December 5, 2021

Volume XI, Number 339

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December 03, 2021

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December 02, 2021

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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.

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume IX, Number 32
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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