United States: San Francisco City Ordinance Takes A Hard Hit In Ninth Circuit Soft Drink Lawsuit

Can an en banc decision of a federal appellate court be controversial even when every single active judge of that court agrees with the outcome? The answer is emphatically yes, as confirmed by the Ninth Circuit's January 31, 2019 en banc decision in American Beverage Ass'n et al. v. City & County of San Francisco, 16-16072 (2019), which preliminarily enjoined on First Amendment grounds a San Francisco ordinance mandating health warnings on certain soft drink and other beverage advertising. A link to the en banc decision is here.

In 2015, the City of San Francisco enacted an ordinance requiring certain sugar-sweetened beverage advertisements to include a health and safety warning stating: "WARNING: Drinking beverages with added sugar(s) contributes to obesity, diabetes, and tooth decay. This is a message from the City and County of San Francisco." The ordinance prescribed instructions as to the format, content, placement and size of the warning, including that it occupy at least 20% of the total space of the advertisement. The ordinance applied principally to billboard, mass transit, arena, wall and other public place advertising, but not to television, print or online advertising, or product labeling. And, the ordinance applied to soft drinks and certain other non-alcoholic beverages with one or more added caloric sweeteners containing more than 25 calories per 12 ounces of beverage, but it did not apply to milk, milk alternatives or natural fruit juices.

The American Beverage Association and other beverage industry associations sued in San Francisco federal district court to enjoin the ordinance on First Amendment grounds. The district court denied the preliminary injunction motion on the ground that plaintiffs had not established a likelihood of success on the merits. In 2017, a Ninth Circuit panel reversed. Last year, the full Ninth Circuit granted en banc rehearing and late last week, the en banc court affirmed the panel decision, with all active judges agreeing that the San Francisco ordinance must be preliminarily enjoined as likely violating the First Amendment. How the judges got to that outcome is where the controversy lies.

The parties agreed that the San Francisco ordinance constituted compelled commercial speech, and the en banc court was confronted with determining the level of scrutiny applicable to plaintiffs' First Amendment challenge. Judge Graber's opinion for the en banc Court concluded that the appropriate scrutiny was established by the Supreme Court's decision in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985), and a 2017 Ninth Circuit decision called CTIA. According to Judge Graber, these decisions together established that the ordinance would be proper only if the City could show that it is reasonably related to a substantial governmental interest, which defendant could establish by demonstrating that the compelled speech is (1) purely factual, (2) noncontroversial and (3) not unjustified or unduly burdensome.

Judge Graber's opinion found that San Francisco failed to establish that the ordinance was not unduly burdensome, and that the ordinance therefore likely violated the First Amendment. The City argued that the ordinance's size requirements for the health warning – 20% of the total size of the advertisement — "adhere to best practices for health and safety warnings." However, the study cited by the City's own expert showed that a 10%-of-total-size requirement was equally effective at communicating the health warning without obscuring the advertiser's intended message, and the City offered no evidence contradicting plaintiffs' position that the size of the required warning would "drown out [the] Plaintiffs' message." On balance, therefore, Judge Graber's opinion for the Court held that the ordinance likely was constitutionally infirm due to the unnecessary burden it placed on soft drink and other beverage companies.

The opinion for the Court caught flak in two concurring opinions. Judge Ikuta's concurrence in the result concluded that under a more recent Supreme Court decision, National Institute of Family Life Advocates v. Becerra, 138 S. Ct. 2361 (2018), the Zauderer "reasonable relationship" test did not apply to the San Francisco ordinance, and that instead, the ordinance must be subjected to the tougher "heightened scrutiny" test. In addition, Chief Judge Thomas and Judge Christen, although also concurring in the result, criticized Judge Graber's opinion for a different reason – they would not have reached Zauderer's "undue burden" prong, and instead would have found that the ordinance's compelled message failed Zauderer's "purely factual" and "non-controversial" prongs, in that the accuracy of the compelled message was hotly disputed by the parties and not consistent with the FDA's position regarding sugar in beverages.

In sum, there is little likelihood San Francisco will prevail if it insists on defending the ordinance on remand. However, the appropriate test for adjudicating the constitutionality of a municipality's compelled commercial speech regulations remains as foggy as many San Francisco mornings. Still, in light of the Ninth Circuit's en banc decision, and regardless of the level of scrutiny applied, cities and states looking to enact health- and safety-based compelled commercial speech ordinances and statutes are likely to continue to face strong judicial headwinds.

San Francisco City Ordinance Takes a Hard Hit in Ninth Circuit Soft Drink Lawsuit

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