Retail Digital Network v. Jacob Appelsmith , 810 F.3d 638 ( 2016 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
RETAIL DIGITAL NETWORK, LLC, No. 13-56069
Plaintiff-Appellant,
D.C. No.
v. 2:11-cv-09065-
CBM-PJW
JACOB APPELSMITH, as Director of
the Alcoholic Beverage Control
Board, OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Consuelo B. Marshall, Senior District Judge, Presiding
Argued and Submitted
June 3, 2015—Pasadena, California
Filed January 7, 2016
Before: Sidney R. Thomas, Chief Judge, Consuelo M.
Callahan, Circuit Judge and Edward R. Korman,* Senior
District Judge.
Opinion by Judge Callahan
*
The Honorable Edward R. Korman, Senior District Judge for the U.S.
District Court for the Eastern District of New York, sitting by designation.
2 RETAIL DIGITAL NETWORK V. APPELSMITH
SUMMARY**
Civil Rights
The panel reversed the district court’s summary
judgment in favor of the Director of the California
Department of Alcoholic Beverage Control, and remanded in
an action in which plaintiff challenged, on First Amendment
grounds, California Business and Professions Code Section
25503(f)–(h), which forbids manufacturers and wholesalers
of alcoholic beverages from giving anything of value to
retailers for advertising their alcoholic products.
The panel first held that plaintiff Retail Digital Network,
a middleman involved in the advertising industry, had
standing to challenge section 25503. The panel held that the
Supreme Court’s opinion in Sorrell v. IMS Health, Inc., 131
S. Ct. 2653 (2011), requires heightened judicial scrutiny of
content-based restrictions on non-misleading commercial
speech regarding lawful products, rather than the intermediate
scrutiny previously applied to section 25503 by the Ninth
Circuit in Actmedia, Inc. v. Stroh, 830 F.2d 957 (9th Cir.
1986). The panel held that Actmedia was clearly
irreconcilable with the Supreme Court’s intervening decision
in Sorrell. The panel therefore reversed the district court’s
summary judgment, which had found Actmedia to be
controlling, and remanded on an open record for the district
court to apply heightened judicial scrutiny in the first
instance.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
RETAIL DIGITAL NETWORK V. APPELSMITH 3
COUNSEL
Olivier A. Taillieu (argued) and Raffi V. Zerounian, The
Taillieu Law Firm, Beverly Hills, California, for Plaintiff-
Appellant.
Kamala D. Harris, Attorney General, Alicia M. B. Fowler,
Senior Assistant Attorney General, Jerald L. Mosley,
Supervising Deputy Attorney General, and Gabrielle H.
Brumbach (argued), Deputy Attorney General, Los Angeles,
California, for Defendant-Appellee.
OPINION
CALLAHAN, Circuit Judge:
California Business and Professions Code Section
25503(f)–(h) forbids manufacturers and wholesalers of
alcoholic beverages from giving anything of value to retailers
for advertising their alcoholic products. Thus, for example,
a liquor store owner in California can hang a Captain Morgan
Rum sign in his store’s window, but the Captain can’t pay
him, directly or through an agent, for doing so. Twenty-nine
years ago, in Actmedia, Inc. v. Stroh, 830 F.2d 957 (9th Cir.
1986), we found this law to be consistent with the First
Amendment. Today we consider whether Actmedia remains
binding in light of intervening Supreme Court decisions,
which Plaintiff-Appellant Retail Digital Network, LLC
(RDN) contends have strengthened the protection we must
give commercial speech under the First Amendment.
We conclude that Actmedia is clearly irreconcilable with
Sorrell v. IMS Health, Inc., 131 S. Ct. 2653 (2011). Sorrell
4 RETAIL DIGITAL NETWORK V. APPELSMITH
requires heightened judicial scrutiny of content-based
restrictions on non-misleading commercial speech regarding
lawful products, rather than the intermediate scrutiny applied
to section 25503 in Actmedia. We therefore reverse the
district court’s summary judgment in favor of Defendant-
Appellee Jacob Appelsmith, Director of the California
Department of Alcoholic Beverage Control (the State), and
remand on an open record for the district court to apply
heightened judicial scrutiny in the first instance.
I.
A. California Business & Professions Code Section 25503
Section 25503 is part of a scheme of “tied-house” statutes
passed by the California legislature in the wake of
Prohibition.
The name “tied-house” derives from a perceived evil that
the scheme was designed to defeat: the return of saloons and
other retail alcoholic beverage outlets controlled by alcoholic
beverage manufacturers and wholesalers that had been
prevalent during the early 1900s. See Actmedia, 830 F.2d at
959–61; Cal. Beer Wholesalers Ass’n v. Alcoholic Beverage
Control Appeals Bd., 5 Cal. 3d 402, 407 (1971).
Manufacturers and wholesalers “tied” retailers to them by
providing them with low-interest loans, reduced rents, and
free equipment, employing their staff, and other means. See
Actmedia, 830 F.2d at 960; see also Pickerill v. Schott, 55 So.
2d 716, 719 (Fla. Sup. Ct. 1951). Lawmakers in Congress,
California, and other states blamed “the industry structure
that tied-house arrangements created . . . . for producing
monopolies and exclusive dealing arrangements, for causing
a vast growth in the number of saloons and bars, for fostering
RETAIL DIGITAL NETWORK V. APPELSMITH 5
commercial bribery, and for generating other ‘serious social
and political evils,’ including political corruption,
irresponsible ownership of retail outlets, and intemperance.”
Actmedia, 830 F.2d at 960 n.2 (quoting S. Rep. No. 1215,
74th Cong., 1st Sess. 2, 6–7 (1935)); see also Nat’l Distrib.
Co. v. U.S. Treasury Dep’t, 626 F.2d 997, 1009–10 (D.C. Cir.
1980).
To prevent vertical and horizontal integration of the
alcoholic beverage industry and to promote temperance, the
California legislature prohibited manufacturers and
wholesalers from owning retailers or making gifts, paying
rebates, or otherwise buying the favor of retailers and their
employees. See, e.g., Cal. Bus. & Prof. Code §§ 25500,
25503(a)–(e). Section 25503(f)–(h), the provision challenged
on First Amendment grounds here, was designed to “prevent
manufacturers and wholesalers from circumventing these
other tied-house restrictions by claiming that the illegal
payments they made to retailers were for ‘advertising.’”
Actmedia, 830 F.2d at 967. In relevant part, section
25503(f)–(h) forbids manufacturers and wholesalers of
alcoholic beverages, including their agents, from providing
retail establishments with anything of value for the privilege
of advertising their alcoholic products.1
1
The statute provides:
No manufacturer, winegrower, manufacturer’s agent,
California winegrower’s agent, rectifier, distiller,
bottler, importer, or wholesaler, or any officer, director,
or agent of any such person, shall do any of the
following: . . . .
(f) Pay, credit, or compensate a retailer or retailers for
advertising, display, or distribution service in
6 RETAIL DIGITAL NETWORK V. APPELSMITH
California was not alone in passing tied-house laws.
Congress and “the ‘vast majority of states’ enacted [similar]
alcohol beverage control laws” following the repeal of the
Eighteenth Amendment. Actmedia, 830 F.2d at 959 n.1
(quoting Cal. Beer Wholesalers Ass’n, 5 Cal. 3d at 407).
California’s concern that advertising payments could be used
to conceal illegal payoffs to retailers also “appears to have
been widely held at the time of section 25503(h)’s
enactment.” Id. at 960. Congress, for example, passed a
similar law barring manufacturers and distributors of
alcoholic beverages from “paying or crediting the retailer for
any advertising, display, or distribution service.” 27 U.S.C.
§ 205(b)(4).
B. Actmedia, Inc. v. Stroh
Our court addressed section 25503(h)’s constitutionality
under the First Amendment in Actmedia, Inc. v. Stroh.,
830 F.2d 957 (9th Cir. 1986). Actmedia, a corporation whose
business consisted of leasing advertising space on
supermarket shopping carts, challenged section 25503(h) as
connection with the advertising and sale of distilled
spirits.
(g) Furnish, give, lend, or rent, directly or indirectly, to
any person any decorations, paintings, or signs, other
than signs advertising their own products as permitted
by Section 25611.1.
(h) Pay money or give or furnish anything of value for
the privilege of placing or painting a sign or
advertisement, or window display, on or in any
premises selling alcoholic beverages at retail.
Cal. Bus. & Prof. Code § 25503.
RETAIL DIGITAL NETWORK V. APPELSMITH 7
an impermissible restriction on commercial speech.
Following trial, the district entered judgment for the State and
dismissed Actmedia’s claims.
On appeal, we applied the test for laws that burden
commercial speech set forth in Central Hudson Gas &
Electric Corp. v. Public Service Commission of New York,
447 U.S. 557 (1980). Under that test, courts examine four
questions: (1) whether the speech concerns lawful activity
and is not misleading; (2) whether the asserted governmental
interest justifying the regulation is substantial; (3) whether
the regulation directly advances the governmental interest
asserted; and (4) whether the regulation is not more extensive
than is necessary to serve that interest. Id. at 566.
We found “little dispute concerning the first two factors
of the Central Hudson analysis.” Actmedia, 830 F.2d at 965.
First, the ads “concern[ed] lawful activity and [were] not . . .
misleading. Thus, they constitute[d] protected commercial
speech under the [First Amendment].” Id. (quotation marks
omitted). Second, the State “ha[d] a ‘substantial’ interest in
exercising its twenty-first amendment powers and regulating
the structure of the alcoholic beverage industry in California:
the activities of manufacturers, wholesalers, and retailers in
the state; the methods by which alcoholic beverages are
marketed; and influences that affect the consumption levels
of alcoholic beverages by California residents.” Id. at
965–66.
Addressing the third Central Hudson factor, we
concluded that “section 25503(h) furthers California’s
purposes both of limiting the ability of large
alcoholic-beverage manufacturers and wholesalers to achieve
vertical and horizontal integration by acquiring influences
8 RETAIL DIGITAL NETWORK V. APPELSMITH
over the state’s retail outlets, and of promoting temperance.”
Id. at 966. We explained that the provision eliminated a
loophole potentially left open by California’s other tied-house
laws, through which manufacturers and wholesalers might
use advertisement payments to buy the favor of retailers and
their employees. Id. at 967. “Because prohibiting
alcoholic-beverage manufacturers and wholesalers from
paying retailers to advertise in their stores will eliminate any
danger that such payments will be used to conceal illegal
payoffs and violations of the tied-house laws, we conclude[d]
that section 25503(h) furthers the same interests that led
California to enact the tied-house laws.” Id. We also
reasoned that “in reducing the quantity of advertising that is
seen in retail establishments selling alcoholic beverages, the
provision also directly furthers California’s interest in
promoting temperance.” Id.
Addressing the fourth Central Hudson factor, we
concluded that “section 25503(h)’s blanket prohibition of
paid advertising in retail establishments appears to be as
narrowly drawn as possible to effectuate [the provision’s]
first purpose,” that being “to prevent illegal payments from
being channelled by alcoholic-beverage manufacturers and
wholesalers to retailers.” Id. We also found that section
25503(h) is not more extensive than necessary to achieve the
provision’s “second purpose[,] . . . to promote temperance,
both indirectly, by limiting vertical integration of the
alcoholic-beverage industry and its side effects, and directly,
by reducing the amount of point-of-purchase advertising.” Id.
We reasoned that “to the extent that the California legislature
has determined that point-of-purchase advertising is a direct
cause of excessive alcohol consumption, limiting that
advertising is ‘obviously the most direct and perhaps the only
effective approach’ available.” Id. (quoting Metromedia,
 RETAIL DIGITAL NETWORK V. APPELSMITH 9
Inc. v. City of San Diego, 453 U.S. 490, 508 (1981)). We
thus held that section 25503(h) survived intermediate
scrutiny.
C. RDN’s Suit
Like the plaintiff in Actmedia, RDN is a middleman
involved in the advertising industry. RDN installs liquid
crystal displays, or LCDs, in retail stores for advertisements
and then enters into contracts with other parties who want to
advertise their products on the displays. In exchange for
placing a display in a retail store, RDN pays the store a
percentage of the advertising fees generated by the display.
RDN states that it has attempted to enter into contracts with
manufacturers to advertise their alcoholic beverages on
RDN’s displays in California. According to RDN, the
manufacturers have refused due to concerns that the
advertising would violate section 25503(f)–(h).
RDN filed this action on November 1, 2011, seeking
declaratory relief that section 25503(f)–(h) is unconstitutional
under the First Amendment, and an injunction against the
State’s enforcement of the law. The State moved for
summary judgment and, at a hearing on that motion, RDN
agreed “that the Ninth Circuit’s decision in Actmedia . . .
leaves ‘no room for this litigation’ except to the extent that a
trio of subsequent Supreme Court decisions is clearly
irreconcilable with its conclusions.” RDN v. Appelsmith,
945 F. Supp. 2d 1119, 1123 (C.D. Cal. 2013). Specifically,
RDN argued that Rubin v. Coors Brewing Co., 514 U.S. 476
(1995), 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484
(1996) (plurality opinion), and, most definitively, Sorrell v.
IMS Health, Inc., 131 S. Ct. 2653 (2011), overrule Actmedia.
According to RDN, these cases require heightened judicial
10 RETAIL DIGITAL NETWORK V. APPELSMITH
scrutiny of laws burdening non-misleading commercial
speech regarding legal products, which section 25503 cannot
survive.
The district court first found that RDN had standing to
challenge section 25503 based on injury to its economic
interest in the advertising of alcoholic beverages that section
25503 burdens . RDN, 945 F. Supp. 2d at 1122–23. On the
merits, the district court found that section 25503 is a content-
and speaker-based restriction on commercial speech, but held
that the law is constitutional under Actmedia. Id. at 1125–26.
The district court acknowledged that, after Actmedia, the
Supreme Court stated that heightened judicial scrutiny is
warranted “whenever the government creates ‘a regulation of
speech because of disagreement with the message it
conveys.’” Id. at 1125 (quoting Sorrell, 131 S. Ct. at 2664).
But the district court found that Sorrell was consistent with
Actmedia’s analytical framework for four reasons. First,
Sorrell “cited to a previous Supreme Court decision applying
Central Hudson.” RDN, 945 F. Supp. 2d at 1125. Second,
Sorrell applied the Central Hudson test rather than
heightened judicial scrutiny after noting that, “[a]s in
previous cases, . . . the outcome is the same whether a special
commercial speech inquiry or a stricter form of judicial
scrutiny is applied.” RDN, 945 F. Supp. 2d at 1125 (quoting
Sorrell, 131 S. Ct. at 2667). Third, the majority in Sorrell did
not define heightened scrutiny. RDN, 945 F. Supp. 2d at
1125. And fourth, “the dissenting opinion by Justice Breyer
(and joined by Justices Ginsburg and Kagan), notes that the
majority opinion suggests but does not hold that a standard
stricter than the traditional Central Hudson test might be
applied to content-based restrictions.” Id. (citing Sorrell,
131 S. Ct. at 2677 (Breyer, J., dissenting)). The district court
RETAIL DIGITAL NETWORK V. APPELSMITH 11
also reasoned that, “[e]ven assuming arguendo that Sorrell
established a heightened level of scrutiny for complete speech
bans founded on paternalistic motivations,” Actmedia is not
clearly irreconcilable because section 25503 does not
completely ban any speech. Id. at 1125.
Accordingly, the district court did not examine section
25503 under Sorrell’s heightened judicial scrutiny or
reexamine the law under intermediate scrutiny. Rather, it
found that Actmedia remained controlling and thus granted
summary judgement in favor of the State. Id. at 1125–26.
II.
A. Standing
Like the district court, we begin by determining whether
RDN has standing. The State’s silence about this issue on
appeal does not excuse us from satisfying ourselves of our
jurisdiction. See, e.g., Organized Vill. of Kake v. U.S. Dep’t
of Agric., 795 F.3d 956, 963 (9th Cir. 2015) (en banc). To
establish Article III standing, a plaintiff bears the burden of
showing injury in fact, causation, and redressability. See
Bennett v. Spear, 520 U.S. 154, 167 (1997). We agree with
the district court that RDN’s asserted loss of advertising
revenue resulting from section 25503 meets this burden.
Our analysis does not end here. Several prudential
principles that underscore the limitations embodied in Article
III may bar standing even where, as here, the requirements of
Article III have been met. “One of these prudential limits on
standing is that a litigant must normally assert his own legal
12 RETAIL DIGITAL NETWORK V. APPELSMITH
interests rather than those of third parties.”2 Phillips
Petroleum Co. v. Shutts, 472 U.S. 797, 804 (1985). This
“general rule [that] a third party does not hav[e] standing to
bring a claim asserting a violation of someone else’s rights”
adheres even where those rights are constitutional in stature.
Martin v. Cal. Dep’t of Veterans Affairs, 560 F.3d 1042, 1050
(9th Cir. 2009); see also Wine & Spirits Retailers, Inc. v.
Rhode Island, 418 F.3d 36, 49 (1st Cir. 2005) (“A party
ordinarily has no standing to assert the First Amendment
rights of third parties.”).
In the commercial-speech context, the Supreme Court has
held that the “individual parties to the transaction that is
proposed in the commercial advertisement”—the advertiser
and the consuming public—have protected First Amendment
interests in the speech proposing the transaction. Va. State
Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc.,
425 U.S. 748, 762–63 (1976). The Court has distinguished
between the proposal of a commercial transaction, “which is
what defines commercial speech,” and the provision of
services for profit, which is not commercial speech. Bd. of
Trs. of State Univ. of N.Y. v. Fox, 492 U.S. 469, 480–81
(1989).
While an advertisement about an alcoholic beverage
clearly constitutes commercial speech, see 44 Liquormart,
517 U.S. at 495 (opinion of Stevens, J.), id. at 528
(O’Connor, J., concurring), RDN is not a manufacturer or
2
We need not address whether the label “prudential standing” is a
misnomer as applied to the third-party standing analysis, as we find that
RDN’s claim may proceed regardless of the doctrine’s rubric. See
Lexmark Int’l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377,
1387 n.3 (2014).
RETAIL DIGITAL NETWORK V. APPELSMITH 13
retailer seeking to hawk its wares, or a consumer looking to
buy. Rather, RDN is interested in profiting from facilitating
the publication of alcoholic beverage advertisements. In the
circumstances presented, however, where RDN could face
criminal penalties for placing advertisements of particular
content on its retail displays paid for by alcoholic beverage
manufacturers, we find that RDN may bring a First
Amendment challenge to the law proscribing its conduct. See
Cal. Bus. & Prof. Code § 25503 (prohibiting an “agent” of a
manufacturer, wholesaler, or other listed entity from
providing anything of value to retailers for the privilege of
advertising); id. § 25504 (listing penalties); cf. Dep’t of
Alcoholic Beverage Control v. Alcoholic Beverage Control
Appeals Bd., 128 Cal. App. 4th 1195, 1208 (Ct. App. 2005),
as modified (May 13, 2005) (holding that section 25503(h)
prohibits “indirect payments by suppliers to retailers” through
promoters).
Our conclusion finds support in the principle that “when
[a] threatened enforcement effort implicates First
Amendment rights, the [standing] inquiry tilts dramatically
toward a finding of standing.” LSO, Ltd. v. Stroh, 205 F.3d
1146, 1155 (9th Cir. 2000). Indeed, the Supreme Court has
found that a plaintiff threatened with criminal prosecution for
violating a law imposing a content-based burden on
commercial speech may challenge that law under the First
Amendment, even though the speech of third parties is more
directly at stake. Bigelow v. Virginia, 421 U.S. 809, 815–18
(1975) (holding that a newspaper publisher who had been
convicted of violating a state statute outlawing advertising
regarding abortion services had standing to challenge the law
on First Amendment grounds).
14 RETAIL DIGITAL NETWORK V. APPELSMITH
The Court also has held that a publisher whose business
conduct was directly regulated by a law imposing a
content-based burden on commercial speech could challenge
that law under the First Amendment. In Simon & Schuster,
Inc. v. Members of the N.Y. State Crime Victims Board,
502 U.S. 105, 109 (1991), the Court held that a publisher,
Simon & Schuster, had standing to challenge a law that
imposed a financial disincentive on one of its authors to write
a book about a career criminal named Henry Hill. Under a
contract with Simon & Schuster, Hill was entitled to
compensation, but New York’s “Son of Sam” law required
that these funds be held in escrow for five years for use in
satisfying any civil judgments obtained by the victims of
Hill’s crimes. Pursuant to this law, the New York State
Crime Victims Board ordered Simon & Schuster to turn over
all money payable to Hill. Id. at 115. The Court found that
Simon & Schuster had standing to challenge the Son of Sam
law under the First Amendment. The Court reasoned that
“[w]hether the First Amendment ‘speaker’ is considered to be
Henry Hill, whose income the statute places in escrow
because of the story he has told, or Simon & Schuster, which
can publish books about crime with the assistance of only
those criminals willing to forgo remuneration for at least five
years, the statute plainly imposes a financial disincentive only
on speech of a particular content.” Id.; see also Pitt News v.
Pappert, 379 F.3d 96, 105–06 (3d Cir. 2004) (Alito, J.)
(holding that a newspaper had standing to challenge a law
that prohibited the newspaper from receiving payments for
running alcoholic beverage ads).
Similarly, section 25503 imposes a financial burden on a
speaker based on the content of the speaker’s expression.
The law may be enforced against RDN as an agent facilitating
that expression. Consequently, whether the commercial
RETAIL DIGITAL NETWORK V. APPELSMITH 15
“speaker” is considered to be RDN as a publisher or third-
party alcoholic beverage manufacturers, distributors, and
retailers whose speech RDN would display, RDN may
challenge section 25503 on First Amendment grounds.
B. First Amendment Protection of Commercial Speech
After Sorrell
Turning to the merits, we first summarize how the
protection given to commercial speech has evolved since
1986, when we last addressed section 25503’s
constitutionality under the First Amendment.
As noted, the Supreme Court defines commercial speech
as that “which does ‘no more than propose a commercial
transaction.’” Va. State Bd. of Pharmacy, 425 U.S. at 762
(quoting Pittsburgh Press Co. v. Pittsburgh Comm’n on
Human Relations, 413 U.S. 376, 385 (1973)). Such speech
has long been given less protection under the First
Amendment than other types of speech. United States v.
United Foods, Inc., 533 U.S. 405, 409 (2001); Valle Del Sol
Inc. v. Whiting, 709 F.3d 808, 818 (9th Cir. 2013).
Specifically, restrictions on commercial speech have been
subject to intermediate scrutiny under the four-part test set
forth in Central Hudson, 447 U.S. at 566. The burden is on
the government to show that the elements of the test are
satisfied. 44 Liquormart, 517 U.S. at 504–05 (opinion of
Stevens, J.). Consistent with Central Hudson, we have
previously applied intermediate scrutiny to content-based and
content-neutral regulations of commercial speech alike. See,
e.g., Coyote Publ’g, Inc. v. Miller, 598 F.3d 592, 599 n.10
(9th Cir. 2010) (“[W]hether or not the . . . regulation is
content-based, the Central Hudson test still applies because
of the reduced protection given to commercial speech.”).
16 RETAIL DIGITAL NETWORK V. APPELSMITH
In Sorrell, however, the Supreme Court held that content-
or speaker-based restrictions on non-misleading commercial
speech regarding lawful goods or services must survive
“heightened judicial scrutiny.” 131 S. Ct. at 2664. The Court
invalidated a Vermont law that restricted the sale, disclosure,
and use of pharmacy records for marketing purposes. Id. at
2659. On its face, the law was content- and speaker-based.
In fact, it had been enacted with the avowed purpose of
“diminish[ing] the effectiveness of marketing by
manufacturers of brand-name drugs.” Id. at 2663. While the
Court found that heightened judicial scrutiny of the law was
required, the Court did not actually apply heightened scrutiny,
as it found that the law could not withstand intermediate
scrutiny under Central Hudson. Id. at 2667–68.
Consistent with Sorrell’s plain language, we rule that
Sorrell modified the Central Hudson test for laws burdening
commercial speech. Under Sorrell, courts must first
determine whether a challenged law burdening non-
misleading commercial speech about legal goods or services
is content- or speaker-based. If so, heightened judicial
scrutiny is required. See Sorrell, 131 S. Ct. at 2664.
Heightened judicial scrutiny may be applied using the
familiar framework of the four-factor Central Hudson test.3
3
The district court need not apply strict scrutiny, which requires the
government to demonstrate that a challenged law “is justified by a
compelling government interest and is narrowly drawn to serve that
interest.” Brown v. Entm’t Merchants Ass’n, 131 S. Ct. 2729, 2738
(2011). For the law to be crafted with sufficient precision to survive strict
scrutiny, there must be no less restrictive means available to achieve the
compelling governmental interest. See, e.g., Boos v. Barry, 485 U.S. 312,
328–29 (1988). The Supreme Court knows the words, “strict scrutiny,”
and the Sorrell majority seems at pains to avoid them. See Sorrell, 131
RETAIL DIGITAL NETWORK V. APPELSMITH 17
With respect to the third Central Hudson factor, the
government bears the burden of showing “that the harms it
recites are real and that its restriction will in fact alleviate
them to a material degree.” Coors Brewing Co., 514 U.S. at
487. With respect to the fourth Central Hudson factor, the
government bears a heavier burden of showing that the
challenged law “is drawn to achieve [the government’s
substantial] interest.” Sorrell, 131 S. Ct. at 2667–68. This
inquiry first permits a district court to test the consistency
between (a) the specific interests asserted by the government
during litigation in addressing Central Hudson’s second
prong and (b) the legislative purposes that the court finds
actually animated a challenged law, as made explicit in the
statute’s text or evidenced by its history or design. See
Friendly House v. Whiting, 846 F. Supp. 2d 1053, 1060–61
(D. Ariz. 2012), aff’d sub nom. Valle Del Sol Inc. v. Whiting,
709 F.3d 808 (9th Cir. 2013). Post hoc rationalizations for a
restriction on commercial speech may not be used to sustain
its constitutionality.
Second, after identifying the governmental interests that
animate the challenged restriction, intermediate
scrutiny—and, a fortiori, heightened scrutiny—demands a “fit
between the legislature’s ends and the means chosen to
accomplish those ends.” Sorrell, 131 S. Ct. at 2668 (quoting
Fox, 492 U.S. at 480). This requirement is demanding under
heightened scrutiny, but it is “something short of a
least-restrictive-means standard” that the government must
meet under strict judicial scrutiny. See Fox, 492 U.S. at 477.
What is required is “a fit that is not necessarily perfect, but
S. Ct. at 2667 (“[T]he outcome is the same whether a special commercial
speech inquiry or a stricter form of judicial scrutiny is applied.”)
(emphasis added).
18 RETAIL DIGITAL NETWORK V. APPELSMITH
reasonable; that represents not necessarily the single best
disposition but one whose scope is in proportion to the
interest served; that employs not necessarily the least
restrictive means but . . . a means narrowly tailored to achieve
the desired objective.” Id. at 480.
“As in other contexts, these standards ensure . . . that the
[government’s] interests are proportional to the resulting
burdens placed on speech,” Sorrell, 131 S. Ct. at 2668, thus
preventing “the government from too readily sacrific[ing]
speech for efficiency.” McCullen v. Coakley, 134 S. Ct.
2518, 2534 (2014) (alternation in original). These standards
also check raw paternalism, ensuring “that the law does not
seek to suppress a disfavored message” or “keep people in the
dark for what the government perceives to be their own
good.” Sorrell, 131 S. Ct. at 2668, 2671. Indeed, at least
when the audience of commercial speech consists of adult
consumers in possession of their faculties, the fact “[t]hat the
State finds expression too persuasive does not permit it to
quiet the speech or to burden its messengers.” Id. at 2671.
Our conclusion that Sorrell modified the Central Hudson
test is consistent with the decisions of other circuit courts
applying Sorrell. Our sister circuits have agreed that Sorrell
requires stricter judicial scrutiny of content-based restrictions
on non-misleading commercial speech, though they may not
have settled on the contours of this more demanding level of
scrutiny.
The Eighth Circuit, for example, held that Sorrell
“devised a new two-part test for assessing restrictions on
commercial speech.” 1-800-411-Pain Referral Serv., LLC v.
Otto, 744 F.3d 1045, 1054 (8th Cir. 2014). “The first
question to ask is whether the challenged speech restriction
RETAIL DIGITAL NETWORK V. APPELSMITH 19
is content- or speaker-based, or both. . . . If a commercial
speech restriction is content- or speaker-based, then it is
subject to ‘heightened scrutiny.’” Id. at 1055. The second
step is to apply the appropriate level of scrutiny. According
to the Eight Circuit, because Sorrell “did not define what
‘heightened scrutiny’ means, . . . . [t]he upshot is that when
a court determines commercial speech restrictions are
content- or speaker-based, it should then assess their
constitutionality under Central Hudson.” Id. at 1055.
The Second Circuit also has interpreted Sorrell to require
heightened scrutiny of content- or speaker-based restrictions
on commercial speech, which may be applied using the
framework of the Central Hudson test. United States v.
Caronia, 703 F.3d 149, 164 (2d Cir. 2012). The Seventh
Circuit similarly observed that Sorrell requires “the
government [to] establish that the challenged statute ‘directly
advances a substantial governmental interest and that the
measure is drawn to achieve that interest.’” Am. Civil
Liberties Union of Ill. v. Alvarez, 679 F.3d 583, 604 (7th Cir.
2012) (quoting Sorrell, 131 S. Ct. at 2667–68)).
The Third Circuit has suggested that Sorrell may require
strict scrutiny of content-based burdens on commercial
speech. King v. Governor of the State of N.J., 767 F.3d 216,
236 (3d Cir. 2014), cert. denied sub nom. King v. Christie,
135 S. Ct. 2048 (2015). Citing Sorrell, the court noted that
“[o]rdinarily, content-based regulations are highly disfavored
and subjected to strict scrutiny.” Id. However, the court did
not apply strict scrutiny to the challenged content- and
speaker-based restriction on “professional speech” because it
found that the law did not “discriminat[e] on the basis of
content [or speaker] in an impermissible manner.” Id. at 237.
20 RETAIL DIGITAL NETWORK V. APPELSMITH
Moreover, our holding is consistent with our non-binding
decisions referenced by the parties. These decisions indicated
that Sorrell requires a more demanding form of scrutiny of
content- or speaker-based regulations on commercial speech
than we have previously applied. See Minority Television
Project, Inc. v. FCC, 676 F.3d 869, 881 n.8 (9th Cir. 2012),
vacated, 704 F.3d 1009–10 (9th Cir. 2012) (order); Jerry
Beeman & Pharmacy Servs., Inc. v. Anthem Prescription
Mgmt., LLC, 652 F.3d 1085, 1101 n.17 (9th Cir. 2011),
vacated, 741 F.3d 29 (9th Cir. 2014) (order).4
C. Actmedia is No Longer Binding.
We next consider whether Actmedia remains binding after
subsequent Supreme Court commercial speech decisions,
including Coors Brewing, 44 Liquormart, and Sorrell.
As a three-judge panel, we are bound by Actmedia unless
it is “clearly irreconcilable” with intervening higher authority.
Miller v. Gammie, 335 F.3d 889, 893 (9th Cir. 2003) (en
banc). “This is a high standard.” Lair v. Bullock, 697 F.3d
1200, 1207 (9th Cir. 2012). “It is not enough for there to be
some tension between the intervening higher authority and
prior circuit precedent.” Id. at 1207. “Rather, the relevant
court of last resort must have undercut the theory or reasoning
4
Both of these decisions were vacated, and the subsequent decisions
entered in the cases did not interpret Sorrell. In another case, we noted
that “[t]he parties . . . raise[d] the challenging issue of whether Sorrell,
131 S. Ct. at 2664, 2667–68, made the fourth Central Hudson prong for
content-based restrictions on commercial speech even more demanding for
the state.” Valle Del Sol Inc., 709 F.3d at 821. But we “defer[red]
extended discussion of Sorrell,” after finding that the challenged
“provisions [were] deficient under even the pre-Sorrell, arguably more
government-friendly, precedent.” Id.
RETAIL DIGITAL NETWORK V. APPELSMITH 21
underlying the prior circuit precedent in such a way that the
cases are clearly irreconcilable.” Miller, 335 F.3d at 900; see
also In re Flores, 692 F.3d 1021, 1030–31 (9th Cir. 2012).
We do not find that Coors Brewing, 514 U.S. 476 (1995)
(striking down a law prohibiting beer labels from displaying
alcohol content), or 44 Liquormart, 517 U.S. 484 (1996)
(striking down a ban on all advertising of alcoholic beverage
prices except for price tags), meets this high standard. Coors
Brewing and 44 Liquormart do not clearly undermine
Actmedia’s reasoning—they also applied intermediate
scrutiny under the Central Hudson test. Similarly, we held in
Lair v. Bullock that our circuit precedent could not be
eschewed where a subsequent Supreme Court decision had
“only clarified and reinforced” the principles on which our
prior decision relied. 697 F.3d at 1207. While Coors
Brewing and 44 Liquormart suggest that complete bans on
particular commercial speech require a higher level of
scrutiny, section 25503 is not a complete ban on
advertisements of alcoholic beverages in retail stores.
We find, however, that Sorrell and Actmedia are clearly
irreconcilable. As explained above, Sorrell modified the
Central Hudson analysis by requiring heightened judicial
scrutiny of content-based restrictions on non-misleading
advertising of legal goods or services. The parties do not
dispute that section 25503 is a content- and speaker-based
restriction on commercial speech. As such, section 25503 is
now subject to heightened judicial scrutiny, not the
intermediate scrutiny applied in Actmedia. Thus, Actmedia’s
“overall analytical framework” of intermediate scrutiny
cannot be reconciled with Sorrell’s framework of heightened
judicial scrutiny. See Lair, 697 F.3d at 1206.
22 RETAIL DIGITAL NETWORK V. APPELSMITH
We cannot distinguish Sorrell as a case involving a
complete ban on commercial speech. Sorrell foreclosed this
argument. The majority stated “that the distinction between
laws burdening and laws banning speech is but a matter of
degree and that the Government’s content-based burdens
must satisfy the same rigorous scrutiny as its content-based
bans.” Sorrell, 131 S. Ct. at 2664.
Our conclusion that Sorrell undercut the theory and
reasoning underlying Actmedia in a way that makes the cases
clearly irreconcilable is strengthened by Actmedia’s treatment
of paternalistic policy. Actmedia held that California could,
consistent with the First Amendment, promote temperance
“directly . . . by reducing the amount of point-of-purchase
advertising” of alcoholic beverages. Actmedia, 830 F.2d at
967.5 However, the 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. Even in the context of commercial
speech, “the fear that people would make bad decisions if
given truthful information cannot justify content-based
burdens on speech.” Sorrell, 131 S. Ct. at 2670–71; see also
44 Liquormart, 517 U.S. at 503 (opinion of Stevens, J.) (“The
First Amendment directs us to be especially skeptical of
5
Actmedia does not appear to have definitively held that an additional
goal of section 25503(h) is the suppression of point-of-purchase
advertising. See Actmedia, 830 F.2d at 967 (“Moreover, to the extent that
the California legislature has determined that point-of-purchase
advertising is a direct cause of excessive alcohol consumption, limiting
that advertising is obviously the most direct and perhaps the only effective
approach available.” (emphasis added)). Other courts that have examined
section 25503 and similar tied-house statutes in detail have not found this
goal to animate the laws. See, e.g., Nat’l Distrib. Co., 626 F.2d at
1009–10; Cal. Beer Wholesalers Ass’n, 5 Cal. 3d at 407.
RETAIL DIGITAL NETWORK V. APPELSMITH 23
regulations that seek to keep people in the dark for what the
government perceives to be their own good.”).
We conclude that Actmedia is no longer binding in light
of the Supreme Court’s opinion in Sorrell. Following Sorrell,
section 25503(f)–(h) must survive heightened judicial
scrutiny to stand.
D. We Remand for the District Court to Apply
Heightened Judicial Scrutiny.
While we conclude that Actmedia is clearly irreconcilable
with Sorrell, we remand for the district court to apply
heightened judicial scrutiny in the first instance. A remand
is appropriate in this case for several reasons. First, RDN did
not move for summary judgment in the district court and
agreed at oral argument that a remand for the district court to
develop the factual record and apply heightened judicial
scrutiny would be appropriate. The State also expressed a
desire to develop the factual record should we find that
Actmedia is no longer controlling. Second, the record before
us is thin, as this appeal is from a motion for summary
judgment rather than, as in Actmedia, from judgment after a
trial. Third, the State should not be faulted for resting on
Actmedia, which has been the law since 1986, rather than
investing more resources in rallying to section 25503(f)–(h)’s
defense. Confronted with similar circumstances, the Supreme
Court approved of the Second Circuit’s decision to remand
for the district court to apply the third and fourth Central
Hudson factors in the first instance. Fox, 492 U.S. at 475–76.
Similarly, we recently declined to fault a plaintiff for relying
on an overruled decision that had “been the law of the circuit
since 1985,” and thus remanded “on an open record to allow
[the plaintiff] an opportunity to make” the required showing.
24 RETAIL DIGITAL NETWORK V. APPELSMITH
Cottonwood Envtl. Law Ctr. v. U.S. Forest Serv., 789 F.3d
1075, 1092 (9th Cir. 2015). Here too we remand on an open
record to give the State a chance to meet its burden and for
the district court to apply heightened judicial scrutiny in the
first instance.
On remand, there are several considerations that should
be addressed in applying heightened judicial scrutiny. As an
initial matter, we observe that the State’s goal of suppressing
a particular commercial structure, rather than a particular
commercial message, remains valid. See Granholm v. Heald,
544 U.S. 460, 466 (2005) (maintaining a “three-tier
distribution system” is a legitimate governmental interest);
Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 715 (1984)
(noting that “exercising control over . . . how to structure the
liquor distribution system” is a legitimate exercise of a State’s
Twenty-first Amendment powers). The broad goal of
“temperance” also remains “a valid and important interest of
the State under the Twenty-first Amendment.” Costco
Wholesale Corp. v. Maleng, 522 F.3d 874, 902 (9th Cir.
2008). However, “state laws that violate other provisions of
the Constitution [including the First Amendment] are not
saved by the Twenty-first Amendment.” Granholm, 544 U.S.
at 486. Moreover, to the extent that the legislature intended
to promote temperance by reducing the amount of point-of-
purchase advertising, as Actmedia assumed, the court’s
skepticism regarding whether section 25503(f)–(h)’s burden
on expression directly advances and is fit to achieve a
permissible goal should be deepened. This is because a
statute tailored to fit an impermissible goal of suppressing
commercial speech for fear that it will persuade is less likely
to be a close fit for another, permissible goal of the statute.
RETAIL DIGITAL NETWORK V. APPELSMITH 25
As noted, with respect to the third Central Hudson factor,
the “Government carries the burden of showing that the
challenged regulation advances the Government’s interest in
a direct and material way.” Coors Brewing Co., 514 U.S. at
487. “That burden is not satisfied by mere speculation or
conjecture.” Id. Rather, to survive scrutiny “a restriction on
commercial speech must demonstrate that the harms it recites
are real and that its restriction will in fact alleviate them to a
material degree.” Id. On remand, the district court should
consider whether the State has shown that there is a real
danger that paid advertising of alcoholic beverages would
lead to vertical or horizontal integration under circumstances
existing in the alcoholic beverage market today. While we
“hesitate to disagree with the accumulated, common-sense
judgments of [the] lawmakers” who enacted section
25503(f)–(h), see Metromedia, 453 U.S. at 509, we cannot
say on the record before us that the State’s Prohibition-era
concern about advertising payments leading to vertical and
horizontal integration, and thus leading to other social ills,
remains an actual problem in need of solving. Additionally,
the district court should consider whether the State’s concern
about paid advertising leading to horizontal and vertical
integration is real in the circumstances of this case. Here,
advertising payments to retailers are made by a third party,
not directly by a manufacturer or wholesaler of alcoholic
beverages. There may be additional reasons to doubt the
State’s concern about advertising payments actually leading
to vertical or horizontal integration in these circumstances.
The district court must also consider whether the State has
shown that section 25503(f)–(h) materially advances the
State’s goals of preventing vertical and horizontal integration
and promoting temperance. We note that the increasing
number of statutory exceptions to section 25503(f)–(h) call
26 RETAIL DIGITAL NETWORK V. APPELSMITH
into doubt whether the statute materially advances these aims.
Cal. Bus. & Prof. Code §§ 25503.1–25503.57; see Coors
Brewing Co., 514 U.S. at 489 (finding “little chance” that a
law “can directly and materially advance its aim, while other
provisions of the same Act directly undermine and counteract
its effects”). Additionally, the record before us does not
demonstrate that a prohibition on paid point-of-sale
advertising materially advances the goal of temperance.6
Indeed, a study discussed in Actmedia suggests that the effect
of paid advertising is only to persuade customers to purchase
a particular brand, not to purchase and consume more
alcohol. See Actmedia, 830 F.2d at 961–62.
With respect to the fourth Central Hudson factor,
heightened judicial scrutiny demands a “fit between the
legislature’s ends and the means chosen to accomplish those
ends.” Sorrell, 131 S. Ct. at 2668. We cannot say on the
record now before us that section 25503(f)–(h) is narrowly
tailored to serve the State’s interest in preventing advertising
payments from undermining its triple-tiered distribution and
licensing scheme. For example, the State’s interest might be
achieved by policing advertising agreements made between
retailers, manufacturers, wholesalers, and intermediaries like
RDN, rather than by banning paid advertisements of alcoholic
beverages in retail stores. The State’s additional goal of
6
On this score, the State’s expert states that “[i]t is almost impossible to
pull a single regulation out of the system and determine exactly what it
does and how it contributes to an overall goal such as temperance.”
Although we leave it for resolution on remand, we observe that this
acknowledgment would suggest that the State will have a difficult time
carrying its burden of showing that section 25503(f)–(h) directly and
materially advances the State’s asserted interests in preventing vertical and
horizontal integration of the alcoholic beverage industry and promoting
temperance. See Edenfield v. Fane, 507 U.S. 761, 767 (1993).
RETAIL DIGITAL NETWORK V. APPELSMITH 27
increasing temperance might be achieved by regulating the
prices of alcoholic beverages, limiting when and where they
are sold, or adopting educational programs, rather than by
burdening commercial speech of particular content by
particular speakers. On remand, the district court should
consider whether the State has demonstrated the requisite fit
between section 25503(f)–(h) and the State’s goals.
While we decline to decide these issues on the thin record
before us, the State must meet its burden on remand.
III.
Twenty-nine years ago, in Actmedia, Inc. v. Stroh,
830 F.2d 957 (9th Cir. 1986), we held that California
Business and Professions Code section 25503(h) was
consistent with the First Amendment. Today we hold that
Actmedia is no longer binding in light of Sorrell v. IMS
Health, Inc., 131 S. Ct. 2653 (2011). 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. We remand on an open
record for the district court to apply heightened judicial
scrutiny in the first instance.
REVERSED and REMANDED.