9th Circ. Revives Challenge To Calif. Store Booze-Ad Ban

Source: Law360

By Brandon Lowrey

January 7, 2016

The Ninth Circuit on Thursday revived a challenge to California’s law barring liquor producers from paying retailers for in-store advertising, saying one of its precedent-setting rulings has become outdated in light of a 2011 U.S. Supreme Court decision setting a higher standard for restricting commercial speech.

The appellate panel remanded the case after finding that the lesser scrutiny of commercial speech restrictions outlined in its 1986 opinion in Actmedia Inc. v. Stroh can’t be reconciled with the high court’s more recent ruling in Sorrell v. IMS Health.

In the Actmedia case, the Ninth Circuit found no First Amendment problem with California’s Business and Professions Code Section 25503, part of the “tied house” rules that keep liquor manufacturers, wholesalers and retailers separate and which prohibits liquor producers from providing anything of value to liquor retailers in exchange for advertising.

But Sorrell changed that, the appellate court said Thursday.

” … [T]he Supreme Court has since made clear that the First Amendment does not allow the government to silence truthful speech simply for fear that adults who hear it would be too persuaded,” the Ninth Circuit said in its opinion. “As a content-based restriction on non-misleading commercial speech regarding a lawful good or service, section 25503(f)-(h) now must survive heightened judicial scrutiny.”

In the Sorrell case, the high court struck down a Vermont law that prohibited pharmacies from selling doctors’ prescribing information to pharmaceutical marketers.

RDN filed suit for declaratory relief in November 2011, naming as a defendant Jacob Appelsmith, director of the state’s Alcoholic Beverage Control Board, and seeking to overturn Section 25503. RDN, which installs display screens in stores and sells ads on them to various companies including liquor producers, claims in its appeal briefing that it had signed contracts with over 100 stores to place screens in their stores in exchange for a percentage of RDN’s revenue.

Once it went to liquor companies seeking their business, however, it found that major companies such as Diageo PLC, Jack Daniel’s Tennessee Whiskey and MillerCoors indicated that their legal departments stopped them from buying ads on RDN’s screens for fear of violating Section 25503.

In May 2013, U.S. District Judge Consuelo B. Marshall granted the state summary judgment.

RDN argued in briefs that under that standard, the law must fall because it contains so many exceptions – for advertising in sports stadiums and theme parks, among others – that its application is inconsistent, and that it doesn’t advance the state’s interest of prohibiting vertical integration in the liquor business.

During oral arguments in Pasadena in June, Olivier Taillieu of the Taillieu Law Firm, representing RDN, urged a three-judge panel to overturn a district court’s ruling dismissing the company’s challenge to Section 25503 on free speech grounds at summary judgment. Taillieu argued that the district court erred in not evaluating the statute under Sorrell’s heightened standard.

California Deputy Attorney General Gabrielle Brumbach, however, had urged the panel during the June arguments to uphold that ruling, arguing that Sorrell did not establish a heightened level of scrutiny in commercial speech cases and that even if it did, it does not apply in this case.

On Thursday, the Ninth Circuit panel said it was remanding the case to the trial court to apply heightened judicial scrutiny to the issue. The appellate court noted that the state should not be faulted for relying on the Ninth Circuit’s long-standing precedent, and declined to attempt to apply the heightened judicial scrutiny to the case itself.

“While we decline to decide these issues on the thin record before us, the state must meet its burden on remand,” the appellate panel said.

Circuit Judges Sidney Runyan Thomas and Consuelo Maria Callahan sat on the panel for the Ninth Circuit, with U.S. District Judge Edward R. Korman sitting by designation.

Retail Digital is represented by Olivier A. Taillieu and Raffi V. Zerounian of The Tallier Law Firm.

California is represented by Attorney General Kamala D. Harris, Senior Assistant Attorney General Alicia M. B. Fowler, Supervising Deputy Attorney General Jerald L. Mosley and Deputy Attorney General Gabrielle H. Brumbach.

The case is Retail Digital Network LLC v. Jacob Appelsmith, case number 13-56069, in the U.S. Court of Appeals for the Ninth Circuit.