Summary of a Recent
Judicial Development in
Checkoff Decisions

California Table Grape Advertising
Assessment Violates First Amendment

Lynn Cox
National AgLaw Center Research Assistant

In an action brought by brand name grape producers against the California Table Grape Commission ("Commission") challenging a state law that required grape producers to pay assessments to the Commission to fund generic advertising of grapes, the United States Court of Appeals for the Ninth Circuit Court of Appeals has ruled that the advertising assessments violated the plaintiffs' First Amendment rights and were therefore unconstitutional. Delano Farms Co. v. California Table Grape Comm'n, 318 F.3d 895, 899-900 (9th Cir. 2003).

In 1967, California enacted a statute that established the Commission. See id. at 896. The Commission was established for "'the promotion of the sale of fresh grapes for human consumption by means of advertising, dissemination of information,'" and other means. Id. at 897. The Commission was also created to aid "'producers of California fresh grapes in preventing economic waste in the marketing of their commodity' and in acting 'in the public interest to protect and enhance the reputation of California fresh grapes for human consumption in intrastate, interstate, and foreign markets.'" Id.

The Commission had authority to levy assessments "upon all fresh grapes shipped during each marketing season" to pay for generic advertising, marketing, market research and development, and merchandising. Id. In 1996, when the case was filed, the assessment was $0.6087 per 100 pounds, or approximately thirteen cents per box. See id.

The plaintiffs, Delano Farms, Susan Neill Company, and Lucas Brothers sold grapes under a brand name rather instead of generic grapes. See id. They sold grapes to "'stores that . . . [paid] more money for higher quality product, as opposed to large grocery chain stores.'" Id. Delano Farms shipped about 1.7 million boxes of its table grapes in 1996 and paid $221,000.00 in assessments to the Commission in 1996. See id. Susan Neill and Lucas Brothers paid over $35,000.00 in assessments in 1996. See id.

The plaintiffs brought a declaratory judgment action, arguing that the assessments violated their First Amendment rights. See id. They also sought an injunction against collection and a refund of the amount they had paid in assessments. See id. The district court issued a preliminary injunction requiring the plaintiffs to pay the bulk of their assessments. See id. The parties stipulated to dismiss all causes of action, except for their constitutional challenge to the assessments for generic advertising. See id. The only issue remaining was whether the assessments for generic advertising were constitutional. See id. The district court ruled that the assessments were constitutional. See id. The plaintiffs appealed the district court's opinion to the Ninth Circuit. See id.

The court distinguished this case from Glickman v. Wileman Brothers & Elliot, 521 U.S. 457 (1997). See id. In Glickman, the assessments for generic advertising "were imposed by the federal government, not the state government as in the case at bar, pursuant to the Agricultural Marketing Act of 1937, a New Deal Program still in effect." Id. The Agricultural Marketing Act of 1937 was designed to substitute "'collective action' for the 'aggregate consequences of independent competitive choices,' including express exemption from the antitrust laws." Id. at 897-98. The program at issue in Glickman not only required the tree fruit growers to contribute to generic advertising, "but it also controlled the price, quality, and quantity of the commodities that could be marketed, and the disposition of any surplus that might depress market prices." Id. Several growers affected by the program challenged the generic advertising assessments, arguing that the assessments violated their First Amendment rights. See id.

In Glickman, the Supreme Court concluded that the First Amendment rights of the growers challenging the assessments were not violated because the generic advertising was "'part of a broader collective enterprise in which their freedom to act independently was already constrained by the regulatory scheme.'" Id. (citation omitted). The Court also concluded that it was "'fair to presume that they agree with the central message of the speech' because they were themselves selling fruit benefited by it, so the body of law protecting people from being compelled to repeat what is to them an objectionable message did not apply." Id. (citation omitted).

After examining Glickman, the Ninth Circuit stated that the facts in the present case were closer to those involved in United States v. United Foods, Inc., 553 U.S. 405 (2001). See id. In United Foods, the statute at issue mandated that assessments be collected that were to be spent mostly on generic mushroom advertising and promotion. See id. The case involved a federal statute but not one that collectivized the industry. See id. United Foods objected to the mandatory assessments because it wanted to advertise its particular brand of mushrooms, not just any mushrooms. See id. In United Foods, the court concluded that the First Amendment protected the mushroom growers from being compelled to subsidize the speech to which it objected. See id.

In the present case, the court noted that in Glickman the generic advertising assessments were "ancillary to a more comprehensive program restricting marketing autonomy" and that in United Foods "there was no such 'comprehensive program,' just a scheme that consisted mostly of generic promotion of mushrooms." Id. (citation omitted). It also noted that, in United Foods, the tree fruit scheme made fruit growing "'part of a broader collective enterprise' that 'displaced many aspects of independent business activity,' and had so displaced competition that it expressly was exempted from the antitrust laws." Id. (citation omitted).

The court concluded that

Constitutional law classes will doubtless enjoy the superficially droll question, "why does the Constitution prohibit the government from compelling mushroom growers, but allow government to compel nectarine, peach and plum growers, to pay for generic advertising?" The Court's distinction, though, is clear and easy to apply to the case at bar. If the generic advertising assessment is part of a "comprehensive program" that "displace[s] many aspect of independent business activity," exempts the firms within its scope from the antitrust laws, and makes them "part of a broader collective enterprise," the assessment does not violate the First Amendment. If the program is, in the main, simply an assessment of independent and competing firms to pay for generic advertising, it does violate the First Amendment. Collectivization of the industry eliminates the otherwise extant First Amendment protection for firms' commercial speech.

Id.

The case was decided on January 3, 2003; this summary was posted June, 2003