Actmedia, Inc. v. Stroh

• Citation: 830 F.2d 957
• Decision Date: 12 May 1986
• Docket Number: No. 84-5994,84-5994
• Parties: ACTMEDIA, INC., a Delaware corporation, Plaintiff-Appellant, v. Jay STROH, as Director of the Alcoholic Beverage Control Board; and the Department of Alcoholic Beverage Control, Defendants-Appellees
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 957

830 F.2d 957

ACTMEDIA, INC., a Delaware corporation, Plaintiff-Appellant, v. Jay STROH, as Director of the Alcoholic Beverage Control Board; and the Department of Alcoholic Beverage Control, Defendants-Appellees

No. 84-5994

United States Court of Appeals, Ninth Circuit

Argued and Submitted March 5, 1985

Decided May 12, 1986

James E. Merriman, Pacific Palisades, Cal., for plaintiff-appellant.

Martin H. Milas, Deputy Atty. Gen., Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before GOODWIN, FLETCHER, and PREGERSON, Circuit Judges.

FLETCHER, Circuit Judge:

Actmedia, Inc., a corporation whose business consists of leasing advertising space on supermarket shopping carts, appeals from the district court's judgment, following trial, dismissing Actmedia's declaratory and injunctive action against the California Department of Alcoholic Beverage Control ("ABC") and its director. Actmedia maintains that ABC erroneously interpreted section 25503(h) of the California Business and Professions Code, which forbids manufacturers and distributors of alcoholic beverages from paying retail establishments to advertise their products, as prohibiting these groups from using Actmedia's advertising displays. Actmedia further maintains that if ABC's interpretation of section 25503(h) is correct, the statute constitutes an impermissible restriction on commercial speech under the United States and California Constitutions.

We have jurisdiction under 28 U.S.C. Sec. 1291 (1982). We conclude that the eleventh amendment to the United States constitution, U.S. Const. amend. XI, bars Actmedia's action against ABC, and bars its claims against ABC's director based upon the wording of section 25503(h) and the California Constitution. We further conclude that section 25503(h) does not impermissibly burden Actmedia's right to engage in commercial speech under the first amendment to the United States Constitution, U.S. Const. amend. I. We therefore affirm the district court's decision.

FACTUAL BACKGROUND

A. The Actmedia Advertising Program

Actmedia is a publicly-owned company that contracts with supermarket chains for the right to display advertising on over 460,000 shopping carts throughout the United States. It leases these rights in 3300 stores operated by seventy different retail food chains, including thirteen of the fifteen supermarket chains with the largest dollar-volume of sales in the nation, such as Safeway, Albertson's, A & P, Grand Union, and Ralph's. Actmedia operates in a total of fifty-two cities and metropolitan areas, and in California, it operates in the Los Angeles, San Francisco, and San Diego metropolitan areas.

Once it has leased the right to display advertising on various stores' shopping carts, Actmedia sublets the space to product manufacturers directly or through their advertising agencies. The manufacturers then typically provide a series of eight-and-one-half inch by eleven-inch four-color displays, usually of their products' graphics or slogans, which are mounted like miniature billboards on the inside and outside of the front ends of the shopping carts. Actmedia places up to twelve noncompeting advertisements in each supermarket, and since there are two product-displays per shopping cart, each advertisement appears on one-sixth of the shopping carts in each Actmedia charges advertisers based upon the number of cash-register transactions in each store for the regions where their advertisements are appearing. It pays participating supermarkets 25% of a proportional share of Actmedia's gross billings cash-register transactions, minus any advertising agency commissions it has been charged. Actmedia charges precisely the same advertising rates and makes the same 25% payment to supermarkets, regardless of the type of products being advertised. Ultimately, Actmedia retains about 75% of the revenues it receives from advertisers.

supermarket. Actmedia's field service staff of 150 full-time and 400 part-time employees install and maintain the displays; the advertisements run for four-week cycles. Actmedia's customers include twenty-one of the nation's twenty-five largest advertisers of consumer packaged goods, such as Bristol-Myers and H.J. Heinz (which accounted for 11.1% and 10.2%, respectively, of the company's revenues in 1982), and such other companies as Proctor and Gamble, General Mills, General Foods, Nestle, Cheeseborough Ponds, Scott Paper, Kimberly Clark, and L'Eggs.

B. Cal.Bus. & Prof.Code Sec. 25503(h)

Section 25503(h) of the California Business and Professions Code provides that:

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 ... 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 Sec. 25503(h) (West 1985) (emphasis added).

The provision was enacted in 1935, shortly after the repeal of the eighteenth amendment and the end of Prohibition, as part of California's "tied-house" statutes, so named because they were intended to prevent the return of saloons operated by liquor manufacturers, which had been prevalent in the early 1900's. ¹ The California legislature enacted these statutes for two main purposes: (1) to prevent large-scale manufacturers and wholesalers of alcoholic beverages from dominating local markets for their products through vertical and horizontal integration; and (2) to promote and curb "excessive sales of alcoholic beverages" by prohibiting the "overly aggressive marketing techniques" that had been characteristic of large-scale alcoholic beverage concerns. California Beer Wholesalers Association, Inc. v. Alcoholic Beverage Control Appeals Board, 5 Cal.3d 402, 407, 487 P.2d 745, 96 Cal.Rptr. 297 (1971); see Schenley Affiliated Brands Corp. v. Kirby, 21 Cal.App.3d 177, 182-83 & n. 2, 186, 190, 98 Cal.Rptr. 609 (1971); Allied Properties The California legislature's underlying philosophy in adopting the tied-house statutes was to establish a "triple-tiered distribution and licensing scheme" that would keep the manufacturers, wholesalers, and retailers of alcoholic beverages separate from one another and would prevent vertical or horizontal integration. California Beer Wholesalers Association, 5 Cal.3d at 407-09 & n. 8, 487 P.2d 745, 96 Cal.Rptr. 297.

Department of Alcoholic Beverage Control, 53 Cal.2d 141, 147-151, 346 P.2d 737, 740-42 (1959); see also United States v. Department of Commerce, State Liquor Legislation 20 (1941).

The legislature was responding to what it perceived at the time as "an inability on the part of small retailers to cope with pressures exerted by larger manufacturing or wholesale interests." Id. at 407, 487 P.2d 745, 96 Cal.Rptr. 297. By prohibiting integration of retail and wholesale outlets for alcoholic beverages and by preventing wholesalers and manufacturers from extending credit to retailers or otherwise gaining economic influence over them, the legislature sought to prevent the emergence of exclusive dealing arrangements in the alcoholic beverage industry that could lead to an overabundance of retail outlets, the imposition of quotas on retailers by individual manufacturers or wholesalers, and forms of unfair competition that would further disrupt the structure of the industry and create "disorderly marketing conditions." ²

In attempting to prevent alcoholic beverage manufacturers and wholesalers from exerting control over retailers and from imposing quotas upon them, and to prevent a proliferation of retail outlets for alcoholic beverages, the legislature also intended to minimize the use of aggressive marketing techniques and drastic price-cutting in the alcoholic beverage industry, and thereby to promote the goal of temperance. See California Beer Wholesalers Association, 5 Cal.3d at 407-08 & n. 7, 487 P.2d 745, 96 Cal.Rptr. 297 (" 'Underlying the tied-house prohibition is the assumption that the retail market for alcoholic beverages is elastic and that price-cutting, aggressive marketing techniques, and similar practices tend to increase consumption and threaten the legislative goal of temperance.' ") (quoting Affiliated Distillers Brands Corp. v. Sills, 56 N.J. 251, 265 A.2d 809, 813 (1970)); Allied Properties, 53 Cal.2d at 148, 346 P.2d at 741 (tied-house statutes further the goal of temperance, "because the elimination at the retail level of price cutting, bargain sales, and advertising of low prices [that the statutes accomplish,] tends to reduce excessive purchases of alcoholic beverages"). The legislature expressly declared in 1935 that it was enacting the Alcoholic Beverage Control Act, of which section 25503(h) was a part, "to eliminate the evils of unlicensed and unlawful manufacture, selling, and disposing of alcoholic beverages, and to promote temperance in the use and consumption of alcoholic beverages." Cal.Bus. & Prof.Code Sec. 23001 (West 1985); see also Cal.Bus. & Prof.Code Sec. 24749 (adopted in 1961 and declaring that "[i]t is the declared policy of the State that it is necessary to regulate and control the manufacture, sale, and distribution of alcoholic beverages within this State for the purpose of fostering and promoting temperance in their consumption....") (West 1985). Like other legislators throughout the United States who endorsed tied-house statutes in the 1930's, many of the drafters of section

25503(h) presumably believed that "the tied house tended to increase consumption of alcohol," and that its elimination would therefore promote temperance. National Distributing Co., 626 F.2d at 1009 (referring specifically to the federal tied-house statute), accord H.R.Rep. No. 1542 at 12 (complaining of a "forced increase in...