                 lb:                    Y   GICNERA




                             April 2'1,1959


Honorable Reagan R. Huffman, Chairman       Opinion No. WW-609
Liquor Regulations Committee
House of Representatives                    Re:   Constitutionality of
Austin, Texas                                     ?&use Bill 353, 56th Legisla-
                                                  ture, relating to establish-
                                                  ment of minimum sales price in
                                                  the sale of spiritous liquors.

Dear Sir:

         Your request of March 25, 1959 reads as follows:

              "Please consider this letter as a request from
         the House of Representatives Liquor Regulation Com-
         mittee for a Constitutional Opinion on the enclosed
         House Bill 353 by Representative,Day.

                "By unanimous vote of the above Committee this
         Bill has been sent to ybu for'your opinion'as to
         its constitutionality. This Committee would also
         humbly request your opinion as to!whether this Bill
         would   be constitutional If amended to ,statethat no
         retail   liquor dealer could sell under wholesale
         prices."

          We will turn our consideration to your first question, namely,
whether the Bill as written is constitutional.

         Article 666-57 of Section 1, H. B. 353, reads as follows:

               "ARTICLE 666-57 - POLICY OF TEE STATE: It is
          hereby declared to be'the policy of the State of
          Texas to stabilize liquor prices for,the purpose of
          stabilizing public revenues and an end of avoiding
          price wars which would materially affect the re-
          venues of the State, attempts at monopolies and the
          demoralization of the legally controlled sales of
          liquors in this State which grows out of unfair pricp
          manipulations."

          The following quotations are taken from House Bill 353 as pertain-
ing to the setting of a minimum price:
Honorable Reagan H. Huffman, Page 2.   (~~-609)



               "ARTICLE 665-58 - SALE ANI IMPROPER PRICES PRO-
          HIBITEDD: No wholesaler or retailer of spiritous or
          vinous liquors as they are defined in Article 666-3A
          of this chapter, shall sell any such liquors in this
          State, except at the prices herein fixed.

              "ARTICLE 666-59 - THE WHOLESALER'S SELLING
         PRICE: The wholesaler's selling price to the retail-
         er shall be his cost as defined in this Act, plus a
         minimum mark-up of 13% of cost on liquor, cordials,
         liqueurs, specialties, sparkling and still wines, and
         he shall deliver such liquors to the retailers at
         such price without additional price for delivery.

               "ARTICLE 666-60 - RETAILER'S SELLING PRICE:
          The retailer's selling price shall be his cost as
          defined in this Act, plus a minimum mark-up of 305 of
          cost on liquors, cordials, liqueurs and specialties,
          and 50% on all wines.

               'ARTICLE 666-61 - WHOLESALER'S COST DEFINED:
          The cost to the wholesaler is the actual invoiced
          price which he pays for the merchandise, and as de-
          termined by the Board's Administrator, plus State and
          Federal taxes, plus actual freight and cartage cost
          incurred in delivery to him.

               "ARTICLE 666-62 - RETAILER'S C0ST.DEFINF.D: The
          cost to the retailer is the actual invoiced price
          which he pays to the wholesaler.

               "ARTICLE 666-63 - SELLING PRICE DISPLAYED BY RE-
          TAILER - DISCOLWS:   No retailer shall expose any of
          such alcoholic beverages for.sale without showing the
          selling price thereof in easily read figures, and it
          shall be unlawful for any retailer to offer such
          merchandise for sale at any other figure, except that,
          in case lots (of not less than 2.40 gallon) the re-
          tailer may grant a discount of not more than 10% of
          such retail prices.

               "ARTICLE 666-6~ - SALE AT REDUCEDPRICES:
          Wholesalers and retailers may make close-out sale or
          sales of damaged goods at reduced prices under such
          regulations as t&Board's   Administrator shall pre-
          scribe.

               *t~~~~~~ 666-65   - REBATES, LOANS, OR GIFTS - AC-
.




    Honorable Reagan R. Huffman, Page 3.   (w-609)



             CESS TO BOOKS AND RECORDS: Any rebates, loans,
             gifts or other special inducements offered, given,
             or accepted by either wholesaler or retailer, shall
             be considered evasions of the requirements of this
             Act, and the Board's Administrator and his agents
             shall have full access to all of the books and re-
             cords of wholesalers and retailers and common car-
             riers at all times for the purpose of detecting
             and proving such evasions.."

              Under the Texas Liquor Control Act, Article 666-41,Vernon's
    Annotated Penal Code, these provisions are to be enforced by both civil
    and criminal sanctions.

              Section 19 of Article 1 of the Texas Constitutionreads:

                   "No citizen of this State shall be deprived of life,
              liberty, property, privileges, or immunities, or in any
              manner disfranchised, except by the due course of the
              law of the land."   '

              Due process of law not only includes procedural protection, but
    also substantive protection. It is a direct constitutional restraint upon
    the substance of legislation and means that a legislative curtailment of
    personal or property rights must be justified by a resultant benefit to the
    public welfare. Thus the due process guaranty does,not restrain the State
    in the exercise of its legitimate police powers. See City of New Braunfels
    v. Waldschmit, lop T. 302, M7.S. W. 303 (1918). Houston & Tex. Cent. Ry..
    co. v. Dallas, 98 T. 396, 84 S.W. 648 (1905). Both liberty and property
    are subject to the exercise of these powers.

              Nevertheless, the exercise of the police powers is not unrestrict-
    ed, but is limited to enactments having reference to the public health,
    comfort, safety and welfare. It must not be arbitrary, unreasonable, or
    patently beyond the necessities of the case, and the means which it employs
    must have a realiand substantial relation to the object sought to be at-
    tained. See Spann v. City of Dallas, 111 T. x50/235 S.W. 513 (1921),
    Houston & T. C. Ry. Co. v. City of Dallas, supra; American Federation of
    LBbor v. Mann, Civ. App., 188 S.W.2d 276 (1945).

              The Federal Constitution, in the fifth and fourteenth amendments,
    also provides against deprivation of life, liberty or property without due
    process of law, the fourteenth amendment by its language being applicable
    to prevent the states from carrying out such a deprivation. It has been
    held by Texas Courts that the clause of the Texas Constitution, to the
    extent that it is identical with'the fourteenth amendment, has placed upon
    the powers of the state legislature the same restrictions as those which
    have been held,to be imposed by the language of that amendment of the
    Federal Constitution. Mellinger v. City of 'Houston,68 T. 37,3SW.2@ (1887   ‘1.
Honorable Reagan R. Huffman, Page 4.   (w-609)



          In Neel v. Texas Liquor Control Board, 259 S.W.2d 312 (Civ.App.
1953),the Court announced these guides as to the validity of regulations
under the state's police power.

               "'The police power of the state extends only to such
          measures as are reasonable, and the general rule is
          that all police regulations must be reasonable under all .,
          circumstances. In every case it must appear that the
          means adopted are reasonably necessary and appropriate
          for the accomplishment of a legitimate object falling
          within the domain of the police power. A statute to be    :~.'.
          within this power must be reasonable in its operation
          upon the persons whom it affects asd not unduly op-
          pressive. The validity of a police regulation therefore
          primarily depends on whether under all the existing cir-
          cumstances the regulation is reasonable or arbitrary
          and whether it is really designed to accomplish a purpose
          properly falling within the scope of the police power.'
          6 R.c.L., Constitutional Law, Paragraph 226.

               "We take the following from the Case of Houston &
          T. c. R. CO. v. Dallas, 98 Tex. 396, 84 S.W 648 653,
          70 L.R.A. 850: 'The power is not an arbitrary on:, but
          has its limitations. It is commensurate with, but does
          not exceed, the duty to provide for the real needs of
          the people in their health, safety, comfort, and conven-
          ience as consistently as may be with private property
          rights. As those needs are extensive, various, and in-
          definite, the power to deal with them is likewise broad,
          indefinite, and impracticable of precise definition or
          limitation'.

               "It has been further stated: 'In order to sustain
          legislative interference by virtue of the police power,
          under either a statute or a minicipal ordinance, it is
          necessary that the act should have some reasonable re-
          lation to the subjects included in such power, and the
          law must tend, in a degree that is preceptible and
          clear, toward the preservation of the public welfare,
          01‘toward the prevention of some offense or manifest
          evil, or to the furtherance of some object within the
          scope of the police power. * * *' 6 R.C.L., Constitu-
          tional Law, Paragraph 227."

               In Attorney General Opinion O-3242 these principles were ap-
plied to hold fixed minimum prices for barber services unconstitutional be-
cause "first, there was not a discernable, substantial and legitimate rela-
tion between the means adopted by the bill and the legitimate object of
the exercise of the police power, to wit, the protection or the improvement
of the public health, safety, morals, or general welfare."
.




    Honorable Reagan R. Huffman, Page 5.   (~-609)



              In Schwegmann Brothers v. Louisiana Board of Alcoholic Beverage
    Control, 216 La. 148 43 SO. 2d 248 14 A.L.R. 2d 680 (La. Sup. 1949),
    the Louisiana Suprem; Court had bef&e it a very similar statute which
    reads in part as follows:

                   "(6) 'Cost', invoice price to dealer plus ~
              freight or cartage, if not included in the invoice,
              without any deduction for any discounts or conces:
              sions of any kind, plus all taxes . . .

                   "Section 24 . . . .

                   "(a) The wholesaler's minimum selling price
              to a retailer shall be his cost, as herein de-
              fined, plus 15s on liquor; 20s on cordial liquers.
              and specialties; and 15% on sparkling and still
              wines.

                   "(b) The retailer!?minimum selling price shall
              be his cost, as herein defined, plus 33 l/3$ on li-
              quor, 45% on cordials, liquers and specialties; and
              50% on sparkling and still wines.".

              In applying the principles announced in the Neel case, supra, the
    Louisiana Supreme Court in the Schwegmann Brothers case    page 258 had this
    tom say:

                   "Now, in applying the above test, the following
              questions must be answered: Is there a real and sub-
              stantial relation between the mandatory minimum mark
              ups of the statute and the preventing of injury to the
              economic, social and moral well being of the people of
              the state? Are those means (the mark ups) reasonably
              necessary and appropriate for the accomplishment of
              the legitimate object or purpose which the statute
              announces (regulation and control of the,traffic)?

                   "Appellants, of course;answer these~questions in
              the affirmative, they maintain that the minimum mark
              ups are designed, in'the interest of temperance, to prd-
              tect the people from the temptations of cheap liquor due
              to cut-throat competition; to eliminate excessive con-
              sumption of strong drink that results from price wars;
              and to prevent certain moral abuses brought about by low
              liquor prices. Appellee, onthe other hand, answers
              in the negative. It states, to quote from counsel's
              brief, as follows: 'Act 360, it is submitted, is aimed
              at the ordinary hazards of competition incident to any
              business; price competition and credit risks. It bears
              no real and substantial relation to the public welfare,
Honorable Reagan R. Huffman, Page 6. (~~-609)



         but is preferential legislation for certain favor-
         ed groups in the liquor industry.'
              II. . .

               "But assuming for the sake of argument that
          liquor price wars are possible of occurrence in
          this state and that stringent regulations to pre-
          vent them are needed, we do not agree that the
          mandatory mark ups provided by Act 360 of 1948 con-
          stitute appropriate means for the achievement of
          that purpose. True, these are fixed percentages
          that the wholesale and retail dealers must add to
          their costs (the enforcement of the addition is
          charged to the Louisiana Board of Alcoholic Beve-
          rage Control) resulting usually in uniform
          prices on the effected beverages among the dealers
          of each class . . . . Nevertheless the statute omits
          the stipulation of a mandatory mark up for the
          manufacturer or distiller respecting his sales to
          the wholesaler, and, by reason of the omission, such
          producer (or producers) very easily might instigate
          and sustain the occasion of a price war. There is
          nothing in Act 360 of 1948, or otherwise to our
          knowledge, to prevent a distiller (or a combination
          of distillers) from placing his product on the
         'market at mere cost plus tax (without profit) in
          competition with others who seek profits on their mer-
          chandise. If such is done, and it is possible to do,
          the purchasing wholesaler and his vendee, the retailer,
          need only add to their respective costs the required
          mark ups, and there could result the discussed cut
          throat competition and price war (with cheap liquor
          to the consumer) which the statute, appellants maintain,
          purposes to avoid.

                .   .   .

               "From all of which we conclude that the provi-
          sions of Act 360 of 19948which relate to the mandatory
          tiinimummark u;s (Sections l(s), 24 and 26) do not
          tend, in a degree that is perceptible and clear,&to-
          ward the accomplishment of the announced purpose of
          the statute, namely the regulation and control of
          the liquor traffic so that it 'may not cause injury
          to the economic, social and moral well-being of the
          people of the State.' They, in other words, are
          inappropriate for the achievement of the legitimate
          object described in the statute. Accordingly, we
          hold that such provisions are manifestly unreasonable
                              ,’
                         :.




Honorable Reagan R. Huffman, Page 7.   (~-609)



          within the contemplation of the state's police power,
          and,hence, are unconstitutional in that they violate
          the due process clauses of our state and federal
          constitutions."

           Article 666-2 of the Texas Liquor Control Act contains the
 object and purposes for which the Act was passed. This Section reads as
 follows:

               "This entire Act shall be deemed an exercise of
          the police power of the state for the protection of
          the welfare, health, peace, temperance, and safety of
          the people of the state, and all its provisions shall
          be liberally construed for the accomplishment of that
          purpose".

          Now, in looking at the announced objects of House Bill 353 as
contained in Article 666-7, as above set out, we find the announced objects
to be:

          (1) To stabilize liquor prices for the purpose of stabilizing
public revenues;

           (2) Avoiding price wars which materially affect revenues;

          (3) Attempts at monopolies and demoralization of legally con-
trolled sales of liquors which grow out of unfair p&e manipulations.

          As above noted the liquor field is regulated under the state's
police power. Therefore, the questionpresents itself as.to whether H. B.
353 is a ligitimate exercise of this power. As was stated in the Neel
case, supra, it must appear that the means adopted are reasonably neces-
sary and appropriate for the accomplishment of a ligitimate object falling
within the domain of the police power.

           As to whether the police power can be used to stabilize public
 revenues and avoid price wars which would materially affect the revenues,
 the following principles would seem important. The police power cannot be
 used for the purpose alone of raising revenue. 9 Tex. Jur. p. 513. While
 the police power is exercised only forthe purpose of promoting the public
 welfare, and, although this end may be"attained by taxing or licensing
 occupations, the object must always be regulation and not the raising of
'revenue. 16 c.J.s., p. 891. Insofar as the announced objects or purposes
 of H. B. 353 are directed at stabilizing revenues, it would be the use of
 the police power for the purposes and.objectives which do not lie within
 such power and would therefore be an unwarranted use thereof. With regard
 to the announced objects or purposes of "avoidtig price wars" and "attempts
 at monopolies and demoralization of the legally controlled sales of li-
 quors in this State which grow out of unfair price manipulations", we.find
Honorable Reagan R. Huffman, Page 8.   (w-609)



that the means of requiring a minimum percentage mark up at the wholesale
and retail level as adopted by Il.B. 353 has no discernible, substantial, and
logical relation to the legitimate objects of the exercise of the police
power, to wit, the protection or improvement of the public welfare, health,
peace, temperance and safety. Since the bill omits the manufacturer or
distiller from price regulation, such manufacturers or distillers are pro-
vided the power to easily instigate or sustain the occasion of a price war,
which by reason of the wholesalers and retailers being required to have a
minimum mark up would be carried directly to the public (see discussion
taken from Schwegmann Brothers case, supra, page 6 of this opinion).
All adjustment of prices through competition would thus be thwarted.

          The,conclusion necessarily follows then that R. B. 353 does not
meet the required test for a valid exercise of the police power since, as
above pointed out, the means adopted are not ,reasonablynecessary and ap-
propriate for accomplishment of a legitimate object falling within the
domain of the police powers.

          It should be pointed out that H. B. 353 does not include all the
elements of legislation popularly known as "Fair Trade" ads and that this
opinion does not rule on the constitutionality of any other such legislation.

          As to those portions of R. B. 353 which do not apply to a minimum
mark up requirement, namely, maximum number of licenses; locations within
five mile limits; cancellation of unused licenses; renewal of permits; and
location on same streets; we find no authority holding that such regulations
are an unreasonable regulation under the police power.

          We turn now to your second question in which you ask our opinion
as to "whether this bill (H.B. 353) would be constitutional if amended to
state that no retail liquor dealer could,sell under wholesale prices".

          We cannot pass on the constitutionality of a provision which has
not yet been drafted and presented to us for examination.



                                  SUMMARY

                      The provisions of H.B. 353 that
                      pertain to the establishment
                      and enforcement of a minimum
                      sales price of spiritous liquors
                      for wholesalers and retailers
                      are not a valid exercise of the
                      police power. The provisions
                      regulating maximum number of li-
                      censes; locations within five
                      mile limits; cancellation of
.   ,,




         Honorable Reagan R. Huffman, Page 9.   (~~-609)



                              unused licenses; renewal of per-
                              mits; location on same streets;
                              are constitutional.

                                                   Very truly yours,

                                                   WILL WILSON
                                                   Attorney General
                                                            ..


                                                   By:


         &H:aw

         APPROVED:

         OPINION COMMITTEE:

         Geo. P. Blackburn, Chairman

         C. K. Richards
         C. Dean Davis
         Elmer McVey
         PaulW. Floyd, Jr.

         REVIEWED FOR THE ATTORNEY GENEBAL
         BY:
              W. V. Geppert
