author: David Newbern, Justice. Tom Glaze, Justice,

text:
    CRAIN INDUSTRIES, INC. v. Kenneth CASS, Lois Marion, Mary Sherman, Victor Knauls, Williams Keith, and David Haywood
    90-223
    810 S.W.2d 910
    Supreme Court of Arkansas
    Opinion delivered June 3, 1991

      Gilker and Jones, by: Michael R. Jones, for appellant.

      Martin, Vater, Karr & Hutchinson, by: W. Asa Hutchinson, for appellee.
   David Newbern, Justice.

This is a wrongful discharge from employment case. The appellant, Crain Industries, Inc., employed the appellees, Kenneth Cass, Lois Marion, Mary Sherman, Victor Knauls, William Keith, and David Haywood. Due to a reduction in the work force at Crain Industries, those employees were laid off, although they were senior in length of service to some others in their respective departments who were not laid off. The employees claimed breach of contract on the basis of a provision in the Crain Industries employment handbook which provided:

In the event it should become necessary to reduce the number of employees in the work force, employees will be laid off on a seniority basis by department. The last employee hired would be the first to be laid off. This policy will be adhered to with one possible exception; that is, under circumstances where the efficiency of a department would be impaired by the loss of some particular employee’s skill.

It is not argued that any of these employees were laid off because of the need to retain a “particular employee’s skill.” Crain Industries’ main argument is that the employees were “at will” employees, and the language of the handbook quoted above was “precatory” and insufficient to form the basis of a holding that Crain Industries had contracted not to lay off the employees except in accordance with the handbook. We affirm the judgment based on a jury’s finding that Crain contracted to conduct the layoff in accordance with the provisions of the handbook. Crain raises additional points in which we find no merit, and we will state additional facts as needed to dispose of them.

1. Handbook as contract

As to how the handbook came into existence, Kenneth Cass testified as follows:

A. Well, they were trying to form a union, out there at Crain, because of them recently firing a supervisor, and Mr. Crain called a meeting. I think it was the day or the day before we were to take a vote. And he said that we didn’t need a union, that if we would vote no to the union, he would come out with a policy that would — guidelines for the employees and the supervisors and Crain Industry, you know.
Q. And was the union voted in or voted out?
A. They were voted out.
Q. And subsequent to that, was the policy manual adopted?
A. Yes.

Cass went on to testify that he was aware of the seniority provisions in the handbook and that the seniority concept was important to him as he remained with the company. Marion, Sherman, Knauls, Keith, and Haywood, also testified of their awareness of the provisions and their expectations that Crain Industries would follow them. The testimony was submitted to the jury which was instructed to find in favor of the employees if the jury found express provisions in the handbook constituting an express agreement. The jury found the express provision an agreement. The Trial Court entered judgment based on that finding.

Generally, the law of this State is that an employer or an employee may terminate an employment relationship at will. In Jackson v. Kinark Corp., 282 Ark. 548, 669 S.W.2d 898 (1984), we recognized that this common law rule was changing in other states which were softening it by finding express or implied agreements for a specified period of employment or by holding that an employer could not discharge an employee arbitrarily or in bad faith. The Jackson case was presented to this Court on appeal of a summary judgment in favor of the employer. We remanded so that facts could be developed with respect to the existence and meaning of an employee handbook which Jackson claimed to constitute a contract of employment. We wrote that we would “be in a position to fully consider that trend only after the facts in [the] case [had] been definitely determined.” See also Gaulden v. Emerson Electric Co., 284 Ark. 149, 680 S.W.2d 92 (1984); Griffen v. Erickson, 277 Ark. 433, 642 S.W.2d 308 (1982).

In Gladden v. Arkansas Children’s Hospital, 292 Ark. 130, 728 S.W.2d 501 (1987), we dealt with the cases of two employees, each of whom contended she could not be fired by her employer without cause. Each claim was based on statements of the employer made in employment regulations or an employee handbook. We reviewed our cases to date and stated the extent to which we meant to revise the employment at will doctrine. We held the statements in the handbook and regulations were not sufficiently specific to be binding, and thus we sustained the judgments in favor of the two employers. In discussing our willingness to reconsider the employment at will doctrine, we wrote:

We do . . . believe that a modification of the at will rule is appropriate in two respects; where an employee relies upon a personnel manual that contains an express provision against termination except for cause he may not be arbitrarily discharged in violation of such a provision. Moreover, we reject as outmoded and untenable the premise announced in St. Louis Iron Mt. Ry. Co. v. Matthews, 64 Ark. 398, 42 S.W. 902 (1897), that the at will rule applies even where the employment agreement contains a provision that the employee will not be discharged except for cause, unless it is for a definite term. With those two modifications we reaffirm the at will doctrine. [292 Ark. at 136, 728 S.W.2d at 505]

We thus reaffirmed the employment at will doctrine except where there is an agreement that the employment is for a specified time, in which case firing may be only for cause, or where an employer’s employment manual contains an express provision stating that the employee will only be dismissed for cause and that provision is relied on by the employee.

In Smith v. American Greetings Corp., 304 Ark. 596, 804 S.W.2d 684 (1991), we were asked, and we declined, to hold this language in an employer’s handbook created an enforceable promise to discharge only for cause: “We believe in working and thinking and planning to provide a stable and growing business, to give such service to our customers that we may provide maximum job security for our employees.” We held that it did not rise to the level of an “express provision” as the Gladden case ruling required.

In the case now before us, there is no contention that the employees were hired for a specified time. The question is thus whether the exception to the employment at will doctrine for a contract arising from a promise made in the handbook, applied. Crain Industries argues that there was no express provision. By comparison with the one we reviewed in the Smith case, the provision here is a model of clarity and definiteness. There is no doubt as to its meaning, but the question remains whether it is to be enforced.

Although the handbook in this case did not contain the provision on firing only for cause, the employees contend with respect to the Gladden case, “it is clear that the court envisioned a modification of the at-will doctrine in any case in which there was an express provision in the employee handbook governing the procedure at the time of termination.”

The trial court did not err in presenting the matter to the jury. In the Gladden appeal, where we held for the employers because we could find no specific provision in the employment regulations or manual requiring dismissal to be for cause only, one of the appellants cited Wagner v. Sperry Univac, 458 F.Supp. 505 (E.D. Pa. 1978). We distinguished the case and stated, “In Wagner, a reduction in force was to be governed by seniority in determining who would be laid-off and Wagner’s discharge violated that provision.” While the holding in the Gladden case is hardly a direct adoption of the Wagner decision, we did imply that if there were such a provision in an employment manual it would be enforceable, and that is entirely consistent with our explanation that an exception to the employment at will doctrine may arise from reliance on a promise made in an employment handbook.

The Trial Court was correct in assuming, after studying the Gladden decision, that this Court would not hold that clear language constituting a promise not to dismiss other than for cause would be upheld but clear language constituting a promise not to dismiss in a lay-off except by departmental seniority would not be upheld.

Cases dealing specifically with handbook provisions .are collected in Comment, Unilateral Modification of Employment Handbooks: Further Encroachments on the Employment-at-Will Doctrine, 139 Penn. L. Rev. 197 (1990). The author points out that unilateral contract analysis is common in handbook cases and quotes the following, omitting citations, from Small v. Springs Indus., Inc., 292 S.C. 481, 357 S.E.2d 452, 454 (1987).

[There are] “strong equitable and social policy reasons militating against allowing employers to promulgate for their employees potentially misleading personnel manuals while reserving the right to deviate from them at their own caprice.” . . . It is patently unjust to allow an employer to couch a handbook, bulletin, or other similar material in mandatory terms and then allow him to ignore these very policies as “a gratuitous, non-binding statement of general policy” whenever it works to his disadvantage. Assuredly, the employer would view these policies differently if it were the employee who failed to follow them. ... If company policies are not worth the paper on which they are printed, then it would be better not to mislead employees by distributing them.

In Pine River State Bank v. Mettille, 333 N.W. 2d 622 (Minn. 1983), the Minnesota Supreme Court was apparently confronted with arguments to the effect that provisions in an employment handbook relating to disciplinary action against an employee were unenforceable. A bank employee was fired summarily, allegedly for cause, and the bank president did not follow the discharge or disciplinary procedures in the handbook. The employee brought an action based on contract and prevailed. The first two issues, as stated by the Court, were as follows: “(1) Can a personnel handbook, distributed after employment begins, become part of an employee’s contract? (2) If so, are job security provisions in the handbook enforceable when the contract is of indefinite duration?”

Answering the first question in the affirmative, the Court wrote:

If the handbook language [is sufficiently definite to constitute] an offer, and the offer has been communicated by dissemination of the handbook to the employee, the next question is whether there has been an acceptance of the offer and consideration furnished for its enforceability. In the case of unilateral contracts for employment, where an at-will employee retains employment with knowledge of new or changed conditions, the new or changed conditions may become a contractual obligation. In this manner, an original employment contract may be modified or replaced by a subsequent unilateral contract. The employee’s retention of employment constitutes acceptance of the offer of a unilateral contract; by continuing to stay on the job, although free to leave, the employee supplies the necessary consideration for the offer. [Footnotes omitted.]

In answer to the second question, also in the affirmative, the Court wrote:

The argument is that a provision for job security in a contract of indefinite duration, whether initially promised or subsequently added, is not binding without additional, independent considerations other than services to be performed.
Handbook provisions relating to such matters as bonuses, severance pay and commission rates are enforced without the need for additional, new consideration beyond the services to be performed. See DeGuiseppe, The Effect of the Employment-at-will Rule on Employee Rights to Job Security and Fringe Benefits, 10 Fordham Urban L.J. 1 (1981). We see no reason why the same may not be true for job security provisions. Accord Note, Protecting At Will Employees,. . . 93 Harv. L. Rev. at 1819-20 (employee’s continued labor despite freedom to resign is ample consideration for all express or implied promises, including those relating to job security). Thus, the consideration here for the job security provision is Mettille’s continued performance despite his freedom to leave. See, e.g., Carter v. Kaskaskia Community Action Agency, 24 Ill. App. 3d 1056, 1059, 322 N.E.2d 574, 576 (1974). As such, the job security provisions are enforceable.

The Minnesota Supreme Court’s opinion on these issues concludes as follows:

Not every utterance of an employer is binding. It remains true that “the employer’s prerogative to make independent, good faith judgments about employees is important in our free enterprise system.” Blades, Employment at Will v. Individual Freedom: On Limiting the Abusive Exercise of Employer Power, 61 Colum. L. Rev. 1404, 1428 (1967). Properly applied, we think that the unilateral contract modification analysis appropriately accommodates the interests of the employee and the employer.

The reference to “not every utterance” is apparently to an earlier discussion in the Court’s opinion about the sort of vague assurances of “permanency” in employment to which an employer cannot be held, and the sort of vague references we encountered in Smith v. American Greetings Corp., supra.

The essence of the Minnesota Supreme Court’s opinion is like that found in the Pennsylvania Law Review article referred to and quoted above; when an employer makes definite statements about what its conduct will be, an employee has a contractual right to expect the employer to perform as promised. Given our statement in the Gladden case that we would regard a specific handbook promise not to discharge except for cause, and given the contract rationale spelled out by these authorities for handbook promises generally, we conclude it was not error to instruct the jury as was done in this case.

2. Disclaimer

During the time the employees worked for Crain, the handbook or manual was changed to include this statement:

The above policies have been explained to me and I have been given a copy of the Company Handbook. I understand that the Company Handbook is not a contract of employment and we reserve the right to change it at any time.

The statement appears on a page of the handbook containing a checklist of information to be given a new employee with a place for his or her signature at the bottom and a notation that the form should be placed in the employee’s personnel file. Crain argues that it was free to change the handbook by adding the disclaimer. The employees testified they were not aware of the change. Crain did not produce evidence that any of them had signed any such checklist.

Crain cites cases in which it has been held that similar disclaimers were effective. See, e.g., Eldridge v. Evangelical Lutheran Good Samaritan Soc., 417 N.W.2d 797 (N.D. 1987); Castiglione v. Johns Hopkins Hosp., 69 Md.App. 325, 517 A.2d 786 (1986). In each of them it was evident that the employee in question was aware of the disclaimer. While we might agree that an employer may change the terms pursuant to which its employees remain employed by it, we conclude that if such a change is to be effective it must be communicated to the employee.

Generally a contract cannot be modified unilaterally, Leonard v. Downing, 246 Ark. 397, 438 S.W.2d 327 (1969); Scottish Union and Nat. Ins. Co. v. Wilson, 183 Ark. 860, 39 S.W.2d 303 (1931). The pros and cons of permitting an employer to modify a handbook in such a manner as to affect the contractual rights of employees absent additional consideration given to the employees are discussed in the Pennsylvania Law Review note referred to above. We reserve judgment on the question whether, and under what conditions an employer may effectively modify a handbook with notice to affected employees. We find no error in allowing the jury to conclude here that there was no effective modification with respect to these employees.

3. Legal opinions of witnesses

The trial court granted a motion in limine by the employees stating witnesses would not be permitted to give their opinion whether the handbook constituted a contract. Crain Industries contends it was error to grant the motion because it prohibited Crain’s witnesses from testifying as to Crain’s intent in issuing the handbook.

The short answer to the argument is that, even if granting the motion had been error, it was not prejudicial because there was such testimony before the jury. Richard Ries, Vice President of Crain Industries, Secretary of the Corporation, a Member of the Board of Directors, and a lawyer, testified, “It has always been our position that this handbook represented the policies of the company, but that it wasn’t a contractual commitment by the company.”

4. Instructions

The trial court gave an instruction to the jury regarding the elements of a contract. It included a statement that there must be a “manifestation of mutual assent to the terms and conditions of the contract.” Crain Industries sought to have added, “There can be no contract if only one party intends to be bound.” The trial court refused. Crain cites no authority supporting its contention that the trial court should have added those words.

The trial court gave a correct instruction requiring the jury to find “a manifestation of mutual assent to the terms and conditions of the contract.” The problem here is caused by an added reference by the trial court to “meeting of the minds.” Crain Industries seems to argue that in order to find a contract, the jury would have to have found a subjective intent on the part of the corporation to be bound by the terms of the handbook.

The battle between those who argued for the “subjective theory” and those who argued for the “objective theory” of contract has long since been won by the objectivists. See A. Farnsworth, Contracts, § 3.6 (1982). As Professor Farnsworth points out, “Discussions of this topic would be improved if this much abused metaphor [‘meeting of the minds’] were abandoned.” Id., p. 113, n. 2. Although this Court used the metaphor as late as last year, we were careful to point out that we meant, in more modern terminology, “objective indicator[s] of agreement.” Fort Smith Service Fin. Corp. v. Parrish, 302 Ark. 299, 789 S.W.2d 723 (1990).

No real harm was done in this case, as the jury was given an instruction from which it could conclude that it was to determine whether there was evidence that the acts of the parties constituted “indicators of agreement,” when it required “a manifestation of mutual assent.”

5. Mitigation of damages

Crain Industries argues that the evidence is insufficient to support the jury’s apparent finding that three of the employees, Cass, Haywood, and Marion, fulfilled their duty to mitigate damages by seeking other employment after the lay-off. It is also argued that the jury’s decision in this regard is clearly against the preponderance of the evidence.

Each of the employees in question testified about searching for work after being laid off by Crain. It is argued that Cass, who had been a maintenance supervisor, was given an offer of reemployment in an hourly wage position but refused to accept it because he stated he wanted his old job back rather than the hourly job. Cass testified he searched for other jobs and he attempted to speak to Crain officials on the phone about their offer, but his calls were not returned.

Crain contends that employees Haywood and Marion failed to mitigate because they abandoned their job searches after beginning to receive Social Security benefits. Mr. Haywood accepted Social Security disability benefits after searching unsuccessfully for other employment. Ms. Marion, who was 62 years old, testified she “retired” after being consistently refused employment. The question whether she, as well as Cass and Haywood, exercised sufficient diligence in her job search was one of fact for the jury which was properly instructed on the issue. The evidence was sufficient to pose a jury question, and we cannot conclude that the verdict was clearly against the preponderance of the evidence so as to require a new trial. See Ark. R. Civ. P. 59(a)(6).

6. Attorney’s fee

An attorney’s fee was awarded by the trial court to the employees pursuant to Ark. Code Ann. § 16-22-308 (Supp. 1989). Crain argues the award was erroneous because the provision in the statute that the fee be for “labor or services” applies only to labor or services which have been performed. The argument misses the point that the statute also provides that an attorney’s fee may be awarded for “breach of contract.” Barnett v. Arkansas Trans. Co. Inc., 303 Ark. 491, 798 S.W.2d 79 (1990).

As the holding of the trial court was that there was an employment contract which was breached, the awarding of an attorney’s fee was not improper.

Affirmed.

Glaze and Corbin, JJ., dissent.

Tom Glaze, Justice,

dissenting. Since 1984, this court has wrestled with the idea of abandoning or modifying the employment at will doctrine. See Gauldin v. Emerson Electric Co., 284 Ark. 149, 680 S.W.2d 92 (1984), and Jackson v. Kinark Corp., 282 Ark. 548, 669 S.W.2d 898 (1984). That common law doctrine provides that when a contract of employment does not bind the employee to serve for a specified time, the contract may be terminated at will by either party, even though the contract provides that the employee can be discharged only for cause. Gauldin, 284 Ark. at 151, 680 S.W.2d at 93. While confronted with a number of opportunities since Gauldin and Jackson to jettison the employment at will doctrine, the court has refused to do so. Smith v. American Greetings Corp., 304 Ark. 596, 804 S.W.2d 683 (1991); Sterling Drug, Inc. v. Oxford, 294 Ark. 239, 743 S.W.2d 380 (1988); Gladden v. Arkansas Childrens’ Hospital, 292 Ark. 130, 728 S.W.2d 501 (1987); Proctor v. East Central Arkansas EOC, 291 Ark. 265, 724 S.W.2d 163 (1987); Bryant v. Southern Screw Machine Products Co., 288 Ark. 602, 707 S.W.2d 321 (1986). However, in Gladden the court modified the at will rule in two respects, viz., (1) where an employee relies upon a personnel manual that contains an express provision against termination except for cause, he or she may not be arbitrarily discharged in violation of such a provision and (2) an employment agreement that contains a provision that the employee will not be discharged except for cause is cognizable even if it has an unspecified term. See Gladden, 292 Ark. at 136, 728 S.W.2d at 505. With these two narrow changes, the court reaffirmed its adherence to the employment at will doctrine, and later reiterated that reaffirmation in Smith, 304 Ark. at 600, 804 S.W.2d at 686. In each of the foregoing cases, this court decided as a matter of law either that the employee failed to allege a cause of action for wrongful discharge or that the employee failed in his or her proof on summary judgment to support such an action.

As mentioned in the majority opinion, the employees here based their wrongful dismissal claim on Crain Industries’ breach of the following provision in its handbook:

In the event it should be necessary to reduce the number of employees in the work force, employees will be laid off on a seniority basis by department. The last employee hired would be the first to be laid off.

The above provision contains no language expressing that the employees cannot be discharged except for cause. The provision provides only that, if a reduction in work force is necessary, employees will be laid off on a seniority basis. Without an express provision against termination except for good cause, Crain Industries clearly reserved its authority to fire any employee for any reason.

Actually, the earlier Gladden decision presented a much closer case on its facts to uphold a wrongful discharge action than the situation here. In Gladden, the employees’ manual contained provisions describing methods for dismissal under certain circumstances and specified different kinds of conduct that could result in summary dismissal. Even so, because the manual did not expressly provide that employees would not be discharged except for cause, this court held as a matter of law that the manual afforded the employee no basis for a wrongful discharge action.

I would point out that, in all of the manual or handbook employment at will cases cited above and of which I have knowledge, this court has never held that a wrongful discharge action was alleged or a claim was established or that a jury question existed. If such an action or claim exists here, no doubt such a factual question existed in Gladden.

In conclusion, I would add that I have sympathy for- the employees’ beliefs that their employer should have complied with its stated policy set out in the company’s handbook when a work force reduction became inevitable. Nonetheless, that is not the issue posed here. The majority’s opinion, in my view, simply runs contrary to this court’s prior decisions, and I fear will prove to be the source of considerable confusion in employment at will cases in the future.

I respectfully dissent.

Corbin, J., joins this dissent.

       One exception to this policy statement was added, but it is not relevant in this appeal.


source: Caselaw Access Project

author: David Newbern, Justice.

license: Public Domain

text:
    Troy JOHNSON v. STATE of Arkansas
    CR 91-28
    810 S.W.2d 44
    Supreme Court of Arkansas
    Opinion delivered June 3, 1991

      James P. Massie, for appellant.

      Winston Bryant, Att’y Gen., Catherine Templeton, Asst. Att’y Gen., for appellee.
   David Newbern, Justice.

Troy Johnson was convicted of possession and possession with intent to deliver a controlled substance. On appeal he contends it was error to overrule a motion for a continuance. We hold the Court did not abuse its discretion in refusing the continuance and affirm.

The State had listed undercover agent Tony Garcia as one of its witnesses and had subpoenaed Garcia for a trial to be held April 3, 1990. The case was continued until June 19, 1990, and the State did not subpoena Garcia for the trial which was to be held on the later date.

It is clear from the record that counsel for Johnson knew at least by the preceeding Friday that Garcia was not to appear for the State on Tuesday, June 19, yet no subpoena was issued by the defense.

A section of the original Civil Code, now codified as Ark. Code Ann. § 16-63-402(a) (1987), requires a party moving for a continuance for the purpose of procuring the presence of a witness to file an affidavit showing:

facts the affiant believes the witness will prove and not merely . . . the effect of the facts in evidence, that the affiant himself believes them to be true and that the witness is not absent by the consent, connivance, or procurement of the party asking the postponement.

We apply this statute in criminal cases and will not find an abuse of discretion when there has been no compliance with it. David v. State, 295 Ark. 131, 748 S.W.2d 117 (1988); Venable v. State, 260 Ark. 201, 538 S.W.2d 286 (1976). No such affidavit was filed in this case.

As part of his argument under his sole designated point that a continuance should have been granted, Johnson argues Garcia’s presence at the trial was necessary to Johnson’s conviction. He cites Hartman v. State, 258 Ark. 1018, 530 S.W.2d 366 (1975), which held there was sufficient evidence to find drug possession by a party who was present at the scene of a drug sale. Johnson concludes that Garcia can thus be considered a participant because he was present when Johnson participated in a drug transaction. Johnson then argues that it was necessary that Garcia be presented by the State. For that proposition, however, he cites cases holding that an informant’s name must be revealed to the defendant if the informant was a participant in a drug transaction with respect to which the defendant is charged. Rovario v. United States, 353 U.S. 53 (1957); Moore v. State, 297 Ark. 296, 761 S.W.2d 894 (1988). We need only point out that Garcia’s identity was known to Johnson, and we know of no requirement that the State present the testimony of an informant.

Affirmed.


author: Tom Glaze, Justice.

text:
    W. D. WILSON, Jr. and W. D. Wilson, Sr. v. Charlotte ALLEN, Personal Representative of the Estate of Hoyt Allen, Sr.
    91-130
    810 S.W.2d 42
    Supreme Court of Arkansas
    Opinion delivered June 3, 1991

      Thomas A. Potter, for appellant.

      Honey & Honey, P.A., by: Marc Honey, for appellee.
   Tom Glaze, Justice.

Appellee, Charlotte Allen, filed suit against appellants, W. D. Wilson, Jr. and his father W. D. Wilson, Sr., alleging that they fraudulently induced her to convey the titles of a 1982 Ford Bronco and a 1984 Ford pickup truck belonging to her deceased husband’s estate. Allen further alleged that Wilson, Jr. misrepresented to her that he would sell the two vehicles and pay her the fair market price. Both vehicles were sold, and the proceeds from the Ford Bronco were used to pay off the pickup, but Allen never received the money from the sale of the pickup. The Wilsons alleged that they were robbed before they could give the money to Allen. In a nonjury trial, the trial judge awarded judgment in the amount of $2,600 against the Wilsons.

W. D. Wilson, Sr. appeals from the verdict arguing that there is insufficient evidence to support the court’s judgment against him. His son, W. D. Wilson, Jr., is not represented in this appeal. Specifically, Wilson, Sr. contends that he had nothing to do with his son’s dealings with Allen. We find no error and therefore affirm.

To prevail in a case of fraud, the plaintiff must show: (1) the defendant made a false, material representation (ordinarily of fact); (2) the defendant had knowledge the representation was false or asserted a fact which he did not know to be true; (3) the defendant intended the plaintiff should act on the representation; (4) the plaintiff justifiably relied on the representation; and (5) plaintiff was damaged as a result of such reliance. Malakul v. Altech Arkansas, Inc., 298 Ark. 246, 766 S.W.2d 433 (1989). On review, findings of fact by a trial court shall not be set aside unless clearly erroneous (clearly against the preponderance of the evidence). Commercial Union Ins. Co. v. Sanders, 272 Ark. 25, 611 S.W.2d 754 (1981). We have stated that it is for the trial court, as the fact finder, to judge the credibility of the witnesses, weigh the evidence, and draw permissible inferences therefrom. Id.

In viewing the evidence in the light most favorable to Allen, as we must, we first look at Allen’s testimony of what occurred. Allen said that she met Wilson, Jr. at her place of work when he told her that he sold cars for a living, and offered to sell the two vehicles and pay her the vehicles’ fair market price from the sale proceeds. Allen first met Wilson, Sr. when he and his son came to pick up the vehicles to be sold, and Wilson, Sr. drove one of the vehicles away. At this time, Wilson, Jr. told Allen that he needed the titles to both vehicles. Allen owned the Ford Bronco free of any encumbrance, so she possessed that vehicle’s title and was able to sign and deliver it immediately. In doing so, she stated to Wilson, Jr., in his father’s presence, “Don, please don’t run off with the money because I need it.” Wilson, Sr. quickly assured her that he would see that his son would not run off with the money.

Apparently, Wilson, Jr. then sold the Bronco and used the money to pay off the outstanding loan on the pickup and to obtain the title to it. Wilson, Jr. later presented Allen with the pickup’s title for her signature, and he told Allen that he and his father were going to take the truck to Little Rock to sell it and would bring her the money that afternoon. When Allen failed to hear from the Wilsons that night, she called them and was told by both men that they had been robbed and Allen’s money was taken. A couple of days later, Wilson, Sr. brought her a letter written by his son. In that letter, Wilson, Jr. reiterated his earlier story that the Wilsons had been robbed, but further stated that his father was going to the bank for him and would get it worked out.

From the foregoing evidence, the trial court obviously did not believe the Wilsons’ story that Allen’s money had been stolen in a robbery, and while Wilson, Sr. contends he was not a party to any material misrepresentation made to Allen, the trial court, did not have to believe or accept his story. Also, Wilson Sr. claims that his participation or assurances made in this transaction were not substantial, nor, he further asserts, did his assurances constitute material misrepresentations upon which Allen could reasonably or justifiably rely. We cannot agree.

As can be discerned from Allen’s version of what occurred, we believe such evidence raised a fact question bearing on these very issues now argued, and we are unable to say the trial court was clearly wrong in finding against Wilson, Sr. on these factual matters. At the very least, we believe the trial court could have found that Wilson, Sr. played a role, albeit a supporting one, in the fraudulent scheme his son perpetrated upon Allen. See Malakul, 298 Ark. 246, 766 S.W.2d 433.

We affirm.


author: Robert L. Brown, Justice.

text:
    Raymond CLINTON v. Bill CLINTON, Governor of the State of Arkansas, Julia Hughes Jones, Auditor of the State, Jimmy Lou Fisher, Treasurer of the State, William Enfield, Robert C. Compton, and Michael G. Epley
    90-229
    810 S.W.2d 923
    Supreme Court of Arkansas
    Opinion delivered June 3, 1991

      Hilburn, Calhoun, Harper, Pruniski & Calhoun, Ltd., by: Sam Hilburm, and Dodds, Kidd, Ryan & Moore, by: Judson C. Kidd, for appellant.

      Shults, Roy & Kurrus, by: Robert Shults and David M. Donovan, for appellee Governor Bill Clinton.

      Ron Fields, Att’y Gen., by: J. Brent Standridge, Asst’ Att’y Gen., for appellees Julia Hughes Jones and Jimmy Lou Fisher.
   Robert L. Brown, Justice.

This appeal concerns the separation of powers between two of the three branches of government in Arkansas. The appellant, Raymond Clinton, whose standing is based on his citizenship and taxpayer status in Arkansas, sought to enjoin an illegal usurpation of the Public Service Commission by Governor Bill Clinton through the appointment of three special commissioners to hear the Arkla-Arkoma case. The appellant further prayed to enjoin an illegal exaction by payment of funds relating to the Arkla-Arkoma suit. The chancellor upheld the statutory appointments, denied the injunctive relief, and dismissed the lawsuit.

The facts here are uncontroverted. Following the primary elections in May 1990, the three regular members of the Public Service Commission recused from considering the Arkla-Arkoma case for the stated reason that they wished to avoid any hint of a conflict of interest or impropriety. Each commissioner had been appointed by the Governor, and each commissioner had been confirmed by the Arkansas Senate as required by law. See Ark. Code Ann. § 23-2-101 (e) (1987). The Governor responded to the three recusals by appointing three special commissioners pursuant to his authority under Ark. Code Ann. § 23-2-102(a) (1987). The statute does not require senate confirmation of special commissioners, and no senate confirmation was obtained.

The appellant contends on appeal that this failing in the statute renders it void, both on its face and as applied to the appointments in this case, because it violates the principle of separation of powers. The appellant further contends that the chancellor erred in finding that senate confirmation of special commissioners would occasion the expense of special sessions and unduly burden the legislative process.

Arkansas’s separation-of-powers provisions are set out in article 4, §§ 1 and 2 of the state constitution:

§ 1. The powers of the government of the State of Arkansas shall be divided into three distinct departments, each of them to be confided to a separate body of magistracy, to wit: Those which are legislative to one, those which are executive to another, and those which are judicial to another.
§ 2. No person, or collection of persons, being one of these departments, shall exercise any power belonging to either of the others, except in the instances hereinafter expressly directed or permitted.

Unlike the federal constitution, there is no general appointment power in the state constitution authorizing the chief executive to make appointments to boards and commissions. Our constitution is silent on that point, although specific grants of the appointment power are made to the Governor in several instances:

a. To fill vacancies in certain elected offices. Art. 6, § 23; amendment 29, § 1.
b. To appoint special justices to the Arkansas Supreme Court. Art. 7, § 9.
c. To fill vacancies on certain boards and commissions. Amendment 33, § 5.
d. To fill certain vacancies on the Game and Fish Commission. Amendment 35, § 6.
e. To fill certain vacancies on the Highway Commission. Amendment 42, § 5.

Early on, we held that there was no inherent power in the Governor under the state constitution to make appointments to boards and commissions, and we affirm that holding today. See Cox v. State, 72 Ark. 94, 78 S.W. 756 (1904). But that is not the precise issue confronting us in this case. Here, the Governor acted pursuant to a legislative act, which specifically authorized him to appoint special PSC commissioners without the necessity of senate confirmation:

When any member of the Arkansas Public Service Commission is disqualified for any reason to hear and participate in the determination of any matter pending before the commission, the Governor shall appoint a qualified person to hear and participate in the decision on the particular matter.

Ark. Code Ann. § 23-2-102(a) (1987).

That act differs markedly from the Governor’s authority to appoint regular PSC commissioners, because regular appointments do require senate approval:

At the expiration of each of the commissioner’s terms, the Governor, subject to the approval of the Senate, shall appoint one (1) member who shall hold office for a term of six (6) years.

Ark. Code Ann. § 23-2-101 (e)(1) (1987). Due to the absence of senate confirmation in the case of special commissioners, the appellant argues that the General Assembly has impermissibly delegated a legislative power or function to the Governor in violation of the state constitution.

We begin by acknowledging a legal maxim in constitutional construction: Acts of the General Assembly are presumed to be constitutional and will only be struck down where there is a clear incompatibility between the act and the state constitution. See Hickenbottom v. McCain, 207 Ark. 485, 181 S.W.2d 226 (1944). The degree of the clarity of the conflict thus becomes all-important in determining whether the constitution has been violated.

That clarity is lacking in this case. As already said, the state constitution is silent on which branch of government has the general power to appoint special PSC commissioners. Moreover, the constitution does not say that the General Assembly has the exclusive right to appoint boards and commissions that perform legislative functions. For this reason, no doubt, the General Assembly has from time to time created a board or commission empowered to carry out a regulatory function and has authorized the Governor to execute the function of appointing board members without senate approval. See, e.g., Ark. Code Ann. § 15-71-101 (1987) (Oil and Gas Commission); Ark. Code Ann. § 11-9-201 (1987) (Workers’ Compensation Commission); and Ark. Code Ann. § 17-12-201 (1987) (Real Estate Commission). This is appropriate where the constitution is silent on which branch of government should make the appointments.

The appellant is correct in observing that the PSC is a creature of the General Assembly and, further, that it performs a legislative function under the design of legislative enactment. See Southwestern Bell Tel. Co. v. Arkansas Public Service Comm’n, 267 Ark. 550, 593 S.W.2d 434 (1980). As we said in the Southwestern Bell Tel. Co. case, the PSC has the same power the General Assembly would have when the PSC is operating within the powers conferred upon it by legislative act.

The fact that the PSC is created by the General Assembly and performs legislative functions is not automatically dispositive of the appointment issue, however. The General Assembly may still delegate the right to appoint to the Governor, which we have acknowledged in the past. See Cox v. State. Though in Cox we expressly provided that there was no inherent appointment power in the Governor, we further said in reference to appointing membership to public service boards: “The method of selecting the members of such boards is a matter to be determined by the Legislature, which can leave it to the Governor to make the appointments, or can, if deemed safe, make them itself.” 72 Ark. at 100, 78 S.W. at 757.

We have recognized delegation of appointments to the executive branch in other cases. See, e.g., Oates v. Rogers, 201 Ark. 335, 144 S.W.2d 457 (1940). In Oates the issue was whether circuit and chancery judges could be authorized to appoint the county tax collector by legislative act. We held that the power could not be delegated to the judiciary, but in doing so we noted the relationship between the executive and legislative branches concerning appointments and quoted from Springer v. Phillipine Islands, 277 U.S. 189 (1928), concerning separation of powers in the Phillipine government: “Legislative power, as distinguished from executive power, is the authority to make laws, but not to enforce them or appoint the agents charged with the duty of such enforcement. The latter are executive functions.” 201 Ark. at 338, 144 S.W.2d at 458, quoting Springer v. Phillipine Islands, 277 U.S. at 202. We concluded in Oates that we would not speculate on what our decision would be had the General Assembly delegated the appointment power to some authority other than the judiciary, thus leaving the door open to permissible delegations of authority by the legislature.

In sanctioning certain delegations of the appointment power by the General Assembly, we by necessity have recognized that the power does not exclusively lie in that body, regardless of the function to be performed by the board or commission. This is as it should be. Though not specifically endowed with a general appointment power under the state constitution, and though that power is not an inherent executive power, the Governor holds the executive power — and that is the power to execute laws made by the General Assembly. When so authorized by the legislature, as is the case with the appointment of special PSC commissioners, that power embraces the ministerial task of appointing board personnel to carry out the enacted legislation.

We are not faced here with the delegation of an exclusive legislative function as we were in Walden v. Hart, 243 Ark. 650, 420 S.W.2d 868 (1967), where the General Assembly gave city commissioners and police chiefs complete authority to decide what constituted fire, police, and emergency vehicles without any legislative guidance. Nor is this a case where the General Assembly clearly erred in bestowing the power to appoint tax collectors on the judiciary rather than retaining the power itself or delegating it to the executive branch. See Oates v. Rogers.

In sum, we decline to extrapolate from the separation-of-powers principle an exclusive power to appoint special PSC commissioners in the General Assembly. Empowering the Governor to appoint special PSC commissioners, without senate approval, is a valid delegation of authority by the legislature to the branch of government that is equipped to execute and implement legislative mandates. We hold that § 23-2-102(a) passes constitutional muster.

We turn next to the question of whether the Governor’s appointment of three special commissioners (representing the entire commission) to hear the Arkla-Arkoma case was an unconstitutional application of § 23-2-102(a). We grant the appellant that wholesale recusals of a full commission are not an ordinary circumstance. But in examining the specific language of that statute, we find nothing that would prohibit the Governor from appointing one special commissioner without senate approval, or, as we have in this case, from appointing three special commissioners. Again, the statute provides for gubernatorial appointment “[w]hen any member of the Arkansas Public Service Commission is disqualified.” Ark. Code Ann. § 23-2-102(a) (1987). There is no limitation on the number of special appointments, and we will not read into the statute a requirement that is not there when the statute is unambiguous. See Mears v. Arkansas State Hospital, 265 Ark. 844, 581 S.W.2d 339 (1979).

There is, finally, the issue of whether the chancery court hinged its order in part on the burden and expense that senate approval of special commissioners would cause due to special legislative sessions. We are not convinced that the chancellor’s order is bottomed on this consideration. It appears, rather, to be premised on a finding that the appointment of special commissioners was legitimately delegated to the Governor by the General Assembly. We find no error on the point raised.

The order of the chancellor is affirmed.

Corbin, J., not participating.

       Regular PSC Commissioner Sam Bratton testified at hearing that the three recusals were due to the nomination of Sheffield Nelson as the Republican candidate for governor and the nomination of Governor Bill Clinton as the Democratic nominee for the same position.


author: Robert L. Brown, Justice. Tom Glaze, Justice, Steele Hays, Justice,

text:
    Gregory DAVIDSON v. STATE of Arkansas
    CR 91-110
    810 S.W.2d 327
    Supreme Court of Arkansas
    Opinion delivered June 3, 1991

      William R. Simpson, Jr., Public Defender, Bret Qualls, Deputy Public Defender, by: Didi Sailings, Deputy Public Defender, for appellant.

      Winston Bryant, Att’y Gen., by: Sandy Moll, Asst. Att’y Gen., for appellee.
   Robert L. Brown, Justice.

The appellant, Gregory Davidson, appeals from a conviction for fraudulent use of a credit card which resulted in a three-year sentence and, further, from a revocation of his probation due to the credit card offenses for which he received a two-year sentence. The sole issue on appeal is whether a conviction under the applicable statute [Ark. Code Ann. § 5-37-207 (1987)] is appropriate, when no property was obtained by the appellant as a result of the fraudulent use.

There were two incidents where the appellant used a stolen credit card for the purpose of obtaining property. The first was on May 20, 1989, at a Tires For Less store in Little Rock. The appellant sought to use the stolen credit card to buy four automobile wheels valued at $419.73. The owner of the store wrote up the ticket, and after the appellant gave him the stolen credit card, the owner asked for identification. The appellant had none, and the store owner refused to turn over possession of the wheels without sufficient identification. The appellant left the store, according to the owner, to get some identification but did not return.

The second incident occurred two days later on May 22, 1989, at Your Car Stereo in Little Rock. The appellant again tried to use a stolen credit card to buy merchandise described as a “box woofer” for a price of $400.00. The salesman ran the credit card through the computer, and the card was declined. He refused to turn the merchandise over to the appellant, and the appellant left the store.

The appellant was subsequently arrested and charged with two counts of fraudulent use of a credit card. He was tried before the trial court, after waiving a jury, and found guilty of both counts on January 24, 1990. Because he had been on two years probation for a theft-by-deception conviction at the time of the crimes, the trial court also revoked the probation at sentencing and assessed two years imprisonment to be served concurrently.

The offense of fraudulent use of a credit card is committed if a person, with the purpose to defraud, “uses a credit card to obtain property or services with knowledge that: (a) the card is stolen . . . .” Ark. Code Ann. § 5-37-207 (1987). The offense is deemed a Class C felony under the statute if the value of the goods “obtained” exceeds $100; otherwise, the offense is a Class A misdemeanor. Id.

The appellant first contends that the statute contemplates the obtaining of property for an offense to occur, and under these facts he obtained no property. We agree that at the very least the statute is ambiguous. One could read it to require the actual obtaining of property. However, one could also focus on the word “use” and interpret the statute as defining a violation when a credit card is used to defraud, whether property is actually obtained or not. Our law is clear that criminal statutes must be strictly construed, with doubts resolved in favor of the defendant. See Breakfield v. State, 263 Ark. 398, 566 S.W.2d 729 (1978). What militates against an interpretation that obtaining the property is not required is the fact that the degree of the offense under the statute is based on the value of property obtained. It is a Class C felony if goods valuing more than $100 are obtained; otherwise, it is a Class A misdemeanor. See Ark. Code Ann. § 5-37-207(b) (1987). It logically follows, then, that obtaining property is required in order for there to be a consummated offense, and we so hold. Under these facts before us, there was no property obtained, and the conviction for fraudulent use of the credit cards cannot stand.

Four foreign jurisdictions have wrestled with the issue of fraudulent use of a credit card where no property was obtained, with varying results. See State v. Gonsalves, 476 A.2d 108 (R.I. 1984); People v. Tarlton, 91 Ill. 2d 1, 434 N.E.2d 1110 (1982); People v. Gibson, 99 Ill. App. 3d 616, 425 N.E.2d 1197 (1981); State v. Williams, 389 So. 2d 384 (La. 1980). Though the statutes involved were somewhat different than ours, the dilemma faced by the respective courts was the same. In both Gonsalves and Gibson, the appellant courts, following jury convictions for felonies, focused on the intent of the legislature to punish fraudulent use of credit cards, regardless of whether property was obtained. Both courts affirmed the convictions by interpreting the statute expansively to include an offense for goods “sought to be obtained” by fraudulent credit card use.

The Illinois appellate court, in People v. Tarlton, considered the penalty for fraudulent credit card use where the defendant was unsuccessful in obtaining goods. The applicable statute, like ours, premised the offense on the value of goods obtained. It provided for a Class 4 felony, if the value was over $150, and a Class A misdemeanor, if the value was that amount or less. In reviewing a bench trial conviction for a Class 4 felony, the court considered the appellant’s argument that the legislature provided no penalty where the credit card use was unsuccessful, and, therefore, the statute was unenforceable when no goods were obtained. The Illinois court rejected the argument and held that when nothing of value was obtained, the defendant was guilty of a Class A misdemeanor as if he had actually obtained goods valued at $150 or less.

Lastly, the Supreme Court of Louisiana, in State v. Williams, supra, reviewed a jury verdict finding the appellant guilty of a felony where no credit or goods were obtained. The court resolved that there was a sufficient evidentiary basis for the jury to find the appellant guilty of an attempt to obtain credit with a stolen credit card, because it was a lesser offense included within the charged crime. The Louisiana court set aside the jury conviction and sentence and remanded the case to the trial court to enter judgment for the lesser offense and impose sentence accordingly.

We decline in this case to read language such as “sought to obtain property” into the criminal statute. We further are reluctant to affirm a conviction under § 5-37-207, which we have held is not applicable to the facts of this case, and then assess a penalty under that statute on the basis that because the appellant obtained no property, he should be treated as an offender who obtained property valued at $100 or less.

The reasoning we find persuasive is that employed by the court in State v. Williams, supra. There is no question that the appellant in the case before us tried to use a stolen credit card on two occasions for merchandise that well exceeded $100 in value. Under the state’s general attempt statute, a person attempts to commit an offense if “he purposely engages in conduct that constitutes a substantial step in a course of conduct intended to culminate in the commission of an offense.” Ark. Code Ann. § 5-3-201 (a)(2) (1987). To attempt to use a credit card fraudulently is a Class D felony. See Ark. Code Ann. § 5-3-203(4) (1987).

Here, by twice proffering the stolen credit card, the appellant took a substantial step toward committing the crime, which qualifies as an attempt under state law. Under such circumstances we have held that though charged with a greater offense, a defendant may be found guilty of a lesser included offense. See, e.g., James v. State, 280 Ark. 359, 658 S.W.2d 382 (1983) (aggravated assault is a lesser included offense of the offense charged — attempted capital murder).

Under appropriate facts we will modify a conviction from the greater offense to the lesser included offense and either fix punishment ourselves or remand the case to the trial court for the assessment of punishment. See Trotter v. State, 290 Ark. 269, 719 S.W.2d 268 (1986). This case presents appropriate circumstances, and we hold that sufficient proof was presented to the trial court for a conviction of attempted fraudulent use of a credit card. Due to the fact that the appellant’s two-year probation was also revoked, we choose to remand the matter to the trial court.

We, accordingly, reverse the conviction and remand for judgment of conviction to be entered for the lesser included offense of attempted fraudulent use of credit cards and for sentencing on both the attempt conviction and the revocation of probation.

Reversed and remanded.

Hays, J., dissents.

Glaze, J., dissents in part.

Tom Glaze, Justice,

dissenting in part. I agree with Justice Hays that the crime is the fraudulent use of a credit card and the actual obtaining of the property is not necessary to prove the crime. In fixing the penalty, however, I believe the value of the property is significant. If the value is over $100.00, the punishment is a felony; otherwise, the penalty is a Class A misdemeanor.

I would reduce the trial court’s sentence to a Class A misdemeanor because appellant was not shown to have obtained property exceeding $100.00 in value.

Steele Hays, Justice,

dissenting. The offense which Ark. Code Ann. § 5-37-207 (1987) is intended to punish is the fraudulent use of credit cards. The gravamen of that offense, I suggest, occurs when the perpetrator uses a credit card with knowledge that the card is stolen, forged, unauthorized, or even merely canceled. Thus, it is not the theft of goods or services to which the statute is directed (those offenses are dealt with under Chapter 36 of the Code), but to the wrongful or fraudulent use of credit cards. On that basis the offense is complete when the perpetrator knowingly presents the card, the merchant processes it, and a credit purchase results in reliance on the credit card.

In this case, the only thing that prevented the appellant from acquiring the tires themselves was his inability to provide identification. But that was after the credit transaction was completed and, hence, after the fact and does not relegate the offense merely to an “attempt” to violate the statute. An attempt occurs when the merchant declines, for whatever reason, the credit card purchase, or the transaction is aborted before completion.

By way of analogy, if an individual makes fraudulent use of a credit card to order goods by telephone (by which a significant percentage of credit card purchases occur), and the sale is processed and the goods mailed or shipped, under today’s holding, no offense occurs (other than an attempt) if the goods are intercepted before actual delivery is completed. Or assume the perpetrator, rather than taking the goods with him from the store, instructs the merchant to mail them to a designated address. The goods may or may not end up in the possession of the perpetrator, but in both these instances the cardholder or issuer is subject to loss because of the fraudulent use of the credit card.

There is plausible evidence that a practical reading of § 5-37-207 is exactly what the legislature intended — the Commentary points out that this section is, in substance, Model Penal Code § 224.6, which defines the offense as occurring when a person fraudulently uses a credit card, “/or the purpose of obtaining property or services,” (my emphasis) which is exactly what occurred in this case. The Commentary points out that § 224.6 imposed liability

for conduct not constituting theft of either property or services since the supplier incurs no loss. Rather, as is pointed out in a Comment to M.P.C. § 224.6, it is the issuer or cardholder who suffers damage by such transactions.
This is a new section to fill a gap in the law relating to false pretense and fraudulent practices. Sections [5-36-103 (1987)] and [5-36-104(1987)] cover theft of property or services by deception. It is doubtful whether they reach the credit card situation because the user of a stolen or canceled credit card does not obtain goods by any deception practiced upon or victimizing the seller. The seller will collect from the issuer of the credit card, because credit card issuers assume the risk of misuse of cards in order to encourage sellers to honor the cards readily. Thus it is the nondeceived issuer who is the victim of the practice.” M.P.C. § 224.6, Proposed Official Draft at 179 (1962).

I respectfully suggest that by focusing on whether the perpetrator actually obtains goods, rather than credit, the majority misconstrues the broader objective of the statute and materially limits its effect.


author: Georgia Elrod, Special Justice.

text:
    Hugh H. BOSWORTH, Jr. et al. v. James C. PLEDGER, Commissioner of Revenues, et al.; City of Fayetteville Arkansas, Arkansas Telephone Association, Inc., Intervenors

    89-345
    810 S.W.2d 918
    Supreme Court of Arkansas
    Opinion delivered June 3, 1991
    [Rehearing denied July 1, 1991.]

      Jack, Lyon & Jones, P.A., by: Eugene G. Sayre, for appellants.

      Rick L. Pruett and Joyce Kinkaid, for appellee James C. Pledger.

      Lary D. Vaught and Nelwyn Davis, for appellees Venhaus, Tedford and Pulaski County.

      Mitchell, Williams, Selig & Tucker, by: Pat Moran and Michael C. OMalley, for appellee U.S. Sprint.

      Wright, Lindsey & Jennings, by: N.M. Norton, Jr. and Charles L. Schlumberger, for appellee AT&T Communications.

      Rose Law Firm, A Professional Association, by: Amy Stewart and Preston, Thorgrimson, Shidler, Gates & Ellis, by: Carol S. Arnold, for appellee MCI.

      James M. McCord, for intervenors.
   Georgia Elrod, Special Justice.

This case involves the constitutionality of the 1987 Arkansas legislative enactment which extended the state sales tax to certain types of long distance telecommunications service while excepting others. In this class action challenge, the appellants, who are telephone subscribers upon whose telephone service the tax was imposed, argued that the tax was unconstitutional, on both First Amendment and Equal Protection Clause grounds. Appellees represented the state and local governmental agencies responsible for collecting the disputed tax as well as those providers of the long distance service involved, e.g., AT&T Communications, Inc., MCI Telecommunications Corporation, and U.S. Sprint Communications Company. The chancellor held that the law was a valid and legitimate exercise of the state’s power to tax and upheld its constitutionality. We affirm.

Prior to the enactment of Section 2 of Act 27 of 1987 [Ark. Code Ann. § 26-52-301(3) (Supp. 1989)], the Arkansas Gross Receipts Tax, or sales tax, was imposed only on intrastate long distance service. Interstate and international service were not subjected to the tax. In 1987 the law was changed, and the tax was imposed on all long distance telephone service billed to an Arkansas telephone number, excepting from the tax, however, two types of service: (1) private line service which is not accessible by the public, and (2) that service commonly known as WATS service. The relevant portions of section 26-52-301 provide as follows:

There is levied an excise tax of three percent (3 %) upon the gross proceeds or gross receipts derived from all sales to any person of the following:
(3)(A)(i) Service by telephone, telecommunications, and telegraph companies to subscribers or users, including transmission of messages or images, whether local or long distance.
(ii) Taxable services shall include basic local service and rental charges, including all installation and construction charges and all service and rental charges having any connection with transmission of any message or image.
(iii) Except as provided in subdivision (3) (iv) of this section, taxable long distance services shall include:
(a) Long distance messages which originate and terminate within this state;
(b) Interstate long distance messages which originate within this state and terminate outside this state and are billed to an Arkansas telephone number or customer location;
(c) Interstate long distance messages which originate outside of this state and terminate within this state and are billed to an Arkansas telephone number or customer location.
(iv) However, the following services shall not be subject to the tax:
(a) Any interstate private communications service which is not accessible by the public;
(b) Any interstate service which allows access to private telephone lines and which is not accessible by the public; or
(c) Any interstate-wide area telecommunications service or other similar service which entitles the subscriber to make or receive an unlimited number of communications to or from persons having telecommunications service in a specified area which is outside the state in which the station provided with this service is located.
(v) This tax shall apply to all customer access line charges billed to an Arkansas telephone number. Access line charges are those charges associated with or for access to the long distance network. However, access or other telecommunication services provided to telephone, telegraph, or telecommunications companies which will be used to provide telecommunications services shall not be subject to this tax.

Appellants do not challenge the exception for private line service, contending only that the tax was improperly imposed on, and thus discriminated against, Arkansas subscribers to long distance telephone service not of the WATS variety.

Although the record below contains much evidence on the complex aspects of telecommunications technology and rate structure, the chancellor found that the differences between the two types of service, one taxed and the other not, could be described as follows:

(1) “Regular” long distance service (sometimes called MTS service) is billed on a per call basis with the charge for each call generally depending on the day of the week and the time of the day at which the call is made, the geographic distance of the call, and the temporal length of the call. This is the most common type of long distance service and is usually subscribed to by those who may, in addition, use WATS service. This service is subjected to the sales tax.

(2) Wide-area telecommunications service, commonly known as WATS, is where the subscriber is charged a flat fee for the service, receiving then a lower rate for each call made or received. This category is broken down between incoming WATS, or “800 service,” and outgoing WATS. This service is not subjected to the tax.

The chancellor also found that “[t]he main difference between WATS and MTS is in rate design,” and that both services are available to any customer, with no eligibility requirements. Appellants, plaintiffs below, all subscribe to “regular” long distance service and none to WATS service. All parties generally agreed that a customer must have a high volume of telephone usage in order to justify economically the use of WATS.

Appellants’ constitutional challenge to Section 2 of Act 27 of 1987 is based upon the state’s purported violation of the equal protection provisions of both the Arkansas and U. S. Constitutions. Their argument, made in the trial court, that the statute violated the Commerce Clause of the U. S. Constitution, was definitively decided against them during the course of this litigation by the U. S. Supreme Court in Goldberg v. Sweet, 488 U.S. 252, 109 S. Ct. 582 (1989) and was not argued on appeal. Appellants’ argument that their due process rights under the U. S. and Arkansas Constitutions were violated because the statute was unclear, or void for vagueness, was not properly presented at the trial court level, nor addressed by the chancellor in her findings of fact and conclusions of law. Likewise, the chancellor did not address appellants’ point, argued on appeal, that the statute was ambiguous. Thus, neither of these latter issues will be addressed by this court. Shamlin v. Shuffield, 302 Ark. 164, 787 S.W.2d 687 (1990).

We are called upon to answer three questions in resolving the constitutional issues presented by this case: (1) Does the imposition of the tax discriminate against or among individuals? (2) If so, what standard is to be applied in testing the legitimacy of the law, a “rational basis” standard or one which requires the showing of a compelling state interest? (3) And, finally, does the statute meet the requisite standard? These questions will be addressed in turn.

I

In deciding whether an equal protection challenge is warranted, there must first be a determination that there is a state action which differentiates among individuals. “No state shall... deny to any person within its jurisdiction the equal protection of the laws.” U.S. Const. amend. 14. Appellees argue that the threshold element of classification of individuals is not met because the only distinction made by the statute is between services, not people. Appellees cite Potts v. McCastlain, 240 Ark. 654, 401 S.W.2d 220 (1966), cert. denied, 358 U.S. 946 (1967), where this court upheld a privilege tax imposed on taxicabs but not on other vehicles using the same streets. They argue that as long as all “regular” long distance subscribers are taxed the same, just as all taxicab operators were taxed the same, there is no differentiation among individuals, all being treated equal. In addition, appellees cite the chancellor’s finding that “all three types of service — MTS, private line, and WATS — are available to any customer; there are no eligibility requirements,” to bolster their argument that this is a tax imposed on services, not individuals.

Although it is true that the tax is imposed on one type of long distance service and not another, it is also true that taxes are paid by individuals, and the record reflects that subscribers to “regular” long distance service pay the tax, while subscribers to WATS service do not. This disparate treatment under the statute of classes of individuals is sufficient to raise the equal protection challenge and require our further analysis.

II

Once equal protection is invoked, we must then decide what standard of analysis applies. In other words, we must determine whether it is necessary only to show some rational basis for the classification, or whether the statute impinges on a fundamental right or is based on a suspect criterion, in which case the state is required to prove not only that the statute is reasonable but also that it promotes a compelling state interest. Appellants argue for the application of the stricter standard because their constitutional rights of free speech are imperiled; appellees contend reasonableness alone is required.

The U.S. Supreme Court recognized the broad discretion legislatures have in formulating tax policy in Madden v. Kentucky, 309 U.S. 83, 87-88 (1940):

The broad discretion as to classification possessed by a legislature in the field of taxation has long been recognized. ... [T]he passage of time has only served to underscore the wisdom of that recognition of the large area of discretion which is needed by a legislature in formulating sound tax policies. Traditionally classification has been a device for fitting tax programs to local needs and usages in order to achieve an equitable distribution of the tax burden. It has, because of this, been pointed out that in taxation, even more than in other fields, legislatures possess the greatest freedom in classification. Since the members of a legislature necessarily enjoy a familiarity with local conditions which this Court cannot have, the presumption of constitutionality can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against particular persons and classes.

In Streight v. Ragland, 280 Ark. 206, 655 S.W.2d 459 (1983), this court considered an equal protection challenge to a state income tax law which provided an exemption on retirement income from certain government sources but denied the exemption to private retirement income. In upholding the exemptions as valid exercises of the state’s taxation powers, we stated:

The rational basis test has long been applied by the Supreme Court in reviewing state legislation under the equal protection clause of the 14th Amendment which imposed special burdens or granted exemptions from such burdens through classification schemes. . . .
Under the rationality standard of review, we must presume the legislation is constitutional, i.e. that it is rationally related to achieving a legitimate governmental objective.

Id. at 212-13, 655 S.W.2d at 463.

While acknowledging the applicability of the rational basis analysis to a state’s taxation powers, appellants argue that in this case the court should apply a higher standard because their First Amendment protections under the U.S. Constitution have been abridged. Appellants assert that they have a “fundamental right” to exercise “free speech” by transmissions over the telephone, and because these rights are implicated in the tax-based classification between long distance subscribers, the state must show that it has a compelling state interest to justify the infringement. In support, appellants cite Minneapolis Star & Tribune Co. v. Minnesota Comm’r of Revenues, 460 U.S. 575 (1983); Arkansas Writers’ Project, Inc. v. Ragland, 287 Ark. 155, 697 S.W.2d 94 (1985), reh’g denied, 287 Ark. 155, 698 S.W.2d 802 (1985), rev’d, 481 U.S. 221 (1987); and Medlock v. Pledger, 301 Ark. 483, 785 S.W.2d 202 (1990), rev’d sub nom. Medlock v. Leathers, — U.S. __, 111 S. Ct. 1438 (1991).

Minneapolis Star, supra, involved a special use tax on the cost of paper and ink consumed in the production of publications, exempting the first $100,000 used, with the result that only a few of the largest publishers were taxed. The Court invalidated the tax, citing First Amendment infringement with no compelling state interest to redeem it. Arkansas Writers’ Project, supra, invalidated an Arkansas law which taxed general interest magazines but exempted from the sales tax, sales of religious, professional, trade and sports magazines.

Both Minneapolis Star and Arkansas Writers’ Project are distinguishable from the present case, as both of those cases involved a form of censorship by the state. In Minneapolis Star there was censorship of the speaker, i.e., the largest newspapers, and in Arkansas Writers’ Project there was censorship of the content, i.e., that contained in general interest magazines. In the present case there is no attempt to censor based on content or to discriminate among classes of speakers. Act 27 imposes a tax on every use of the types of long distance services that are subject to the tax, regardless of the purpose for which the customer uses the service, what the customer says while using the service, or the identity of the service provider.

The case most closely on point, and to this court determinative of the First Amendment question, is Medlock, supra, where the constitutional validity of a sales tax on cable television service was challenged. The tax was levied on cable television service, but not on similar services, such as satellite television programming. Although this court determined the tax unconstitutional because of First Amendment infringement, the U.S. Supreme Court saw otherwise and held that the law in question did not threaten to suppress the expression of particular ideas or viewpoints, nor did it target a small group of speakers or discriminate on the basis of the content of taxpayers’ speech. None of these three elements being present, the tax was not constitutionally vulnerable on First Amendment grounds.

The Arkansas Legislature has chosen simply to exclude or exempt certain media from a generally applicable tax. Nothing about that choice has ever suggested an interest in censoring the expressive activities of cable television. Nor does anything in this record indicate that Arkansas’ broad-based, content-neutral sales tax is likely to stifle the free exchange of ideas. We conclude that the State’s extension of its generally applicable sales tax to cable television services alone, or to cable and satellite services, while exempting the print media, does not violate the First Amendment.

Medlock v. Leathers, _ U.S. at _, 111 S. Ct. at 1447.

We therefore hold that Act 27 of 1987 does not violate appellants’ First Amendment rights, and the stricter standard of review is inapplicable. The appropriate analysis, therefore, is whether there exists for the classification any rational basis which provides 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 purpose.” Streight v. Ragland, 280 Ark. 206, 215, 655 S.W.2d 459, 464 (1983).

Ill

The burden is upon appellants to demonstrate the lack of rational basis for the tax: Streight, supra. The legislature has the discretion, within reasonable limits, to determine the scope of the exercise of its taxing power, and there is a presumption in favor of the validity of its action. Potts v. McCastlain, 240 Ark. 654, 401 S.W.2d 220 (1966), cert. denied, 358 U.S. 946 (1967).

A state has wide latitude in the exercise of its power of taxation. The power to tax necessarily implies the power to discriminate in taxation. The law does not dictate that taxing measures be applied to all members of a class or none. Distinctions are permissible, and if there is any conceivable set of facts to uphold the law’s rational basis, it will be upheld. Carmichael v. Southern Coal Co., 301 U.S. 495 (1937); Dicks v. Naff, 255 Ark. 357, 500 S.W.2d 350 (1973).

In determining whether a rational basis for the legislation exists, we are not required to discover the actual basis for its enactment, but rather we are allowed to hypothesize the facts giving rise to the classification.

Testimony in the trial court indicated that WATS or WATS-like service tended to be used by large volume consumers of telephone service. It is not economically feasible to purchase WATS service unless the consumer has a large volume of long distance telephone usage; thus the WATS customer is more likely to be a business subscriber than to be an individual residential subscriber.

The State of Arkansas has a long history of providing tax incentives to commerce as a means to encourage businesses to stay and locate in this state, and, certainly, economic development is a legitimate and worthy governmental goal. For example, the “enterprise zone” legislation gives a tax advantage to industries that locate in economically depressed areas, Ark. Code Ann. § 15-4-807 (Supp. 1989), and the motion picture industry is accorded tax incentives in order to encourage film making in this state. Ark. Code Ann. § 26-4-206 (1987), and § 26-52-402(c)(3) (1987).

The legislature may have intended, in the enactment of Section 2 of Act 27 of 1987, to encourage large volume users of telephone service, i.e., WATS subscribers, to remain or relocate in Arkansas. We agree with the chancellor’s finding that this basis for the legislation would be rationally related to achieving a legitimate governmental objective.

It is not the job of this court to evaluate the wisdom of our legislature in enacting tax measures, which inevitably will fall more heavily on some than on others. Our task is to protect against classifications which are arbitrary and without reason. As the United States Supreme Court stated in City of New Orleans v. Dukes, 427 U.S. 297, 303-304 (1976):

States are accorded wide latitude in the regulation of their local economies under their police powers, and rational distinctions may be made with substantially less than mathematical exactitude____[T] he judiciary may not sit as a superlegislature to judge the wisdom or desirability of legislative policy determinations made in areas that neither affect fundamental rights nor proceed along suspect lines, ... in the local economic sphere, it is only the invidious discrimination, the wholly arbitrary act, which cannot stand consistently with the Fourteenth Amendment.

Once we have reached the conclusion, as we have in this case, that a legitimate governmental purpose could be served by the legislation, and even though we do not know with certainty the actual underlying reasons for the law’s enactment, we must bring our analysis to a close. We therefore confirm the constitutionality of the law and affirm the chancellor’s decision.

Affirmed.

Special Justices John R. Byrd, James H. Pilkinton, Jr., and David M. Glover join in this opinion.

Dudley, Hays, Newbern, and Glaze, JJ., not participating.

       Ark. Const. art. 2, §§ 3 and 18.

       U.S. Const. amend. 14.


author: Per Curiam.

text:
    Daniel L. MEDLOCK, et al. v. James C. PLEDGER, et al.
    89-89
    808 S.W.2d 785
    Supreme Court of Arkansas
    Opinion delivered June 3, 1991

      Jack, Lyon .& Jones, P.A., by: Eugene G. Sayre, for appellant.

      William E. Keadle, Revenue Legal Counsel, for appellee.

      Henry Law Firm, by: Joseph Morphew and David P. Henry, for appellee.

      Robert Parker, Benton City Att’y, for appellee.

      Steve Clark, Att’y Gen., by: Frank J. Wills, Asst. Att’y Gen., for appellee.

      Larry Vaught, Pulaski County Att’y, for appellee.

      James N. McCord II, for intervenor/appellee, City of Fayetteville.
   Per Curiam.

Our earlier opinion in this case, Medlock v. Pledger, 301 Ark. 483, 785 S.W.2d 202 (1990), held that, in general, a tax imposed upon operators of cable television entities by Act 188 of 1987 was not unconstitutional. Specifically, we held it did not violate the taxpayers’ rights of freedom of speech and freedom of the press guaranteed by the First Amendment, their right to equal privileges and immunities guaranteed by U.S. Const., art. 4, § 2, and Ark. Const., art. 2, § 18, and their right to equal protection of the laws guaranteed by the Fourteenth Amendment and Ark. Const., art 2, § 3. Our holding was that, with an exception discussed below, the tax was not unconstitutional despite the fact that it was imposed on the cable television medium but not upon other media such as newspapers and subscription magazines.

Act 188 was amended by Act 769 of 1989 to impose a similar tax on satellite television companies. Our opinion held that the tax imposed by Act 188 violated the First Amendment for the period of time it imposed the tax upon cable entities but not on satellite television companies which supplied essentially the same service. We remanded the case to the trial Court to determine the taxes to be returned to the taxpayers.

On appeal to the United States Supreme Court, our decision was affirmed with respect to the part holding that the tax was, in general, not unconstitutional. It was reversed, however, with respect to our holding that the First Amendment required similar taxation of the similar services offered by cable and satellite television companies. Leathers v. Medlock, No. 90-29 (U.S. Supreme Ct. April 16, 1991). The case was remanded to this Court for consideration of whether the equal protection clause required similar taxation of the services offered by cable and satellite television companies. We did not reach that issue when the case was before us.

The parties are ordered to rebrief the issue remanded to this Court from the United States Supreme Court. The appellants’ brief will be due 40 days from this date, and the times for remaining briefs to be filed will be governed by the provisions of Rule 7 of the Rules of this Court.


author: Jack Holt, Jr., Chief Justice.

text:
    Wilfredo G. GONZALEZ v. STATE of Arkansas
    CR 90-279
    811 S.W.2d 760
    Supreme Court of Arkansas
    Opinion delivered June 10, 1991

      LaJeana Jones, for appellant.

      Winston Bryant, Att’y Gen., by: J. Brent Standridge, Asst. Att’y Gen., for appellee.
   Jack Holt, Jr., Chief Justice.

On May 8, 1990, the appellant, Wilfredo Gonzalez, was convicted of five counts of delivery of a controlled substance and sentenced to a term of life in the Arkansas Department of Correction for each count.

Gonzalez alleges two points of error on appeal: 1) that the denial of his motion to dismiss “the remaining five charges” in CR 89-69 was error, and 2) that the admission into evidence of the exhibits in this case constituted error because the proper chain of custody was not established. Neither argument has merit, and we affirm.

Gonzalez was initially charged in a single information on August 21, 1989, with seven counts of delivery of a controlled substance (cocaine). The dates of alleged delivery were December 2 and December 28, 1988, January 2, January 6, January 7, January 14, and May 23, 1989.

The first two counts against Gonzalez were set for trial on December 1,1989, at which time he was convicted and sentenced to life imprisonment and a $25,000 fine on each charge. We reversed those two convictions and remanded for a new trial. Gonzalez v. State, 303 Ark. 537, 798 S.W.2d 101 (1990).

Apparently, Gonzalez now claims that the trial court erred in denying his motion to dismiss the remaining five charges contained in the information. However, he cites no authority to support his contention, and we decline to consider this argument on appeal. Garza v. State, 293 Ark. 175, 735 S.W.2d 702 (1987). In addition, we note that we returned the record to the trial court for settlement on the issue of the severance of these charges. The trial court concluded at the hearing to supplement the record that “. . . we were trying to find a case to try the next day because we had a jury coming in and the two cases against Gonzalez where the chemist was available were the ones suggested by the prosecutor and agreed to by the Court and not objected to by the defendant other than a Motion for a Continuance and that is the reason those two particular charges were severed from the remaining five charges.” Gonzalez did not make a request for joinder pursuant to Ark. R. Cr. P. 21.3, and his failure to do so constituted a waiver of any right of joinder as to the related offenses with which he knew that he had been charged.

Gonzalez contends in his second point of error that the admission into evidence of the exhibits in this case was error because the proper chain of custody was not established.

We note that a party has a duty to make a timely and complete objection to the admission of evidence. Moore v. State, 303 Ark. 514, 798 S.W.2d 87 (1990) (citing Dumond v. State, 290 Ark. 595, 721 S.W.2d 663 (1986)). In this case, both Officer W.L. Holbrook, the undercover agent who purchased the cocaine from Gonzalez, and Ms. Mary Buhler, a chemist in the drug section of the Arkansas State Crime Lab who analyzed the substances submitted by Officer Holbrook, testified without objection that the substances obtained from Gonzalez were cocaine. It was not until the physical exhibits themselves were offered as exhibits to the proof already received that defense counsel objected.

Consequently, Gonzalez did not make a timely objection to the testimony that the substances at issue were cocaine, and he is now precluded from raising the issue on appeal. Furthermore, evidence that is merely cumulative or repetitious of other evidence admitted without objection cannot be claimed to be prejudicial. Dumond v. State, supra.

Pursuant to Ark. Sup. Ct. R. 11(f), we have reviewed the entire record for other reversible error and find none.

Therefore, the judgment of the trial court is affirmed.