The state loses the battle but avoids losing the war
The big issue in this case was whether like the district court, the 8th Circuit would render a decision on an alcohol statute/regulation without going through a 21st Amendment analysis?
The 8th Circuit differed from the district court in that it went through a 21st Amendment analysis. If it followed the district court, it would have set groundbreaking precedent by adjudicating a liquor statute/regulation without considering a state’s 21st Amendment power to regulate alcohol within its own borders. A decision of this nature would differ from every circuit decision pertaining to alcohol.
Ultimately, the 8th Circuit ruled against the state’s position and affirmed the district court’s judgment. But by differing from the district court and going through a 21st Amendment analysis, the 8th Circuit avoided major legal upheaval and ambiguity in the liquor world.
Although the state lost the battle in this case, it avoided losing the bigger war of losing its 21st Amendment power or having it severely curtailed.
Before getting into the nuances of the case, I wanted to highlight some of the other major issues.
1. As a general trend, states continue to lose because they continue to lack evidence to justify statutes and regulations that restrict a constitutional right. This factor played a major role in the 8th Circuit’s decision. If states can not take care of the evidence problem, their laws and regulations will not hold up under legal scrutiny.
2. Are the exceptions swallowing the rule again? The Court held that Missouri statutes and regulations were so inherently inconsistent that the 8th Circuit deemed them irrational and ineffective. Since most if not all the state tied-house provisions have inconsistencies, does this doom them based on maintaining exceptions within the rule? And if this is the case, will states get rid of the exceptions to maintain the rule?
And finally, how does this play in other areas of liquor law? Do exceptions for craft brewers and brew pubs make a law so inherently inconsistent that it is irrational and ineffective and maybe calls into question the three-tier system’s separation of tiers?
3. The 21st Amendment has a bad track record when it conflicts with other Constitutional rights. States are losing numerous Commerce Clause challenges and are now losing 1st Amendment challenges. The states’ 21st Amendment powers are being severely curtailed.
Laws and issues
The Broadcasters Association challenged Missouri’s 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.
Missouri advances three arguments to defend its statute: (1) the Statute does not implicate the First Amendment; (2) even if the Statute implicates the First Amendment, it passes the Central Hudson test for commercial speech and subsection 4(10) of its statute does not compel speech; and (3) the Regulations are also constitutional under Central Hudson.
Implicating the 1st Amendment
Missouri argues that its Statute implements a three-tiered system that regulates economic activity and, at most, only incidentally affects speech. In particular, Missouri notes the Statute does not mention speech and instead simply prohibits producers and distributors from retail advertising. Missouri further contends its three-tiered system comports with its authority under the Twenty-first Amendment.
Although the Statute on its face does not restrict speech, the Court held that its practical operation restricts speech based on content and speaker identity. The Statute imposes content-based restrictions by limiting what producers and distributors can say in their advertisements. Specifically, the Court stated:
“The Statute also restricts speech based on speaker identity because it allows retailers—but not producers or distributors—to run certain advertisements. That is, Joe’s Bar could run the ad, “Drink Coors Light, now available at Joe’s Bar,” but a producer or distributor could not. Missouri’s economic motivation for the Statute does not insulate it from First Amendment challenges. Cf. id. at 567 (“While the burdened speech results from an economic motive, so too does a great deal of vital expression.”). The Statute “imposes a burden based on the content of speech and the identity of the speaker” and thus implicates the First Amendment.”
21st Amendment analysis
Unlike the lower court, the 8th Circuit did perform a 21st Amendment analysis on the law.
The Court indicated that Missouri’s authority under the 21st Amendment cannot save the Statute from its First Amendment implications. The Twenty-first Amendment allows states to regulate alcohol only if the regulations “do not . . . violate rights secured by the Constitution of the United States.” Tenn. Wine and Spirits, 139 S.Ct. at 2464 (citing Mugler v. Kansas, 123 U.S. 623, 659 (1887)). The Supreme Court held in 44 Liquormart that “the Twenty-first Amendment does not qualify the constitutional prohibition against laws abridging the freedom of speech embodied in the First Amendment.” 44 Liquormart v. Rhode Island, 517 U.S. 484, 516 (1996).
What we can read from this is a state’s 21st Amendment powers do not fare well when they restrict another Constitutional right. The 8th Circuit reads Tennessee Wine to stand for the proposition that 21st Amendment powers that violate the rights secured by the Constitution are going to face grave odds for surviving.
Although the Court did go through the analysis, similar to numerous cases these days, the state’s 21st Amendment justifications are not surviving legal challenges.
Does the statute violate the 1st Amendment?
The Court considered the next issue whether the statute violated the 1st Amendment. It analyzed the statute through the Central Hudson four prong test: (1) whether the commercial speech at issue concerns lawful activity and is not misleading; (2) whether the governmental interest is substantial; (3) whether the challenged law directly advances the government’s asserted interest; and (4) whether the law is no more extensive than necessary to further the government’s interest. Id. at 1055 (citing Cent. Hudson, 477 U.S. at 566).
The Court did not wade into the debate under prong two on whether Missouri has a substantial interest in preventing producers and distributors from unduly influencing retailers. It indicated that since Missouri fails prong three and four of Central Hudson that deciding this issue is unnecessary. The Broadcasters Association claimed that since Missouri failed to identify “preventing undue influence” as a substantial interest at trial it cannot do so for the first time on appeal. However, the 8th Circuit read “undue influence to be a subset of the state’s expressed goal of ensuring an orderly marketplace.”
Nevertheless, it did not conclude on this issue.
Substantial interest and the importance of evidence
Under the third Central Hudson prong the state must show that its “law directly advances the government’s asserted interest.”
To satisfy this prong, the 8th Circuit ruled that the state must show “the statute advances its substantial interest “in a direct and material way.” Rubin v. Coors Brewing Co., 514 U.S. 476, 487 (1995) (quoting Edenfield v. Fane, 507 U.S. 761, 767 (1993). According to the 8th Circuit the state’s burden “is not satisfied by mere speculation or conjecture; rather, a governmental body seeking to sustain a restriction on commercial speech must demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to a material degree.” The Court stated that Missouri must show that the “the statute significantly reduced the alleged harms.”
The Court ruled that Missouri failed to meet this burden.
Missouri took the position that history and consensus advanced its interest “because the three-tiered system prevents undue influence of alcohol producers and distributors over retailers.”
The 8th Circuit found the history argument unconvincing and stated that Missouri relied on the history of other states and the purpose behind their tied-house laws, but did not discuss Missouri’s history or its statute.
Further, Missouri’s consensus argument was unconvincing to the Court. The Court noted that Missouri’s argument was based on Missouri’s tied-house law passing constitutional muster because every state and federal government has a tied-house law. The Court disagreed with this argument and noted that other states and the federal government having tied-house laws does not make Missouri’s law constitutional.
The Court concluded its point by noting that consensus and history speak to a general need for a three-tier system, but they don’t show how the statute’s specific restrictions advanced the state’s interest.
Inconsistencies render the statute irrational and ineffective
The 8th Circuit took aim at the statute’s inconsistencies which render it irrational and ineffective. Under the statute, a distributor or producer can not advertise certain content, however, they could provide the content to the retailer to advertise the same product.
Further, Missouri’s worries about the financial entanglement caused by money flowing through to a retailer based on advertising funds, yet the same legal authority which prohibits advertising funds to a retailer, allows a distributor or producer to provide items of monetary value to a retailer such as glassware and advertising materials. Based on the statutory inconsistencies, the Court held that a statutory framework with such advertising exemptions and inconsistencies renders the Statute as applied ineffective in preventing undue influence “in a direct and material way.”
4th Central Hudson prong not satisfied because the state lacks requisite evidence
The 4th Central Hudson prong requires the Court to look at “whether the law is no more extensive than necessary to further the government’s interest.” The law doesn’t require Missouri to employ the least restrictive means possible, “but it must demonstrate narrow tailoring of the challenged regulation to the asserted interest—‘a fit that is not necessarily perfect, but reasonable; that represents not necessarily the single best disposition but one whose scope is in proportion to the interest served.”
The Court again took Missouri to task for not providing evidence that the law is no more extensive than necessary to further the government’s interest. Missouri argued that the statute does not target speech but preserves all avenues of speech and merely regulates what speech distributors and producers can engage in with a retailer. The Court did not find this argument convincing, and held that this argument pertains to whether the statute implicates speech and not whether the statute is narrowly tailored to further its interest.
Without showing more evidence, the Court concluded that Missouri does not meet Central Hudson’s fourth prong.
Finally, the Court indicated that there were several non-speech-restrictive alternatives that may advance Missouri’s interest, including restoring the three-tier separation by removing other exceptions that do not affect free speech.
The state can not produce the evidence to back up its assertions
Missouri did not dispute that its regulation facially restricts truthful, non-misleading commercial speech, but they took the position that it passed the Central Hudson test.
Missouri argued that the district court misunderstood its interest as decreasing “overall” consumption where its substantial interests is really reducing overconsumption and underage drinking. Missouri’s position is that the Regulations advance its interests because they “reduce consumption of one specific kind of alcohol: alcohol sold below cost or at discount, which is the kind more likely to cause overconsumption and underage drinking.”
The Court disagreed holding that the lower court correctly understood the issue and the state’s interest. Similar to the district court, the 8th Circuit held that “the State must show that prohibiting advertising of discount prices and below cost alcohol directly reduces overconsumption of alcohol and underage drinking”.
However, similar to the statutory issues, the state can not provide empirical or statistical evidence demonstrating how these regulations further the state’s interest.
The state did not present evidence demonstrating that overconsumption or underage drinking is less frequent in Missouri than in other states which don’t have Missouri type of advertising restrictions. Nor did it produce any evidence that overconsumption or underage drinking were reduced by these regulations. Finally, Missouri failed to demonstrate that the Regulations “are no more extensive than necessary to further its interest in decreasing discounted or below-cost alcohol consumption.”
The 8th Circuit avoided legal controversy by engaging in a 21st Amendment analysis. Bypassing the 21st Amendment analysis (like the district court did) would have been earth shattering in the liquor world and clearly caused legal upheaval.
Even though the decision was not total devastation for the state, there are some issues of concern for state regulations and statutes.
The states have an evidence problem and until they fix it, no cute legal theory or statement will save its legal justifications for statutes and regulations.
In this case, Missouri’s statutes and regulations failed based on lack of evidence. The game has changed for states and the days of theoretical and intuitive arguments are over. The state is no longer going to get the benefit of the doubt from the courts, it must proof its point.
Finally, the Court mentioned the inconsistencies in the state’s authority pertaining to the financial entanglement issue. These inconsistencies made its tied-house advertising restrictions irrational and ineffective.
What is the carryover to over circuits and does being inconsistent in a statute or regulation strike down the whole statute or regulation? And if so, does this become a solid legal precedent?
If so, many state liquor statutes and regulations with exceptions to the rule may come under increasing attacks!