Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-13-56069/USCOURTS-ca9-13-56069-0/pdf.json

Nature of Suit Code: 950
Nature of Suit: Constitutionality of State Statutes
Cause of Action: 

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

RETAIL DIGITAL NETWORK, LLC,

Plaintiff-Appellant,

v.

JACOB APPELSMITH, as Director of

the Alcoholic Beverage Control

Board,

Defendant-Appellee.

No. 13-56069

D.C. No.

2:11-cv-09065-

CBM-PJW

OPINION

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.

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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.

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RETAIL DIGITAL NETWORK V. APPELSMITH 3

COUNSEL

Olivier A. Taillieu (argued) and Raffi V. Zerounian, The

Taillieu Law Firm, Beverly Hills, California, for PlaintiffAppellant.

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

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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 DefendantAppellee 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

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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

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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.

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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

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over the state’s retail outlets, and of promoting temperance.” 

Id. at 966. We explained that the provision eliminated a

loophole potentiallyleft open byCalifornia’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,

byreducing 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,

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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

declaratoryrelief 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

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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 contentand 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

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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

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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).

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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 bysuppliers 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).

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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

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“speaker” is considered to be RDN as a publisher or thirdparty 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 scrutinyto 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.”).

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In Sorrell, however, the Supreme Court held that contentor 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 nonmisleading 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

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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).

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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

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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.

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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 “clearlyirreconcilable” 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 evenmore 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.

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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.

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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

clearlyirreconcilable is strengthened byActmedia’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.

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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. Confrontedwith 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. 

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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-ofpurchase 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.

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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

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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).

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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.

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