Brief for the Respondent in Opposition — Safeway Stores, Inc. v. Bowles

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Opinion below 1

Jurisdiction 1

Questions presented 2

Statutes and regulations involved 2

Statement 2

Argument . eaeret 5

Conclusion . ans 15

Appendix 16

CITATIONS

Cases:

Adams, Rowe & Norman et al. v. Bowles, 144 F. (2d) 357

(1944) 15

Consolidated Water Power and Paper Co.v. Bowles (F.C. A.

December 6, 1944) 15

Flett v. Bowles, 142 F. (2d) 559 (1944) 15

Groesheck v. Duluth, S. S. & A. Ry. Co., 250 U.S. 607__. 5

Hillcrest Terrace Corp. v. Brown, 137 F. (2d) 663 (1943) __. 15

Statutes and Regulations:

emergency Price Control Act of 1942, ¢. 26, 56 Stat. 23, as

amended by the Stabilization Extension Aet of 1944,

Publie Law 383, 78th Cong., 2d Sess:

Section 2 (a) 16

Section 2 (e) 18

Seetion 2 (h) 8, 19

Section 203 (a) 19

Section 203 (b) 20

Section 203 (e) 20

Seetion 204 (a) 20

Seetion 204 (b) : 22

Section 204 (e) ‘ 22

Section 204 (d) 7 23

Maximum Price Regulation No. 390 2,3

Maximum Price Regulation No. 422 ; : 2,3, 4

Maximum Price Regulation No. 423 ; oe 2,3

Miscellaneous:

Hearings before the Committee on Banking and Curreney

on H.R. 4376, 78th Cong., 2d Sess., (1944) 7

88 Cong. Ree. 103 (1942) r 9

Senate Report No. 931, 77th Cong., 2d Sess. (1942) ___. at 14

(1)

G29544— -45 1

Se ee er = snitiaeeti

Inthe Supreme Court of the United States

OcroBer Term, 1944

No. 798

SAFEWAY STORES, INCORPORATED, PETITIONER

Uv.

CHESTER BowLes, Prick ADMINISTRATOR

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES EMERGENCY COURT OF APPEALS

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINION BELOW

The opinion of the United States Emergency

Court of Appeals (R. 593-604) is reported at 145

F. (2d) 836.

JURISDICTION

The judgment of the United States Emergency

Court of Appeals was entered November 29, 1944

(R. 605). The petition for a writ of certiorari

was filed December 29, 1944. Jurisdiction of this

Court is invoked under Section 204 (d) of the

Kmergency Price Control Act of 1942, ¢. 26, 56

Stat. 23, 50 U.S. C. App., Supp. TIT, See. 901,

as amended by the Stabilization Extension Act of

1944, Public Law 383, 78th Cong., 2d Sess. (here-

(1)

9

in sometimes termed “the Act’’), making appli-

cable Section 240 of the Judicial Code, as amended

(28 U.S. C. See. 347).

QUESTIONS PRESENTED

(1) Whether the classification of retail food

stores embodied in the applicable maximum price

regulations is arbitrary or capricious, or requires

changes in busitiess practices established in the

industry in contravention of Section 2 (h) of the

Act,

(2) Whether the applicable maximum prices

fairly and adequately compensate retail food

stores for the distributive functions they perform

so as to comply with the statutory requirement

of generally fair and equitable prices.

STATUTES AND REGULATIONS INVOLVED

The pertinent provisions of the Emergency

Price Control Act of 1942, as amended, appear

in the Appendix, tvfra, pp. 16-22.) The maximum

price regulations involved and pertinent amend-

ments thereto are printed in the Federal Register

(8 F. R. 6428, 9395, 9407, 12611, 15251, 17369,

17370; 9 F. R. 3510, 4214, 9719, 10258, 12589,

12590).

STATEMENT

On May 14, 1943 the Price Administrator issued

Maximum Price Regulation No. 390 and on July 8,

1943 issued Maximum Price Regulations No. 422

and 423, which together prescribed) maximum

3

prices for grocery and related items (except

meats) sold by retail food stores. All of these

regulations followed the same general pattern,

subdividing retail food stores into the four fol-

lowing groups for pricing purposes: Group L-

independent stores with annual sales volume of

less than $50,000; Group 2—independent stores

With annual sales volume of from: $50,000 te #?49.-

999; Group 3--chain stores with annual sales

volume of less than $250,000; and Group 4—chain

or independent stores with annual sales volume of

$250,000 and over (R. 487 63-68).

Maximum Price Regulation No, 390 established

specifie maximum: prices on soaps and cleansers

for each group of retail food stores and Maximum

Price Regulations No, 422 and 423 > established

maximum percentage markups over cost for each

group for the various grocery items sold by retail

food stores, The specitie maximum prices and

maximum percentage markups over cost for each

store group were based upon voluminous data

gathered by the Bureau of Labor Statistics, show-

ing the margins over eost whieh each group of

stores had customarily obtained (R. 47, 63. 158.

183-212, 301-37, 362-70, 390-95, 474-77).

Six protest proceedings were instituted before

the Price Administrator by petitioner under See-

tion 203 (a) of the Emergeney Price Control Aet.

attacking the classification of retail food stores

upon which the system of maximum retail food

prices is based, and the adequaey of the compensa-

men

Ditioasbariadiitibass termini eT

4

tion provided for the distributive functions which

petitioner performs (R. 1, 20, 86, 103, 119, 137).

The Price Administrator incorporated detailed

economie data and other facts into the record of

the proceedings, including certified statements by

the Acting Commissioner of Labor Statisties (R.

43-5, 153-57, 181-3, 400-15), answers to interroga-

tories propounded to the Price Administrator by

petitioner (R, 379-399), and studies of the retail

chain store industry’s and petitioner's profits

under the regulations and in pre-war years (R,

185-187, 213-229, 372-378, 416-422). In the

meantime, a series of amendments were added

to Maximum Price Regulation No, 422 providing

additional compensation for special distributive

functions performed by the industry CR. 356-357,

601-602). Thereafter, petitioner’s protests, hav-

ing been consolidated into two groups, were denied

by the Price Administrator insofar as relief had

not been granted by these amendments (R. 338-

378).

Petitioner thereupon filed complaints with the

United States Emergency Court of Appeals in

accordance with Section 204 (a) of the Emer-

gency Price Control Act (R. 516, 532), where they

were consolidated for hearing and disposition (R.

579). The court rejected all of the objections

advanced by petitioner, and dismissed the com-

plaints (R. 593-605).

oF)

ARGUMENT

1. One of the principal contentions advanced

hy petitioner is that the classification of retail

food stores adopted in the applicable regulations

is Improper since not framed in terms of “fune-

tions performed and services rendered” (Pet.

15). But for present purposes it is of controlling

importance that petitioner has never suggested

hew such a system of classification of retail food

stores could be devised or put inte practical

operation, Nor has petitioner made any sub-

stantial attack upon the Price Administrator's

determination, in which the court below concurred

CR. 595-596), that because of the variations and

gradations in functions and services from cus-

tomer to customer and transaction to transaction,

a classification of retail food stores expressly

framed in such terms would be wholly insus-

ceptible of effective administration. What was

said by Mr. Justice Brandeis in Groesbeck vy.

Duluth, 8S. S. & A. Ry. Co. 250 U.S. 607, 614—-

615, is pertinent here; “* * * — experience

teaches us that it is much easier to reject for-

mulas presented as being misleading than to find

one apparently adequate.”’

Indeed, petitioner’s only suggestion has been

that classificatioi of retail food stores for price

control purposes be wholly abandoned, and it has

heavily relied upon a recommendation made by

representatives of the industry that for all re-

6

tail stores there should be ‘tone ceiling price

only—highest level’. The Price Administrator

gave careful consideration to the recommendation

and, for reasons fully set forth in his opinion

entered in the protest proceeding, concluded that

its adoption would net be consisient with fair

and effective price control (R. 346-49). The

considerations requiring rejection of this sug-

the Emergency Court of Appea¥$ which stated

CR. SH-995) :

The Adnunistreter asserts, and we think

with good reason, that such action en his

part would have thwarted the purposes ef

the Emergency Price Contre! Act and

would have opened the way te a very sub-

stantial inflationary increase in the cost of

food products since it would have per-

mitted the vast multitude of low-cost food

stores to inerease their existing levels of

prices to those of the highest price stores

in their respective communities. ‘The eom-

plainant’s contention that the forces of

competition would have prevented such

price increases loses its force when we con-

sider that such factors do not operate nor-

mally in an economy of scareity coupled

with excess purchasing power such as ob-

tains under war conditions in this country at

the present time. It might have been equally

disastrous for the Administrator to have

placed a single price ceiling on food prod-

ucts at less than the highest level. Such

gestion were well sunmarized % the epimien of

7

action might well have foreed a large num-

ber of small neighborhood retail food stores

out of business entirely.

It is significant that the same views were ex-

pressed by the counsel to the Food Industry War

Committee in the hearings leading to extension

of the Act. Hearings before the Committee on

Banking and Currency on H.R. 4376 (78th Cong.

2d Sess.), Vol. 1, p. 408 (R. 595).

The record amply supports the Price Admin-

istrator’s determination that the method of classi-

fieation employed in the regulations, while having

the precision and definiteness necessary for effec-

tive administration, is also well adapted to the

needs of the retail food imdustry (R. 72). The

record shows that the Price Administrator adopted

a method of classification which had been used by

the trade and by research organizations prior to

price control (R. 73-75). Although framed in

terms of sales volume and affiliation with other

retail outlets, the classification in substance reflects

the different servi¢es performed by the major

types of retail food stores (R. 74-75, 596-597).

Moreover, to insure the fairness of the classifiea-

tion employed, the regulations contain provisions

for the reclassification of a retail store which ean

show that its services and historic margins are

typical of the group having the higher maximum

prices (R. 481-482). In view of all these consid-

erations, it can hardly be urged that the Price Ad-

629544 -45. -—-2

eR Re age? Yes

8

ministrator was arbitrary or capricious either in

rejecting the suggestion that classification of re-

tail stores for price control purposes be aban-

doned, or in the selection of the method of class-

ification employed in the retail food regulations,

The further contention is advanced that .this

classification in its application to petitioner runs

afoul of the prohibition of Section 2 (h) of the

Act against requiring changes in ‘‘business prac-

tices * * * established in any industry”’. This

contention is based upon the fact that some of pe-

titioner’s stores located in the same trading area

fall in Group 3 and the others in Group 4. Pe-

titioner points out that consequently, if all of its

stores are to sell at ceiling prices, it must abandon

its practice of selling at the same price in all

stores in the same trading area.

As is shown by the opinion of the court below,

this contention is subject to a number of defects

(R. 597). As the record reveals, the regulations

do not require petitioner to modify, nor has peti-

tioner in fact modified its established one-price

policy (R. 5, 24, 68, 76).’ Equally fatal is the fact

* The subsidiary contention that retention of its one-price

policy under the regulations has been oppressive (Pet. 21)

is belied by the petitioner’s unprecedented profits from its

operations under these regulations (R. 603-604). As the

court observed, maintenance of petitioner's one-price policy

under the regulations does not require any change in its policy

with respect to competitive price levels, since petitioner

asserts that it customarily sells in all its stores at the lowest

lawful prices charged by competitors in the same trading area

(R. 597).

9

that petitioner has not shown that the practice in

question is shared by any other member of the

industry (R. 4, 11, 18, 29-30, 36, 76, 597). The

contention that the practice of a single seller may

be ‘established in the industry’? within the mean-

ing of Section 2 (h) runs counter to both the clear

meaning of the language of the provision and its

legislative history.” It is apparent that there is

no substance to petitioner’s contentions that the

classification employed in the retail food regula-

tions is Inconsistent with the requirements of the

Act.

2. Petitioner presents a number of arguments

designed to show that the maximum prices estab-

lished for the different groups of retail food

stores are unfair and fail adequately to compen-

sate petitioner for its distributive functions (Pet.

22-32). As the court below observed, these con-

tentions assume ‘fa certain air of unreality’’ in

view of the lack of concrete evidence presented

by petitioner and in the light of the evidence

introduced by the Price Administrator of the

financial results of operations under the regula-

tion (R, 213-229, 372-378, 416-422, 603-604). Al-

*In the debates upon the provision which became Section

2 (h) of the Act, Senator Taft stated: “* * * JT donot

think the provision would prevent the Administrator from

ruling out a practice adépted by a particular firm even if

it had indulged in it before. It says: ‘Practices * * *

established in any industry.’ I should think the provision

probably applied only to an industry-wide practice which

the Administrator could not change * * *,” gg Cong.

Ree. 103 (1942).

4

Ce oo a dt iy oot ee ae

Te novo eS WONG

10

though attacking the adequacy and fairness of

the maximum margins provided by the regula-

tions, petitioner presented no evidence of the mar-

gins which either it® or other members of the

industry had customarily received, or of the eam-

ings permitted under the regulations. Petition-

er’s arguinent upon this score consisted in part

of abstract comparison of the maximum markups

allowed the different groups of vetail stores, and

in part of criticism of the statistical procedures

of the Bureau of Labor Statistics and the Price

Administrator in the compilation of the under-

lying margin data and its use in preparing the

regulations.

Potitiorer’s arguments are in the main derived

from a report prepared for it by a firm of ae-

counianis who made an exhaustive examination

of the margin data collected by the Bureau of

Labor Statistics and of the Price Administrator’s

use of the data in preparing the regulations. A

number of criticisms were advanced, with respect

both to the adequacy of the data and the statis-

tical procedures employed by the Price Admin-

istrator in evaluating the data prior to establish-

ing the maximum markups. These eriticisms,

* Petitioner set forth the margins it had previously received

on two selected items in its stores in Butte. Montana (R.

244-5). However, from another proceeding filed by peti-

tioner with the Price Administrator it appeared that the

costs and margins in the stores in Butte were among the

highest and that the items of evidence offered by petitioner

did not, to say the least, present a representative picture

(R. 364-365).

11

however, were based upon a series of factual er-

rors and misapprehensions, which although ex-

posed in detail by the Acting Commissioner of

Labor Statistics (R. 400-415) and by the Price

Administrator (R. 362-367, 390-397), are re-

peated in petitioner’s brief. The state of the

record and the lack of substance to these various

contentions * are fairly summarized in the opinion

of the court below, which stated (R. 598) :

We have examined these criticisms in

detail. It will serve no useful purpose to

discuss them here. It is enough to say

that we find them to be without merit. On

the contrary we are impressed with the

skill and care with which the enormous

task of collecting and collating the data in-

volved in the food margins study was ear-

ried through.

Petitioner nevertheless urges that the regula-

tions fail fairly to compensate it for its distribu-

tive functions. This contention revolves about

* Contrary to petitioner's suggestion that the Price Admin-

istrator based the regulations on inadequate and unrepre-

sentative data, the record reveals that the first collection

alone, made in August 1942, involved 58 commodities and

covered 8,294 retail outlets in 23 cities (R. 862-3, 415). In

subsequent months the scope of the study was enlarged to a

point where it involved the collection of data on 98 commodi-

ties sold by 11,227 retail outlets in 56 cities throughout the

United States, and covered a total of approximately 4,497,930

different prices secured from retailers. As was pointed out

by the Acting Commissioner of Labor Statistics. the Food

Margins Study was “one of the largest margin and price

surveys ever undertaken” (R. 414).

* ce |

12

two types of operations: (1) the warehousing of

erocery commodities; and (2) certain special pre-

rarehouse functions such as buying, packing and

grading. The arguments with respect to these

two types of operations are unsupported by any

evidence offered by petitioner with respect to the

costs or the customary margins received for these

distributive functions. Petitioner concedes that

the Price Administrator has added amendments

to the applicable regulation giving added com-

pensation for special pre-warehouse functions.

Although the program of meeting such special

services by means of amendments was instituted

shortly after issuance of the retail food regula-

tions (R. 356-357, 601-602), petitioner devotes

much attention to eriticizing the delay in issuing

one of the later in a series of such amendments

(Pet. 27, 33). This criticism, regardless of its

lack of merit, is not now of legal significance,

and petitioner does not appear seriously to rely

upon the contentions relating to the special pre-

warehouse functions, ‘“‘insofar as this particular

proceeding is concerned” (Pet. 28).

Petitioner does, however, urge that it is denied

adequate compensation for its ‘“warehousing”’

functions. This contention is wholly without sub-

stanee. As the statements of the Acting Commis-

sioner of Labor Statistics clearly explained, the

margin data employed in establishing the regula-

tions reflected the difference between purchase

13

cost and sélling price historically established by

each group of stores (R. 157, 182-183).° It like-

wise appeared that the margin data employed in

setting the maximum markups for the groups in

which petitioner’s stores fall reflected the allow-

ance which stores in these groups had customarily

made to cover ‘‘warehousing”’ operations, as well

as delivery to the retail store and a profit upon the

transaction (R. 350-352). It follows, as the

court below found, that the regulations wére

reasonably designed to compensate each group of

stores for warehousing, as well as for the other

functions which it performs (R. 601-602).

Petitioner, significantly, did not offer any evi-

denee of the effect of these maximum markups

upon the financial results of its operations, and

objects to the Price Administrator’s introduction

of this information into the record of the protest

proceedings (Pet. 30-32). But it is evident that

* By quoting out of context certain phrases from one of

the statements of the Acting Commissioner of Labor Statis-

tics, petitioner gives the impression that the underlying

margin data did not include allowance for warehousing and

delivery to retail stores for the reason that such expenses

were “excluded” in collecting the margin data (Pet. 29).

But the record clearly shows that the margin data reflect

the full margin between the purchase cost and selling price,

and that the statement to which petitioner refers is designed

to make clear that the margins reflected in the study were

not reduced by the amount of items of expense involved in

the handling of the merchandise in question (R, 156-7, 181-3,

350-2, 380). The same point was advanced by petitioner in

the proceeding below, but was rejected (R. 243, 380, 598).

ie SOY 7"

*

*

&

14

such information, which in this case shows com-

plainant and other members of the industry to

be making unprecedented and increasing profits

under the regulations (R. 372-378, 416-422, 603-

604), is of the utmost importance in testing the

. adequacy of maximum prices. That Congress

recognized the significance of over-all profits as a

measure of the fairness and equity of maximum

prices is shown by the report of the Senate Com-

mittee on Banking and Currency on the bill which

“pecame the Emergency Price Control Act of 1942

(Sen. Rep. No. 931, 77th Cong., 2d Sess., 1942, at

15). The report stated:

Because of the legislative nature of reg-

ulations establishing maximum prices, ap-

plying to large numbers of sellers, the bill

does not guarantee a profit to each indi-

vidual seller. It requires instead that such

prices be generally fair and equitable as

applied to the sellers responsible for the

major part of the output of any commodity.

As to such sellers it is the effect of the max-

imum price upon their over-all operations

as business units that must be considered.

By reason of the complete lack of substance in

the charges that petitioner has been subjected to

arbitrary or capricious regulatory action, there is

no factual framework upon which to raise petition-

er’s contention that it would be unconstitutional to

excuse arbitrary treatment of one seller on the

ground that the regulation has not treated other

members of the industry unfairly (Pet. 33-34).

15

Of course, neither the Price Administrator nor the

Emergeney Court of Appeals made such a sugges-

tion and that court has shown by its decisions that

it will set aside a regulation on the ground that it

is arbitrary or capricious in its application to indi-

vidual sellers. Flett v. Bowles, 142 F. (2d) 559

(194-4); Adams, Rowe d Norman ct al. v. Bowles,

144 FB. (2d) 857 (1944) ; Consolidated Water Pow-

er and Peigee Company VY. Bowles, (i. C. A., Dee.

6, 1944). Of. Hillerest Terrace Corp. v. Brown,

7 BF. (2d) 663 (1945). It is sufficient for pur-

poses of this case that the court below properly

found that the regulations were arbitrary neither

in theivy application to the petitioner ner to the

industry as a whole,

CONCLUSION e

The deeision below is clearly correct, anid. does

hot warrant further review. The petitiot should

be denied.

Respectfully submitted.

CHARLES FaHy,

Solicitor General.

RicHarp H, Firtp,

General Counsel,

Office of Price Administration.

Iepruary 1945.