R.J. Reynolds Tobacco Co. v. Bonta

• Decision Date: 24 July 2003
• Docket Number: No. CIV. S-03-659 LKK/GGH.,CIV. S-03-659 LKK/GGH.
• Citation: 272 F.Supp.2d 1085
• Parties: R.J. REYNOLDS TOBACCO COMPANY; R.J. Reynolds Smoke Shop, Inc.; and Lorillard Tobacco Company, Plaintiffs, v. Diana M. BONTA, Director of the California Department of Health Services; and Dileep G. Bal, Acting Chief of the Tobacco Control Section of the California Department of Health Services, Defendants.
• Court: U.S. District Court — Eastern District of California

272 F.Supp.2d 1085

R.J. REYNOLDS TOBACCO COMPANY; R.J. Reynolds Smoke Shop, Inc.; and Lorillard Tobacco Company, Plaintiffs, v. Diana M. BONTA, Director of the California Department of Health Services; and Dileep G. Bal, Acting Chief of the Tobacco Control Section of the California Department of Health Services, Defendants.

No. CIV. S-03-659 LKK/GGH.

United States District Court, E.D. California.

July 24, 2003.

COPYRIGHT MATERIAL OMITTED

H. Joseph Escher, III, Todd E. Thompson, Howard, Rice, Nemerovski, Canady, Falk & Rabkin, San Francisco, CA, for plaintiffs R.J. Reynolds Tobacco Co. and R.J. Reynolds Smoke Shop, Inc.

Shannon L. Spangler, Shook, Hardy & Bacon, San Francisco, CA, for plaintiff Lorillard Tobacco Company.

Margarita Altamirano, Karen Leaf, Deputy Attorneys General, California Department of Justice Office of the Attorney General, Sacramento, CA, for defendants Bonta and Bal.

ORDER

KARLTON, Senior District Judge.

Two tobacco companies bring suit against officials of California's Department of Health Services. They challenge the state's anti-tobacco advertisements, which are funded through a special surtax on wholesale tobacco sales. The tobacco companies claim that the surtax forces them to fund ads with which they disagree, and that this violates their right to free speech under the First Amendment. They also complain that the ads interfere with their right to trial by jury under the Seventh Amendment and unfairly stigmatize them in violation of the Due Process Clause of the Fourteenth Amendment.

The tobacco companies have moved for a preliminary injunction and the state has moved to dismiss the complaint. I decide the matter on the basis of the papers and pleadings filed herein, and after oral argument.¹

I.

BACKGROUND²

A. PROPOSITION 99: THE TOBACCO TAX AND HEALTH PROTECTION ACT

In 1988, the voters of California approved Proposition 99, a statewide ballot initiative also known as the "Tobacco Tax and Health Protection Act of 1988" ("the Act").³ Cal. Rev. & Tax Code §§ 30121-30130. The Act imposes a $0.25 per-pack surtax on all wholesale cigarette sales in California known as the Cigarette and Tobacco Products Surtax ("the Surtax").

1. The Cigarette and Tobacco Products Surtax

The revenue collected by the Surtax is placed in the "Cigarette and Tobacco Products Surtax Fund" and may be appropriated only for the following purposes: (1) tobacco-related school and community health education programs; (2) tobacco-related disease research; (3) medical care for patients who cannot afford to pay and who lack health insurance; and (4) programs for fire prevention and environmental conservation. Id., § 30122(a). In accordance with these purposes, taxes deposited into the Surtax Fund are allocated, according to specified percentages, among six separate accounts: Health Education (20%), Hospital Services (35%), Physician Services (10%), Research (5%), Public Resources (5%), and an Unallocated Account (25%), which may be made available for any of the four purposes specified above. Id., § 30124(b)(1). The tobacco advertising program at issue in this case is funded through a portion of the Health Education Account, which "shall only be available for the prevention and reduction of tobacco use, primarily among children, through school and community health programs." Id., § 30122(b)(1).

2. The Tobacco Control Program

In 1999, the Legislature adopted implementing legislation. Cal. Health & Safety Code §§ 104350-104485. In conjunction therewith, the Legislature made findings that smoking is detrimental to the health of Californians, that it results in huge costs to the state, and that prevention is the best means of addressing these concerns.⁴ The Legislature also determined that tobacco use prevention and cessation is "the highest priority in disease prevention for the State of California" and made a commitment to "play a leading role in promoting a smoke-free society by the year 2000...." Id., § 104350(a)(9), (10).⁵

The Legislature directed the Department of Health Services to establish "a program on tobacco use and health to reduce tobacco use in California by conducting health education interventions and behavior change programs at the state level, in the community, and other nonschool settings." Id., § 104375(a). Pursuant to this program, known as the Tobacco Control Program, the Department is required, inter alia, to develop a media campaign directed to raising public awareness of the deleterious effects of smoking and to effect a reduction in tobacco use. Id., §§ 104375(b), (c), (e)(1) & (j); 104385(a); 104400.

Approximately two-thirds of the funds in the Health Education Account are allocated to the Department of Health Services for tobacco control activities. Plaintiffs allege that the state spends approximately $25 million annually on the challenged advertisements. Complaint at ¶ 22.

B. THE CHALLENGED ADVERTISEMENTS

California's anti-tobacco media campaign consists of radio, television, billboard and print advertising. Complaint at ¶ 14. According to plaintiffs, the ads consistently portray smoking as dangerous and undesirable and the tobacco industry and its executives as deceptive. Id. at ¶¶ 17, 19. In several of the television ads, actors playing tobacco executives are shown discussing how to lure more people into smoking or are portrayed as being elusive about smoking's health effects. See Declaration of Todd Thompson ("Thompson Decl."), Exh. L. These ads do not contain disclaimers explaining that the people shown are actors rather than actual tobacco company employees. Complaint at ¶ 18.

A recent round of television commercials features an actor playing a public relations executive for the fictional cigarette brand "Hampton," detailing for viewers his unseemly methods for getting people to start smoking. Thompson Decl., Exh. L. The ads end with the tagline, "Do You Smell Smoke?," id., implicitly referencing both cigarette smoke and a smoke-and-mirrors marketing strategy. Another ad portrays tobacco executives discussing how to replace a customer base that is dying at the rate of 1,100 users a day. Id. Some of the ads end with images of mock warning labels such as: "WARNING: The tobacco industry is not your friend."; or "WARNING: Some people will say anything to sell cigarettes." Id.

Several spots suggest that tobacco companies aggressively market to children. Id. In one particularly striking television ad entitled "Rain," children in a schoolyard are shown looking up while cigarettes rain down on them from the sky. Complaint at ¶ 19. A voice-over states "We have to sell cigarettes to your kids. We need half a million new smokers a year just to stay in business. So we advertise near schools, at candy counters. We lower our prices. We have to. It's nothing personal. You understand." Thompson Decl., Exhibit L. At the conclusion, the narrator says, "The tobacco industry: how low will they go to make a profit?" Id.

Each of the challenged advertisements is identified as "Sponsored by the California Department of Health Services." Id.

C. THE PARTIES

Plaintiffs are R.J. Reynolds Tobacco Company, its subsidiary, R.J. Reynolds Smoke Shop, Inc., and Lorillard Tobacco Company. Both R.J. Reynolds and Lorillard manufacture and sell cigarettes in California. All three corporations have their principal place of business in North Carolina and are incorporated in Delaware.

Lorillard and R.J. Reynolds allege that their business in California requires them to pay the Cigarette and Tobacco Products Surtax; R.J. Reynolds does not pay the Surtax directly but pays it through the Smoke Shop subsidiary. Because the Surtax is imposed on "distributors" of cigarettes, most Surtax payments are not made by the cigarette manufacturers themselves, but by cigarette wholesalers. Because plaintiffs also sell or provide small quantities of cigarettes directly to smokers in California, however, they claim that they have and will in the future be required to pay the Surtax. See Declaration of Steven F. Gentry ("Gentry Decl.") ¶¶ 2, 4. Plaintiffs state that their combined payments of the Tobacco Products Surtax in 2002 were in excess of $14,000. Gentry Decl. ¶ 4. Thus, plaintiffs allege that they collectively contributed approximately $2,800 of the $25 million spent on the challenged ads.

The defendants are Diana M. Bonta, Director of the California Department of Health Services, and Dileep G. Bal, Acting Chief of the Tobacco Control Section of DHS. The Complaint alleges that "Bonta is the highest-ranking official of DHS and, accordingly, is ultimately responsible for the advertising challenged in this action." Complaint at 2, ¶ 4. Defendant "Bal is directly responsible for the design, approval and distribution of the advertising challenged in this action." Id. at 2, ¶ 5.

D. PLAINTIFFS' ALLEGATIONS

Plaintiffs bring five causes of action. First, they allege that the use of the Surtax for funding anti-industry ads violates the right of free speech secured to them by the First Amendment. Second, they allege an identical claim under the free speech clause of Article I, section 2 of the California Constitution. Third, plaintiffs allege that the "anti-industry" ads stigmatize them, publicly disparage their reputation and character, and prejudice potential jurors with respect to the facts that underlie the sort of civil lawsuits that are frequently brought against them in California. They allege that the distribution of the advertisements thus constitutes a denial of due process, in that the state has publicly stigmatized them and denied them the right to a fair and impartial jury in California, in violation of both the Fourteenth and Seventh Amendments. Fourth, plaintiffs allege that the distribution of the program's anti-industry ads constitutes a denial of their right to a fair and impartial jury under the Seventh Amendment. Fifth, plaintiffs bring a claim for declaratory relief, seeking a judicial declaration...