Chapter 6



The Arkansas Wal-Mart Cases

Chapter V briefly described the initial victory of independent pharmacists in Arkansas over Wal-Mart.1 The case was brought under the Arkansas Unfair Trade Practices Act, and resulted in a national discussion on whether or not national discount retail chains might be prosecuted for predatory pricing under the existent laws of 24 states having these laws. The thought was expressed that if the federal government was reluctant to explore relevant clauses under Sherman, Clayton or Robinson-Patman -- that plaintiffs representing small retailers might follow the Arkansas experiment among many national retail chains in many other states, or that the federal agencies might begin to explore their own avenues to study possible predatory pricing activities on the part of chain stores.

The decision in favor of the independent pharmacies was overturned in Wal-Mart's favor in the Arkansas Supreme Court. However, of interest to scholars was the fact that in the Chancery proceedings, Wal-Mart did admit selling below cost, but denied the predatory charge. David Glass, Wal-Mart's CEO, said that the Bentonville, Arkansas retailer regularly sells a variety of items below cost, including such standards as Crest® toothpaste and Listerine® mouthwash. But he maintained the selling below cost doesn't violate the law or destroy competition. 2

The Arkansas statutes, which were being tested for the first time since passage in 1937, generally forbade businesses from selling or advertising "any article or product . . . at less than the cost to the vendor . . . for the purpose of injuring competitors and destroying competition." 3

Wal-Mart's attorneys argued in a pre-trial brief that what the law described as a "product" shouldn't be considered to apply to individual items, but rather to Wal-Mart's "market-basket" or full line of products. If the entire line isn't priced below cost, they contended it wasn't a violation of the statute. 4

It is obvious that to determine a state violation on "predatory pricing" that the court must determine what principle it would accept as "non-predatory" in pricing below cost. This is indeed a gray area and possibly was the issue resulting in Wal-Mart's reversal victory in the Arkansas State Supreme Court. Furthermore, federal surveillance of predatory pricing under the Robinson-Patman Act is based upon a different type of "below cost" formulae and analyses. This will be discussed later.

The second element to be considered under state laws is whether there was an "intent" to injure competition, and whether in fact the result of such malice was to injure the competition. The third element was "recoupment." Were the prices ultimately raised, once the competition was put out of business?

At issue in the case was whether Wal-Mart, which had built the nation's largest retail chain with its everyday-low-price strategy, went beyond the legally recognized retail practice of promotional pricing and intended to destroy its competition.

Although Chancery Court, Judge Reynolds said there was not any direct evidence tying Wal-Mart's pricing policies to such a plot, he did say circumstantial evidence existed.

"The court finds that purpose to injure competitors and destroy competition cannot be inferred from below-cost advertising and sales alone. There must be other proof," 5 the judge wrote, citing Wal-Mart's policy of allowing store managers to unilaterally cut prices on goods below that of local competitors as part of the evidence.

Attorneys for Wal-Mart in the Chancery Court also argued that "federal antitrust law should pre-empt the Arkansas law . . . and seek not to protect businesses from the workings of the market, but to protect the retailer from the failure of the market." 6

This was not the first time that Wal-Mart had been in litigation involving pricing. In 1986, it was found to have violated an Oklahoma state law that required retailers to sell products at least 6.75% above cost, unless the store is having a sale or matching a competitors price. Wal-Mart settled out of court during an appeal and agreed to raise prices at all of its stores in the state. 7

Wal-Mart became the number one major retail discount chain by obviously offering value and the lower prices possible. Pricing is the essential advantage that the mega-stores have over the small retailers who have few options to buy direct and who are attempting to buy merchandise from a reduced number of regional wholesalers. Even the major wholesalers have begun to consolidate their operations as was the case in June 1994, when the number two and number three United States food wholesalers, Fleming Company, Inc. and Scrivners, Inc., began discussions to merge. The contemplated merger would have resulted in combined total sales of $19 billion, making Fleming the nation's largest food distributor. Fleming's rival is Supervalue with $16 billion in sales. The trend towards consolidation continued to threaten the ability of the small retailer to survive. In October 1992, Supervalue had acquired Wetterau, Inc. of St. Louis for $1.1 billion.

While the continued consolidation of wholesaler and distribution into fewer hands raised possible antitrust concerns; nevertheless the argument employed by the mega-retailers is that distributors would cut their own duplicative operations and hopefully provide cost savings to consumers. 8

But Ortega in a Wall Street Journal article pointed out that Wal-Mart intends to deal with manufacturers directly:

"Wal-Mart's sheer size--more that 2,300 stores and warehouse clubs, (August '93) gives it the leverage to demand goods at the lowest possible cost from suppliers. And the company, facing increased competition from other large retailers as it moves into urban areas, has moved aggressively to trim as much cost as possible. In 1991, for example, the retailer told major suppliers it would deal with them directly, cutting out independent sales representatives. A manufacturers group then filed an unfair trade practices complaint with the Federal Trade Commission." 9

Pricing is the name of the game. It has been the issue in previous litigation against major corporations in state cases and will obviously remain a key issue in possible review by federal agencies, such as the Justice Department and the Federal Trade Commission.

In May 1994, Wal-Mart had to change its slogan about claiming the lowest prices after a National Advertising Review Board protested against Wal-Mart's format in claiming low prices. An article, which follows, in USA Today from May 1994, reported on Wal-Mart's reaction to competitors' criticism of Wal- Mart's pricing advertising.

"Wal-Mart Modifies Its Slogan"

"Wal-Mart will change its slogan, which has been criticized as misleading by competitors and an advertising watchdog group."

"The Old: 'Always the low price. Always.' The New 'Always low prices. Always.' The change will show up in ads next month, says Jane Arend, Wal-Mart's Director of Public Relations."

"Wal-Mart made the change after a National Advertising Review Board panel ruled the old slogan 'is communicating to many that its low prices are always the lowest' rather than just competitive."

"'We are disappointed that the NARB has interpreted the slogan so technically,' Arend says. 'But they have made their recommendation and we will make the appropriate changes'."

"A complaint was filed by a group representing several local Better Business Bureaus and Wal-Mart rivals, including Target Stores and Vision World Inc."

"The NARB -- 70 members from advertising and public interest groups -- works with the Better Business Bureau on truth in advertising issues. It has no legal authority to change Wal-Mart's slogan."

"This was not the first attack on Wal-Mart's marketing strategy. Early this year, the State of Michigan criticized Wal-Mart's practice of displaying its own prices vs. competitors' prices. The signs sometimes compared items of different sizes and were not fair comparisons, state officials charged."

"The old slogan has been in use since 1988."

"Retail consultant Alan Millstein says it may have worked for Wal-Mart in its early years, when it frequented smaller markets and easily beat competitor's prices. 'Now they are well into the most competitive metro markets. It's much more difficult for them to make that claim and have it be true,' he says." 10

In a related matter, but in a governmental involvement in Michigan, Wal-Mart agreed to modify its pricing rules after negotiations with Michigan's Attorney General. 11

"Wal-Mart Stores agreed not to use unfair or deceptive practices in comparative price advertising at it Wal-Mart and Sam's Club stores in Michigan."

"The agreement with the Michigan state attorney general's office came as response to a complaint filed by Kmart Corp., Troy, Mich.; Target Stores, Minneapolis, and Meijer Inc., Grand Rapids, Mich."

"The three retailers claimed Wal-Mart's comparisons were misleading. In signing the agreement, Wal-Mart did not admit to any violations."

"Wal-Mart agreed to identify the date on which comparisons were made; not to lower an item's price solely to achieve a favorable price comparison; not to use market-basket comparisons unless the Wal-Mart employees responsible for pricing do not know which items have been selected for the survey; and not to compare multiple-item package prices with individual item prices when the multiple package is not available to others in the market."

The growing power of the mega-retail discount chains is in part a matter of mass purchasing at discounts from manufacturers and major wholesalers, which provide merchandise at very low costs to consumers; often below costs as "loss leaders." Also, the reduced overhead per store as the corporations grow in accelerated fashion and introduce formidable powers to confront City Councils, zoning boards, etc. to accomplish their real estate objectives is contributing to their power.

Scholars such as Kenneth Stone, Professor of Economics at Iowa State University, a Wal-Mart analytical observer and Thomas Muller, a Fairfax, Virginia economist and the author of a report on the impact that three proposed Wal-Mart stores would have on Northeastern Vermont communities, both previously mentioned, might have a somewhat similar point of view on the major impact resulting from the growth of the Kmarts and Wal-Marts on small retailers, "Main Street" and community stability.

The writer will point out Muller's testimony before the House Small Business Committee in 1994 at a later point in this chapter. Seven years ago, Kenneth Stone, began to study the Wal-Mart phenomenon in his state after he noted the commercial life of many towns being hollowed out by the huge intruder. Few scholars had paid any attention. Now Stone is in demand all over the United States lecturing on the nature of Wal-Mart and how to deal with it. Stone estimates that Wal-Mart's stores -- a combination of general merchandise, groceries and wholesale clubs -- could, if growth in the 1990's equals that of the 1980's, gross $200 billion annually by the end of the decade. "It could be the biggest corporation in the United States," says Stone, and that includes Exxon and General Motors. 12

Wal-Mart is already the largest retailer, smothering Sears and Kmart. "The impact of a corporation of that size and that involvement in the life of this country is immense." 13

Stone advises small-town merchants on how to deal with the arrival of a Wal-Mart in their region. "I don't fight Wal-Mart . . . if you believe in the free-market system as I do, then you cannot keep them out of your community. Much of what I tell you will be to emulate them." 14 Stone talks about such ideas as finding special merchandising niches not occupied by Wal-Mart, about improving service and extending store hours.

In an earlier chapter the author described the "Ten Commandments" where the American Management Association prescribed how the small retailer could survive the Wal-Mart competition. This author points out the inability of the small retailer to apply the principles of "Management 101" without professional staff, capital, financial and other resources, to be able to contribute to the revival of downtown "Main Street." Little can be done in this respect without the strong support of the local, state and federal governments. These programs will be discussed in Chapter VIII.

Time continued its review of the hopelessness of Stone's prescriptions by the following statement in Sedey's article:

"Yet for all the delicacy of Stone's presentations and the litany of stores and communities that have survived Wal-Mart, there is a brooding inevitability about the data in Stone's studies. Small communities of static population sooner or later lose business from their downtowns to Wal-Mart, which sinks its roots at their edges. Surrounding communities with no Wal-Mart are devastated. Independent stores in growing areas generally rise with the tide even with Wal-Mart scooping up a big share."

"Some of this was surely inevitable in our boiling capitalism: Wal-Mart, perhaps, has done no more than finish off bad shopkeepers and lazy combines. Its bright, clinic-clean stores are the boondocks miracle that Walton wrought."

"But few if any American enterprises, no matter how huge and momentarily successful, have enjoyed uninterrupted bliss. The betting in dozens of tiny stores around the country is that Wal-Mart will reach its own plateau. Despite the superb management team Walton left in place, his death will inevitably mean that the soul of his corporation will change. Community irritation at secretive and stand-offish ways of Wal-Mart managers, the "us" (Wal-Mart) against "them" (downtown merchants) attitude, and the modest involvement in public affairs and charities by store officers are building resentment."15

Wal-Mart's Successful Appeals from the Faulkner County Chancery Court. Opinion Delivered by Judge Robert L. Brown of the Arkansas Supreme Court on January 9, 1995

Judge David L. Reynolds' earlier decision in the case of American Drugs Inc. v. Wal-Mart Stores, filed on October 12, 199316 was reversed and dismissed by the Arkansas Supreme Court on January 9, 1995. 17

This appeal is classic in that hundreds of lawyers in various states in which mega-retail discount chains are located are reviewing the majority and minority opinions to determine whether additional state litigation on various predatory pricing and selling below cost cases are worth exploring; and whether any of the data provided in both the majority and dissenting opinions might throw light on whether similar predatory pricing cases may be in the purview and plans by either the U.S. Department of Justice and the Federal Trade Commission.

"Appellant Wal-Mart Stores, Inc. appealed from an order of the Chancery enjoining it from engaging in below-cost sales and assessing damages against it for violation of the Arkansas Unfair Practices Act. Wal-Mart argued on appeal: (1) that the Chancery Court erred as a matter of law in finding that it sold products below cost for the purpose of injuring competitors and destroying competition; (2) that the Chancery Court erred in considering individual articles to determine cost and profit rather than the entire product lines, or "market basket"; and (3) that the Chancery Court's interpretation of the Arkansas Unfair Trade Practices Act violated the Arkansas Constitution and the United States Constitution." 18

The Supreme Court of Arkansas agreed with Wal-Mart, on their first point and hence reversed the Chancery Court order and dismissed the case. 19

The Chancery Court had earlier ascertained certain findings among others in coming to its decision against Wal-Mart. 20 These findings should be kept in mind when reviewing the successful appeal later in this chapter.

"That Wal-Mart determined the 'every day price' for its products at its headquarters in Bentonville, that store managers could not raise the price for a product above that set price, but that store managers could lower prices after monitoring prices charged by competitors in the market area without regard to the cost to Wal-Mart of individual items;"

"That the lowered price was frequently below Wal-Mart's cost of acquiring some of these products in highly competitive markets, and that this had occurred at the Conway Wal-Mart;"

"That the store had advertised individual items for sale below Wal-Mart's acquisition cost;"

"That Wal-Mart's stated policy in this regard was to 'meet or beat' retail prices of competitors, to maintain 'low-price' leadership in the local marketplace, and to 'attract a disproportionate number of customers into a store to increase traffic';"

"That by generating traffic, Wal-Mart could engender sales of other items which would offset losses from sales of below cost items;" and

"That Conway Wal-Mart's overall product line for pharmaceuticals and health and beauty aids was sold above cost, and its pharmacy was profitable."

The Chancery Court then stated:

"There is no direct evidence that the purpose of Wal-Mart's pricing policy or Conway Wal-Mart's implementation of the policy is to injure competitors or to destroy competition. However, such purposes may be inferred from the stated policy, the effects of the stated policy and other circumstantial evidence."

The court found that the appellee drug stores had lost sales to Conway Wal-Mart due to the below-cost policy, and that the growth in sales and profits for those drug stores had substantially decreased.

This author discussed previously in Chapter V, the major findings of the Chancery Court which ruled in the plaintiff's favor against Wal-Mart. While it may be somewhat repetitious to present these findings again, it is necessary for the reader to understand that the majority opinion in the Arkansas Supreme Court ruling which favored Wal-Mart and reversed the Chancery Court order. It is germane to an overall understanding of the pros and cons in the arguments before the Supreme Court when reviewing Wal-Mart's appeal.

The crux of the Chancery Court's order was as follows:

The Court found that the purpose to injure competitors and destroy competition cannot be inferred from below cost advertising and sales alone. There must be other proof of intent or purpose. A person's purpose or intent, being a state of mind, ordinarily cannot be proven by direct evidence, but may be inferred from other circumstances.

The Court found from the following circumstances the Conway Wal-Mart advertised and sold pharmaceutical and health and beauty products below cost for the purpose of injuring competitors and destroying competition:

1. The number and frequency of below cost sales.

2. The extent of below costs sales.

3. Wal-Mart's stated pricing policy - "meet or beat the competition without regard to cost."

4. Wal-Mart's stated purpose of below cost sales - to attract a disproportionate number of customers to Wal-Mart.

5. The in-store price comparison of products sold by competitors, including Plaintiffs.

6. The disparity in prices between Faulkner County prices of the relevant product-lines and other markets with more and less competition.

The Chancery Court then granted the injunction against below-cost sales. The chancellor also assessed treble damages as a penalty.

Majority Opinion of the Court Hearing the Wal-Mart Successful Appeal

Several items stand out in the Supreme Court's opinion:

"It is clear that mere proof of below-cost sales is not sufficient to prove a violation of the Act. The Chancery Court agreed with this but found an intent to destroy competition based on the extent, frequency, and number of those sales. Despite this finding, the Chancery Court failed to present details of Wal-Mart's practice regarding specific articles which led to the (alleged) violation. The individual items sold below cost, the frequency of those sales, the duration of those sales, and the extent of such sales were not revealed in the Chancery Court's opinion. And that is a critical point in this case."

"We discern no proof in the record of this case that Wal-Mart specifically intended to destroy competition with regard to any one article like Crest Toothpaste or Bayer Aspirin or Dilantin by selling below cost for a sustained period of time. What is evidenced is that Wal-Mart regularly would sell varying items below cost as loss leaders to entice people into its store and increase traffic. The loss-leader items would change on a regular basis. That strategy of selling below the competitors' price and even below Wal-Mart's own cost, which Wal-Mart admits to, is markedly different from a sustained effort to destroy competition in one article by selling below cost over a prolonged period of time. Our statute does not make loss leaders illegal, and for that reason the Chancery Court erred in inferring a purpose to destroy competition from a loss-leader strategy."

"We observe further that if the Chancery Court's statutory interpretation was correct, any business using the loss-leader approach to attract customers on a regular basis would be in violation of the Act. That kind of expansive interpretation runs directly counter to our oft-stated policy of strict construction of penal statutes in favor of those upon whom the burden will fall. Our statute plainly does not contemplate a prima facie case of predation based on loss-leader sales, and we are not willing to invalidate, and indeed render illegal, the technique of using loss-leader products or services without a clear directive from the General Assembly that is now the public policy of the State of Arkansas."

"Admittedly, there is a point where competitive pricing ends and predatory pricing begins. The Eighth Circuit Court of Appeals has discussed the difficulty in distinguishing the two in the context of the Sherman Act:"

"The difficulty, of course, is distinguishing highly competitive pricing from predatory pricing. A firm that cuts its prices or substantially reduces its profit margin is not necessarily engaging in predatory pricing. It may simply be responding to new competition, or to a downturn in market demand. Indeed, there is a real danger in mislabeling such practices as predatory, because consumers generally benefit from the low prices resulting from aggressive price competition."

"There is also a distinct danger in inferring, first, specific predatory intent and, secondly, purposeful destruction of competition from sales below cost. That involves a double inference, as the Eighth Circuit Court of Appeals has recognized. There is no question that double inferences stretch a circumstantial case to its limits. But the Idaho Supreme Court has also recognized additional problems with too heavy a reliance on inferences to determine specific intent in an antitrust case."

"Nevertheless, a finding that a defendant has engaged in a particular predatory or illegal act, such as selling below cost, is not the equivalent of finding specific intent, but is merely a basis from which such intent may be inferred. Isolated or occasional instances of selling below cost, while predatory or illegal in nature, do not necessarily indicate a specific intent to monopolize. To hold otherwise would render the requirement of specific intent a nullity."

"In the case before us, the loss-leader strategy employed by Conway Wal-Mart is readily justifiable as a tool to foster competition and to gain a competitive edge as opposed to simply being viewed as a stratagem to eliminate rivals altogether."

"If the policy of this State is to render illegal the loss-leader tactic or to recognize a prima facie case of purposeful intent to destroy competition by below-cost sales in disparate articles that are changed on a regular basis, that policy should be clearly announced by the General Assembly in appropriate legislation. We hold that the Arkansas Unfair Practices Act, and specifically section 4-75-209 (a) (1), does not provide a sufficient statutory basis for the Chancery Court's inference of a specific intent to destroy competition based on the facts before us. We further hold that the Chancery Court erred as a matter of law in concluding that purposeful intent to destroy could be inferred under these facts. Because we decide this matter on the first point, (see case appeal) there is no need to address the other points raised by this appeal."

"Reversed and dismissed."

Dissenting Opinion Provided by Judge Walter Niblich, and Joined in by Collegial Dissenters, Judges A. Watson Bell and Barbara P. Bonds

The appellant appealed the lower courts decision by raising the following questions. The dissenting opinion answers the appellant's issues and questions:

1. The lower court's standard of review.

"We (the dissenters) review Chancery cases de Novo and will not reverse a finding of fact, unless it is clearly erroneous. We consider the evidence in the light most favorable to the appellee (the pharmacists). The burden is upon the appellant to show the findings are erroneous."

2. Did the lower court's ruling support an inference of intent to destroy competition?

"For its first point of error, Appellant argues that the Chancellor used an improper legal standard to find the inference of intent to destroy competition. The analysis advanced by Appellant required Appellees to establish two factors (a) conduct inconsistent with a lawful purpose; and (b) knowing conduct that creates a dangerous probability of achieving a monopoly. Appellant stated the Appellees did not establish these two factors, and any inference of unlawful purpose by the Trial Court is, therefore, improper and legally erroneous."

"Appellees responded to this argument by stating that the Chancellor not only used the proper standard but evaluated the evidence and reached the only permissible conclusion. The evidence showed that up to thirty percent (30%) of Wal-Mart's pharmaceutical sales were below cost; that Wal-Mart posted negative profit margins on their most competitive items in over one-half of the period under examination; and that many of the prices were below invoice or replacement cost without consideration of the additional factors mandated by Arkansas Code Ann."

3. Did the Chancery Court fail to employ the proper standard?

"Appellant's contention is unpersuasive on two points. First Appellant fails to identify the legal standard used and how the legal standard was improperly applied. Appellant also failed to articulate the alleged "proper legal standard" for this Court to use when interpreting the Arkansas Act. Second, Appellant provides this Court with a potential framework for analysis but provides no authority or source for this framework. If Appellant does not like the statute as it is written, its remedy is in the legislature not the courts. However this question . . . is not a matter to be addressed by the court but is within the province of the legislature . . . This is a matter which must be left to the sound discretion of the General Assembly."

4. Was there intent to destroy competition?

"Appellant's second argument concerns the inference of intent to destroy competition and that the enumerated factors identified by the Chancellor could not possibly support an unlawful inference. The burden is upon the appellant to show that the findings are erroneous. Despite their analysis of each factor, Appellants fail to articulate a legal basis to reverse the findings and conclusions of the Chancellor."

5. Was the Chancery Court's interpretation of the Arkansas Act inconsistent with legislative intent?

"Appellant argues that the interpretation of the Arkansas Act given by the Chancellor is inconsistent with legislative intent. They cite the Unfair Cigarette Sales Act, Arkansas Code Ann., 4-75-708 (b) (Michie 1991), in which the legislature inserted a provision that below cost sales were 'prima facie evidence of intent to injure competitors and destroy or substantially lessen competition.' Because the legislature failed to insert a comparable provision in the Arkansas Act, Appellant argues that non-inclusion of a similar phrase 'establishes that the General Assembly did not intend for unlawful intent to be inferred from below-cost sales'."

"The proper source of legislative intent is the language of the statute. The legislative intent of the Arkansas Act is expressed in Arkansas Code Ann. @ 4-75-202:"

"The General Assembly declares that the purpose of this subchapter is to safeguard the public against the creation or perpetuation of monopolies and to foster and encourage competition by prohibiting unfair and discriminatory practices by which fair and honest competition is destroyed or prevented."

"The basic rule of statutory construction, to which all other interpretations must yield, is to give effect to the intent of the General Assembly. (Quoting Roy v. Farmers & Merchants Insurance Company, 307 Ark. 213, 819 S.W. 2d 2 (1991)). This court should give effect to the expressed General Assembly intent, and in doing so should reject the argument advanced by the Appellant. This Court adopted this language in Beam v. Monsanto Company, Inc., 259 Ark. 253, 532 S.W. 2d 175 (1976), and should continue to construe the Arkansas Act consistent with the intent of the legislature as expressed in the statute.

6. What price benchmark should be used to determine if the Arkansas Act has been violated? Should the valuation of cost be "Market-basket" or "single product?"

This section of the dissenting opinion is very important in reviewing possible review of pricing and the Federal Trade Commission, and hence the author provides details of the dissenting opinion.

"Appellant's next point of error requires this Court to examine the language of the statute and resolve the question of what price benchmark should be used to determine if the Arkansas Act has been violated. Appellant urges this Court to adopt a 'market basket' valuation approach for the cost of goods. Under the 'market basket' approach, a court would be required to consider other factors in addition to the invoice cost of an item allegedly for sale below cost. Appellant's economist, Dr. Leonard White, testified that the cost of an item under the market basket approach would include the product, the atmosphere of the store, the parking lot, air conditioning, and a whole group of services that surround the purchase of the alleged below cost item."

"Appellees (American Drugs) urge this Court to adopt a 'single product' cost comparison to determine if sales below cost have occurred. Under the individual item approach, the invoice cost of a product becomes the benchmark to determine if sales below cost have occurred."

"The Arkansas Act has not been interpreted on this point. The Chancellor found Wal-Mart guilty of Violating @ 4-76-209 (a) (1), which states:"

"(a) (1) It shall be unlawful for any person, partnership, firm, corporation, joint-stock company, or other association engaged in business within this state to sell, offer for sale, or advertise for sale any article or product, or service or output of a service trade, at less than the cost thereof to the vendor, or to give, offer to give, or advertise the intent to give away any article or product, or service or output of a service trade, for the purpose of injuring competitors and destroying competition."

"The first rule in considering the meaning of a statute is to construe it just as it reads, giving the words their ordinary and usually accepted meaning in common language."

"When a statute is clear, it is given its plain meaning and we do not search for legislative intent. That intent must be gathered from the plain meaning of the language used."

"A literal reading of Arkansas Code Ann. @ 4-75-209 supports the Trial Court's use of a 'single product' cost comparison to determine if Appellant has engaged in below cost sales in violation of the Arkansas Act. The language of @ 4-75-209 refers to any article or product' and does not include consideration of the atmosphere of the store, the parking lot, air conditioning, and a whole group of services that surround the purchase of an item. We should reject Appellant's market basket approach for establishing the price benchmarks."

7. Does the Arkansas Act violate the Arkansas Constitution?

"Appellant argues that the Chancery Trial Court's construction of the Arkansas Act bears no rational relation to legislative purpose and violates the Arkansas Constitution, Article 2, Section 2, which states:"

"All men are created equally free and independent, and have certain inherent and inalienable rights, amongst which are those of enjoying and defending life and liberty; of acquiring, possessing and protecting property and reputation, and of pursuing their own happiness. To secure these rights governments are instituted among men, deriving their just powers from the consent of the governed."

"Appellant cites Union Carbide & Carbon Corporation v. White River Distributors, Inc., 224 Ark. 558, 275 S.W. 2d 455 (1955) in which this Court ruled that the Arkansas Fair Trade Act was unconstitutional, as it established minimum prices. This Court said that 'the right to sell is a valuable property [that] cannot be denied.' Id. At 561. Appellant also cites Noble v. Davis, 204 Ark. 156, 161 S.W. 2d 189 (1942), in which a statute establishing minimum prices, commissions and hours of operations for barbers failed a constitutional challenge. Appellant states that this Court found that 'statute had no rational relation to the public safety, health or welfare.' Id. At 152-63. The same result should attain here. Appellant states 'that these cases establish that the Arkansas Constitution recognizes that each person has a right to sell his property and services at the price at which he chooses. That right should not be abridged except upon a compelling showing of public harm'."

"We review challenges to the constitutionality of statutes under the principle that statutes are presumed to be constitutional."

"The burden of proving a statute unconstitutional is upon the party challenging it."

"On appeal, if it is possible to construe a statute as to meet the test of constitutionality, we will do so. In searching for any rational basis, we ask whether the created classification has a conceivable reasonable relationship to the governmental action."

"Our task is merely to consider if any rational basis exists which demonstrates the possibility of a deliberate nexus with state objectives so that the legislation is not the product of a lawful purpose."

"The Arkansas Act addresses the creation of and perpetuation of monopolies. Appellees established at trial that Appellant sold goods below invoice cost and presented circumstantial evidence from which the Chancellor made a permissible inference of intent to destroy competition and harm competitors. Once a plaintiff has established that one of the enumerated conditions existed in a given market, this Court and any court under its jurisdiction must follow the dictates of the statute. Appellant merely alleges that the Arkansas Act as applied in this case is unconstitutional. It would require intellectual somersaults to declare that the Arkansas Act does not have any rational basis for its enactment by the Legislature. The task of the court 'is merely to consider if any rational basis exists which demonstrates the possibility of a deliberate nexus with state objectives so that the legislation is not the product of utterly arbitrary and capricious government and void of any hint of deliberate and lawful purposes.' The Court should find that the Appellant failed to establish that there was no rational basis for the Arkansas Act as applied in this case."

8. Is the Arkansas Act preempted in federal law?

"Appellant argues the Arkansas Act is preempted by the Robinson-Patman Amendments to the Clayton Act, which specifically addresses the weapon of predatory pricing by monopolies. The doctrine of federal preemption is based upon the supremacy clause in Article VI, Clause 2, of the United States Constitution. State laws that 'interfere with, or are contrary to the laws of Congress, made in pursuance of the constitution' are invalid." (Gibbons v. Ogden, 22 U.S.) (9 Wheat).

"The preemption test of Gibbons v. Ogden was expanded in Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 104 S.Ct. 2694, where the Court based preemption on four factors: whether Congress expressed a clear intent to preempt state law; whether Congress occupies the field so as to leave no room for the states to supplement; whether compliance with both the state and federal laws is impossible; and whether the state law stands as an obstacle to Congress' objective or purpose."

"The fact that the Arkansas statute is broader in scope than the Robinson-Patman Act does not invalidate the state statute, for in applying the rational basis test, the judiciary will not act as a superlegislature to question the means employed to accomplish the state objective."

"We find Appellant has not established that the Arkansas Act is contrary to or in opposition to any federal statute. Further, Appellant has not demonstrated that 'Congress expressed a clear intent to preempt state law; Congress occupies the field so as to leave no room for the states to supplement; [that] compliance with both the state and federal laws is impossible; and [that] the state law stands as an obstacle to Congress' objective or purpose'."

Concluding Comments in the Dissent

"We would hold that the Appellant has failed to prove that the Chancellor used an improper legal standard with respect to the inference of intent to injure competitors and to destroy or substantially lessen competition. We also find that the Chancellor could have found an intent to injure competitors from the evidence in the record and particularly from the testimony of David Glass, President of Wal-Mart Stores, Inc., who used language such as 'aggressive,' 'do whatever it takes,' 'kill the competition's momentum,' and 'war zones.' Appellant failed to establish that the Arkansas Act violates rights guaranteed by the Arkansas Constitution, Article 2, Section 2. Appellant also failed to establish that the Arkansas Act was preempted by federal law."

"For the foregoing reasons, I would affirm the trial judge's decision. Opinion written by Walter Niblock, Special Justice and Special Justices A. Watson Bell and Barbara P. Bonds join."

Author's Comment

The Supreme Court, despite the strongly worded dissenting opinion reversed the Chancery Court's victory for American Drugs Inc., dismissed the original plaintiff's case and awarded in favor of Wal-Mart, the Appellant.

The author has provided great detail in the dissenting opinion because of references to the predatory pricing features of the Robinson-Patman Act; particularly with respect to the several different approaches to calculating below cost sales on (a) the "market-basket" approach or (b) the "single product" approach. The majority opinion in the Supreme Court reversal also acknowledged that: "Admittedly, there is a point where competitive pricing ends and predatory pricing begins." Further, Justice Robert L. Brown's majority decision in favor of Wal-Mart also pointed out that the Eighth U.S. Circuit Court of Appeals had discussed the difficulty in distinguishing the two in the context of the Sherman Act; i.e. "Competitive pricing" vs. "Predatory pricing." Moreover, while a finding that a defendant has engaged in selling below cost is not the equivalent of finding specific predatory intent; nevertheless, it could be a basis from which such intent might be inferred.

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