En Banc Ninth Circuit Upholds Liquor Regulation Against First Amendment Challenge

Professor Ruthann Robson, City University of New York (CUNY) School of Law

 In its en banc opinion in Retail Digital Network v. Prieto, the Ninth Circuit rejected a First Amendment challenge to a California prohibition of alcohol manufacturers and wholesalers from providing anything of value to retailers in exchange for advertising their alcohol products.

Plaintiff Retail Digital Network, RDN, installed and operated seven foot digital screen displays in liquor stores for the purpose of running advertisements for liquor products such as Moët Hennessy;  the retail stores would would receive a portion of RDN's revenue.  However, after originally participating in the advertising, Moët Hennessy withdrew, worried that the state would enforce California Business and Professions Code §25503(f)-(h) regarding such advertising arrangements.

 

The Ninth Circuit had upheld the provision more than thirty years ago in Actmedia, Inc. v. Stroh (1986), applying Central Hudson & Electric Corporation v. Public Service Commission of New York (1980).   RDN argued, however, that Actmedia needed to be reconsidered, and contended that IMS v. Sorrell (2011) changed Central Hudson's commercial speech standard from "intermediate scrutiny" to "heightened scrutiny."

The en banc Ninth Circuit, with the exception of Chief Judge Sidney Thomas in a lone dissent, rejected the argument that Sorrell changed the commercial speech standard of  Central Hudson.  The court's opinion has an excellent rehearsal of the doctrinal relevance of Sorrell after Central Hudson, including arguments derived from Sorrell itself and a discussion of sister-circuit cases.  In short, the court finds that Central Hudson "continues to set the standard for assessing restrictions on commercial speech."

Applying Central Hudson, the court does depart in one aspect from its previous application in  the thirty-year old precedent of Actmedia.  The court found that even assuming "promoting temperance" is a substantial government interest under Central Hudson, the state statute could not be said to "directly and substantially advance that interest" as required by Central Hudson. 

However, the court agreed that the statute "directly and materially advances the State's interest in maintaining a triple-tiered market system" for wines and liquor and "because there is a sufficient fit between that interest and the legislative scheme."  This "triple-tiered" distribution scheme was adopted by California after the repeal of the Eighteenth Amendment to "prevent the resurgence of tied-houses."  Tied-houses were retailers and saloons controlled by larger interests.

ConLawProfs looking for a good case to discuss commercial speech after Sorell might find RDN worth a look.  As for whether the United States Supreme Court will take a look at RDN to clarify the commercial speech standard, RDN might also prove interesting.