Opinion ID: 221260
Heading Depth: 3
Heading Rank: 1

Heading: Erie Doctrine

Text: We first determine whether, in exercising diversity jurisdiction over this case, we are bound by the California state appellate courts' holdings that § 2527 is unconstitutional under the California Constitution's free speech provision. The seminal case of Erie Railway Co. v. Tompkins, 304 U.S. 64, 71-80, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), held that federal courts exercising diversity jurisdiction must apply as their rules of decision the substantive law of the states. Generally, state law is determined by statutes or by pronouncements from the state's highest court. See West v. American Telegraph & Telephone Co., 311 U.S. 223, 236-37, 61 S.Ct. 179, 85 L.Ed. 139 (1940); Vestar Dev. II, LLC v. General Dynamics Corp., 249 F.3d 958, 960 (9th Cir.2001). In cases where a state supreme court has not addressed the presented issue of state law, a federal court is obligated to follow the decisions of the state's intermediate appellate courts unless the court finds convincing evidence that the state's supreme court likely would not follow [them]. Ryman v. Sears, Roebuck and Co., 505 F.3d 993, 994 (9th Cir. 2007) (internal quotation marks and citations omitted). As the inquiry is one purely of law, we determine de novo whether Erie requires us to follow the reasoning of the state appellate courts on the issue of § 2527's constitutionality. Three California appellate court decisions have concluded that § 2527 violates the free speech clause of the California Constitution. The first of these decisions, ARP Pharmacy Servs. Inc. v. Gallagher Bassett Servs., Inc., 138 Cal.App.4th 1307, 42 Cal.Rptr.3d 256 (2006), is set forth in a published opinion. The two subsequent decisions  A.A.M. Health Group, Inc. v. Argus Health Systems, Inc., No. B183468, 2007 WL 602968 (Cal.Ct.App. Feb. 28, 2007) and Bradley  decided on the same day, relied heavily on ARP and remain unpublished. All three decisions came out of California's second appellate district; none of the state's five other appellate districts has opined on the issue. The district court, in concluding that it was not bound by the state appellate court holdings, considered only the ARP decision. It declined to consider the two unpublished decisions, citing California Rule of Court 977(a). [5] Defendants correctly argue that we are not precluded from considering these unpublished decisions as a possible reflection of California law, although they have no precedential value. See Employers Ins. of Wausau v. Granite State Ins. Co., 330 F.3d 1214, 1220 n. 8 (9th Cir.2003). Therefore, we consider all three California appellate court decisions in our analysis.
First, the district court reasoned that it was not bound by the state appellate court decisions because they rest entirely on interpretations of federal, not state law. It is true that ARP, the first state appellate court opinion on the issue of § 2527's constitutionality, applied legal principles derived exclusively from federal constitutional law. The state court decisions to which ARP cites either were similarly decided under the federal Constitution or serve only as duplicate references to analogous federal decisions. Nonetheless, the ultimate conclusion reached in ARP is one of state law, not federal law. See ARP, 42 Cal.Rptr.3d at 267 (We conclude that the reporting requirement in section 2527 and the related penalty and enforcement provisions in section 2528 violate the free speech provision of the California Constitution.). We note that the state court did not apparently reach its conclusion under the First Amendment and then simply extend it to California's free speech provision; its opinion purports to analyze the statute only under article I, section 2 of the California Constitution. Accordingly, the current operative law in the State of California's second appellate district is that § 2527 is unconstitutional under the California Constitution. No authority supports the premise that, when a state court relies primarily on federal cases to reach a conclusion under state law, its decision is exempt from Erie. Thus, the state court's exclusive reliance upon and application of federal case law does not automatically allow federal courts to disregard its holding as the substantive law of the state. Pursuant to Erie, ARP 's holding as to § 2527's constitutionality under the California Constitution's free speech provision is the rule of decision that a federal court sitting in diversity must apply (subject to the convincing evidence exception discussed below). [6]
The district court alternatively reasoned that, even if ARP's holding was one under state law, there is convincing evidence that the Supreme Court of California would not follow them. We agree. We hold that there is convincing evidence that, in assessing the constitutionality of § 2527, the Supreme Court of California would construe article I, section 2 of the California Constitution as coextensive with the First Amendment. Because, as we explain in Part B below, § 2527 does not violate the First Amendment, we believe that the Supreme Court of California would deem § 2527 constitutional under the state constitution as well. Accordingly, we conclude that, in this case, the state supreme court would not follow the holdings of the state appellate courts. Erie does not, therefore, require us to apply ARP, A.A.M. Health, or Bradley in deciding whether Defendants' motions should have been granted. California courts generally follow the United States Supreme Court in matters concerning free speech doctrine ... unless persuasive reasons are presented for taking a different course. Gallo Cattle Co. v. Kawamura, 159 Cal.App.4th 948, 959, 72 Cal.Rptr.3d 1 (2008) (internal citations and quotation marks omitted). California courts have identified and applied four categories of potential sources of such persuasive reasons: (1) something in the language or history of the California provision suggests that the issue before us should be resolved differently than under the federal Constitution; (2) the high court `hands down a decision which limits rights established by earlier precedent in a manner inconsistent with the spirit of the earlier opinion'; (3) there are vigorous dissenting opinions [or] incisive academic criticism of those decisions; or (4) following the federal rule would overturn established California doctrine affording greater rights. Id. at 959, 72 Cal.Rptr.3d 1 (quoting People v. Teresinski, 30 Cal.3d 822, 836-837, 180 Cal.Rptr. 617, 640 P.2d 753 (Cal.1982)); see Gerawan Farming, Inc. v. Lyons, 24 Cal.4th 468, 510-12, 101 Cal.Rptr.2d 470, 12 P.3d 720 (Cal.2000) (applying these factors). Considering these limited categories, we find no reason to believe that the California Supreme Court would not, in accordance with its general practice, decide the issue before us by relying primarily, if not exclusively, on First Amendment precedent. The California Supreme Court has interpreted free speech protections under the California Constitution to be in some ways broader than those under the First Amendment. Kasky v. Nike, Inc., 27 Cal.4th 939, 958-59, 119 Cal.Rptr.2d 296, 45 P.3d 243 (Cal.2002). No statutory language, authoritative decision, or California legal doctrine, however, suggests that, to the extent that California's free speech provision can be broader than the First Amendment, such additional breadth operates in the context of compelled speech. Gerawan, a recent case in which the California Supreme Court interpreted its Constitution more expansively than the First Amendment, dealt only with the narrow issue of compelled subsidies for commercial speech, rather than compelled speech more broadly. [7] As discussed more fully below, cases dealing with commercial speech and compelled subsidies are of little relevance here. [8] Finally, there has been no noteworthy criticism of the First Amendment compelled speech jurisprudence on the basis of which the California Supreme Court would choose to depart from those cases. Thus, we find no persuasive basis on which to assume that the Supreme Court of California would read the state's free speech provision differently or more expansively than the First Amendment in the compelled speech context. Indeed, none of the state appellate court decisions opining on § 2527's constitutionality even suggests that its holding turns on a more expansive reading of California's free speech provision than of the First Amendment. Instead, these opinions rely exclusively on federal First Amendment doctrine to reach their conclusions. ARP mentions the U.S. Supreme Court by name six times, and the key parts of its holdings are expressly based on its purported adoption of federal precedent. See, e.g., ARP, 138 Cal.App.4th at 1314-15, 42 Cal.Rptr.3d 256 (discussing Johanns v. Livestock Marketing Ass'n, 544 U.S. 550, 125 S.Ct. 2055, 161 L.Ed.2d 896 (2005) and holding that [ u ] nder this definition [of compelled speech], section 2527, which requires drug claims processors to obtain and transmit drug processing cost reports to [their] clients, is properly classified as `true' compelled speech (emphasis added)). A.A.M. Health is even more explicit on this point. A.A.M. Health, 2007 WL 602968, at  (assuming for purposes of analyzing FAIR that the freedom of speech in the federal and state constitutions are coextensive). Although the state appellate courts' application of First Amendment precedent was erroneous, those opinions nonetheless make clear that they are attempting to follow federal law. It is evident that the California Supreme Court, like the state appellate courts, would analyze the issue of § 2527's constitutionality under article I, section 2 of the California Constitution by following First Amendment doctrine. And because, as discussed below, § 2527 is constitutional under the First Amendment, we believe that the California Supreme Court would reach the same conclusion under its own constitution. Conversely, we conclude that the Supreme Court of California would reject the holdings of ARP, A.A.M. Health, and Bradley. Indeed, in analyzing and applying First Amendment law, the state appellate courts committed several critical errors. First, the ARP court ignored the Supreme Court's most recent case on compelled speech, Rumsfeld v. Forum for Academic and Institutional Rights, 547 U.S. 47, 126 S.Ct. 1297, 164 L.Ed.2d 156 (2006) ( FAIR ), in its discussion and application of federal law. Because FAIR clarifies the line between compulsion of speech that does and does not infringe upon the First Amendment, its analysis is highly relevant and directly undermines the conclusion reached in ARP. Second, the ARP court incorrectly interpreted and applied the federal case law that it did cite. Specifically, the opinion fails to recognize the key distinctions between the speech at issue in this case and that in Riley v. National Federation of the Blind of North Carolina, 487 U.S. 781, 108 S.Ct. 2667, 101 L.Ed.2d 669 (1988), a decision on which ARP heavily relies. The compelled disclosure in Riley had a direct chilling effect on protected First Amendment speech, and it was on this basis that the disclosure was struck down. No such chilling effect exists here. [9] Citing ARP extensively, neither subsequent unpublished state appellate court decision offers any significant analytic support for its conclusion. Bradley relies almost exclusively on ARP, and does little to fill the gaps in that opinion's reasoning. A.A.M. Health, at least, acknowledges the Supreme Court's holding in FAIR. 2007 WL 602968, at . Nonetheless, A.A.M. Health fails to examine or appreciate FAIR's significance, simply concluding without analysis that it does not apply because section 2527 is not analogous to a law that governs a course of conduct. Id. This purported distinction, however, is based on an overly superficial reading of the FAIR decision. Thus, all three state appellate decisions are fatally flawed in their analysis of federal precedent. These errors provide further evidence that the Supreme Court of California would not reach the same result. Cf. Briceno, 555 F.3d at 1080-82 (reasoning that the Supreme Court of California would not adopt state appellate court decisions interpreting a provision of the California Penal Code); Dimidowich v. Bell & Howell, 803 F.2d 1473, 1482-83 (9th Cir. 1986) (concluding that the Supreme Court of California would not follow the decision of an appellate court because its analysis was flawed); Owen By and Through Owen v. United States, 713 F.2d 1461, 1465-66 (9th Cir.1983) (pointing out defects in a state appellate court's interpretations of a California statute governing settlement agreements, and concluding that the California Supreme Court would follow this circuit's interpretation instead). We are convinced that the California Supreme Court would, consistent with this opinion, rely primarily on (and correctly apply) First Amendment jurisprudence when presented with the question of § 2527's constitutionality under the California Constitution. And because, as explained below, the statute is constitutional under the First Amendment, the California Supreme Court would not follow the holdings of the state appellate courts, but rather would uphold the statute's constitutionality. Erie does not, therefore, require us to apply to this case the state courts' holding that § 2527 is unconstitutional under the California Constitution. [10]