R.J. Reynolds Tobacco Co. v. Shewry

• Decision Date: 28 September 2004
• Docket Number: No. 03-16535.,03-16535.
• Citation: 384 F.3d 1126
• Parties: R.J. REYNOLDS TOBACCO COMPANY; Lorillard Tobacco Company; R.J. Reynolds Smoke Shop, Inc., Plaintiffs-Appellants, v. Sandra SHEWRY, Director of the California Department of Health Services; Dileep G. Bal, Acting Chief of the Tobacco Control Section of the California Department of Health Services; State of California, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

384 F.3d 1126

R.J. REYNOLDS TOBACCO COMPANY; Lorillard Tobacco Company; R.J. Reynolds Smoke Shop, Inc., Plaintiffs-Appellants, v. Sandra SHEWRY, Director of the California Department of Health Services; Dileep G. Bal, Acting Chief of the Tobacco Control Section of the California Department of Health Services; State of California, Defendants-Appellees.

No. 03-16535.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 10, 2004.

Filed September 28, 2004.

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H. Joseph Escher III, Howard Rice Nemerovski Canady Falk & Rabkin, San Francisco, CA, for plaintiffs-appellants R.J. Reynolds Tobacco Company and R.J. Reynolds Smoke Shop, Inc.

Shannon L. Spangler and M. Kevin Underhill, Shook, Hardy & Bacon, San Francisco, CA, for plaintiff-appellant Lorillard Tobacco Company.

Robert M. O'Neil and J. Joshua Wheeler, Charlottesville, VA, for amici curiae Thomas Jefferson Center for the Protection of Free Expression and the Media Institute, in support of the plaintiffs-appellants.

Daniel J. Popeo and Richard A. Samp, Washington, DC, for amici curiae Washington Legal Foundation, in support of the plaintiffs-appellants.

Karen Leaf, Deputy Attorney General, Sacramento, CA, for the defendants-appellees.

Deborah B. Caplan and Robert S. McWhorter, Olson, Hagel & Fishburn, LLP, Sacramento, CA, for amici curiae American Cancer Society, California Division, Inc., American Heart Association, Western States Affiliates, and American Lung Association of California, in support of the defendants-appellees.

Appeal from the United States District Court for the Eastern District of California; Lawrence K. Karlton, Senior Judge, Presiding. D.C. No. CV-03-00659-LKK.

Before B. FLETCHER, TROTT and FISHER, Circuit Judges.

Opinion by Judge Fisher; Dissent by Judge Trott

FISHER, Circuit Judge.

We deal here with a novel First Amendment claim. The appellants, three tobacco companies, claim that California violated their First Amendment rights by imposing a surtax on cigarettes and then using some of the proceeds of that surtax to pay for advertisements that criticize the tobacco industry. The tobacco companies argue that this is a case of compelled subsidization of speech prohibited by the First Amendment, analogous to United States v. United Foods, Inc., 533 U.S. 405, 121 S.Ct. 2334, 150 L.Ed.2d 438 (2001). California counters that the advertisements are government speech entirely immune from First Amendment attack.

The tobacco companies concede that (1) the imposition of the tax itself is not unconstitutional and (2) the message produced by the government's advertisements creates no First Amendment problem apart from its method of funding. Rather, they argue for an independent First Amendment violation based on the close nexus between the government advertising and the excise tax that funds it. We reject this argument as unsupported by the Constitution and Supreme Court precedent, and as so unlimited in principle as to threaten a wide range of legitimate government activity. We also reject the tobacco companies' claim that the advertisements violated their rights under the Seventh Amendment or the Due Process Clause. We thus affirm the district court.¹

FACTUAL AND PROCEDURAL BACKGROUND²

In 1988, California voters approved Proposition 99, a statewide ballot initiative also known as the "Tobacco Tax and Health Protection Act of 1988." Cal. Rev. & Tax Code §§ 30121-30130. The Act imposes the Cigarette and Tobacco Products Surtax ("the surtax"), a 25-cent per-pack surtax on all wholesale cigarette sales in California.

The revenue generated by the surtax is placed in the "Cigarette and Tobacco Products Surtax Fund." Twenty percent of taxes in the surtax fund is allocated to a "Health Education Account," funds from which are only "available for appropriation for programs for the prevention and reduction of tobacco use, primarily among children, through school and community health education programs." Id., § 30122(b)(1).

In order to implement Proposition 99, the California Legislature directed the California Department of Health Services ("DHS") 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." Cal. Health & Safety Code § 104375(a). As part of this program, called the "Tobacco Control Program," the DHS is required to develop a media campaign designed to raise 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. The Tobacco Control Program is funded entirely with money from the Health Education Account — and thus, ultimately, exclusively from the proceeds of the surtax.

This case concerns certain advertisements the DHS produced as part of its Tobacco Control Program. According to the tobacco companies, the DHS concluded soon after the establishment of the Tobacco Control Program that a media campaign focused solely on presenting the health risks of tobacco use would be of limited utility in reducing the incidence of smoking in California, because people tend to "tune out" advertising that simply explains the health risks involved with tobacco use. Thus, the DHS concluded that, in order to carry out its mandate to encourage Californians to modify and reduce their use of tobacco, it would be necessary to launch a campaign to "denormalize" smoking, by creating a climate in which smoking would seem less desirable and less socially acceptable.

One method used by the DHS in this campaign has been to portray the tobacco industry itself as deceptive and as an enemy of the public health, or, in the companies' words, to attack not "the desirability of a product but ... the moral character of [the] industry, accusing it of hypocrisy, cynicism and duplicity." The district court described these advertisements as follows:

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. The ads end with the tagline, "Do You Smell Smoke?," 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. 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." Several spots suggest that tobacco companies aggressively market to children. 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. 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." At the conclusion, the narrator says, "The tobacco industry: how low will they go to make a profit?"

R.J. Reynolds v. Bonta, 272 F.Supp.2d 1085, 1089 (2003). The district court also noted that each of the challenged advertisements is "identified as `Sponsored by the California Department of Health Services.'" Id. The tobacco companies do not claim that these advertisements contain any affirmatively false statements.

That California itself is interested in the outcome of the campaign is made clear by the Legislature's finding that "[s]moking is the single most important source of preventable disease and premature death in California" and that preventing tobacco use by children and young adults is the "highest priority in disease prevention for the state of California." Cal. Health & Safety Code § 104350(a). The district court explained that "there is substantial evidence, including published medical studies, indicating that the Proposition 99 programs, and the media campaign in particular, have been successful in achieving their goals." Bonta, 272 F.Supp.2d at 1088 n. 5 (noting the following articles describing the success of California's campaign in reducing the incidence of smoking: C. Fichtenberg and S. Glantz, Association of the California Tobacco Control Program with Declines in Cigarette Consumption and Mortality from Heart Disease, NEW ENG. J. MED. 343:24, 1772-1777 (2000); M. Siegel, Mass Media Antismoking Campaigns: A Powerful Tool for Health Promotion, ANNALS OF INTERNAL MED., 129:2, 128-132 (1998); J.P. Pierce, et al., Has the California Tobacco Control Program Reduced Smoking?, JAMA 280:10, 893-899 (1998)).

The appellant tobacco companies here are R.J. Reynolds Tobacco Company; its wholly owned subsidiary R.J. Reynolds Smoke Shop, Inc.; and Lorillard Tobacco Company. R.J. Reynolds pays the surtax through sales from its smoke shop subsidiary; Lorillard pays the surtax in connection with certain of its research and marketing activities in California. These companies are not the most important sources of revenue for the surtax, however. Because the surtax is imposed on distributors of cigarettes, most surtax payments are made not by cigarette manufacturers themselves, but by cigarette wholesalers. Nonetheless, because the tobacco companies sell or provide small quantities of cigarettes directly to smokers in California, they have paid and will in the future be required to pay the surtax. The tobacco companies here paid approximately $14,000 in surtax funds, thus contributing approximately $2,800 of the $25 million spent on the challenged ads. Bonta, 272 F.Supp.2d at 1090.

The tobacco companies brought five causes of action against the state defendants ("the state" or "California") to the district court, seeking both injunctive and declaratory relief. They argued that...