United States Court of Appeals

For the First Circuit

No. 04-1697

EL DÍA, INC.,

Plaintiff, Appellee,

v.

PUERTO RICO DEPARTMENT OF CONSUMER AFFAIRS;

SECRETARY OF THE DEPARTMENT OF CONSUMER AFFAIRS,

Defendants, Appellants.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Jay A. García-Gregory, U.S. District Judge]

Before

Torruella, Circuit Judge,

Campbell, Senior Circuit Judge,

and Lynch, Circuit Judge.

Doraliz E. Ortiz-De León, with whom Roberto J. Sánchez-Ramos,

Solicitor General, Kenneth Pamias-Velázquez, Deputy Solicitor

General, and Camelia Fernández-Romeu, Assistant Solicitor General,

were on brief, for appellants.

Etienne Totti-del Valle, with whom Cristina A. FernándezRodríguez and Totti & Rodríguez Díaz, were on brief, for appellee.

June 3, 2005
1 A certified English translation of Article 24 appears at

Appendix A.

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TORRUELLA, Circuit Judge. This case is before us on

appeal from a grant of summary judgment in favor of plaintiffappellee El Día, Inc. ("El Día"), against defendants-appellants,

Puerto Rico Department of Consumer Affairs and the Secretary of

Consumer Affairs in his official capacity (collectively, "DACO").

The judgment declares that Article 24 of DACO's Regulation 43391 is

unconstitutional insofar as it impermissibly restricts commercial

speech entitled to First Amendment protection. El Día, Inc. v.

P.R. Dep't of Consumer Affairs, 313 F. Supp. 2d 54 (D.P.R. 2004).

I. Background

A. Facts

El Día is a Puerto Rico corporation that publishes "El

Nuevo Día," a newspaper of general circulation in Puerto Rico.

DACO is an administrative agency of the Commonwealth of Puerto Rico

whose stated mission is "to defend and implement the rights of the

consumer, to restrain the inflationary trends; as well as [to]

establish[] and inspect[] . . . price control[s] over . . . goods

and services . . . ." 3 P.R. Laws Ann. § 341b (2002).

On October 3, 1990, DACO adopted Regulation 4339 ("the

Regulation"), entitled "Regulations Governing Misleading Practices

and Advertising," for the stated purpose of protecting consumers

from fraudulent or deceptive advertisement of goods and services
2 Although the term "broadcasting" is used in the certified

English translation of the Spanish-language Regulation, the proper

translation for the term used in the original, "difundir," is more

akin to "divulge," "propagate," or "publish." See Diccionario

Manual Vox, Lengua Española, Sinónimos y Antónimos, Nueva Edición

236 (1995); María Moliner, Diccionario del Uso Español 997 (1991).

Article 4 of the Regulation provides that in the event of a

discrepancy between the original text in Spanish and its English

translation, the Spanish text shall prevail. Nevertheless, the

parties apparently agree that publication of an advertisement in a

newspaper is within the purported coverage of the Regulation.

Thus, the mistranslation is irrelevant for our purposes.

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offered in commerce in Puerto Rico, and to proscribe certain

misleading practices connected therewith. See DACO Reg. 4339 art.

2. The Regulation applies "to all persons dedicated to offering

goods and services to consumers, on their own or through a

representative, agent, intermediary or as a representative agent"

in Puerto Rico, including "all persons engaged in the business of

advertising or in similar activity." Id. art. 3 (certified

translation). Various specific advertising and merchandising

practices are proscribed as deceptive or misleading to the

consumer, id. art. 7, and thus the Regulation attempts to establish

a comprehensive set of rules as to the manner and content of

commercial advertisements, id. arts. 8-22.

As part of this regulatory scheme, Article 24 requires

that:

Any non-resident advertiser in Puerto Rico,

who is interested in broadcasting[2] one or

more advertisements in Puerto Rico, must

previously deposit with [DACO] a twenty-five

thousand ($25,000.00) dollar bond to cover the

imposition of fines for any noncompliance with
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the provisions, orders and resolutions of

these regulations, as well as any pertinent

legal remedy in favor of the consumers.

. . . 

The posting of the required bond entails

voluntarily surrendering to the jurisdiction

of [DACO] and of the General Court of Justice

of the Commonwealth of Puerto Rico.

This provision is intended to provide DACO with an enforcement

mechanism for fines imposed against nonresident advertisers who

violate the substantive requirements of the Regulation.

See Defendant's Statement of Uncontested Material Facts para. 19,

El Día, Inc. (No. 00-2631).

Article 24 goes on to require "[a]ny resident

intermediary in Puerto Rico [to] make sure, before broadcasting an

advertisement in Puerto Rico, that the advertiser has posted the

required bond," DACO Reg. art. 24(B), and allows resident

intermediaries, like El Día, to "comply with [their] responsibility

under this regulation by assuming the advertiser's responsibility

with respect to the posting of the required bond," id. art. 24(C).

One $25,000 bond suffices to cover all of the advertisements that

an intermediary publishes for an unlimited number of nonresident

advertisers. Id.

Violation of the Regulation can result in the imposition

of civil penalties up to $10,000, and may lead to the filing of a
3 Under Puerto Rico criminal law, this would be a misdemeanor

charge with a maximum sanction of six months' imprisonment and a

$5000 fine. See 33 P.R. Laws Ann. §§ 3044-3045 (2002).

4 El Día raised both its own interests, and those of its

advertisers, before the district court. DACO's challenge to El

Día's standing was rejected by the district court, see El Día, 33

F. Supp. 2d at 59-60, and has not been appealed.

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criminal action by DACO.3 Id. arts. 26, 27. Although the

Regulation appears to have been enforced with sporadic vigor, there

are several instances in which DACO imposed, or sought to impose,

civil fines upon El Día for alleged infractions of Article 24.

DACO sent notices of infraction to El Día for failure to determine

whether a nonresident advertiser had secured the required bond: in

May 1995, imposing a $5000 fine; on August 26, 1996, imposing a

$600 fine; and on October 6, 2000, imposing a $750 fine. See

Defendant's Statement of Uncontested Material Facts paras. 23-25.

El Día was also fined $500 for failing to respond to DACO's inquiry

about whether a bond had been secured by the nonresident purchaser

of an advertisement El Día published on September 17, 2001. See

id. para. 26.

B. Proceedings

Following the October 6, 2000 Notice of Infraction, El

Día filed an action in the United States District Court for the

District of Puerto Rico challenging Article 24's bond requirement

for nonresident advertisers and its requirement that resident

intermediaries act as guarantors of the bonds.4 El Día sought
5 Although several members of the Court have since questioned the

Central Hudson framework, see Thompson v. W. States Med. Center,

535 U.S. 357, 367-68 (2002), the Court has continued to apply the

framework.

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declaratory and injunctive relief under the Declaratory Judgment

Act, 28 U.S.C. §§ 2201-2202, and the Civil Rights Act of 1871, 42

U.S.C. § 1983, arguing that Article 24 violated the First and

Fourteenth Amendments, the Privileges and Immunities Clause, and

the Commerce Clause of the Constitution of the United States.

After various procedural skirmishes between the parties and

extensive discovery, cross motions for summary judgment were filed.

The district court referred these to a magistrate judge, and

ultimately adopted the magistrate judge's Report and Recommendation

in its Opinion and Order granting summary judgment in favor of El

Día.

The district court concluded, and we agree, that no

material issues of fact were in dispute, and that only legal

questions remained to be resolved. Thus, a classic case for

disposition by summary judgment was presented. See Fed. R. Civ. P.

56. In adopting the substance of the magistrate judge's reasoning,

the district court concluded that the Regulation violates the First

Amendment because it fails the test for commercial speech

restrictions established in Central Hudson Gas & Electric Corp. v.

Public Service Commission, 447 U.S. 557 (1980).5 In that case, the

Supreme Court stated that when commercial speech is entitled to
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First Amendment protection -- that is, when it concerns lawful

activity and is not misleading -- it can only be limited if the

restriction (1) is in support of a substantial government interest,

(2) "directly advances the governmental interest asserted," and (3)

"is not more extensive than is necessary to serve that interest."

Id. at 566.

Echoing the conclusions of the magistrate judge, the

district court found that, although the first Central Hudson prong

was met, Article 24's bond requirement failed to meet the second

prong. The district court found that DACO had failed to provide

evidence that the harms it sought to avoid with Article 24 are

real. Moreover, Article 24 "provided ineffective and remote

support to the [asserted governmental] interest of protecting

consumers." El Día, 313 F. Supp. 2d at 61. Because it found that

the second Central Hudson prong was not met, the district court

determined that it was unnecessary to decide whether Article 24

complied with the third prong. Id. We focus our attention, as the

parties did on appeal, on the second and third prongs.

II. Discussion

This is a case of first impression, as we are unaware of

any other federal or state regulation in the United States that

restricts the exercise of First Amendment rights in the manner
6 DACO notes that the Supreme Court of Nevada upheld, under

Central Hudson, a regulation that required telephone solicitors to

pay an annual registration fee and post a bond as security for the

recoupment of potential losses sustained by consumers as a result

of solicitors' deceptive practices or cessation of business,

provided the amounts of the fee and bond were "nominal and

reasonable." See Erwin v. Nevada, 908 P.2d 1367, 1370-72 (Nev.

1995). Article 24, however, does not impose a registration fee

like the one in Erwin, which was meant to cover the administrative

costs of a licensing scheme. See id. at 1370 ("[L]icensing fees

imposed upon expression-related businesses must be . . . imposed

only as a regulatory measure to defray the expenses of policing

such activities.") (internal quotation marks omitted). Rather,

like the Nevada regulation's bond requirement, Article 24 requires

security for a potential future cost that may never -- if the

advertiser refrains from fraudulent or deceptive practices -- be

incurred. Unlike the Nevada requirement, however, Article 24 does

not apply equally to all engaged in advertising in Puerto Rico, but

only to those who do so from outside the jurisdiction, along with

their intermediaries. Moreover, Nevada's law did not require a

third party -- the phone company, for example -- to act, under

penalty, as guarantor of telephone solicitors' compliance with the

law and continued operation. Because of these distinctions, the

Nevada court's decision in Erwin will not guide our analysis in the

instant case.

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utilized by Article 24 of the Regulation.6 Nonetheless, the unique

nature of a restriction on expression will not cause it to run

afoul of the First Amendment. In the instant case, the Regulation

fails because it does not meet the requirements set out in Central

Hudson for valid restrictions on commercial speech.

A. Litigation-related bonds

We note at the outset that the instant case challenges

the bond requirement on First Amendment grounds. Accordingly,

DACO's reliance on Hawes v. Club Ecuestre El Comandante, 535 F.2d

140 (1st Cir. 1976), is misplaced. In Hawes, we upheld the United

States District Court for the District of Puerto Rico's local rule
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requiring nonresident plaintiffs to post a bond as security against

the assessment of costs, expenses, and attorney's fees against

equal protection and Privileges and Immunities Clause challenges.

Id. at 143. The bond requirement in Hawes was not a restriction of

the right of expression, and was not challenged on First Amendment

grounds. It was therefore not evaluated under the standards

required for commercial speech restrictions after Central Hudson.

Instead, because the right of access to the courts was not deemed

a fundamental right that could be abridged only in support of a

compelling government interest, the rule's discrimination between

residents and nonresidents was evaluated for a rational basis. Id.

at 144. The reasoning of Hawes is accordingly inapplicable in the

First Amendment context.

In addition, the balance of interests involved with the

District of Puerto Rico's bond requirement, and similar rules in

other jurisdictions, see, e.g., id. at 143 n.4, is dramatically

different from the instant case. The bond in Hawes was not

required of nonresidents wishing to engage in commercial

expression, but rather of nonresidents wishing to hale Puerto Rico

residents into the federal courts of that district, forcing the

latter to incur significant litigation-related expenses. Where the

resident defendant prevailed, the costs of litigation would

ordinarily have been taxed against the nonresident plaintiff. See

Fed. R. Civ. P. 54(d)(1). Because of the likelihood that funds
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would need to be collected from a nonresident plaintiff, the risk

of harm from unenforceability was, accordingly, higher in Hawes.

Conversely, the nature of the restriction was more narrowly

tailored, insofar as the rule permitted the district court to waive

the bond requirement when it would be so excessive as to preclude

a plaintiff's right to sue. No such waiver is available under

Article 24 to nonresident advertisers or their resident

intermediaries.

B. Central Hudson test

The parties agree that this case involves commercial

speech, which is defined as "expression related solely to the

economic interests of the speaker and its audience." Central

Hudson, 447 U.S. at 561. Although commercial speech is generally

entitled to less protection under the First Amendment than other

forms of speech, it nonetheless has a claim to safekeeping from

unwarranted government intrusion. See Va. State Bd. of Pharmacy v.

Va. Citizens Consumer Council, 425 U.S. 748, 758-70 (1976).

Article 24 of the Regulation clearly represents such an intrusion

as to El Día, and, as we will explain, as to its nonresident

client/advertisers because it fails to meet the second and third

prongs of the Central Hudson test.

1. Advancing governmental interest

In order to satisfy the second prong of Central Hudson,

"a governmental body seeking to sustain a restriction on commercial
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speech must demonstrate that the harms it recites are real and that

its restrictions will in fact alleviate them to a material degree."

Edenfield v. Fane, 507 U.S. 761, 770-71 (1993). "[M]ere

speculation or conjecture" is insufficient to fulfill these

requirements. Id. at 770.

We agree with the district court that DACO fails to meet

this standard: "The record lacks evidence that support the

allegations that the harms Article 24 is intended to remedy are

real," and "the bond requirement provides only ineffective and

remote support" for DACO's asserted purpose of enforcing the

consumer protections contained in the Regulation. El Día, 313

F. Supp. 2d at 61.

a. Demonstration of harms

DACO alleges that the harm Article 24 prevents is

difficulty enforcing the Regulation's consumer protections against

nonresident advertisers. Article 24 addresses this harm, according

to DACO, by providing a mechanism for in personam jurisdiction

over, and funds for the payment of fines or damages charged to,

advertisers who often lack assets in Puerto Rico. But DACO has

failed to provide any evidence, other than conclusory assertions,

that nonresident advertisers pose a greater enforcement problem

than resident advertisers, who are not subject to the bond

requirement. Neither has it justified the distinction drawn in

Article 24(B) between resident intermediaries, who must act as
7 On its face, Article 24(D) could arguably apply to both resident

and nonresident intermediaries, prohibiting both from broadcasting,

in Puerto Rico, advertisements for which no bond has been posted.

Read in context, however, it is not clear that Article 24(D)

applies to nonresident intermediaries, and, at any rate, there is

no indication that DACO has ever sought to enforce the prohibition

contained therein against nonresident intermediaries.

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guarantors of their advertisers' compliance with the bond

requirement, and nonresident intermediaries, who are not obliged to

act as guarantors.7

DACO argues that it need not provide empirical data to

meet the second prong of Central Hudson, but rather that speech

restrictions can be justified solely on "history, consensus, and

'simple common sense.'" Florida Bar v. Went For It, Inc., 515 U.S.

618, 628 (1995) (quoting Burson v. Freeman, 504 U.S. 191, 211

(1992)). The Supreme Court recognized in Florida Bar, however,

that the government's burden is not met when a "State offer[s] no

evidence or anecdotes in support of its restriction . . . ."

Id. (emphasis in original) (explaining finding of First Amendment

violation in Edenfield). That is exactly the case here.

The only available evidence concerning the Regulation's

enforcement directly contradicts DACO's assertion that it might

have difficulty enforcing the Regulation against nonresident

advertisers. DACO estimates that it imposed approximately 355

fines against resident advertisers for violations of the Regulation

between March and July 2003, although it was able to collect on

only 318. See Defendant's Answers to Plaintiff's Supplementary Set
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of Interrogatories at 3, El Día, Inc. (No. 00-2631). In contrast,

there was no evidence of difficulty enforcing fines levied against

nonresident advertisers. DACO has no record of any resolution or

adjudication requiring execution of a bond posted by a nonresident

advertiser or a resident intermediary. See Defendant's Answers to

Plaintiff's First Set of Interrogatories at 5-6, El Día, Inc. (No.

00-2631). Plainly, DACO has failed to demonstrate that the harm it

seeks to avoid with Article 24 is real.

b. Evidence of material effect

A "regulation may not be sustained if it provides only

ineffective or remote support for the government's purpose."

Central Hudson, 447 U.S. at 564. Thus, even if there were a

documented enforcement problem with regard to nonresident

advertisers, DACO would still have to demonstrate that Article 24

has a material effect thereon.

Aside from Article 24, the Regulation is facially

applicable to both resident and nonresident advertisers: it is

aimed at protecting Puerto Rico consumers from false advertisements

and illicit merchandising practices regardless of who engages in

such actions or where they originate. Nevertheless, it is mostly

unenforced against a large segment of the nonresident advertising

trade, and the resident intermediaries therefor. DACO was able to

produce records of only seven entities having obtained bonds in

compliance with Article 24, see Defendant's Answers to Plaintiff's
8 This figure, reported by DACO, apparently does not include the

$750 fine against El Día which gave rise to the instant litigation.

9 For example, the New York Times, the Wall Street Journal, and

the Miami Herald are all available daily in Puerto Rico via news

stands, delivery by mail, and access over the internet.

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First Set of Interrogatories, exhibits 1-7, and it has not alleged

that any additional, unrecorded bonds exist. Countless other

nonresident advertisers reach Puerto Rico residents every day,

without having posted a bond, through media ranging from newspapers

to satellite television to direct mail. DACO, however, could

identify records of only three fines having been imposed for

violations of Article 24, two of which were against El Día.8 See

Defendant's Answers to Plaintiff's Supplementary Set of

Interrogatories at 2.

There is no evidence that DACO has attempted to enforce

the Regulation, including the provisions of Article 24, against the

vast majority of newspapers, magazines, television broadcasts,

internet announcements, satellite communications, and other

varieties of information media with access to consumers in Puerto

Rico. From all of these sources, the Puerto Rican consumer is

subjected to, and in many cases is the intended target of,

commercial messages directly from nonresident advertisers. Many of

these messages are broadcast within Puerto Rico via nonresident

intermediaries,9 to whom Article 24(B)'s resident intermediary

requirements do not apply and against whom Article 24(D)'s
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prohibition on broadcasting has not been enforced. Meanwhile, DACO

issued well over three hundred fines for violating the Regulation

to resident advertisers in a single four-month period of 2003.

Thus, Article 24 imposes no restraint on the resident

advertisers who are the principal violators of the Regulation, nor

does it improve DACO's apparently limited ability to enforce the

fines levied against resident violators. Neither has Article 24

restrained nonresident intermediaries, through which myriad

advertisements reach Puerto Rico residents every day. Finally, the

bulk of incoming advertising traffic remains de facto unsupervised

due to DACO's failure to enforce compliance with Article 24's bond

requirement. Article 24, therefore, has no material effect on

DACO's ability to enforce the other provisions of the Regulation.

2. Narrow tailoring

Although we are dealing with commercial speech, "the

First Amendment mandates that speech restrictions be narrowly

drawn." Central Hudson, 447 U.S. at 565 (internal quotation marks

omitted). "The regulatory technique may extend only as far as the

interest it serves." Id. The bond requirement has a direct

discriminatory effect against nonresident advertisers, who must

have the resources to obtain a $25,000 bond before they can engage

in commercial speech in Puerto Rico. In effect, it penalizes

protected commercial speech preemptively, on the possibility that

some commercial speech may be subject to proscription under the
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Regulation. Moreover, Article 24 places a heavy burden on resident

intermediaries, who must either post a $25,000 bond or forego

advertising revenue from those nonresidents unwilling or unable to

supply the bond. Resident intermediaries like El Día are forced,

thereby, to serve as guarantors of their nonresident advertisers'

compliance with the substantive requirements of the Regulation.

DACO makes no effort, however, to explain why less

drastic methods of ensuring nonresident advertisers' compliance

with the Regulation are not available. It argues only that the

narrow tailoring prong of Central Hudson requires only a

"reasonable fit" between the restriction and the government

interest it serves. See Bd. of Trustees v. Fox, 492 U.S. 469, 480

(1989). A "reasonable fit," however, "represents not necessarily

the single best disposition but one whose scope is in proportion to

the interest served." Id. (internal quotation marks omitted). In

the instant case, given the speculative nature of, and Article 24's

failure to have an effect on, the purported nonresident enforcement

problem, the net is cast too broadly for such a small catch.

III. Conclusion

Because we find no evidence of an enforceability problem

particular to nonresident advertisers, nor of Article 24 having any

material effect thereon, and because the bond requirement it

establishes is not narrowly tailored to achieve the government's

interest in enforcing the Regulation, we find that Article 24
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violates the First Amendment. Having so decided, we do not reach

any other arguments concerning the unconstitutionality of Article

24. The judgment of the district court is affirmed.

Affirmed.
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Appendix A

ARTICLE 24. - RESPONSIBILITY AND BOND OF THE NON-RESIDENT

ADVERTISER AND INTERMEDIARIES

Any non-resident advertiser in Puerto Rico, who is interested in

broadcasting one or more advertisements in Puerto Rico, must

previously deposit with the Department a twenty-five thousand

($25,000.00) dollar bond to cover the imposition of fines for any

noncompliance with the provisions, orders and resolutions of these

regulations, as well as any pertinent legal remedy in favor of the

consumers.

A. The required bond may be in cash, in an insurance policy

collectable in Puerto Rico, or in a document issued by a

bondsman registered in Puerto Rico, in favor of the

Secretary of the Treasury. If it is in cash, it shall be

posted with the Secretary and shall be kept in a special

account, or it may be obtained through a guarantor duly

authorized for that purpose in Puerto Rico. If it is not

available, the same shall be secured through an

authorized broker for surplus lines. In all other cases,

the bond or insurance document shall be delivered to the

Secretary for his safekeeping and custody.

The bond shall be effective for the duration of the

advertisement, plus one year from the date of publication

of the last advertisement, or the date of expiration of

the last advertisement, whichever expires last.

The posting of the required bond entails voluntarily

surrendering to the jurisdiction of the Department and of

the General Court of Justice of the Commonwealth of

Puerto Rico. Any order or document issued by the

Department, sent by mail or personally served on the

person and address indicated by the advertiser upon the

posting of the required bond, shall be deemed sufficient

notification. The advertiser shall be responsible for

providing the full name and exact address for purposes of

the required notice.

B. Any resident intermediary in Puerto Rico must make sure,

before broadcasting an advertisement in Puerto Rico, that

the advertiser has posted the required bond.

In order to comply with the requirement, it shall be

sufficient to obtain a certified copy of the advertiser's

bond certifying so. Said document must state, besides
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the date on which it was obtained, the type of bond

posted and the date it was consigned with the Department.

The intermediary shall keep the document available to the

Department throughout the term the advertisement

mentioned in the statement is broadcast, plus one year

from the last broadcast date.

C. Said intermediary can also comply with his responsibility

under this regulation by assuming the advertiser's

responsibility with respect to the posting of the

required bond. In this case one bond is sufficient to

cover all the advertisements that the intermediary of

non-resident advertisers in Puerto Rico broadcasts.

D. Advertisers that are non-residents in Puerto Rico, or

their intermediaries, may not broadcast in Puerto Rico an

advertisement without first posting the bond required by

these regulations.

E. The non posting of the required bond shall be sufficient

reason for the Secretary to order the advertiser or his

intermediary to cease from broadcasting the unsecured

advertisement.