Sugar-Sweetened Beverages, Conflict Minerals And The First Amendment

In an en banc decision issued yesterday, the Ninth Circuit Court of Appeals reversed U.S. District Court Judge Edward M. Chen's denial of a preliminary injunction in an action challenging a San Francisco ordinance requires health warnings on advertisements for certain sugar-sweetened beverages. American Beverage Ass'n v. City & County of San Francisco, 2019 U.S. App. LEXIS 3175.  The Ninth Circuit found that the plaintiffs will likely succeed on the merits of their claim that the Ordinance is an “unjustified or unduly burdensome disclosure requirement[] [that] might offend the First Amendment by chilling protected commercial speech.”

This case may seem to have little to do with securities regulation but it immediately reminded me of  Nat'l Ass'n of Mfrs. v. SEC, 800 F.3d 518 (2015).  In that case, the District of Columbia Circuit Court held that Section 1502 and the SEC's implementing rule violate the First Amendment to the extent they require issuers to report to the SEC and to state on their website that any of their products have not been found to be "DRC [Democratic Republic of Congo] conflict free".

There is an important difference between these two cases, however.  The Ninth Circuit applied the more lenient test enunciated in Zauderer v. Office of Disciplinary Counsel,  471 U.S. 626 (1985): rational basis review applies to government required disclosures of commercial speech that contain “purely factual and uncontroversial information”.  The D.C. Circuit in contrast held that Zauderer did not apply.  It applied a more rigorous intermediate scrutiny under Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980).  Under Central Hudson,  the government can compel commercial speech only if can prove a “substantial” interest exists and that the regulation “directly advances” the interest in a way “not more extensive than is necessary to serve that interest".   The D.C. Circuit also found that the statute and rule fail even under Zauderer. 

Although the plaintiffs prevailed in both cases, the Ninth Circuit's holding is far less protective of the First Amendment.