This Court accepts the construction of the state court, and
where that court has held that an agreement between retailers not
to purchase from wholesale dealers who sell direct to consumers
within prescribed localities amounts to a restraint of trade within
the meaning of the antitrust statute of the state, the only
question for this Court is whether such statute so unreasonably
abridges freedom of contract
Page 217 U. S. 434
as to amount to deprivation of property without due process of
law within the meaning of the Fourteenth Amendment.
An act harmless when done by one may become a public wrong when
done by many acting in concert, and when it becomes the object of a
conspiracy and operates in restraint of trade, the police power of
the state may prohibit it without impairing the liberty of contract
protected by the Fourteenth Amendment, and so
held that,
while an individual may not be interfered with in regard to a fixed
trade rule not to purchase from competitors, a state may prohibit
more than one from entering into an agreement not to purchase from
certain described persons even though such persons be competitors
and the agreement be made to enable the parties thereto to continue
their business as independents.
Whether a combination is or is not illegal at common law is
immaterial if it is illegal under a state statute which does not
infringe the Fourteenth Amendment.
A combination that is actually in restraint of trade under a
statute which is constitutional is illegal whatever may be the
motive or necessity inducing it.
In determining the validity of a state statute, this Court is
concerned only with its constitutionality; it does not consider any
question of its expediency.
In determining the constitutionality of a slate statute, this
Court considers only so much thereof as is assailed, construed, and
applied in the particular case.
One not within a class affected by a statute cannot attack its
constitutionality.
Where the penalty provisions of a statute are clearly separable,
as in this case, and are not invoked, this Court is not called upon
to determine whether the penalties are so excessive as to amount to
deprivation of property without due process of law, and thus render
the statute unconstitutional in that respect.
In this case, in an action by the state in equity, and not to
enforce penalties,
held that the antitrust statute of
Mississippi, § 5002, Code, is not unconstitutional as
abridging the liberty of contract as against retail lumber dealers
uniting in an agreement, which the state court decided was within
the prohibition of the statute, not to purchase any materials from
wholesale dealers selling direct to consumers in certain
localities.
This is a writ of error to the Supreme Court of the State
Page 217 U. S. 435
of Mississippi to review a decree dissolving a voluntary
association of retail lumber dealers as a combination in restraint
of trade, under a statute of the state.
So such of the Mississippi act as is here involved is set out in
the margin, being part of § 5002, Mississippi Code. [
Footnote 1]
The proceeding under this statute was by a bill filed in a
chancery court of the state, by the state, upon relation of its
Attorney General. The bill averred that the defendants, some
seventy-seven individuals and corporations, were retail dealers in
lumber, sash, doors, etc., doing business, some of them, in the
State of Mississippi, and others in the State of Louisiana, and
were competitors in business, each engaged in buying and selling
again for profit, and in competition with each other for the
business of consumers; that the defendants had entered into an
agreement, compact, or combination for the purpose and with the
intent to destroy, prevent, or suppress
Page 217 U. S. 436
all competition between themselves, as retail dealers in the
materials mentioned, and manufacturers, wholesale dealers, brokers
or commission men, keeping no stock, from selling the like articles
or commodities directly to consumers in competition with retailers.
To accomplish this suppression of competition for the trade of
consumers, it was in substance averred that they had organized an
association, and had obligated themselves not to purchase any of
their stock or commodities from any wholesale dealer or
manufacturer who sold such products direct to the consumers in
competition with the members of their combination, and to carry out
this end had adopted articles of agreement, called a constitution,
and appointed a secretary to ascertain such sales and to see that
the obligation of the members was respected. The material parts of
the agreement under which the defendants combined consist of a
preamble, called "Declaration of Purpose," the relevant part of
which, together with articles 2, 3, and 7, are set out in the
margin. [
Footnote 2]
It was then averred that the necessary effect of such agreement
among the defendants, who, it was said, composed a majority of all
the retail lumber dealers in the states covered by their compact,
was to limit or destroy competition between
Page 217 U. S. 437
the retailers and the wholesalers or manufacturers for the trade
or business of the consumer, and that they constituted a
combination or conspiracy in restraint of trade, etc.
Page 217 U. S. 438
The answer admitted the substantial facts, but denied that the
object or purpose was to restrain trade or to suppress competition,
or that such a result has ensued or would or
Page 217 U. S. 439
could follow, or that the agreement had any other object than to
"conserve and advance their business interests as retailers." That
their agreement is defensive of, and not injurious to, public
interests, is asserted by many paragraphs of the answer, upon
economic considerations.
The chancery court, upon the pleadings and exhibits, held that
the association and agreement among the members was
"a combination in restraint of trade, and intended to hinder
competition in the sale and purchase of a commodity, and was
inimical to the public welfare, and unlawful."
The dissolution of the association was adjudged, and an
injunction against further operations granted. This decree was
affirmed upon appeal to the supreme court of the state.
MR. JUSTICE LURTON, after making the above statement, delivered
the opinion of the Court.
The agreement and combination which offends against the
Mississippi antitrust statute is one between a large majority of
the independent and competitive merchants engaged in the retail
lumber trade in the territory covered by their articles of
association whereby they have obligated themselves not to deal with
any manufacturer or wholesale dealer in lumber, sash, or doors,
etc., who sells to consumers in localities in which they conduct
their business and keep a sufficient stock to meet demands, and to
inform each other of any sale made by manufacturers or wholesalers
who sell to consumers.
That such an agreement and combination was, within the meaning
of the Mississippi statute, a conspiracy "in restraint of trade,"
"intended to hinder competition in the production,
Page 217 U. S. 440
importation, manufacture, transportation, sale, or purchase of a
commodity" is the express decision of the Supreme Court of
Mississippi. That the object and purpose of the compact was to
suppress competition between the plaintiffs in error and another
class of dealers in or producers of the same commodity and the
consumer is avowed in the "Declaration of Purpose," set out
heretofore, in which it is stated that the members of the
association, as retailers, "cannot meet competition from those from
whom they buy." This concession means, if it means anything, that
those against whom the plaintiffs in error are acting in concert
will undersell them in the competition for the trade of the
consuming public, and must therefore be stopped by concerted
refusal to deal with them if they should persist in such
competition. This constitutes under the interpretation of the
Mississippi statute by the Mississippi court, a "restraint of
trade," and a hindrance to competitors in the sale of a commodity.
Accepting, as we must, this interpretation and application of a
state statute by the highest court of the state, there is no
question for our consideration other than the insistence that the
statute is in conflict with the Fourteenth Amendment to the
Constitution of the United States. The contention is that this
statute abridges unreasonably the freedom of contract, which is as
much within the protection of that Amendment as is liberty of
person.
That any one of the persons engaged in the retail lumber
business might have made a fixed rule of conduct not to buy his
stock from a producer or wholesaler tho should sell to consumers in
competition with himself is plain. No law which would infringe his
freedom of contract in that particular would stand. But when the
plaintiffs in error combine and agree that no one of them will
trade with any producer or wholesaler who shall sell to a consumer
within the trade range of any of them, quite another case is
presented. An act harmless when done by one may become a public
wrong when done by many, acting in concert, for it then
Page 217 U. S. 441
takes on the form of a conspiracy, and may be prohibited or
punished if the result be hurtful to the public or to the
individual against whom the concerted action is directed.
Callan v. Wilson, 127 U. S. 555,
127 U. S.
556.
But the plaintiffs in error say that the action which they have
taken is purely defensive, and that they cannot maintain themselves
as independent dealers, supplying the consumer, if the producers or
wholesalers from whom they buy may not be prevented from competing
with them for the direct trade of the consumer.
For the purpose of suppressing this competition, they have not
stopped with an individual obligation to refrain from dealing with
one who sells within his own circle, and thereby deprives him of a
possible customer, but have agreed not to deal with anyone who
makes sales to consumers, which sales might have been made by any
one of the seventy-seven independent members of the association.
Thus, they have stripped themselves of all freedom of contract in
order to compel those against whom they have combined to elect
between their combined trade and that of consumers. That such an
agreement is one in restraint of trade is undeniable, whatever the
motive or necessity which has induced the compact. Whether it would
be an illegal restraint at common law is not now for our
determination. It is an illegal combination and conspiracy under
the Mississippi statute. That is enough if the statute does not
infringe the Fourteenth Amendment.
The argument that the situation is one which justified the
defensive measures taken by the plaintiffs in error is one which we
need neither refute nor concede. Neither are we required to
consider any mere question of the expediency of such a law. It is a
regulation of commerce purely intrastate -- a subject as entirely
under the control of the state as is the delegated control over
interstate commerce exercised by the United States. The power
exercised is the police power reserved to the states. The
limitation upon its exercise, contained
Page 217 U. S. 442
in the federal Constitution, is found in the Fourteenth
Amendment, whereby no state may pass any law by which a citizen is
deprived of life, liberty, or property without due process of law.
A like limitation upon the legislative power will be found in the
Constitution of each state. That legislation night be so arbitrary
or so irrational in depriving a citizen of freedom of contract as
to come under the condemnation of the Amendment may be
conceded.
In dealing with certain Kansas legislation in regulation of
state commerce which was claimed to be so extreme as to be an
unwarranted infringement of liberty of contract, this Court, in
Smiley v. Kansas, 196 U. S. 447,
196 U. S. 457,
said:
"Undoubtedly there is a certain freedom of contract which cannot
be destroyed by legislative enactment. In pursuance of that
freedom, parties may seek to further their business interests, and
it may not be always easy to draw the line between those contracts
which are beyond the reach of the police power, and those which are
subject to prohibition or restraint. But a secret arrangement, by
which, under penalties, an apparently existing competition among
all the dealers in a community in one of the necessaries of life is
substantially destroyed, without any merging of interests through
partnership or incorporation, is one to which the police power
extends. That is as far as we need to go in sustaining the judgment
in this case."
We confine ourselves to so much of the act assailed as was
construed and applied in the present case. If there should arise a
case in which this legislation is sought to be applied where any
interference with freedom of contract would be beyond legislative
restraint, it will be time enough for interference by the
courts.
As observed in
Smiley v. Kansas, where the breadth of
the act was criticized, "Unless appellant can show that he himself
has been wrongfully included in the terms of the law, he can have
no just ground of complaint." The same principle has been often
announced by this Court in may cases, the
Page 217 U. S. 443
last instance being in
Citizens' National Bank v.
Kentucky, an opinion handed down with, and immediately
following, this.
The excessive penalties provided by the Mississippi statutes
have been urged as making the act unconstitutional under
Ex
Parte Young, 209 U. S. 123. No
penalties were demanded in the present case, the state contenting
itself with a bill in equity to dissolve the association. The
penalty provisions are plainly separable from the section under
which such a combination is declared illegal. The penalty section
not being invoked, we are not called upon to give any opinion in
respect to it.
United States v. Delaware &c. R. Co.,
213 U. S. 366,
213 U. S. 417;
Southwestern Oil Co. v. Texas, handed down April 4,
ante, p.
217 U. S. 114.
It is enough to say that the act, as construed and applied to
the facts of this case by the Supreme Court of Mississippi,
exhibits no such restraint upon liberty of contract as to violate
the federal Constitution. The decree must therefore be
affirmed.
[
Footnote 1]
"5002. (4437) Definition of term; criminal conspiracy (Laws
1900, c. 88). -- A trust and combine is a combination, contract,
understanding, or agreement, expressed or implied, between two or
more persons, corporations, or firms, or associations of persons,
or between one or more of either with one or more of the
others:"
"(a) In restraint of trade."
"(b) To limit, increase, or reduce the price of a
commodity."
"(c) To limit, increase, or reduce the production or output of a
commodity."
"(d) Intended to hinder competition in the production,
importation, manufacture, transportation, sale, or purchase of a
commodity."
"(e) To engross or forestall a commodity."
"(f) To issue, own, or hold the certificates of stock of any
trust or combine."
"(g) To place the control, to any extent, of business, or of the
products and earnings thereof, in the power of trustees, by
whatever name called."
"(h) By which any other person than them-selves, their proper
officers, agents, and employees, shall, or shall have the power to,
dictate or control the management of business; or,"
"(i) To unite or pool interests in the importation, manufacture,
production, transportation, or price of a commodity, and is
inimical to the public welfare, unlawful, and a criminal
conspiracy."
[
Footnote 2]
"
Declaration of Purpose"
"We recognize the right of the manufacturer and wholesale dealer
in lumber products to sell lumber in whatever market, to whatever
purchaser, and at whatever price they may see fit."
"We also recognize the disastrous consequences which result to
the retail dealer from direct competition with wholesalers and
manufacturers, and appreciate the importance to the retail dealer
of accurate information as to the nature and extent of such
competition, where any exists."
"And recognizing that we, as retail dealers in lumber, sash,
doors, and blinds, cannot meet competition from those from whom we
buy, we are pledged as members of this association to buy only from
manufacturers and wholesalers who do not sell direct to consumers,
where there are retail lumber dealers who carry stock commensurate
with the demands of their communities, and we are pledged not to
buy from lumber commission merchants, agents, and broker who sell
to consumers, but do not carry stocks, nor from a manufacturer who
sells to such lumber commission merchants, agent, or broker."
"
Article Two"
"
The Object"
"The object of this association is and shall be to secure and
disseminate among its members any and all legal and proper
information which may be of interest or value to any member or
members thereof in his or their business as retail lumber dealers,
and to carry into actual effect our 'Declaration of Purpose.'"
"
Article Three"
"
Limitation and Restriction"
"SEC. 1. No rules, regulations, or bylaws shall be adopted in
any manner stifling competition, limiting production, restraining
trade, regulating prices, or pooling profits."
"SEC. 2. No coercive measures of any kind shall be practiced or
adopted toward any retailer, either to induce him to join the
association, or to buy or refrain from buying of any particular
manufacturer or wholesaler. Nor shall any discriminatory practices
on the part of this association be used or allowed against any
retailer for the reason that he may not be a member of the
association, or to induce or persuade him to become such
member."
"SEC. 3. No promises or agreements shall be requisite to
membership in this association, save those provided in these
'Articles of Association and Declaration of Purpose,' nor shall any
members be restricted to any particular territory, but may compete
any and everywhere."
"
Article Seven"
"SEC. 1. Report of secretary: any member of this association
having cause of complaint against a manufacturer or wholesale
dealer, or his agents, because of shipment to a consumer, shall
notify the secretary of this association in writing, giving as full
information in reference thereto as practicable, such as date or
dates of shipment and arrival, car number and initials, original
point of shipment, names of consignor and consignee, the purpose
for which the material was or is to be used, and such other
particulars as may be obtainable."
"Such notice must be sent with or without information in detail,
within thirty days after the receipt of shipment at point of
destination, and no notice shall be filed of any such sale or
shipment occurring within fifteen days after the first issue of
membership list succeeding the acceptance of his application."
"Upon the receipt of such notice, the secretary shall first
ascertain whether or not the complaining member carries a stock
commensurate with the demands of his community, and if he finds
that such stock is not carried, he shall ignore the complaint,
unless, upon application of such complaining member, the executive
committee shall reverse his finding; but if he find that such stock
is carried, he shall then notify the manufacturer or wholesaler
that the rules of this association do not allow its members to buy
from those manufacturers and wholesalers who sell to consumers, and
unless such manufacturer or wholesaler shall satisfy the secretary
that the complaint is not well founded, the secretary shall report
the facts to the executive committee, and upon the approval of his
finding by a majority of the executive committee, the secretary
shall then notify the members of this association of such sale, and
they shall discontinue to buy from such manufacturer or wholesaler
until notified by the secretary that such wholesaler or
manufacturer does not sell to consumers where there is a retail
dealer who carries a stock commensurate with the demands of his
community; but this section shall not apply in cases where the
business methods or financial condition of such retailer will not
justify a manufacturer or wholesaler in dealing with him."
"Under no circumstances shall the secretary enter into any
agreement with a manufacturer or wholesaler that any one of the
association members will deal with him, nor shall he in any case
exact a promise from the wholesaler or manufacturer that he will
not sell to consumers, nor shall any result other than that of the
members refusing to buy from any such manufacturer or wholesaler
follow from the steps taken as hereby provided for."
"SEC. 2. The foregoing provisions shall apply in reported cases
of lumber commission merchants, agents, and brokers, who sell to
consumers, but do not carry stock, and as against the manufacturers
who sell to such commission merchants, agents, or brokers."
"SEC. 3. Each member, when he joins this association, and once
each year thereafter, and oftener, if the secretary shall request
it, shall furnish the secretary a list of those manufacturers and
wholesalers and their agents from whom he makes purchases of lumber
and other building material."
