Retail Digital Network, LLC v. Prieto

Decision Date14 June 2017
Docket NumberNo. 13-56069,13-56069
Citation861 F.3d 839
Parties RETAIL DIGITAL NETWORK, LLC, Plaintiff-Appellant, v. Ramona PRIETO, as Acting Director of the California Department of Alcoholic Beverage Control, Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Olivier Taillieu (argued) and Raffi V. Zerounian, The Taillieu Law Firm, Los Angeles, California, for Plaintiff-Appellant.

Joshua A. Klein (argued), Deputy Solicitor General; Edward C. DuMont, Solicitor General; California Department of Justice, San Francisco, California; Gabrielle H. Brumbach, Deputy Attorney General; Gary S. Balekjian, Supervising Deputy Attorneys General; Chris A. Knudsen, Senior Assistant Attorney General; Office of the Attorney General, San Francisco, California; for Defendant-Appellee.

Warren David Postman (argued), Kate Comerford Todd, and Warren Postman, U.S. Chamber Litigation Center, Washington, D.C.; Helgi C. Walker and Chad R. Mizelle, Gibson Dunn & Crutcher LLP, Washington, D.C.; for Amicus Curiae Chamber of Commerce of the United States of America.

Michael Brill Newman, Holland & Knight LLP, San Francisco, California, for Amicus Curiae Wine and Spirits Wholesalers of California, Inc.Robert A. Brundage and Brian C. Rocca, Morgan Lewis & Bockius LLP, San Francisco, California; for Amicus Curiae California Beer and Beverage Distributors.

Carl L. Blumenstein, Nossaman LLP, San Francisco, California, for Amicus Curiae California Craft Brewers Association.

Scott L. Nelson, Allison M. Zieve, and Julie A. Murray, Public Citizen Litigation Group, Washington, D.C., for Amicus Curiae Public Citizen, Inc.

Michael D. Madigan and Brandt F. Erwin, Madigan Dahl & Harlan P.A., Minneapolis, Minnesota, for Amici Curiae National Beer Wholesalers Association and Wine & Spirits Wholesalers of America, Inc.

Cory L. Andrews, Richard A. Samp, and Mark S. Chenoweth, Washington, D.C., as and for Amicus Curiae Washington Legal Foundation.

Before: Sidney R. Thomas, Chief Judge, and Stephen Reinhardt, Alex Kozinski, William A. Fletcher, Ronald M. Gould, Richard A. Paez, Johnnie B. Rawlinson, Jay S. Bybee, Milan D. Smith, Jr., Mary H. Murguia and Paul J. Watford, Circuit Judges.

Dissent by Chief Judge Thomas


PAEZ, Circuit Judge:

In this appeal, we consider Plaintiff-Appellant Retail Digital Network, LLC's ("RDN") First Amendment challenge to California Business and Professions Code § 25503(f)(h). Section 25503(f)(h) prohibits alcohol manufacturers and wholesalers from providing anything of value to retailers in exchange for advertising their alcohol products. As a result of Section 25503(f)(h), alcohol manufacturers and wholesalers refused to enter into advertising agreements with RDN—which placed advertisements in wine and spirit retail stores—and RDN filed suit for declaratory and injunctive relief against Defendant-Appellee Ramona Prieto ("Prieto") in her official capacity as Acting Director of the California Department of Alcoholic Beverage Control (the "ABC").1

This is not the first time we have considered such a challenge to Section 25503(h).2 Thirty years ago, in Actmedia, Inc. v. Stroh , 830 F.2d 957 (9th Cir. 1986), we rejected a First Amendment challenge to that provision. In rejecting the challenge, we applied the four-part test established by Central Hudson Gas & Electric Corp. v. Public Service Commission of New York , 447 U.S. 557, 100 S.Ct. 2343, 65 L.Ed.2d 341 (1980), for evaluating restrictions on commercial speech.

RDN argues that Actmedia is no longer good law because the Supreme Court's decision in Sorrell v. IMS Health Inc. , 564 U.S. 552, 131 S.Ct. 2653, 180 L.Ed.2d 544 (2011), fundamentally altered the Central Hudson test by adopting a more demanding standard for assessing restrictions on commercial speech. We disagree. Reviewing de novo, we hold that Sorrell did not modify the Central Hudson standard. We reaffirm Actmedia 's core holding, but we disapprove of Actmedia 's reliance on California's interest in promoting temperance as a justification for Section 25503(h). We therefore affirm the district court's order granting summary judgment to Prieto, which correctly relied on Actmedia .


RDN installed and operated seven-foot digital screen displays in one-hundred wine and spirit retail stores throughout Southern California. On its screens, RDN ran advertisements on a two-minute loop comprised of fifteen-second advertisements. RDN sold advertising slots to various companies, and, in turn, agreed to share a portion of its revenue with the retail stores.

RDN agreed to run advertisements for two alcohol manufacturers, St-Germain and Moët Hennessy. Those agreements, however, were short-lived because St-Germain and Moët Hennessy feared that the ABC would enforce Section 25503(f)(h) against them.3 Several other alcohol manufacturers and wholesalers, including Anheuser-Busch, Beam Global, Diageo, Jack Daniel's Tennessee Whiskey, MillerCoors, and Skyy refused to contract with RDN because of the same concern.

As a result of its inability to secure advertisement placements from alcohol manufacturers and wholesalers, RDN filed this lawsuit against Prieto, seeking a declaration that Section 25503(f)(h) is unconstitutional under the First Amendment because it impermissibly restricts commercial speech, and an injunction enjoining enforcement of those subsections.

Prieto moved for summary judgment, arguing that RDN lacked standing and that even if standing existed, she was entitled to judgment under Actmedia , which rejected a similar First Amendment challenge. The district court concluded that RDN had standing, but that Prieto nonetheless was entitled to summary judgment because Actmedia was not clearly irreconcilable with Sorrell or other subsequent Supreme Court cases.

RDN timely appealed. A three-judge panel of this court reversed and remanded for further proceedings.4 Retail Digital Network, LLC v. Appelsmith , 810 F.3d 638, 642 (9th Cir. 2016). The panel held that "Sorrell requires heightened judicial scrutiny of content-based restrictions on non-misleading commercial speech regarding lawful products, rather than the intermediate scrutiny applied to [Section 25503(h) ] in Actmedia ." Id. After the panel issued its opinion, a majority of nonrecused active judges voted to rehear this case en banc.

Retail Digital Network, LLC v. Gorsuch , 842 F.3d 1092, 1092 (9th Cir. 2016).


To understand the purpose of Section 25503(f)(h), some historical context is necessary. Section 25503 is part of California's Alcoholic Beverage Control Act, California Business and Professions Code §§ 23000, et seq. , and was adopted to prevent the resurgence of tied-houses following repeal of the Eighteenth Amendment. See Cal. Beer Wholesalers Ass'n v. Alcoholic Beverage Control Appeals Bd. , 5 Cal.3d 402, 96 Cal.Rptr. 297,487 P.2d 745, 748 (1971). The term "tied-houses" refers to retailers and saloons that are controlled by "larger manufacturing or wholesale interests."5 Id. The California Supreme Court has recognized that tied-houses pose two particular dangers: "the ability and potentiality of large firms to dominate local markets through vertical and horizontal integration and the excessive sales of alcoholic beverages produced by the overly aggressive marketing techniques of larger alcoholic beverage concerns." Id. (citations omitted).

To prevent the formation of tied-houses after Prohibition, California enacted laws, including Section 25503, that established a triple-tiered alcohol distribution scheme, pursuant to which "[m]anufacturing interests were to be separated from wholesale interests; [and] wholesale interests were to be segregated from retail interests." Id. ; see also Cal. Bus. & Prof. Code §§ 25500 –25512. "In short, business endeavors engaged in the production, handling, and final sale of alcoholic beverages were to be kept ‘distinct and apart.’ " Cal. Beer Wholesalers Ass'n , 96 Cal.Rptr. 297, 487 P.2d at 748 (quoting 25 Op. Cal. Att'y Gen. 288, 289 (1955)). In 2015, the California legislature reaffirmed its interest in preserving a triple-tiered distribution scheme by amending another tied-house provision, California Business and Professions Code § 25500.1, to provide:

[I]t is necessary and proper to require a separation among manufacturing interests, wholesale interests, and retail interests in the production and distribution of alcoholic beverages in order to prevent suppliers from dominating local markets through vertical integration and to prevent excessive sales of alcoholic beverages produced by overly aggressive marketing techniques.

2015 Cal. Stat. Ch. 408.

As we observed in Actmedia , Section 25503(h) addresses the California legislature's specific "concern that advertising payments could be used to conceal illegal payoffs to alcoholic beverage retailers," thereby undermining the triple-tiered distribution scheme. 830 F.2d at 967. That concern "appears to have been widely held at the time of [Section 25503(h)'s] enactment...." Id.


As noted above, in Actmedia we rejected a First Amendment challenge to Section 25503(h), concluding that it passed constitutional muster under Central Hudson . 830 F.2d at 968. Like RDN, the plaintiff in Actmedia was an advertising middle-man: Actmedia leased advertising space on shopping carts, and placed other companies' advertisements on the shopping carts.

Id. at 958. Actmedia entered into an agreement with an alcohol manufacturer, the Adolph Coors Company ("Coors"), to advertise Coors beer on supermarket shopping carts. Id. at 961. The ABC, however, determined that Coors had violated Section 25503(h) by engaging in such conduct, and initiated an administrative proceeding, threatening to revoke Coors' California beer and wine license. Id. After remedying the violation, Coors terminated its use of Actmedia's services. Id.

In response to the ABC's action against Coors, Actmedia filed a lawsuit seeking a declaration that Coors' conduct did...

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