Safeway Stores Incorporated v. Oklahoma Retail Grocers Association, Inc./Opinion of the Court

This is a suit for an injunction, brought in a state court in Oklahoma by appellee, Oklahoma Retail Grocers Association, against appellant, Safeway Stores, for selling several specified items of retail grocery merchandise below 'cost' in violation of the Oklahoma Unfair Sales Act. Okla.Stat. tit. 15, §§ 598.1-598.11 (1951). Section 598.3 of the Act provides:

'It is hereby declared that any advertising, offer to sell,     or sale of any merchandise, either by retailers or      wholesalers, at less than cost as defined in this Act with      the intent and purpose of inducing the purchase of other      merchandise or of unfairly diverting trade from a competitor      or otherwise injuring a competitor, impair and prevent fair      competition, injure public welfare, are unfair competition      and contrary to public policy and the policy of this Act,      where the result of such advertising, offer or sale is to      tend to deceive any purchaser or prospective purchaser, or to      substantially lessen competition, or to unreasonably restrain      trade, or to tend to create a monopoly in any line of      commerce.'

The elements of 'cost' are enumerated in other sections of the statute. Safeway defended on the ground, inter alia, that its reductions were permitted by § 598.7 of the Unfair Sales Act which allows 'any retailer or wholesaler' to

' * *  * advertise, offer to sell, or sell merchandise at a      price made in good faith to meet the price of a competitor      who is selling the same article or products of comparable      quality at cost to him as a wholesaler or retailer.'

Safeway by cross-petition sought to enjoin several named members of appellee Association, including Speed, alleging that they were selling below cost in violation of the Act. The trial court, with some qualification, granted the injunction against Safeway and denied relief against appellees. On appeal, the Supreme Court of Oklahoma affirmed, 322 P.2d 179, and since the constitutionality of the state statute was challenged under the Fourteenth Amendment, we noted probable jurisdiction, 358 U.S. 807, 79 S.Ct. 56, 3 L.Ed.2d 54, and brought the case here under 28 U.S.C. § 1257(2), 28 U.S.C.A. § 1257(2).

Safeway makes two main claims.

1. Safeway justified cutting prices below cost in some cities by claiming it was to meet the prices of some of its competitors who were also selling below cost. The statute allows a reduction below cost only when it is a good faith meeting of the competition of a seller who is selling at his own cost. The trial court found that Safeway's reductions violated the Act, and hat Safeway could not avail itself of the statutory defense of meeting competition since its reductions were not in good faith but were made to meet prices Safeway 'either knew or had reason to know were illegal *  *  * .' The court enjoined Safeway from

' * *  * selling, at retail, any items of merchandise *  *  * at      prices which are less than cost to the retailer as defined in      the Oklahoma 'Unfair Sales Act' and in violation of the      provisions of said 'Unfair Sales Act', except to meet in good      faith the prices of competitors who are selling the same      articles or products of comparable quality at cost to them as      retailers as defined in the Oklahoma 'Unfair Sales Act', and      except in instances of other exempted sales as provided in      Section 598.6 of said Oklahoma 'Unfair Sales Act."

The injunction, phrased substantially in the terms of the statute, allows Safeway to meet the prices of competitors who are selling 'at cost to them' if the other requisites of the good faith defense are met. Appellant claims that this injunction deprives it of a constitutional right to compete since it forbids meeting the prices of competitors who are selling below cost. There is no constitutional right to employ relation against action outlawed by a State. Safeway, the Oklahoma court held, had ample means, under the state statute, to enjoin the illegal methods of its competitors. It had no constitutional right to embark on the very kind of destructive price was the Act was designed to prevent.

Appellant also claims that there are situations in which a competitor might reduce his prices below cost without violating the Act, and hence, under the injunction, Safeway would have no remedy whatsoever since it could not retaliate in kind and judicial relief would not be available. The conclusive answer to this claim is that it is not before us for adjudication. The court below found that Safeway was meeting prices it 'knew or had reason to know' were illegal. It then phrased its injunction in the terms of a statute which has yet to be construed in the abstract circumstances presented by appellant. The Oklahoma Supreme Court carefully noted that it was interpreting the Unfair Sales Act as applied to the particular facts of this case, pointing out that 'until a proper factual case is presented which requires a clear determination and offers a practical situation in which all the conflicting problems and considerations of the area involved are apparent, this court will refrain from theorizing.' 322 P.2d at page 181. If this is a rule of wise restraint for the courts of Oklahoma in this situation, it clearly bars constitutional adjudication here.

2. Appellant's second contention involves its competitors' use of trading stamps. Trading stamps, it hardly needs to be stated, are, generally speaking, coupons given by dealers to retail purchasers on the basis of the dollar value of the items purchased, e.g., one stamp for each ten cents' worth of goods, and are collected by the purchaser until he has enough to redeem for various items of merchandise. Trading stamps have had a checkered career in the United States, but since World War II their popularity has grown until now it is a reasonable estimate that these multi-colored scraps of paper may be found in almost half of America's homes.

When this suit was brought Safeway did not use trading stamps. In the Oklahoma City-Midwest City area several of its competitors did. These stamps were deemed to be worth approximately 2.5 percent of the price of the goods with which they were given. Safeway contended in the Oklahoma courts that giving a trading stamp with goods sold at or near the statutory minimum resulted in an unlawful reduction below 'cost' to the extent of the value of the trading stamp. To be specific, if an item sold for $1, and that price was statutory cost, the trading stamps given with it would be worth approximately 2.5 cents and the net price was therefore $.975, or 2.5 cents below cost. Safeway sought to restrain its competitors from selling below cost in this manner and also claimed that it was justified, in order to meet competition, in reducing its prices to the net of its competitors' prices, taking into account the value of trading stamps. The Oklahoma court found that the giving of trading stamps with items sold at or near statutory cost was not a violation of the statute and denied Safeway's request for an injunction. The court also decided that Safeway could not reduce its prices to meet the trading stamp competition. It did, however, provide that Safeway could do what appellees did, it might issue 'trading stamps, cash register receipts, or other evidence of credit issued as a discount for prompt payment of cash * *  * ,' as long as the value of the discount did not exceed three percent.

Safeway contends that such a construction of the Unfair Sales Act violates the Fourteenth Amendment. Appellant claims that even though the State may prohibit sales below 'cost,' it is barred from allowing a merchant to give trading stamps with goods sold at or near 'cost,' unless it allows competing merchants to make an equivalent price reduction. For the State to differentiate between the use of trading stamps and price-cutting is, so the argument runs, a constitutionally inadmissible discrimination.

'It would be an idle parade of familiar learning to review     the multitudinous cases in which the constitutional assurance      of the equal protection of the laws has been applied. The generalities on this subject are     not in dispute; their application turns peculiarly on the      particular circumstances of a case.' Goesaert v. Clearly, 335      U.S. 464, 467, 69 S.Ct. 198, 200, 93 L.Ed. 163.

The Oklahoma court decided that, although price cuts below cost were prohibited by the statute, the use of trading stamps was not a price reduction but constituted a cash discount, i.e., a reduction given to customers for prompt payment of cash. Opposing expert accountants sustained and rejected the validity of such a diffeenc e. In matters of this sort we might content ourselves in resting on the clash of expert opinion to show that the Oklahoma decision was not wanting in a foundation that may not unjustifiably have commended itself as a state policy. However, we may note some readily apparent differences between the practices which support the State's differentiation and thereby the power asserted by the State.

Trading stamps are given to cash customers 'across the board,' namely, the number of stamps varies directly with the total cost of goods purchased. Safeway's price-cutting, however, was selective. This difference is vital in the context of this Act. One of the chief aims of state laws prohibiting sales below cost was to put an end to 'loss-leader' selling. The selling of selected goods at a loss in order to lure customers into the store is deemed not only a destructive means of competition; it also plays on the gullibility of customers by leading them to expect what generally is not true, namely, that a store which offers such an amazing bargain is full of other such bargains. Clearly there is a reasonable basis for a conclusion that selective price cuts tend to perpetuate this abuse whereas the use of trading stamps does not.

This difference alone would be enough to require affirmance. It is reinforced by other tenable grounds for distinction. There was a basis in evidence for the view that the use of trading stamps has an entirely different impact on the consuming market than do price cuts. When prices are the same customers tend to go the store offering trading stamps. But when prices are cut to the extent of the value of the trading stamp the stamps lose their lure and lower prices prove a more potent attraction. On the basis of this not unreasonable belief as to the economics of the highly competitive, low-profit-margin retail-grocery business, Oklahoma could well have concluded that tis choice was to provide that all use a cash discount system or none could do so. Such a view of the economic aspects of the problem affords an ample basis for the legislative judgment enforced by the court below.

Certainly this Court will not interpose its own economic views or guesses when the State has made its choice.

'The Fourteenth Amendment enjoins 'the equal protection of     the laws,' and laws are not abstract propositions. They do     not relate to abstract units A, B, and C, but are expressions      of policy arising out of specific difficulties, addressed to      the attainment of specific ends by the use of specific      remedies. The Constitution does not require things which are     different in fact or opinion to be treated in law as though      they were the same.' Tinger v. Texas, 310 U.S. 141, 147, 60      S.Ct. 879, 882, 84 L.Ed. 1124.

We are not concerned with the soundness of the distinctions drawn. It is enough that it is open to Oklahoma to believe them to be valid as the basis of a policy for its people.

Affirmed.

Mr. Justice CLARK took no part in the consideration or decision of this case.