44 Liquormart, Inc. v. Rhode Island: the Supreme Court Overturns a Ban on Liquor Price Advertising - Laura Harrison

• Publication year: 1997

44 Liquormart, Inc. v. Rhode Island: The Supreme Court Overturns a Ban on Liquor Price Advertising

In 44 Liquormart, Inc. v. Rhode Island,¹ two licensed liquor retailers brought suit against the Rhode Island Liquor Control Administrator to challenge the First Amendment validity of state statutes that banned the price advertising of alcoholic beverages. In a unanimous decision, the United States Supreme Court overturned the ban,² a judgment which may render similar restrictions unconstitutional.

I. Factual Background

In 1991, 44 Liquormart, a licensed retailer of alcoholic beverages in Rhode Island, placed an advertisement in a local newspaper. Although the advertisement did not directly state liquor prices, it listed the prices of items such as peanuts and potato chips and included the word "WOW" next to pictures of rum and vodka bottles. The Rhode Island Liquor Control Administrator concluded that the advertisement violated the state's price-advertising ban through an implied reference to bargain liquor prices and fined 44 Liquormart.³ 44 Liquormart paid the fine and filed an action against the Administrator in the United States District Court for the District of Rhode Island. Peoples, a neighboring Massachusetts retailer that also wanted to advertise in Rhode Island, joined Liquormart in seeking a declaratory judgment that the Rhode Island statutes and implementing regulations violated the First Amendment.⁴

After hearing conflicting expert testimony regarding the ban's impact on the promotion of temperance, the district court found that it had "no significant impact on . . . alcohol consumption in Rhode Island."⁵ The court concluded the ban was unconstitutional because it did not directly advance Rhode Island's interest in reducing alcohol consumption and because it was more extensive than necessary to serve the interest.⁶ While acknowledging it might be reasonable to assume a connection between the advertising ban and reduced consumption, the district court held that a mere rational basis was not sufficient to justify the speech restriction.⁷ The United States Court of Appeals for the First Circuit reversed, finding merit in Rhode Island's claim that allowing price advertising created a more competitive market, resulting in lower liquor prices and increased sales of alcoholic beverages.⁸ The court also agreed with the Rhode Island Supreme Court's reasoning in previous cases upholding the ban's constitutionality on the ground that the Twenty-First Amendment⁹ gives the statute an additional presumption of validity.¹⁰

The Supreme Court granted certiorari and reversed.¹¹ The Court held that Rhode Island's ban did not significantly advance the promotion of temperance, was more extensive than necessary, and was not within the legislature's authority to suppress truthful, nonmisleading speech.¹² Furthermore, the state's power under the Twenty-First Amendment did not render the statutes constitutional.¹³

II. Legal Background

First Amendment protection of commercial speech is a relatively recent development in United States history. In a 1942 case, Valentine v. Chrestensen,¹⁴ the Court held that purely commercial speech is not protected. In 1976, the Court recognized, for the first time, the unconstitutionality of certain commercial speech restrictions in Virginia

State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc.¹⁵ The Court struck down a state law prohibiting prescription drug price advertising despite the state's asserted interest in preserving pharmacists' professional stature and the stability of pharmacist-customer relationships.¹⁶ The Court reasoned that the state's position was highly paternalistic because its protection of the citizenry was based on maintaining public ignorance.¹⁷ Because the restriction targeted the content of the message in fear of its effect on its recipients, the Court held the ban violated the First Amendment.¹⁸

In another important case that preceded Virginia Pharmacy, the Court in California v. LaRue¹⁹ considered the state's authority to prohibit "lewd or naked dancing and entertainment" in bars and nightclubs licensed to sell liquor.²⁰ The Court held that while California may not have the power to proscribe such performances under the First Amendment, the State did have the power to do so where it issued liquor licenses under the Twenty-First Amendment.²¹ The Court upheld the regulations and noted that the Twenty-First Amendment gave the law "the added presumption in favor of validity."²²

In 1980, the Court returned to the issue of First Amendment protection of commercial speech in Central Hudson Gas & Electric Corp. v. Public Service Commission,²³ a decision that would set the standard for regulation of commercial speech. In Central Hudson, the Court set out a four-step intermediate scrutiny test to evaluate the constitutionality of commercial speech restrictions.²⁴ In that case, an electrical utility challenged an administrative regulation that completely banned promotional advertising by the utility in light of the state's interest in energy conservation.²⁵ First, the Court held that where a communication is both related to a lawful activity and nonmisleading, governmental control is limited.²⁶ Second, the state interest must be substantial.²⁷

Third, the law must directly advance the interest.²⁸ Fourth, the restriction must be no more extensive than necessary to advance the state interest.²⁹

Six years later, in Posadas de Puerto Rico Associates v. Tourism Co.,³⁰ the Court addressed the constitutionality of a statute restricting casino gambling advertisements that targeted the residents of Puerto Rico, as opposed to tourists.³¹ The statute also prohibited the use of the word "casino" in promotional items such as matchbooks and napkins if the items were accessible to the general public.³² To justify these restrictions, Puerto Rico asserted several state interests, including the prevention of moral and cultural pattern disruption and the fear of increased crime and prostitution.³³ Because the speech at issue was purely commercial, the Court analyzed the restriction under the Central Hudson test.³⁴ Noting the regulation concerned a lawful, nonmis-leading activity, the Court held that the law withstood the other three prongs of Central Hudson because (1) the state's asserted interests were substantial, (2) the restrictions directly advanced the legislature's end of reducing demand for games of chance among Puerto Rican residents, and (3) the regulation did so in a manner which was no more extensive than necessary.³⁵ The Court reasoned that Puerto Rico's power to ban casino gambling encompassed the lesser power to ban its advertising, calling it "strange constitutional doctrine"³⁶ to concede the legislature's authority to completely ban an activity yet deny it the authority to reduce demand for the activity through advertising.³⁷

Most recently, in Rubin v. Coors Brewing Co. ,³⁸ the Court addressed a challenge to a federal law that prohibited beer bottlers from displaying alcohol contents on its labels.³⁹ The government argued that the ban was needed to minimize the possibility of strength wars among brewers, fearing they would base their marketplace competition on beer potency and also to promote state efforts to regulate alcoholic beverages under the Twenty-First Amendment.⁴⁰ The Court again applied the Central Hudson test.⁴¹ Because the labels contained undisputedly truthful, nonmisleading factual information, the Court turned to the other three prongs of the test.⁴² It accepted the government's interest in protecting citizens by preventing competition based on alcohol strength, which could increase alcoholism, as substantial.⁴³ However, the Court reasoned that the law did not directly advance the interest because of the "overall irrationality" of the regulatory scheme.⁴⁴ Brewers were still able to divulge alcohol content through a more influential means advertising in much of the country.⁴⁵ Thus, if the...