8th Circuit hears oral arguments in the most important liquor case of the year

 

Why Should we care?

The Missouri Broadcaster’s Association v. Taylor case holds great importance in the liquor world for two reasons:

1. The Court will require the state to produce evidence to prove that its laws are necessary to protect the public health, safety, and welfare. In a previous day, a sound legal theory was enough to certify the state’s position. The game has changed and in the district court’s decision, the Judge admonished the state for its lack of evidence. If the 8th Circuit affirms the district court’s standard, then it could change the way courts view a state’s legal justification. It could require that the state prove out every legal justification and any law lacking evidence will not stand.

In essence, the evidentiary standard would subject state liquor laws to heightened legal scrutiny without espousing a formal legal doctrine.

2. The District court held that the three-tier regulatory system is riddled with so many exceptions that it has become blurred, if not wholly abandoned. If the 8th Circuit affirms the district court’s view, then states will have a very difficult time justifying a law as necessary to maintain an orderly marketplace. In other words, tied-house laws could become subject to great legal challenges and so could the states’ regulatory system.

Laws at issue

Missouri has two regulations and a statute that restrict alcohol advertising practices.

The first regulation prohibits media advertising of price discounts but allows certain exceptions. The retailers are prohibited from offering coupons or price discounts on beer and wine but are allowed to advertise the price discounts on intoxicating spirits.  The regulation also does not permit outside advertising on certain discounts but permits advertising within the venue. Finally, generic advertising such as “Happy Hour” or “Ladies Night” are allowed but more specific advertising such as “two-for-one specials are prohibited.”

The second regulation prohibits the advertising of selling alcoholic liquor below cost even though the practice of selling below cost is permitted.

The Missouri statute prohibits wholesalers or manufacturers from providing any financial aid to retailers including through advertising. Like the aforementioned regulation, there are exceptions. Exceptions are allowed if the advertisement contains the name and address of two or more unaffiliated businesses, it does not contain the retail price, the listing of the retail business shall be the only reference to the retail business in the advertisement, the listing of the retail business should be relatively inconspicuous, and the advertisement should not refer only to one business or to retail businesses controlled by the same retailer.

Attorney General’s Oral Argument 
A. Evidence, Evidence, Evidence!

The evidence issue is becoming a major problem for the states. Numerous times the Missouri Attorney General (AG) argued a position and then was asked by the panel whether there was evidence for the state’s position, or experts to testify to their position.

The AG indicated that there was evidence in the record without directly citing to the record or providing evidence of any studies.

On the other hand, the Missouri Broadcaster’s Association attorney came armed by citing studies and experts.

It seems that the 8th Circuit panel was following the lead of the District Court and demanding data that the state did not possess.

What we learned is the state can no longer throw out theories without hard cold facts to back it up. Especially when they are facing an adversary that comes in loaded with evidence.

In the future there may be a battle over whose data is better but in this case that is not even a debate.

B. Compelling Speech

The District Court’s decision was decided within the framework of the Central Hudson test pertaining to 1st Amendment challenges. Under this four-prong test, a government statute of regulation can survive a 1st Amendment challenge if it meets a specific four prong test and there is a reasonable fit between the government ends and the means for achieving those ends.

The four prong test is: “(1) whether the commercial speech at issue concerns unlawful activity or is misleading; (2) whether the governmental interest is substantial; (3) whether the challenged regulation directly advances the government’s asserted interest; and (4) whether the regulation is no more extensive than necessary to further the government’s interest.” Only the last two prongs are at issue in this case

The panel seemed to think that the statutory and regulatory restrictions took the Court outside commercial speech and into the realm of compelled speech.

The panel and the AG disagreed sharply on this point. One judge took the position that when the state required that a distributor or manufacturer put more than one retailer on an advertisement that the state was compelling the manufacturer/distributor’s speech.

The state disagreed indicating that the state’s legal authority called for compelled disclosure and not speech, and there could be a retailer listed on a manufacturer/distributor’s advertisement, as long as there was more than one.

Compelled v. commercial speech becomes significant because if there is a compelled speech issue, the statute or regulation faces a strict scrutiny standard, i.e. a higher barrier to survive.

In listening to the oral argument, it seems that the 8th Circuit was leaning toward the realm of compelled speech.

With the strict scrutiny standard applied to compelled speech, I think the state’s statute regulation are in trouble.

C. Public Health and Financial Entanglement

The Attorney General argued that the laws’ purpose was for public health reasons and to ensure that there was no financial entanglement between a retailer and distributor or manufacturer.

The Court seemed very skeptical to the fact that restricting advertising to one retailer would serve the public health, and they questioned the evidence from the state on the supposition that providing alcohol below cost harmed the public health.

For the financial entanglement argument, the AG stated that having one retailer on a sign provided them great financial benefit, and that having more than one retailer decreased the benefit. The stated goal of the state was to make the benefit from advertising dollars flowing through to the retailer de minimis, and the more retailers you have on an advertisement the more de minimis the dollars become.

Again, in this instance, when asked where the evidence was for this argument, the state came up with an intuitive analysis versus an empirical analysis. The Judge questioning the state did not seem impressed with the state’s position and pressed them to prove their legal theory.

Because the state lacks empirical evidence, they must present the soundest of arguments to the Court. And hope the Court buys the argument on its own and without empirical evidence.

The argument that having more than one retailer on an advertisement was necessary to promote public health was dismissed by the court. So, without the presence of sound evidence this legal theory does not survive.

The financial entanglement argument has a sound basis but without evidence the court may rule against the state. Problematically for the state, the Panel asked for evidence that having more than one retailer provided less value to a retailer and spread out the value amongst many retailers. Unfortunately for the state, the response was an intuitive argument without any hard evidence.

 

Missouri Broadcaster’s Association Oral Arguments
A. The basis for the tied-house laws do not exist anymore

The Attorney for Missouri Broadcaster’s Association (Plaintiff) took the position that the basis for tied-house laws don’t exist anymore. They discussed how tied-house derived from liquor industry members acting immorally in the Pre-Prohibition days. And this led to the separation of the tiers because of these troubles.

However, the Plaintiff demonstrated that recent evidence shows that Missouri allows single tier businesses such as craft breweries and wineries to exist and there has been no effect on public safety. So, the whole basis for restricting speech based on tied-house prohibitions does not exist anymore.

The Plaintiff attempted to throw cold water on Missouri’s argument that tied-house restrictions on free speech were necessary to maintain separation of tiers in order to maintain an orderly marketplace.

Except unlike the state, they presented evidence that a single-tier entity maintained an orderly marketplace and hence questioning the necessity of the three-tier system for maintaining market control.

B. We have the evidence

The Plaintiff took the position that reducing truthful advertising does not impact alcohol consumption.

When the panel asked him whether this assertion was in the record, he responded that their expert witness testified to 11 studies that proved this point.

The panel asked him whether this point was controverted, he indicated no and further indicated that the other side was not providing evidence for their position.

Further, the Plaintiff demonstrated that there were 14 alternatives to the regulation that could satisfy the goal of the law without suppressing free speech and there were 6 alternatives to the tied-house statute without suppressing free speech. He took the position that Missouri’s law was not narrowly tailored to serve its purpose as there were numerous alternatives (such as education programs) available to the state instead of restricting free speech.

C. Putting the law into a legal quandary

The Plaintiff called into question the purpose of law and how it operated. He indicated that on the one hand it compels speech by forcing the manufacturer/distributor to include more than one retailer on an advertisement. On the other hand, the laws restrict free speech by not allowing you to put certain information in advertisements.

The Plaintiff put Missouri’s law into a legal quandary where it violates 1st Amendment rights on two different grounds.

Conclusion

If I was playing Nostradamus, I would go with the Broadcaster’s Association winning in the 8th Circuit.

The 8th Circuit panel is not deviating from the District Court’s position that evidence is necessary to win. Numerous times they requested from both parties’ evidence to back up their assertions. The AG never had the evidence whereas the Missouri Broadcaster’s always did.

Second, the AG justifications were looked upon skeptically by the Panel, whereas the Plaintiff’s arguments were delivered strongly and picked the state apart.

Missouri will not be able to win the argument that the laws are necessary to maintain safety and public health, the evidence is simply not there.

The big question is how does the 8th Circuit look upon the financial entanglement and maintaining an orderly marketplace argument? Is the lack of evidence a killer, or is the purpose of the law and its importance to the system enough?

But the even bigger question is if the state law can’t be maintained on tied house grounds, what are the bigger implications?

Does this throw the liquor legal framework into upheaval?

Only the future will tell, but what we do know is that if the state loses expect numerous challenges to state tied-house rules!

 

 

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