California Kiwifruit Com. v. Moss

Decision Date20 May 1996
Docket NumberNo. C018368,C018368
CourtCalifornia Court of Appeals Court of Appeals
PartiesPreviously published at 45 Cal.App.4th 769, 50 Cal.App.4th 1 45 Cal.App.4th 769, 50 Cal.App.4th 1, 96 Cal. Daily Op. Serv. 3569, 96 Daily Journal D.A.R. 5783 CALIFORNIA KIWIFRUIT COMMISSION, Plaintiff and Respondent, v. David MOSS et al., Defendants and Appellants.

Brian C. Leighton, Clovis, for Defendants and Appellants.

Dale A. Stern, Robert S. Hedrick and Kahn, Soares & Conway, Sacramento, for Plaintiff and Respondent.

NICHOLSON, Associate Justice.

In 1979, the California Legislature established the California Kiwifruit Commission "to deal with the broad fields of advertising, promotion, marketing research, and production research." (Food & Agr.Code, § 68005.) 1 The Commission is funded through an assessment upon kiwifruit handlers. (§§ 68081, subd. (n); 68106.) When the Commission sued David Moss and his business, TJ Farms (collectively, "Moss"), for assessments due for the 1988-1992 marketing seasons, Moss primarily defended on the ground the assessments are an unconstitutional infringement of his First Amendment speech and association rights. After the trial court ruled in the Commission's favor, the parties entered into a stipulated judgment as to the amount Moss owes the Commission. On appeal, Moss again challenges the assessments as unconstitutional. This court will reverse the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

The California Kiwifruit Commission is comprised of nine kiwifruit producers, 2 one The purpose behind establishing the Commission is explained within the statutory provisions: "As an exotic subtropical fruit, the kiwifruit is not heavily consumed in this country or abroad. Opportunity exists for continued growth and expansion of the industry, by creating new markets in such areas. The success of such an expansion program is uniquely dependent upon effective advertising and promotion, since the creation of new markets is essentially a matter of educating people to the use of a previously unknown or unrecognized food.... The establishment of a California Kiwifruit Commission is necessary for the efficient development and management of a national and international advertising program and essential to ensure that the California kiwifruit industry can compete successfully in the marketplace." 5 (§§ 68002, 68003.)

                kiwifruit handler, 3 and one public member appointed by the Secretary of the Department of Food and Agriculture. 4  (See § 68051.)   The Commission is subject to oversight and override by the Secretary of the Department of Food and Agriculture.  (See §§ 68029, 68052, 68081, subds.  (o), (p).)
                

In the United States, kiwifruit is grown in California, Oregon, and South Carolina. The United States also permits other countries to import kiwifruit. The amount of kiwifruit imported into the United States from other countries has increased significantly during the past 10 years, resulting in lower retail prices. 6 Linda Harner, the Commission's controller, testified California handlers marketed an estimated 12.7 million trays 7 of kiwifruit in 1992. An estimated 85 percent, or 10.8 million, of these trays were marketed in the United States. Chile, the largest importer, introduced between 6 and 8 million trays into the United States during this same period.

The California Kiwifruit Commission neither addresses nor enforces quality standards. A federal marketing order addresses the quality of kiwifruit grown in California, and the federal program imposes a separate assessment. 8 (See 7 U.S.C. § 608c, subds. (2), (6); 7 C.F.R. §§ 920.41, 920.42, 920.52, 920.302.) The sole purpose of the California Kiwifruit Commission is to advertise and promote kiwifruit by developing and managing a national and international advertising program. (§§ 68002, 68003.)

The California Kiwifruit Commission currently imposes assessments only on sales of fresh market kiwifruit. Formerly, the Commission imposed assessments of 3.5 percent of the sales price on both fresh and processed kiwifruit products. The most recent figures found in the record are the assessments for 1991 and 1992, which were 21.5 cents per tray. Harner testified a grower's average production should be between 1,500 and 2,000 trays per acre, resulting in assessments of $322 to $430 per acre. Kiwifruit During 1990-1992, the Commission filed a lawsuit against New Zealand for dumping kiwifruit into the United States market at prices below the costs of production. The lawsuit cost the Commission more than $1 million and, as a result, the Commission slashed its consumer advertising during that time. 9 Harner noted the retail price of kiwifruit has dropped, and the number of kiwifruit growers has declined 40 percent since 1988--from 1,000 growers to 600 growers. The number of acres of kiwifruit has correspondingly "reduced substantially" from approximately 8,000 to 6,800 acres. Harner stated the decrease in the number of growers likely was due to the reduced net return per acre. 10

producers may not opt out of the program and they receive no credit for their individual advertising and promotion expenditures.

In addition to an administrative staff, the Commission employs eight merchandisers to visit grocery stores on a seasonal basis to promote the sale of kiwifruit nationwide. Prior to the lawsuit against New Zealand, the Commission's primary expenditure was its nationwide domestic advertising and promotion program. During 1988-1990, the Commission engaged in print and radio advertising. The Commission claims to have developed a logo for California kiwifruit, as well as "a little price card with a pretty picture on it," and a cardboard bin with pictures giving the consumer "ideas how to eat [kiwifruit], the nutritional benefits, things like that."

The Commission receives funds from the federal government to advertise and promote kiwifruit in export markets. The federal government prohibits the Commission from using these federal funds domestically. For the 1992 crop, the Commission received $659,000 from the federal government based on its own contribution of $131,800. The Commission's matching funds, the $131,800, came from the challenged assessments. The Commission has done no studies with respect to grower returns and does not know whether the advertising campaign over the last five years has increased grower revenue.

Moss grows kiwifruit and other crops on five acres of land in Chico, California. He sells fresh kiwifruit, and also processes and sells kiwifruit-based jam, vinegar, chips, and poppyseed salad dressing. Moss spends approximately $3,000 to $4,000 each year advertising and promoting his products, and claims he derives no benefit from the California Kiwifruit Commission.

In October 1992, the Commission sued Moss, asserting he had not paid assessments of $1,791.30 for the 1988-1992 marketing seasons.

                The Commission also sought penalties, interest, and attorney fees.  Moss set forth 13 affirmative defenses on a variety of constitutional and other grounds. 11  After the trial court entered a ruling upholding the assessment's constitutionality, the parties stipulated to a final judgment setting forth the amount Moss owes the Commission.  Pursuant to this stipulation, the Commission agreed not to enforce the monetary judgment during the pendency of this appeal.  The stipulated judgment states Moss owes $2,602.63 in assessments for the marketing years 1988-1989 through 1992-1993, $260.26 in penalties, $107.32 in interest, and $20,694.47 in attorney fees and costs, for a total of $23,664.68
                
OVERVIEW

By law, Moss must pay a percentage of his kiwifruit sales price as an assessment. This assessment is not paid to the state as a general tax, but to a specific commission whose sole purpose is to speak on behalf of Moss and other kiwifruit handlers to promote kiwifruit sales. Moss and the Commission agree these assessments invoke First Amendment implications compelling strict scrutiny.

Although the Commission's advertising and promotion of kiwifruit constitutes commercial speech, which is subject to a lesser standard of scrutiny, the context of Moss's challenge implicates associational rights and renders commercial speech analysis inappropriate. Pursuant to the strict scrutiny standard, the assessments are unconstitutional because the Commission has failed to show a compelling state interest in the kiwifruit industry which cannot be achieved through less restrictive means. Indeed, the Commission has failed to show that its program has had any effect whatsoever on grower returns.

DISCUSSION
I First Amendment Implications

As the parties correctly recognize, this case implicates an interesting hybrid of constitutional interests. At first blush, because the Commission's message involves advertising, it is tempting to characterize this as a "commercial speech" case. (See Central Hudson Gas & Elec. Corp. v. Public Service. Comm'n. (1980) 447 U.S. 557, 561-562, 100 S.Ct. 2343, 2348-2349, 65 L.Ed.2d 341, 348 (hereafter, Central Hudson ) [defining commercial speech as "expression related solely to the economic interests of the speaker and its audience" and as "speech proposing a commercial transaction"]; see also 44 Liquormart, Inc. v. Rhode Island (1996) 517 U.S. 484, ---, 116 S.Ct. 1495, 1507, 134 L.ed.2d 711,---- ["The mere fact that messages propose commercial transactions does not in and of itself dictate the constitutional analysis that should apply to decisions to suppress them"].) The United States Supreme Court repeatedly has held the First Amendment protects commercial speech. Accordingly, any state-imposed regulation or restriction upon commercial speech must serve a "substantial" state interest, directly advance the state's interest, and be "narrowly tailored to achieve the desired objective." (Board of...

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2 cases
  • California Kiwifruit Com'n v. Moss
    • United States
    • California Supreme Court
    • 16 Julio 1997
    ...Respondent, v. Dave MOSS et al., Appellants. No. S054594. Supreme Court of California. July 16, 1997. Prior report: Cal.App., 53 Cal.Rptr.2d 138. The above-entitled cause is hereby transferred to the Court of Appeal, Third Appellate District, with directions to vacate its decision and to re......
  • California Kiwifruit Corp. v. Moss
    • United States
    • California Supreme Court
    • 14 Agosto 1996
    ...Respondent, v. Dave MOSS et al., Appellants. No. S054594. Supreme Court of California. Aug. 14, 1996. Prior report: Cal.App., 53 Cal.Rptr.2d 138. Respondent's petition for review Submission of additional briefing, otherwise required by rule 29.3, California Rules of Court, is deferred pendi......

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