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Retail Digital Network, LLC v. Prieto

United States Court of Appeals, Ninth Circuit

June 14, 2017

Retail Digital Network, LLC, Plaintiff-Appellant,
v.
Ramona Prieto, as Acting Director of the California Department of Alcoholic Beverage Control, Defendant-Appellee.

          Argued and Submitted En Banc January 19, 2017 San Francisco, California

         Appeal from the United States District Court No. 2:11-cv-09065-CBM-PJWfor the Central District of California Consuelo B. Marshall, District Judge, Presiding

          Olivier Taillieu (argued) and Raffi V. Zerounian, The Taillieu Law Firm, Los Angeles, California, for Plaintiff-Appellant.

          Joshua A. Klein (argued), Deputy Solicitor General; Edward C. DuMont, Solicitor General; California Department of Justice, San Francisco, California; Gabrielle H. Brumbach, Deputy Attorney General; Gary S. Balekjian, Supervising Deputy Attorneys General; Chris A. Knudsen, Senior Assistant Attorney General; Office of the Attorney General, San Francisco, California; for Defendant-Appellee.

          Warren David Postman (argued), Kate Comerford Todd, and Warren Postman, U.S. Chamber Litigation Center, Washington, D.C.; Helgi C. Walker and Chad R. Mizelle, Gibson Dunn & Crutcher LLP, Washington, D.C.; for Amicus Curiae Chamber of Commerce of the United States of America.

          Michael Brill Newman, Holland & Knight LLP, San Francisco, California, for Amicus Curiae Wine and Spirits Wholesalers of California, Inc.

          Robert A. Brundage and Brian C. Rocca, Morgan Lewis & Bockius LLP, San Francisco, California; for Amicus Curiae California Beer and Beverage Distributors.

          Carl L. Blumenstein, Nossaman LLP, San Francisco, California, for Amicus Curiae California Craft Brewers Association.

          Scott L. Nelson, Allison M. Zieve, and Julie A. Murray, Public Citizen Litigation Group, Washington, D.C., for Amicus Curiae Public Citizen, Inc.

          Michael D. Madigan and Brandt F. Erwin, Madigan Dahl & Harlan P.A., Minneapolis, Minnesota, for Amici Curiae National Beer Wholesalers Association and Wine & Spirits Wholesalers of America, Inc.

          Cory L. Andrews, Richard A. Samp, and Mark S. Chenoweth, Washington, D.C., as and for Amicus Curiae Washington Legal Foundation.

          Before: Sidney R. Thomas, Chief Judge, and Stephen Reinhardt, Alex Kozinski, William A. Fletcher, Ronald M. Gould, Richard A. Paez, Johnnie B. Rawlinson, Jay S. Bybee, Milan D. Smith, Jr., Mary H. Murguia and Paul J. Watford, Circuit Judges.

         SUMMARY[*]

         Civil Rights

         The en banc court affirmed the district court's summary judgment in favor of the Acting Director of the California Department of Alcoholic Beverage Control in an action challenging, on First Amendment grounds, California Business and Professions Code § 25503(f)-(h), which prohibits alcohol manufacturers and wholesalers from providing anything of value to retailers in exchange for advertising their alcohol products.

         The en banc court first noted that thirty years ago, in Actmedia, Inc. v. Stroh, 830 F.2d 957 (9th Cir. 1986), this Circuit rejected a First Amendment challenge to the same California and Professions Code provision. The en banc court rejected plaintiff's contention that Actmedia was no longer good law because the Supreme Court's decision in Sorrell v. IMS Health Inc., 564 U.S. 552 (2011) fundamentally altered the four-part test for evaluating restrictions on commercial speech, established in Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S. 557 (1980).

         The en banc court held that Sorrell did not modify the Central Hudson test that been applied in Actmedia. Although the en banc court disapproved of Actmedia's reliance on California's interest in promoting temperance as a justification for Section 25503(h), the court nevertheless held that Actmedia's reliance on temperance did not negate the sound and well-reasoned conclusion that Section 25503(h) withstood First Amendment scrutiny. The en banc court agreed that (1) Section 25503(h) directly and materially advanced the State's interest in maintaining a triple-tiered market system, by which manufacturing interests were to be separated from wholesale interests, and wholesale interests were to be segregated from retail interests; and (2) there was a sufficient fit between that interest and the legislative scheme.

         Dissenting, Chief Judge Thomas stated that he would hold that Actmedia is irreconcilable with Sorrell, expressly overrule Actmedia, and remand to allow the district court to conduct a purposive inquiry into the restricting statute, as required by Sorrell.

          OPINION

          PAEZ, Circuit Judge.

         In this appeal, we consider Plaintiff-Appellant Retail Digital Network, LLC's ("RDN") First Amendment challenge to California Business and Professions Code § 25503(f)-(h). Section 25503(f)-(h) prohibits alcohol manufacturers and wholesalers from providing anything of value to retailers in exchange for advertising their alcohol products. As a result of Section 25503(f)-(h), alcohol manufacturers and wholesalers refused to enter into advertising agreements with RDN-which placed advertisements in wine and spirit retail stores-and RDN filed suit for declaratory and injunctive relief against Defendant-Appellee Ramona Prieto ("Prieto") in her official capacity as Acting Director of the California Department of Alcoholic Beverage Control (the "ABC").[1]

         This is not the first time we have considered such a challenge to Section 25503(h).[2] Thirty years ago, in Actmedia, Inc. v. Stroh, 830 F.2d 957 (9th Cir. 1986), we rejected a First Amendment challenge to that provision. In rejecting the challenge, we applied the four-part test established by Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S. 557 (1980), for evaluating restrictions on commercial speech.

         RDN argues that Actmedia is no longer good law because the Supreme Court's decision in Sorrell v. IMS Health Inc., 564 U.S. 552 (2011), fundamentally altered the Central Hudson test by adopting a more demanding standard for assessing restrictions on commercial speech. We disagree. Reviewing de novo, we hold that Sorrell did not modify the Central Hudson standard. We reaffirm Actmedia's core holding, but we disapprove of Actmedia's reliance on California's interest in promoting temperance as a justification for Section 25503(h). We therefore affirm the district court's order granting summary judgment to Prieto, which correctly relied on Actmedia.

         I.

         A.

         RDN installed and operated seven-foot digital screen displays in one-hundred wine and spirit retail stores throughout Southern California. On its screens, RDN ran advertisements on a two-minute loop comprised of fifteen-second advertisements. RDN sold advertising slots to various companies, and, in turn, agreed to share a portion of its revenue with the retail stores.

         RDN agreed to run advertisements for two alcohol manufacturers, St-Germain and Moët Hennessy. Those agreements, however, were short-lived because St-Germain and Moët Hennessy feared that the ABC would enforce Section 25503(f)-(h) against them.[3] Several other alcohol manufacturers and wholesalers, including Anheuser-Busch, Beam Global, Diageo, Jack Daniel's Tennessee Whiskey, MillerCoors, and Skyy refused to contract with RDN because of the same concern.

         As a result of its inability to secure advertisement placements from alcohol manufacturers and wholesalers, RDN filed this lawsuit against Prieto, seeking a declaration that Section 25503(f)-(h) is unconstitutional under the First Amendment because it impermissibly restricts commercial speech, and an injunction enjoining enforcement of those subsections.

         Prieto moved for summary judgment, arguing that RDN lacked standing and that even if standing existed, she was entitled to judgment under Actmedia, which rejected a similar First Amendment challenge. The district court concluded that RDN had standing, but that Prieto nonetheless was entitled to summary judgment because Actmedia was not clearly irreconcilable with Sorrell or other subsequent Supreme Court cases.

         RDN timely appealed. A three-judge panel of this court reversed and remanded for further proceedings.[4]Retail Digital Network, LLC v. Appelsmith, 810 F.3d 638, 642 (9th Cir. 2016). The panel held that "Sorrell 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(h)] in Actmedia." Id. After the panel issued its opinion, a majority of nonrecused ...


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