Ninth Circuit En Banc Panel Holds that Central Hudson Survives Sorrell

by Reed Smith
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Last week we bashed a Ninth Circuit Daubert decision.  We feel a little bit bad about that, not because the decision wasn’t bashworthy – no, Wendell really is a rotten precedent – but because we hate contributing to the chorus of defense hacks who bemoan the Ninth Circuit’s supposedly liberal, pro-plaintiff bias. You see, we began our legal career out West and would still be there but for a simple twist of fate.

When we clerked for the great and good Circuit Judge William A. Norris in Los Angeles, we were in the Ninth Circuit. Norris possessed both high principles and brilliant technical reasoning.  He grew up in a western Pennsylvania Gold Star family, served in the military, graduated from Princeton U. and Stanford Law, clerked for Justice Douglas, became a preeminent litigator who would beat you whether the issues were constitutional, administrative, or commercial, ran Bobby Kennedy’s 1968 California Primary campaign that saw success turn into tragedy, founded a major museum of contemporary art, and became a judicial giant who produced brilliant opinions and a lineup of SCOTUS clerks.

Norris did not fret over the Ninth Circuit’s reputation for SCOTUS reversals.  He tried to get things right.  Sometimes that meant getting out ahead of SCOTUS, as with his Watkins decision, which anticipated equal protection of gay rights. Working with Judge Norris was a privilege.  If there is an ounce of value to our legal writing, then most of that ounce comes from sessions sitting next to Norris in front of a computer screen, editing opinions word by word.  He insisted that the writing be concise and powerful.  He would bark out in joy whenever we eliminated unnecessary words.  Clear writing came from clear thinking, and Norris’s lightning fast brain always took a logical path through complexity.

Norris passed away this last January, filling us with grief and leaving us feeling like a judicial orphan.  A few months before his death, Judge Norris completed his autobiography, Liberal Opinions: My Life in the Stream of History.  It is a remarkable and uplifting story. Norris carved out a sparkling career in the law.  He also offered splendid advice, including the need to go with one’s gut.  (But do not follow this advice if your gut is an idiot.) We were startled to see on page 188 a quote from this blog defending the Ninth Circuit’s reputation.  Judge Norris’s approval meant – means – a lot to us.

The Ninth Circuit is vast.  It contains multitudes.  When we took our first deposition in San Diego, in a case involving (so help us) stolen dirt, we were in the Ninth Circuit.  When we interviewed a witness in the FBI’s Honolulu office, we were in the Ninth Circuit. When we traveled with DCIS agents and postal inspectors to Las Vegas to round up a check-stealing ring, we were in the Ninth Circuit.  When we did a presentation on litigation and pop culture at the hotel that was the setting for the Twin Peaks television show and movie (Snoqualmie Falls, Washington) we were in the Ninth Circuit.  When we took home the Drug and Device Law Infants from Cedars Sinai Hospital in Beverly Hills, we were in the Ninth Circuit. So were we when we carried those kids on backpacks through Yosemite Valley and, later, hiked alongside them past Yellowstone’s geysers.   (Now we’re just getting sentimental.). Here’s the point: is it any wonder that the Ninth Circuit has, not just the most opinions of any Circuit, but the broadest range of issues and a sometimes perplexing array of outcomes?  Petulant calls to divide this magnificent Circuit, which contains one-fifth the country’s population, make no sense.  How to divide?  Create a California-only Circuit? That would be unprecedented.  Plus, we’d certainly get more Circuit splits.  What’s good about that? Why do we insist on dwelling in echo-chambers, occasionally stepping outside only to hurl invectives? The Ninth Circuit is a model, not a problem.

Which is not to say that the Ninth Circuit is free from mistakes.  We already mentioned Wendell.  Today, we are discussing a case that seems headed for the Supreme Court.  We do not know if it contains mistakes – it turns on a nice issue of first amendment law, and we know just enough about that area to know there are plenty of people out there who know more.  Retail Digital Network, LLC v. Prieto, 2017 WL 2562047 (9th Cir. en banc June 14, 2017), matters to us because it turns on an interpretation of the SCOTUS Sorrell decision from 2011.  We have blogged about Sorrell several times.  For example, check out this post.

Here is a brief Sorrell refresher.  Vermont passed a law preventing pharma retailers from accessing information about which physicians prescribe which drugs. Data miners, who gathered and disseminated such information, challenged the Vermont statutes as violating the first amendment.  SCOTUS struck the statute down.  Our favorite part of the decision is that “[s]peech in aid of pharmaceutical marketing … is a form of expression protected by the Free Speech clause of the First Amendment.”  The Sorrell court held that the Vermont statute disfavored marketing, that is, speech with a particular content, and disfavored specific speakers, namely pharmaceutical manufacturers. In arriving at its result, the Sorrell court did not exactly follow the dance-steps set out in the Central Hudson commercial speech test.  The Sorrell court referenced “heightened scrutiny,” which is different terminology from the “intermediate scrutiny” in Central Hudson.

So what?  What indeed. When we first discussed the Sorrell case, we wondered what the case meant for constitutional protection of truthful off-label communications.  We also wondered whether Sorrell had expanded protection of free speech beyond Central Hudson.

It is that latter question that the Ninth Circuit en banc panel confronted in Retail Digital Network.  That case involved regulation of the marketing of alcohol, not pharmaceuticals, but the animating principles are potentially important for both.  California law prohibits alcohol manufacturers and wholesalers from providing anything of value to retailers in exchange for advertising their products.  In a pre-Sorrell Ninth Circuit case called Actimedia, the Ninth Circuit had applied the Central Hudson test to uphold California’s law, holding that it directly advanced important state interests in separating alcohol manufacturing, wholesale, and retail interests, as well as the state’s interest in temperance. The district court felt bound by Actimedia, and upheld the statute.  The original Ninth Circuit panel in Retail Digital Network held that Sorrell had created a more demanding first amendment test, that, consequently, Actimedia was no longer good law, and that the district court needed to consider whether the California statute could survive Sorrell‘s  “heightened scrutiny.”  The en banc panel reversed the original panel’s reversal of the district court. (Got that?).

The en banc panel reasoned that Sorrell had not really changed the Central Hudson test in any substantive way.  The “heightened scrutiny” phrase was merely intended by SCOTUS to mean more heightened than rational basis review.  In other words, “heightened” equals “intermediate.”  Thus, Actimedia was still good law.  Mostly.  The Retail Digital Network en banc panel concluded that Actimedia was correct that the California statute advanced the state’s interest in separating manufacturing, wholesale, and retail players in the alcohol industry.  California has a legitimate interest in ensuring that advertising payments are not disguised forms of kickbacks and methods of securing vertical and horizontal integration harmful to consumers.  But the en banc panel no longer bought the proposition that restriction of payments for retail advertising would reduce overall  alcohol consumption.  At best, such a restriction might indirectly serve the temperance goal, and that does not cut it under Central Hudson.  Still, the California statute survives.

What to think about the Retail Digital Network opinion?  From our point of view, whether applying “heightened” or “intermediate” scrutiny, we think truthful off-label statements should be protected speech.  The term “promotion,” which seems meant to be pejorative, should not alter the analysis.  We’re not sure that the en banc opinion pays enough attention to the Sorrell discussion of content- and speaker-specific regulations. It’s perhaps too simplistic to say that all commercial speech is content- and speaker-specific. The FDA would be the first to say that it is regulating what manufacturers say, but not what doctors or researchers say.  Will SCOTUS reverse the en banc panel’s reversal of the original panel’s reversal of the district court’s strike-down of the statute?  (Got that?). Keep in mind that the Ninth Circuit en banc panel is joining the Second, Fourth, Sixth, and Eighth Circuits in holding that the Central Hudson test for commercial speech lingers beyond the Sorrell holding.  Moreover, the make-up of the Ninth Circuit panel (remember, Ninth Circuit en banc panels do not include all the active judges in the Circuit) is interesting.  The only dissenter was Chief Judge Thomas. (The Chief Judge is always on en banc panels).  All the other judges voted that Central Hudson still supplies the test.  Among those judges in the majority were Kozinski and Reinhardt. When those two judges, universally considered among the most brilliant judges from the conservative and liberal schools, respectively (yes, we know that is a vast simplification, but forgive us), agree on something, one should be slow to predict SCOTUS reversal.

Then again, Monday’s SCOTUS decision in Matal v. Tam, which struck down the rule against trademarks that disparage persons, might have something to say about Retail Digital Network.  Most commentators have discussed what the Matal case means for the Washington D.C. National Football League team.  But Matal also applied a very muscular version of the Central Hudson test in holding that the non-disparagement provision was not a sufficiently “narrowly drawn” means of advancing “a substantial interest.”  One such asserted substantial interest in Matal was the orderly flow of commerce.  That is not exactly the same interest sustained by the Ninth Circuit in Retail Digital Network, but it is pretty close.  Stay tuned.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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