SAN FRANCISCO (CN) – Reversing its earlier ruling on a free speech challenge to California’s ban on compensating retailers for advertising alcohol products, an en banc Ninth Circuit on Wednesday potentially handed final say on the issue over to the U.S. Supreme Court.
At issue is a California statute forbidding alcohol manufacturers and wholesalers from compensating retailers for advertising their products.
Retail Digital Network (RDN), whose business model involves installing seven-foot digital screen displays in retail stores and contracting with alcohol makers to advertise their products on them, sued the California Department of Alcoholic Beverage Control over the ban in 2011, calling it an unconstitutional restriction on commercial speech.
The case hinges on whether Actmedia Inc. v. Stroh – a 1986 case in which the Ninth Circuit heard a similar First Amendment challenge to the ban – is compatible with the Supreme Court’s 2011 decision in Sorrell v. IMS Health, Inc.
The difference between the rulings in Actmedia and Sorrell is that Sorrell requires a higher level of judicial scrutiny of content-based restrictions on commercial speech that advertises goods and services.
Judicial scrutiny is the level of weight given to considerations between a constitutional right and the government’s interest against observance of the principle.
In the current case, U.S. District Judge Consuelo Marshall ruled in favor of the state of California in 2013, finding the ban constitutional despite its commercial-speech restrictions. Marshall concluded that Actmedia was not irreconcilable with Sorrell or other Supreme Court decisions.
On appeal, RDN argued that Actmedia was no longer “good law” in light of Sorrell, because Sorrell had modified the standard for evaluating commercial-speech restrictions that had been established by a still earlier case – 1980’s Central Hudson Gas & Electric Corp. v. Public Service Commission of New York – by adopting a stricter standard for evaluating them.
“We disagree. Sorrell did not modify the Central Hudson standard,” U.S. Circuit Judge Richard Paez wrote for the court in a 26-page opinion. “We are … not persuaded by RDN’s first argument that Sorrell’s references to ‘heightened scrutiny’ mean something greater than intermediate scrutiny applies in commercial speech cases.”
Agreeing with Marshall that the ban is constitutional, Paez added that the ban allows California to maintain a tiered market system in which manufacturing, wholesale and retail interests are separated from one another.
Olivier Taillieu, an attorney representing RDN, expressed frustration with the decision in an email Wednesday, but said the case was not yet over.
“My client is disappointed with the decision but looks forward to be[ing] vindicated by the Supreme Court,” he said.
The Ninth Circuit agreed to rehear the case en banc after a three-judge panel of the court reversed Marshall’s judgment in favor of the state last year. The panel had concluded that Sorrell requires heightened judicial scrutiny, directing Marshall on remand to apply heightened scrutiny to the case.
Although the 11-judge en banc panel affirmed Marshall on Wednesday, Chief U.S. Circuit Judge Sidney Thomas broke with the majority.
In a four-page dissent, Thomas wrote that Actmedia is indeed irreconcilable with Sorrell, and that Marshall must adjudicate the case under the heightened scrutiny required by Sorrell.
“The government must establish that the challenged statute ‘directly advances a substantial governmental interest and that the measure is drawn to achieve that interest,’” Thomas wrote, quoting from Sorrell. “Therefore, a court must determine whether the government’s asserted substantial interests for the restriction are a pretext for the government’s desire ‘to suppress a disfavored message.’ If so, the law is invalid.”
Lawrence Walters, a First Amendment attorney who is not involved in the case, agreed with Thomas’ dissent Wednesday.
“Only the Supreme Court can decide what Sorrell means, but its reference to heightened scrutiny meant something,” he said in an email. “The case likely requires that the fourth Central Hudson factor include a requirement that law be drawn to achieve the substantial governmental interest. This allows the reviewing court to determine whether the restriction is merely a pretext for the government’s desire to suppress disfavored speech.”
Walters practices with Walters Law Group in Longwood, Florida.
Tailieu is with the Dominguez Law Firm in Los Angeles.
Justice Department Attorney Josh Klein, who argued for the state, deferred comment on the decision Wednesday to a Justice Department spokesperson. The spokesperson did not reply by press time.
U.S. Circuit Judges Stephen Reinhardt, Alex Kozinski, William Fletcher, Ronald Gould, Johnnie Rawlinson, Jay Bybee, Milan Smith, Jr., Mary Murguia and Paul Watford also sat on the panel.