege of using profit sharing coupons and trading stamps. The statute of the State of Washington of 1907 imposing license taxes on the privilege of using profit sharing coupons and trading stamps is in its essential particulars similar to the statute of Florida sustained in Rast v. Van Deman Lewis, ante, p. 342: and, held that such statute was properly enacted in the exercise of the police power of the State in regard to matters subject to regulation, and that it is not unconstitutional under the Federal Constitution as interfering with or burdening interstate commerce, impairing the obligation of contracts, denying equal protection of the law, or depriving merchants of their property without due process of law. 208 F. 605.
Mr. Dallas V. Halverstadt and Mr. Blackburn Esterline, with whom Mr. W.V. Tanner, Attorney General of the State of Washington, was on the brief, for appellants:
Between 1888 and 1915, statutes prohibiting, restricting, or licensing on the payment of fees, the use of trading stamps, were passed by Alabama, Arkansas, California, Colorado, Florida, Georgia, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Montana, Nebraska, New Hampshire, Indiana, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia and Hawaii. In 1873, Congress passed an Act making it a penal offense to engage in any gift enterprise in the District of Columbia, 17 Stat. 464, c. 148, which embraced the use of trading stamps, Lansburgh v. District of Columbia, 11 App.D.C. 512; District of Columbia v. Kraft, 35 App.D.C. 253; In re Gregory, 219 U.S. 210. By an express Act of Parliament the use of trading stamps is a crime in the Dominion of Canada. Wilder v. Montreal, 26 Rapp. Jud. Quebec, 504, and note. This unanimity of the legislative mind refutes the argument that the use of trading stamps is only a legitimate and harmless system of advertising, and that the statute of Washington deprives the users of them of liberty and property without due process of law.
In 1913, the State of Washington, declared as the public policy of the State that the use of trading stamps should be restricted and regulated, Sess. Laws, 1913, p. 413, and the Supreme Court of the State sustained it in State v. Pitney, 79 Wn. 608, expressly overruling Leonard v. Bassindale, 46 Wn. 301, holding unconstitutional the previous act of 1905, p. 374.
Coincident with the arguments before this court in this case, the Supreme Court of Louisiana sustained the trading stamp statute of that State, Louisiana v. Underwood, La. Sup. C., October 8, 1915. See also on this subject article by Assistant Attorney-General Warren, 13, Col. Law Rev., April, 1913, p. 296; "Premiums in Retail Trade," by I.M. Rubinow, 13, Jour. Pol. Economy, Sept., 1905, No. 4, p. 574; "Cost of Distributing Groceries," by E.M. Patterson, Ph. D., Wharton School of Finance, Univ. Penna., 50, Annals Academy Pol. Science, No. 139, p. 74; "Fallacy of the Trading Stamp," by Arno Dosch, Pearson's Magazine, Aug., 1911; "Premium Giving," by Frank Farrington, in Store Management Complete, Byxbee Pub. Co., Chicago, 1911.
Many authorities sustain the propositions that the State may prohibit the use of trading stamps by virtue of the police power, and that the Washington Trading Stamp Act is not an arbitrary classification.
If the State possesses the power to tax for revenue, the extent of the exercise of the power is immaterial.
Mr. W.T. Dovell with whom Mr. Frank T. Wolcott was on the brief, for appellees:
The Act is prohibitive. Murphy v. California, 225 U.S. 623; Rosenthal v. New York, 226 U.S. 260.
To prohibit the conduct of the business is contrary to the law of the land. Cotting v. Stock Yards Co., 183 U.S. 79; Dobbins v. Los Angeles, 195 U.S. 223; Gulf, Colo. c. Ry. v. Ellis, 165 U.S. 150; Halter v. Nebraska, 205 U.S. 34; Holden v. Hardy, 169 U.S. 366; Lawton v. Steele, 152 U.S. 133; Mugler v. Kansas, 123 U.S. 623.
The prohibition does not fall within the police power because it tends to limit extravagance. In regard to sumptuary laws, see Allnutt v. Inglis, 12 East, 527; Cooley's Blackstone, Book I, p. 125; Cooley's Const. Lim. (7th ed.), p. 549; Ex parte Dickey, 144 Cal. 234; 2 Farrand's Records of the Fed. Conv. 344; German Alliance Ins. Co. v. Kansas, 233 U.S. 389; Humes v. Little Rock, 138 F. 929; Keokee Coke Co. v. Taylor, 234 U.S. 224; Noble State Bank v. Haskell, 219 U.S. 104; Patsone v. Pennsylvania, 232 U.S. 138; People v. Gillson, 109 N.Y. 389; 17 N.E. 343; People v. Steele, 231 Ill. 340; 83 N.E. 236; People v. Zimmerman, 92 N.Y.S. 497; Pullman Co. v. Knott, 35 Sup.Ct. Rep. 2; Ex parte Quarg, 149 Cal. 79; Seattle v. Dencker, 58 Wn. 501; State v. Fire Creek Coal Co., 33 W. Va. 188; Stickney's State Control, ch. I, and see p. 100; Tiedeman's Pol. Pow., p. 154.
The Act is not brought within the police power because it may foster intermediate concerns. Denver v. Frueauff, 39 Colo. 20; Winston v. Beeson, 135 N.C. 271; Commonwealth v. Gibson Co., 125 Ky. 440; People v. Dycker, 76 N.Y.S. 111; People v. Zimmerman, 92 N.Y.S. 497; State v. Dalton, 22 R.I. 77; State v. Ramseyer, 73 N.H. 31; State v. Sperry Hutchinson, 110 Minn. 378.
The Act denies equal protection of the law because the attempted classification for the purpose of a license tax is purely arbitrary. Cases supra and see Bell's Gap R.R. v. Pennsylvania, 134 U.S. 232; Winston v. Beeson, 135 N.C. 271; Connolly v. Union Sewer Pipe Co., 184 U.S. 540; Ex parte Drexel, 147 Cal. 763; Ex parte Hutchinson, 137 F. 949; Southern Ry. v. Greene, 216 U.S. 400; Sperry Hutchinson v. Temple, 137 F. 992; State v. Loomis, 115 Mo. 307.
The practice of using premium stamps is legitimate as a method of advertising. The coupon system furnishes a peculiar and legitimate inducement for the return of a customer. Cooperation among merchants in the use of the premium system is lawful and the adjudicated cases have held the classification arbitrary. Montgomery v. Kelly, 142 Ala. 552; Commonwealth v. Gibson Co., 125 Ky. 440; 101 S.W. 385; Hewin v. Atlanta, 121 Ga. 723; Ex parte McKenna, 126 Cal. 429; O'Keeffe v. Somerville, 190 Mass. 110; Van Deman Lewis Co. v. Rast, 214 F. 827.
If the business or practice is lawful, it may not be prohibited indirectly by a license tax. Connolly v. Union Sewer Pipe Co., 184 U.S. 560; Cooley on Taxation (3d ed.), pp. 260, 1140, 1143; Flint v. Stone Tracy Co., 220 U.S. 107; Harvard Law Review, Vol. XXVI, p. 682; Kehrer v. Stewart, 197 U.S. 60; Kirtland v. Hotchkiss, 100 U.S. 491; McCray v. United States, 195 U.S. 27; M'Culloch v. Maryland, 4 Wheat. 316; 3 McQuillin on Mun. Corp., § 1002; Post. Tel. Co. v. Charleston, 153 U.S. 692; Spencer v. Merchant, 125 U.S. 345; Union Pac. R.R. v. Peniston, 18 Wall. 5; Veazie Bank v. Fenno, 8 Wall. 533; Weston v. Charleston, 2 Pet. 449; Wiggins Ferry Co. v. St. Louis, 107 U.S. 365.
Repeated attempts to enact such legislation offer no argument for its constitutionality. Chaddock v. Day, 75 Mich. 527; Marbury v. Madison, 1 Cranch, 137.
The "Retail Market Price" provision in the Act renders it unconstitutional. Bishop on Stat. Crimes (2d ed.), § 41; Brown v. State (Wis.), 119 N.W. 338; Buckles v. State, 5 Okla. 109; 113 P. 244; Chicago N.W. Ry. v. Dey, 35 F. 866; Collins v. Kentucky, 234 U.S. 634; Cook v. State (Ind.), 59 N.E. 489; Int. Harvester Co. v. Kentucky, 234 U.S. 216; Kilbourne v. State, 84 Ohio St. 247; 2 Lewis' Suth. Stat. Cons. (2d ed.), § 520; Louis. Nash. R.R. v. Commonwealth, 33 L.R.A. 209; Matthews v. Murphy, 23 Ky. Law Rep. 750; Savage v. Wallace, 165 Ala. 572; Tozer v. United States, 52 F. 917.
The Act is invalid because its observance requires the removal of inserts. Asbell v. Kansas, 209 U.S. 251; Bettman v. Warwick, 108 F. 46; Commonwealth v. Sherman Mfg. Co., 75 N.E. 71; Felsenheld v. United States, 186 U.S. 126; Halter v. Nebraska, 205 U.S. 34; M'Culloch v. Maryland, 4 Wheat. 316; McDermott v. Wisconsin, 228 U.S. 115; Mo., Kan. Tex. Ry. v. Haber, 169 U.S. 613; Mugler v. Kansas, 123 U.S. 623; Nor. Pac. Ry. v. Washington, 222 U.S. 370; People v. Van De Carr, 178 N.Y. 425; People v. Zimmerman, 92 N.Y.S. 497; Savage v. Jones, 225 U.S. 501; Second Employers' Liability Cases, 223 U.S. 1; Sinnot v. Mobile, 22 How. 227; Smith v. Alabama, 124 U.S. 465; Southern Ry. v. Reid, 222 U.S. 424; Tex. Pac. Ry. v. Abilene Oil Co., 204 U.S. 426.
Excessive penalty renders Act unconstitutional. Bonnett v. Vallier (Wis.), 116 N.W. 885; Cons. Gas Co. v. New York, 157 F. 849; Cotting v. Stock Yards, 183 U.S. 79; Grenada Co. v. Mississippi, 217 U.S. 433; Mo. Pac. Ry. v. Tucker, 230 U.S. 340; Portland Ry. v. Portland, 201 F. 119; Reagan v. Farmers' L. T. Co., 154 U.S. 362; Southwestern Oil Co. v. Texas, 217 U.S. 114; State v. Crawford, 74 Wn. 248; 133 P. 590; United States v. Del. Hud. Co., 213 U.S. 366; Waters-Pierce Oil Co. v. Texas, 212 U.S. 111; Ex parte Young, 209 U.S. 123.
The cases of Dist. of Col. v. Kraft, 35 App.D.C. 253 and Lansburgh v. Dist. of Col., 11 App.D.C. 512, can be distinguished.
The court ruled against the motions to dismiss, and concurring with the ruling as far as it retained jurisdiction of the suits and the persons of the defendants, we pass to the consideration of the validity of the statute of the State. Of that it was said: "The court is fully satisfied from a bare inspection of the act without more and without considering the affidavits on file, that it is and was intended to be prohibitive of the business methods against which it is directed. It is plainly manifest that no merchant could afford to pay the sum of $6,000 annually for the mere privilege of giving away trading stamps or allowing discount on his cash sales. But if this were the only objection to the act it may be that the courts would be powerless to enjoin its execution. The power of taxation rests upon necessity and is inherent in every independent State. It is as extensive as the range of subjects over which the government extends; it is absolute and unlimited, in the absence of constitutional limitations and restraints, and carries with it the power to embarrass and destroy. Post. Tel. Co. v. Charleston, 153 U.S. 692, 699; McCray v. United States, 195 U.S. 27; Kehrer v. Stewart, 197 U.S. 60."
The charge of discrimination against the statute was decided to be a factor as to its validity. The use of trading stamps and other similar devices was regarded as a legitimate system of advertising and that to distinguish it from other systems of advertising was a violation of the equality clause of the Federal Constitution. And it was said: "As well might the legislature classify separately those who advertise in the columns of the daily papers, by bill boards, or by electrical signs, and impose a tax upon them to the exclusion of others engaged in the same business or calling who do not so advertise."
In this conclusion we think, for the reasons expressed in Rast v. Van Deman Lewis, ante, p. 342, just decided, that the court erred. We have been at pains to summarize the bill in this case to show its similitude to that.
The coupons in this case, in compliance with the law of the State of Washington (Laws of 1907, p. 742), must be redeemed in cash if demanded by the purchaser; otherwise in articles of merchandise selected by him. The redemption of the coupons in some instances is directly by the merchant issuing them; in others, it is alleged, by "a third party, with whom said complainants have a contract for the use of their trading stamps or coupons used in connection therewith and the redemption thereof in merchandise." These differences, however, do not affect the principle announced in Rast v. Van Deman Lewis, ante, p. 342. Whether the coupons are prepared by the issuing merchant or prepared by another, whether they be redeemed by him or by another, is but a phase of the system, not affecting its essential character. And we may say here, as we said in Rast v. Van Deman Lewis, that we are not concerned with consideration of a business in which coupons, etc., are issued or used and not redeemed in merchandise, that is, where they are used as a rebate upon the price of the article or a discount upon purchases, nor with the legality of a statute which should regulate or prevent such use of the coupons disassociated from other uses of them. Complainants contend for a broad use and assert that there cannot legally be any limitation of their methods of redemption, which they comprehensively denominate the "premium system."
The opinion in Rast v. Van Deman Lewis, is, therefore, decisive of the contentions in this case. We said there that there were manifest differences between the "premium system" of advertising and the other methods enumerated and that those differences justified a difference in measures. And this is justified not only by the wide discretion which may be exercised in legislation but by a rigid principle of classification. Classification is not different in law than in other departments of knowledge. "It is the grouping of things in speculation or practice because they `agree with one another in certain particulars and differ from other things in those particulars.'" Billings v. Illinois, 188 U.S. 97, 102. Upon what differences or resemblances it may be exercised depends necessarily upon the object in view, may be narrow or wide according to that object. Red things may be associated by reason of their redness, with disregard of all other resemblances or of distinctions. Such classification would be logically appropriate. Apply it further: make a rule of conduct depend upon it and distinguish in legislation between redhaired men and black-haired men and the classification would immediately be seen to be wrong; it would have only arbitrary relation to the purpose and province of legislation. The power of legislation over the subject-matter is hence to be considered. It may not make the distinction adverted to but it may make others the appropriateness of which, considered logically, may be challenged, for instance: between sales of stock upon margin or for immediate or future delivery ( Otis v. Parker, 187 U.S. 606); between acts directed against a regularly established dealer and one not so established ( Central Lumber Co. v. South Dakota, 226 U.S. 157); in an inspection law, between coal mines where more than five men are employed and coal mines where that or a lesser number are employed ( St. Louis Cons. Coal Co. v. Illinois, 185 U.S. 203); and a like distinction in a workmen's compensation law ( Jeffrey Mfg. Co. v. Blagg, 235 U.S. 571); between a combination of purchasers and a combination of laborers ( International Harvester Co. v. Missouri, 234 U.S. 199); between residents and non-residents ( Travellers' Ins. Co. v. Connecticut, 185 U.S. 364); in a law requiring railroads to heat passenger coaches, between roads of 50 miles and roads of that length or less ( N.Y., N.H. H.R.R. v. New York, 165 U.S. 628; see also Dow v. Beidleman, 125 U.S. 680; Postal Telegraph Co. v. Adams, 155 U.S. 688); between theatres according to the price of admission ( Metropolis Theatre Co. v. Chicago, 228 U.S. 61); between land owners as to liability for permitting certain noxious grasses to go to seed on the lands ( Missouri, Kansas Texas Ry. v. May, 194 U.S. 267); between businesses, in the solicitation of patronage on railroad trains and at depots ( Williams v. Arkansas, 217 U.S. 79); and a distinction based on the evidence of the qualifications of physicians ( Watson v. Maryland, 218 U.S. 173, 179).
Those were instances (and others might be cited) of the regulation of conduct and the restriction of its freedom, it being the conception of the legislature that the regulation and restriction was in the interest of the public welfare. Those classifications were sustained as legal, being within the power of the legislature over the subject-matter, and having proper bases of community.
But the classification which was sustained in St. Louis Coal Co. v. Illinois, 185 U.S. 203, was condemned in Truax v. Raich, 239 U.S. 33. The statute in the latter case required employers of more than five workers at any one time to employ not less than 80% qualified electors or native born citizens of the United States or of some subdivision of such. The statute was held void because there was no authority to deal with that at which the legislation was aimed. And this is important to be kept in mind. If there is no such authority, a classification, however logical, appropriate or scientific, will not be sustained; if such authority exist, a classification may be deficient in those attributes, may be harsh and oppressive, and yet be within the power of the legislature. This has been declared many times. Let us apply the test to the case at bar. Let it be granted that the "premium system" is a method of advertising, can there not be differences in advertising which may be subject to differences in legislation? Can there not be advertising at places or at times or in kind or effect subversive of public order or convenience? Fifth Ave. Coach Co. v. New York, 221 U.S. 467; Commonwealth v. McCafferty, 145 Mass. 384. However, a decisive answer to the questions, need not be given, for we have said, in Rast v. Van Deman Lewis, ante, p. 342, that the "premium system" is not one of advertising merely. It has other, and, it may be, deleterious, consequences. It does not terminate with the bringing together of seller and buyer, the profit of one and the desire of the other satisfied, the article bought and its price being equivalents. It is not so limited in purpose or effect. It has ulterior purpose, and how it has developed complainants vividly represent by their averments. It appears that companies are formed, called trading stamp companies, which extend and facilitate the schemes, making a seller of merchandise their agent for the distribution of stamps to be redeemed by them or other merchants, the profit of all being secured through the retail purchaser who has been brought under the attraction of the system. There must, therefore, be something more in it than the giving of discounts, something more than the mere laudation of wares. If companies — evolved from the system, as counsel say in justification of them — are able to reap a profit from it, it may well be thought there is something in it which is masked from the common eye and that the purchaser at retail is made to believe that he can get more out of the fund than he has put into it, something of value which is not offset in the prices or quality of the articles which he buys. It is certain that the prices he pays make the efficiency of the system and the fund, if we may individualize it, out of which the cost of the instruments and agents of the system must be defrayed and the profit to all concerned paid. The system, therefore, has features different from the ordinary transactions of trade which have their impulse, as we have said, in immediate and definite desires having definite and measurable results. There may be in them at times reckless buying, but it is not provoked or systematized by the seller.
Lansburgh v. District of Columbia, 11 App.D.C. 512; Attorney General v. Sperry Hutchinson Co., 110 Minn. 378; Louisiana v. C.A. Underwood or Southern Merchandise Exchange, decided October 18, 1915, by the Supreme Court of Louisiana; Hewin v. Atlanta, 121 Ga. 723.
Complainants charge that the tax of the statute is not upon the business but upon its incidents. The separation is artificial. It is the incidents which give character to the business, affecting it with evil, it was thought, provoking therefore against it the power of the State and taking away from it the immunity it else might have.
It is unimportant what the incidents may be called, whether a method of advertising, discount giving or profit sharing. Their significance is not in their designations but in their influence upon the public welfare. And of this the judgment of the legislature must prevail, though it be controverted and opposed by arguments of strength. Nor is there support of the system or obstruction to the statute in declamation against sumptuary laws, nor in the assertion that there is evil lesson in the statute, nor in the prophecies which are ventured of more serious inter-meddling with the conduct of business. Neither the declamation, the assertion nor the prophecies can influence a present judgment. As to what extent legislation should interfere in affairs political philosophers have disputed and always will dispute. It is not in our province to engage on either side, nor to pronounce anticipatory judgments. We must wait for the instance. Our present duty is to pass upon the statute before us, and if it has been enacted upon a belief of evils that is not arbitrary we cannot measure their extent against the estimate of the legislature. McLean v. Arkansas, 211 U.S. 539. Such belief has many examples in state legislation and, we have seen, it has persisted against adverse judicial opinion. If it may be said to be a judgment from experience as against a judgment from speculation, certainly, from its generality, it cannot be declared to be made in mere wantonness. Central Lumber Co. v. South Dakota, 226 U.S. 157, 160; Purity Extract Co. v. Lynch, 226 U.S. 192, 204-205.
Discrimination aside, the power to enact the legislation we need not discuss, but may refer to the opinion in Rast v. Van Deman Lewis. Of course, it is in the exercise of the police power of the State. We will not here define it or its limitations. As was said by Mr. Justice Brown, in Camfield v. United States, 167 U.S. 518, 524, citing Rideout v. Knox, 148 Mass. 368, "The police power is not subject to any definite limitations, but is coextensive with the necessities of the case and the safeguard of the public interests."
In the view that the license is prohibitive we may concur, and concede that such is the effect given it by the Supreme Court of the State in Pitney v. Washington, post, p. 387, one of the cases submitted with this one. And we think it was competent for the State to give it that effect. The cases cited by Judge Rudkin and those cited in the opinion in Rast v. Van Deman Lewis, ante, p. 342, so established.
For answer to the other contentions which we consider material to notice we refer to that case.
Decree reversed and case remanded with directions to dismiss the bill.