McLane Company, Inc. v. Richard A. Weiss, Director of the Arkansas Department of Finance and Administration et al.

Annotate this Case
McCLANE COMPANY, INC. v. Richard A. WEISS, 
Director of the Arkansas Department of
Finance and Administration, and 
Tim Leathers, Commissioner of Revenue for the
State of Arkansas. 
Earl Gill Wholesale, Inc.; Glidewell
Distributing, Inc.; Shinn Wholesale Co.,
Inc.; Tom Fitts Tobacco Co., Inc.; Warehouse
Distributing Co., Inc.; Southern Cigar &
Candy, Inc.; M & K Grocer Co., Inc.;
Northwest Tobacco & Candy Co., Inc.; and
Douglas Tobacco Co., Inc., Intervenors

97-559                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
                Opinion delivered March 19, 1998


1.   Statutes -- Unfair Cigarette Sales Act -- pertinent
     provisions. -- The Unfair Cigarette Sales Act defines the cost
     to wholesalers as the wholesaler's basic cost of the
     cigarettes plus the cost of doing business as evidenced by the
     standards and methods of accounting regularly employed by the
     wholesaler; the Act provides that, in the absence of proof of
     a lesser or higher cost of doing business by the wholesaler
     making the sale, the cost of doing business shall be presumed
     to be two percent of the basic cost of the cigarettes to the
     wholesaler plus cartage to the retailer outlet, which cartage
     cost in the absence of proof of a lesser or higher cost, shall
     be presumed to be three-fourths of one percent of the
     wholesaler's basic cost of the cigarettes. 

2.   Statutes -- Miscellaneous Tax Regulations 1988-2 -- pertinent
     provisions. -- Under the enforcement authority granted by the
     Unfair Cigarette Sales Act, the Director of the Department of
     Finance and Administration promulgated Miscellaneous Tax
     Regulations 1988-2, which provides that a wholesaler's cost of
     doing business is presumed to be four percent, not the two
     percent set out in the Act; the regulation stated that the
     four percent cost of doing business had been determined as a
     result of cost surveys and other information compiled and
     received.  

3.   Appeal & error -- dismissal argument previously considered --
     argument not addressed. -- Intervenors' initial argument that
     appellant's appeal should be dismissed for its having failed
     to comply with Ark. R. App. P. 5(b) by obtaining an improper
     extension and filing an untimely record was not addressed
     where intervenors' dismissal motion was previously considered
     and denied by the supreme court. 

4.   Appeal & error -- vagueness argument not addressed below --
     argument not reached on appeal. -- Where the intervenors'
     preservation-of-issue argument concerning appellant's
     contention that both the Act and the Regulation were so vague
     that they could be and had been arbitrarily enforced was not
     addressed in the chancellor's order, and the chancery court
     did not rule on the issue, the supreme court did not reach the
     matter. 

5.   Appeal & error -- argument that Regulation 1988-2 was facially
     inconsistent with Act adequately preserved. -- Intervenors'
     preservation-of-issue arguments concerning appellant's
     contention that Regulation 1988-2 was facially inconsistent
     with the Unfair Cigarette Sales Act was adequately preserved
     for review where appellant, in its summary-judgment motion,
     contended that Regulation 1988-2 was contrary to the Act and
     invalid, and, in response, the trial court summarily rejected
     appellant's contention by ruling that the regulation was
     neither arbitrary nor contrary to the Act.  

6.   Appeal & error -- intervenor's claim that appellant was
     precluded from arguing Unfair Cigarette Sales Act's validity
     under Due Process Clause in Art. 2,  8, of Arkansas
     Constitution without merit -- issue preserved for review. --
     Appellant's reliance on Ports Petroleum v. Tucker, 323 Ark.
     680, 916 S.W.2d 749 (1996), and Wal-Mart Stores, Inc. v.
     American Drugs, Inc., 319 Ark. 214, 891 S.W.2d 30 (1995), in
     support of its argument that the Unfair Cigarette Sales Act
     was constitutionally infirm resulted in the unequivocal
     preservation of its due process claim under the Arkansas
     Constitution; the case of Ports Petroleum held that Act 380 of
     1993 was overbroad in that it prohibited legitimate and
     innocent competition fostered by below-cost sales, and that
     the act failed to include a prohibition against such sales
     made with predatory intent to damage and destroy competition;
     appellant argued below, and on appeal, that Ports Petroleum is
     controlling and subjects Arkansas's Unfair Cigarette Sales Act
     to the same constitutional death knell administered to Section
     4 of the Arkansas Petroleum Trade Practices Act; the supreme
     court disagreed with intervenor's claim that appellant was
     precluded from arguing the Unfair Cigarette Sales Act's
     validity under the Due Process Clause in Art. 2,  8, of the
     Arkansas Constitution.

7.   Sales -- Wal-Mart Stores decision relied upon by appellant --
     decision inapplicable. -- The Wal-Mart Stores, Inc. v.
     American Drugs, Inc. case relied upon by appellant was not
     controlling because it did not involve a sustained below-cost
     effort over a substantial period of time directed at a single
     article, as was the situation here; more important, the act in
     Wal-Mart Stores did not contain a comparable statutory scheme
     to the one in the Unfair Cigarette Sales Act, which affords a
     competitor the right to establish a lower or higher minimum
     price.

8.   Sales -- intent separates predation from legitimate price
     cutting -- principle used when reviewing state economic
     regulations for due process violations. -- What separates
     predation from legitimate price cutting is the intent of the
     predator to damage and destroy competition and then recoup the
     losses through a greater share of the market; generally, the
     test to use when reviewing state economic regulations for a
     due process violation is whether the legislation is designed
     to accomplish an end within legislative competence and whether
     the means it employs are reasonably designed to accomplish
     that end without unduly infringing upon protected rights;
     specifically, in "sale below cost" cases, the primary issue is
     whether the legislation too broadly imposes restrictions on
     individuals' liberty to conduct their business as they choose;
     if the act penalizes innocent acts not reasonably related to
     the problem of monopolistic practices or other deceptive,
     disruptive, or destructive price cutting, the act strikes too
     broadly.
     
9.   Sales -- Ports Petroleum decision relied upon by appellant --
     decision inapplicable. -- Ports Petroleum v. Tucker dealt with
     the constitutionality of Section 4 of Act 380 of the Arkansas
     Petroleum Trade Practices Act (APTP Act), which provided that
     no dealer shall make a retail sale of motor fuel at below
     cost, where the effect may injure competition; however, the
     court in Ports Petroleum found that the APTP Act did not
     require predatory intent and, in that respect, the act was
     overbroad and violated Arkansas's Due Process Clause; here,
     the Unfair Cigarette Sales Act requires predatory intent; so,
     for appellant to prevail, it must look elsewhere than to the
     actual holding in Ports Petroleum.

10.  Statutes -- presumed constitutional -- when presumption cannot
     be sustained. -- Statutes are presumed constitutional, and if
     it is possible to construe a statute so as to pass
     constitutional muster, the supreme court will do so; a
     statutory presumption cannot be sustained if there is no
     rational connection between the fact proved and the fact
     presumed, if the inference of the one from proof of the other
     is arbitrary because of lack of connection between the two in
     common experience; where the inference is so strained as not
     to have a reasonable relation to the circumstances of life as
     we know them, it is not competent for the legislature to
     create it as a rule governing the procedure of courts. 

11.  Statutes -- "rational connection" test -- statutory scheme
     under Unfair Cigarette Sales Act provided rational connection
     between presumed cost of doing business and minimizing-price
     amounts in Act and Regulation and presumed fact of predatory
     intent. --  Under the "rational connection" test, a permissive
     presumption is only required to meet a preponderance standard,
     and the test is satisfied and a rational connection is shown
     if the basic fact is more likely than not to lead to the
     presumed fact; here the supreme court concluded the statutory
     scheme under the Unfair Cigarette Sales Act provided for the
     rational connection between the presumed cost of doing
     business and minimizing-price amounts in the Act and the
     Regulation and the presumed fact of predatory intent.  

12.  Statutes -- Unfair Cigarette Sales Act exempts below-cost
     sales in particular situations -- rational conclusion that
     below-cost sales not so exempted are made for improper
     purposes. -- The Unfair Cigarette Sales Act does not make all
     below-cost sales of cigarettes unlawful, but instead exempts
     (1) isolated transactions not made in the usual course of
     business, (2) clearance sales for discontinued items, (3)
     sales of imperfect or damaged items, (4) sales related to the
     liquidation of a business, or (5) sales made by a fiduciary
     acting under the order or direction of a court; in addition,
      4-75-704 exempts sales below cost made to meet a
     competitor's prices; the Intervenors were arguably correct in
     stating that, once the foregoing exempted sales are removed
     from consideration, it is rational to conclude that it is more
     likely than not that other below-cost sales are made for
     improper purposes. 

13.  Statutes -- Unfair Cigarette Sales Act's and Regulation's
     presumed minimum-price amounts -- presumption of
     reasonableness sustained -- both Act and Regulation found
     constitutional. -- The Regulation specifically reflects the
     wholesaler's presumed basic cost of four percent and the
     minimum price, which can be charged by a wholesaler for
     cigarettes, resulted from cost surveys and other information
     compiled and received by the DFA; because wholesalers are
     given the opportunity to sell below these established
     minimums, it is reasonable to presume other below-cost sales
     indicate an intent to injure; significantly, the supreme court
     emphasized that a wholesaler, who has a desire to charge a
     lesser price for cigarettes, has a right under both the Unfair
     Cigarette Sales Act and the Regulation to submit to the
     Director a detailed request to charge a lesser price, setting
     forth the accounting standards and methods, computations, and
     other relevant information supporting the wholesaler's claimed
     cost of doing business; on their face, both the Act and
     Regulation afford appellant the due process it requests and
     are therefore constitutional.

14.  Statutes -- agency has no right to promulgate rule or
     regulation contrary to statute. -- An agency has no right to
     promulgate a rule or regulation contrary to a statute.

15.  Administrative law & procedure -- Regulation's definition of
     "basic cost" omitted elements contained in Act's definition of
     "basic cost of cigarettes" -- no explanation given as to how
     DFA's Regulation and its actions fell within language of Act
     or whether DFA followed Act or Regulation when it determined
     and increased basic cost of cigarettes. -- The Regulation's
     definition of "basic cost" omitted elements contained in the
     Act's definition of "basic cost of cigarettes" and those
     omissions failed to make the wholesaler account for cartage or
     amounts received as trade discounts; furthermore, the
     Regulation increased the presumption by one and one-quarter
     percent without any clear explanation as to how that amount
     was calculated or whether the cost-of-doing-business amount
     was determined under the Act or Regulation; both the Director
     and the intervenor summarily concluded that, because the DFA
     interpreted the Act to permit it to promulgate the Regulation
     establishing a higher cost, the DFA's actions in doing so
     should be deemed reasonable, but such a conclusion or response
     in no way explained how DFA's Regulation and its actions fell
     within the language of the Act or whether DFA followed the Act
     or the Regulation when it determined and increased the basic
     cost of cigarettes.  

16.  Administrative law & procedure -- distinctly separable portion
     of regulation void -- remainder not invalidated. -- The fact
     that a portion of a regulation is void does not invalidate the
     whole regulation where such portion is distinctly separable
     from the remainder which in itself contains the essentials of
     a complete regulation.
17.  Administrative law & procedure -- determination of increased
     presumptive-cost amount -- portions of Regulation 1988-2
     invalid. -- Regulation 1988-2 was promulgated for the purposes
     of administering and enforcing the Act, and except for the
     omission of at least two core elements required by the Act
     bearing on determining the basic cost of cigarettes, the
     Regulation appears consistent with the Act; if DFA employed
     Regulation 1988-2 when it determined an increased presumptive-
     cost amount, then it omitted at least two core elements
     required by the Act; in this respect, the DFA Regulation was
     contrary to the Act and invalid; the issue remains as to
     whether DFA's Regulation and actions may prevail even though
     portions of the Regulation are invalid.

 18. Judgment -- summary -- when appropriate. -- Summary judgment
     is a remedy that should be granted only when it is clear that
     there is no genuine issue of material fact to be litigated.

 19. Administrative law & procedure -- question existed as to how
     DFA determined basic cost -- case reversed and remanded for
     determination. -- The supreme court found that appellant's
     contention that the trial court erred in granting intervenors'
     motion for summary judgment had merit based in part on the
     factual question of whether the DFA utilized the Act or its
     Regulation when it determined "basic cost"; summary judgment
     was inappropriate here because a fact question existed;
     therefore, the case was reversed and remanded for further
     proceedings to determine under what authority the DFA
     determined basic cost.


20.  Administrative law & procedure -- method DFA used to alter Act
     to increase presumptive cost of doing business unclear --
     trial court should also consider this issue on remand. --  
     Where appellant argued that a fact question existed as to 
     whether DFA relied on a cost survey when it adopted Regulation
     1988-2; the evidence pointed to by the Director that cost
     surveys were done before Regulation 1988-2 was adopted was
     circumstantial and at most revealed only that a fact issue
     exists as to whether the Regulation was actually supported by
     cost-survey information; and intervenors' response served only
     to show that a fact question exists concerning how the
     presumptive cost of doing business was established, the
     supreme court determined that, on remand, the trial court
     should also consider the broader question as to what method
     the DFA used to alter the act to increase the presumptive cost
     of doing business.


     Appeal from Pulaski Chancery Court; Collins Kilgore,
Chancellor; affirmed in part; reversed and remanded in part.
     Morphew & Olson, by:  Joe Morphew and Williams & Anderson, by: 
Peter G. Kumpe and Stephen B. Niswanger, for appellants.
     Malcolm P. Bobo, for appellees Richard A. Weiss and Tim
Leathers.
     Lax, Vaughan, Pender & evans, P.A., by:  Audrey R. Evans and
Walter Skelton, for intervening appellees.

     Tom Glaze, Justice.
     Appellant McLane Company, Inc., a wholly owned subsidiary of
Wal-Mart Stores, Inc., is a Texas corporation and wholesaler of
cigarettes and other products, and is licensed to do business in
Arkansas.  McLane brings this appeal, questioning the
constitutionality of Arkansas's Unfair Cigarette Sales Act, Ark.
Code Ann.  4-75-701 -713 (Repl. 1996), which was enacted in 1951. 
The declared purpose of the Act is to promote fair and honest
competition by prohibiting the sales of cigarettes below cost in
the wholesale or retail trades that are made with the intent of
injuring competitors or destroying or substantially lessening
competition.  
     The Unfair Cigarette Sales Act defines the cost to wholesalers
as the wholesaler's basic cost of the cigarettes plus the cost of
doing business as evidenced by the standards and methods of
accounting regularly employed by the wholesaler.   4-75-
702(11)(A).  Especially significant to this litigation, the Act
provides that, in the absence of proof of a lesser or higher cost
of doing business by the wholesaler making the sale, the "cost of
doing business shall be presumed to be two percent of the basic
cost of the cigarettes"  to the wholesaler plus cartage to the
retailer outlet, "which cartage cost in the absence of proof of a
lesser or higher cost, shall be presumed to be three-fourths of one
percent of the wholesaler's basic cost of the cigarettes." 
(Emphasis added.)
     Also pertinent to this case on appeal are those provisions of
the Act that provide that the State's Director of the Department of
Finance and Administration (Director), an appellee herein, is
empowered with the authority to prescribe, adopt, and enforce rules
and regulations to enforce the Act.   4-75-706.  Under this
authority, the Director promulgated Miscellaneous Tax Regulations
1988-2, which provides that a wholesaler's cost of doing business
is presumed to be four percent, not the two percent set out in the
Act, and the regulation stated the four percent cost of doing
business had been determined as a result of cost surveys and other
information compiled and received.  See  4-75-706(a)(2) and 4-75-
711(b).
     This legal dispute actually began when, on October 18, 1995,
McLane contacted the Department of Finance & Administration (DFA),
requesting it to repeal Regulation 1988-2 and the Regulation's four
percent requirement.  In accordance with the provisions of the Act
and the Regulation allowing a wholesaler to present proof of a
lesser cost-of-doing-business amount, McLane submitted to the DFA
a detailed and lengthy cost analysis and report, reflecting a
lesser cost of doing business than that presumed by either the Act
or Regulation 1988-2.  After the DFA's review of McLane's proof,
the Director approved and established a lesser doing-business cost
at one-half of one percent of the basic cost of cigarettes, thereby
making the minimum selling price the basic cost of cigarettes plus
one-half of one percent, rather than the presumed two or four
percent.  The Director's approval resulted in the DFA promulgating 
Miscellaneous Tax Regulation 1995-5, which established that a
wholesaler's cost of doing business is one-half of one percent of
the basic cost of cigarettes.  On October 25, 1995, the Director
notified McLane in writing that, on November 6, 1995, McLane could
commence to sell cigarettes at the new minimum price.
     On November 1, 1995, events began to change.  On this date,
McLane's competitors filed suit for a preliminary injunction in
Chicot County Chancery Court, requesting that the DFA be prohibited
from implementing the new Regulation 1995-5 until such time as the
DFA developed administrative rules and procedures to review the
statutorily mandated proof required to establish a wholesaler's
cost of doing business.  The Chicot County Chancery Court granted
the petitioners' request for injunctive relief.  Though McLane was
not a party to the Chicot County suit, the chancery court's order
enjoined the Director from establishing one-half of one percent
above the basic cost of cigarettes as the cost of doing business to
McLane.  The DFA subsequently rescinded its earlier approval of
McLane's new cost-of-doing-business amount.
     On November 16, 1995, McLane filed this suit in Pulaski County
Chancery Court against the Director, alleging the State's Act and
Regulation 1988-2 are overbroad and unconstitutional deprivations
of McLane's due process rights.  On December 4, 1995, the Pulaski
County Chancellor permitted McLane's competitors (collectively
referred herein as Intervenors), to intervene, and the Director and
Intervenors defended the Act's and Regulation's constitutionality. 
On October 30, 1996, the Pulaski County Chancery Court upheld the
laws' constitutionality by granting Intervenors' motion for summary
judgment, denying McLane's summary judgment motion, and dismissing
McLane's complaint.  McLane brings this appeal, contending the
chancellor erred in holding the Act and Regulation to be
constitutional, but alternatively urges further that Regulation
1988-2 is facially inconsistent with the Act and was arbitrarily
promulgated.  McLane adds, too, that the Act and Regulation are
invalid because they are so vague that they can be and have been
enforced arbitrarily.
     The Intervenors initially argue that McLane's appeal should be
dismissed for its having failed to comply with Ark. R. App. P. 5(b)
by obtaining an improper extension and filing an untimely record. 
The Intervenors' dismissal motion was previously considered and
denied by this court on June 9, 1997, and we do not revisit that
issue a second time.  However, we do address the Intervenors'
preservation-of-issue arguments concerning McLane's alternative
contentions (1) that Regulation 1988-2 is facially inconsistent
with the Act, and (2) that both the Act and Regulation are so vague
that they can be and have been arbitrarily enforced.  McLane
concedes the lower court's order did not specifically address these
two arguments.  However, McLane in its summary judgment motion
below did contend Regulation 1988-2 was contrary to the Act and
invalid, and in response, the trial court summarily rejected
McLane's contention, by ruling the Regulation was neither arbitrary
nor contrary to the Act.  However, we fail to find in the
chancellor's order where he ruled on McLane's "vagueness" argument. 
Thus, though we conclude McLane adequately preserved its argument
asserting Regulation 1988-2 is facially inconsistent with the Act,
we will not reach its vagueness argument, since the trial court
neither addressed it, nor did the court rule on the issue.  See
Morrison v. Jennings, 328 Ark. 278, 284, 943 S.W.2d 559, 562
(1997).  
     Before leaving procedural matters, the Intervenors also claim
McLane failed to preserve its argument that the disputed Act and
Regulation violate McLane's due process rights under Art. 2,  8,
of the Arkansas Constitution.  In making its claim, Intervenors
attempt to enlarge and strengthen their constitutional due process
argument to a review of cases decided in other jurisdictions where
Intervenors suggest that a majority of the courts have found
statutes similar to our State's Unfair Cigarette Sales Act to be
constitutional.  McLane, on the other hand, leans heavily on
Arkansas cases Ports Petroleum v. Tucker, 323 Ark. 680, 916 S.W.2d 749 (1996), and Wal-Mart Stores, Inc. v. American Drugs, Inc., 319
Ark. 214, 891 S.W.2d 30 (1995), when arguing the Act is
constitutionally infirm.  We believe McLane unequivocally preserved
its due process claim under the Arkansas Constitution, and did so
by relying upon the case of Ports Petroleum, where we held that
Section 4 of Act 380 of 1993 (of the Arkansas Petroleum Trade
Practices Act) violated the Due Process Clause of the Arkansas
Constitution.  In sum, we concluded in Ports Petroleum that Act 380
was overbroad in that it prohibited legitimate and innocent
competition fostered by below-cost sales, and that the Act failed
to include a prohibition against such sales made with predatory
intent to damage and destroy competition.  McLane argued below, and
now on appeal, that Ports Petroleum is controlling here and
subjects Arkansas's Unfair Cigarette Sales Act to the same
constitutional-death knell administered to Section 4 of the
Arkansas Petroleum Trade Practices Act.  Consequently, we disagree
with Intervenor's claim that McLane is precluded from arguing the
Unfair Cigarette Sales Act's validity under the Due Process Clause
in Art. 2,  8, of the Arkansas Constitution.
     We now turn to McLane's primary argument that Arkansas's
Uniform Cigarette Sales Act and Regulation 1988-2 are
unconstitutional because the assigned presumption of predatory
intent, arising from a below-cost sale under the enactments, too
broadly imposes restrictions on McLane's liberty to conduct its
business as it chooses.  In simple terms, McLane contends that on
their face, the Act and Regulation are unconstitutional because
they create a presumption of illegality from the mere fact of a
below-cost sale.
     As previously mentioned, the Act provides that, in the absence
of proof of a lesser or higher cost-of-doing-business amount, that
cost amount shall be presumed to be two percent of the basic cost
of cigarettes to the wholesaler plus cartage to be presumed at
three-fourths of one percent of the basic cost.   4-75-702(11)(B).
The Act further states that a wholesaler's sale at less than the
fixed minimum price shall be prima facie evidence of intent to
injure competition, which, if unrebutted, is a criminal misdemeanor
punishable by a fine of up to $500.00.  See  4-75-708(e) and (d). 
McLane submits that the fact of a below-cost sale is not enough to
give rise to a presumption of predatory intent, and such a
presumption must be regarded as irrational or arbitrary, and hence
unconstitutional, unless it can be said with substantial assurance
that the presumed fact (of predatory intent) is more likely than
not to flow from the proved fact (minimum price or below-cost sale)
on which it is made to depend.  See Stone v. Lockhart, 414 F. Supp. 1180 (E.D. Ark. 1976). 
     The Wal-Mart Stores and Ports Petroleum decisions relied upon
by McLane are not controlling even though in both cases this court
upheld below-cost sales.  Wal-Mart Stores involved Ark. Code Ann.
 4-75-209(a)(1) of the Unfair Practices Act which makes it
unlawful for any corporation doing business in this state to sell
at less than cost for the purpose of injuring competitors and
destroying competition.  There, because Wal-Mart was selling items
below cost as loss leaders, its competitors filed suit, alleging
Wal-Mart's pricing was violating the Unfair Practices Act.  We
disagreed, stating that isolated or occasional instances of selling
below cost, while predatory or illegal in nature, do not
necessarily indicate a specific intent to monopolize.  This court
held that, 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.  In reversing the chancellor, this court ended its
decision by holding  4-75-209(a)(1) does not provide a sufficient
statutory basis to support the chancery court's inference that Wal-
Mart had a specific intent to destroy its competition.
     As is obvious by its reading, the Wal-Mart Stores decision did
not involve a sustained below-cost effort over a substantial period
of time directed at a single article, as is the situation here. 
But, more important, the Act in Wal-Mart Stores did not contain a
comparable statutory scheme to the one in the Unfair Cigarette
Sales Act, which affords a competitor the right to establish a
lower or higher minimum price.  We will discuss this point further
below, but first we address McLane's reliance on Ports Petroleum.
     Ports Petroleum also fails to help McLane's cause.  As
mentioned previously above, Ports Petroleum dealt with the
constitutionality of Section 4 of Act 380 of the Arkansas Petroleum
Trade Practices Act (APTP Act), which provided that no dealer shall
make a retail sale of motor fuel at below cost, where the effect
may injure competition.  We recognized in Ports Petroleum that what
separates predation from legitimate price cutting is the intent of
the predator to damage and destroy competition and then recoup the
losses through a greater share of the market.  Id. at 690, citing
State v. Mapco Petroleum, Inc., 519 So. 2d 1275 (Ala. 1987).  We
then adopted the following principle to use when reviewing state
economic regulations for a due process violation:
     Generally speaking, the test is whether the legislation
     is designed to accomplish an end within legislative
     competence and whether the means it employs are
     reasonably designed to accomplish that end without unduly
     infringing upon protected rights . . . .  Specifically,
     in these "sale below cost" cases, the primary issue will
     be whether the legislation too broadly imposes
     restrictions on individuals' liberty to conduct their
     business as they choose.  If the act penalizes innocent
     acts not reasonably related to the problem of
     monopolistic practices or other deceptive, disruptive, or
     destructive price cutting, the act strikes too broadly.
     Our court in Ports Petroleum found that the APTP Act did not
require predatory intent and, in that respect, the act was
overbroad and violated Arkansas's Due Process Clause.  In the
present case, the Unfair Cigarette Sales Act requires predatory
intent, so for McLane to prevail here, it must look elsewhere than
to our actual holding in Ports Petroleum.
     McLane submits that the Act here is even more overbroad than
the one in Ports Petroleum because, while it seems to require a
showing of a below-cost sale with intent to injure competition, the
Act then says a below-cost sale constitutes "prima facie evidence
of intent to injure competitors."  Similarly, McLane adds, the
Regulation in issue provides that wholesalers are prohibited from
selling cigarettes at less than minimum price, and if they do sell
under such price, they will be presumed to have acted with purpose
to injure competition.  See cf. Mott's Super Markets, Inc. v.
Frassinelli, 172 A.2d 381 (Conn. 1961).  In addition, McLane argues
that, because the Act and Regulation in issue here provide for
fines and penalties, a person accused of selling below cost has the
burden of proving his innocence.  We believe McLane's arguments are
misdirected.
     Initially, we mention the well-settled rule that statutes are
presumed constitutional, and if it is possible to construe a
statute so as to pass constitutional muster, this court will do so. 
Clinton v. Bonds, 306 Ark. 554, 816 S.W.2d 169 (1991).  However, it
has also been held that a statutory presumption cannot be sustained
if there is no rational connection between the fact proved and the
fact presumed, if the inference of the one from proof of the other
is arbitrary because of lack of connection between the two in
common experience.  See Tot v. United States, 319 U.S. 463 (1943). 
Where the inference is so strained as not to have a reasonable
relation to the circumstances of life as we know them, it is not
competent for the legislature to create it as a rule governing the
procedure of courts.  Id. at 468.  Under the "rational connection
test," a permissive presumption is only required to meet a
preponderance standard, and the test is satisfied and a rational
connection is shown if the basic fact is more likely than not to
lead to the presumed fact.  County Court of Ulster County v. Allen,
442 U.S. 140 (1979).  As previously indicated above, we agree with
the Intervenors on this point.  Therefore, we conclude the
statutory scheme under the Unfair Cigarette Sales Act provides for
the rational connection between the presumed cost-of-doing business
and minimizing-price amounts in the Act and the Regulation and the
presumed fact of predatory intent provided.  
     The Act does not make all below-cost sales of cigarettes
unlawful, but instead exempts (1) isolated transactions not made in
the usual course of business, (2) clearance sales for discontinued
items, (3) sales of imperfect or damaged items, (4) sales related
to the liquidation of a business, or (5) sales made by a fiduciary
acting under the order or direction of a court.  See  4-75-703(1)-
(5).  In addition,  4-75-704 exempts sales below cost made to meet
a competitor's prices.  We believe the Intervenors are arguably
correct in stating that, once the foregoing exempted sales are
removed from consideration, it is rational to conclude that it is
more likely than not that other below-cost sales are made for
improper purposes.  But other, perhaps more palatable, reasons
support the Act's and Regulation's presumed-minimum-price amounts.
     The Regulation, for example, specifically reflects the
wholesaler's presumed basic cost of four percent and the minimum
price, which can be charged by a wholesaler for cigarettes,
resulted from cost surveys and other information compiled and
received by the DFA.  Because wholesalers are given the opportunity
to sell below these established minimums, it is, once again,
reasonable to presume other below-cost sales indicate an intent to
injure.  Finally, but significantly, we emphasize that a
wholesaler, who had a desire to charge a lesser price for
cigarettes, has a right under the Act and Regulation to submit to
the Director a request to charge a lesser price; the wholesaler
must do so by setting forth in detail the accounting standards and
methods, computations, and other relevant information, supporting
the wholesaler's claimed cost of doing business.  McLane, in fact,
followed this procedure, and the DFA approved McLane's one-half of
one percent amount until the Intervenors obtained their injunctive
relief from the Chicot County Chancery Court.  However, McLane
never challenged the DFA's rescission of McLane's cost-of-doing
business amount by raising the issue in the Pulaski County Chancery
Court.  Nor, to our knowledge, did McLane attempt to pursue its
right to request a lesser price except by this litigation, which
only seeks to set aside the Act and Regulation as being invalid. 
In any event, we are convinced, for the reasons stated herein,
that, on their face, both the Act and Regulation afford McLane the
due process it requests and are therefore constitutional.
     We move now to McLane's remaining alternative arguments that
Regulation 1988-2 is invalid because it is facially inconsistent
with the Act and, at the very least, a question of fact exists as
to whether DFA acted arbitrarily and capriciously when it
promulgated the Regulation.  Concerning McLane's initial point, the
law is elementary that an agency has no right to promulgate a rule
or regulation contrary to a statute.  See State, Ex Rel. Attorney
General v. Burnett, 200 Ark. 655, 140 S.W.2d 673 (1940), cited with
approval in Pledger v. C.B. Form Co., 316 Ark. 22, 871 S.W.2d 333
(1994), and American Trucking Ass'n v. Gray, 288 Ark. 488, 707 S.W.2d 759 (1986).  McLane first points to the Act's definition of
"Basic cost of cigarettes" which reads as follows:
          (1)  "Basic cost of cigarettes" means whichever of
     the two (2) following amounts is lower, namely, the
     invoice cost of cigarettes to the wholesaler or retailer,
     as the case may be, or the lowest replacement cost of
     cigarettes to the wholesaler or retailer, as the case may
     be, within thirty (30) days prior to the date of sale, in
     the quantity last purchased, whether within or before the
     thirty-day period, less, in either of the two (2) cases,
     all trade discounts except customary discounts for cash,
     plus the full face value of any stamps or any tax which
     may be required by any cigarette tax act of this state or
     political subdivision thereof, now in effect or hereafter
     enacted, if not already included in the invoice cost of
     cigarettes to the wholesaler or retailer, as the case may
     be.
Ark. Code Ann.  4-75-702(10) (1987). 
     McLane then draws our attention to the Regulation's definition
of "basic cost," and accurately points out that the Regulation
omits elements contained in the foregoing Act, and those omissions
fail to make the wholesaler account for cartage or amounts received
as trade discounts.  Furthermore, the Regulation increases the
presumption by one and one-quarter percent without any clear
explanation as to how that amount was calculated or whether the
cost-of-doing-business amount was determined under the Act or
Regulation.  McLane argues that, by enacting the Unfair Cigarette
Sales Act, the General Assembly enumerated the types of costs a
wholesaler should consider in order to give the seller more pricing
flexibility, but by taking out the foregoing elements, DFA
constricted this flexibility.
     The Intervenors rejoin McLane's argument by saying that the
Act provides that the presumptive cost of doing business shall be
two percent plus three-quarter percent cartage in the absence of
proof of a lesser or higher cost of doing business.  Both Director
and Intervenors summarily conclude that, because the DFA
interpreted the Act to permit it to promulgate the Regulation
establishing a higher cost, DFA's actions in doing so should be
deemed reasonable.  Clearly, this response in no way explains how
DFA's Regulation and its actions fall within the language of the
Act or whether DFA followed the Act or the Regulation when it
determined and increased the basic cost of cigarettes.  
     If DFA employed Regulation 1988-2 when it determined an
increased presumptive-cost amount, then it omitted at least two
core elements required by the Act.  Thus, in this respect, the DFA
Regulation was contrary to the Act and invalid.  However, the fact
that a portion of a regulation is void does not invalidate the
whole regulation where such portion is distinctly separable from
the remainder which in itself contains the essentials of a complete
regulation.  See McClendon v. City of Hope, 217 Ark. 367, 230 S.W.2d 57 (1950).  Here, Regulation 1988-2 was promulgated for the
purposes of administering and enforcing the Act, and except for the
foregoing flaws of omission mentioned bearing on determining the
basic cost of cigarettes, the Regulation appears consistent with
the Act.  Thus, the issue arises as to whether DFA's Regulation and
actions may prevail even though portions of the Regulation are
invalid.
     To answer this question, we turn to McLane's assertion that
the trial court erred in granting the Intervenors' motion for
summary judgment.  We believe McLane is right, based in part on the
factual question discussed above -- whether the DFA utilized the
Act or its Regulation when it determined "basic cost."  Because
summary judgment is a remedy that should be granted only when it is
clear that there is no genuine issue of material fact to be
litigated, that remedy was not appropriate here.  See Wallace v.
Broyles, 331 Ark. 58, ____  S.W.2d ____ (1998); [rehearing denied,
see per curiam March 5, 1998].  Thus, we reverse and remand this
matter for further proceedings to determine under what authority
the DFA determined basic cost.
     Another factual issue also arises that should be considered by
the trial court on remand, and that issue involves the broader
question as to what method the DFA used to alter the Act, to
increase the presumptive cost of doing business.  McLane urges
that, for DFA to make such a change to the Act by regulation, the
Act requires the DFA to support the change or regulation with a
cost survey in accordance with recognized statistical and cost-
accounting practices.   
     McLane argues that there is substantial evidence that shows
the DFA did not use a cost survey to determine the four percent
presumptive cost of doing business.  As a consequence, it argues
that a fact question exists as to whether DFA relied on a cost
survey when it adopted Regulation 1988-2.  To support its argument,
McLane reviews the testimony of various DFA officials who stated
that they had never conducted cost surveys, and that no surveys
were found in their files.
     The Director suggests there is ample evidence in the record
that cost surveys were done before Regulation 1988-2 was adopted. 
That evidence, however, was circumstantial and at most reveals only
that a fact issue exists as to whether the Regulation was actually
supported by cost-survey information.
     The Intervenors' response differed from the Director's,
arguing that the Act does not require cost surveys to be made in
connection with the promulgation of regulations by the Director. 
Without indicating what method the Director used when establishing
the four percent minimum-price markup, the Intervenors simply
relate that cost surveys are not the sole method by which the DFA
may establish a presumptive cost of doing business.  Once again,
the Intervenors' response serves only to show that a fact question
exists concerning how the presumptive cost of doing business was
established. 
     The trial court's grant of the Intervenors' motion for summary
judgment is reversed and remanded for further proceedings to
determine how and under what authority the DFA acted when it
determined and increased the basic cost of cigarettes.