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HORNELL BREWING CO. v. BRADY

February 5, 1993

HORNELL BREWING CO., INC. and DON VULTAGGIO, Plaintiffs,
v.
NICHOLAS BRADY, as UNITED STATES SECRETARY FOR THE DEPARTMENT OF THE TREASURY; THE UNITED STATES DEPARTMENT OF THE TREASURY; STEPHEN E. HIGGINS, as DIRECTOR OF THE BUREAU OF ALCOHOL, TOBACCO & FIREARMS; and WILLIAM T. EARLE, as CHIEF, INDUSTRY COMPLIANCE DIVISION FOR THE BUREAU OF ALCOHOL, TOBACCO & FIREARMS, Defendants.



The opinion of the court was delivered by: JOAN M. AZRACK

REPORT AND RECOMMENDATION

 AZRACK, United States Magistrate Judge

 This action was brought by plaintiffs to challenge on six grounds the constitutionality of Public Law 102-393, § 633 and to seek a permanent injunction prohibiting defendants from revoking the existing Certificates of Label Approval (COLAs) for Crazy Horse Malt Liquor, and preventing them from denying pending and subsequently filed applications for COLAs pertaining to Crazy Horse Malt Liquor. Upon initiating the action, plaintiffs moved before the Honorable Carol Bagley Amon, United States District Judge, for a preliminary injunction. On December 22, 1992, the parties stipulated that the motion would be recast as a summary judgment motion, permitting time for response and cross motion by defendants. (See Stipulation at 1, 2.) Judge Amon referred the motions in their entirety to the undersigned for a Report and Recommendation. The matter was fully briefed and oral argument was heard on January 27, 1993. For the reasons set forth below, the undersigned respectfully recommends that summary judgment be granted in favor of plaintiffs on the First Amendment claim, and in favor of defendants on the five remaining claims.

 BACKGROUND AND FACTS

 The following facts are undisputed unless otherwise indicated. Plaintiff Hornell Brewing Company ("Hornell") is a New York corporation which maintains its principal place of business in Brooklyn, New York and produces and markets alcoholic and non-alcoholic beverages including "The Original Crazy Horse Malt Liquor" ("Crazy Horse"). Plaintiff Don Vultaggio is Chairman and co-owner of Hornell. In February, 1992, the Bureau of Alcohol, Tobacco and Firearms ("BATF") issued a Certificate of Label Approval ("COLA") to Hornell's bottler, G. Heileman Brewing Company ("GHBC"), authorizing the bottling and distribution of the Crazy Horse product. *fn1" The certification process of BATF includes the consideration of whether the label is misleading, fraudulent, or obscene. Hornell introduced Crazy Horse in fourteen states in March 1992. To date, Crazy Horse is distributed in thirty-one states through over 200 wholesalers who resell to over 100,000 retailers. Hornell claims that Crazy Horse Malt Liquor was to be the first product in a series of Hornell beverages that celebrate the American West. *fn2"

 The introduction of the product caused a surge of indignation throughout Congress, seemingly initiated by the United States Surgeon General Antonia Novello. In April 1992, Dr. Novello held a press conference in Rapid City, South Dakota, where she criticized the choice of the name Crazy Horse for a malt liquor. She accused Hornell of "insensitive and malicious marketing" and encouraged the leaders of Indian nations to use public outrage to force Crazy Horse off the market. (Speech given in Rapid City, South Dakota, April 22, 1992, attached to Vultaggio Aff. as Ex. 5.) Subsequently, members of Congress joined the effort to prohibit use of the name Crazy Horse on the malt liquor product. By letter dated April 20, 1992, South Dakota Senator Larry Pressler directed Hornell to change the product's name or donate its proceeds to Native American causes because "defamation of this hero is an insult to Indian culture." (Vultaggio Aff. Ex. 6.) Similarly, on April 27, 1992, Senator Tom Daschle wrote to Hornell expressing his displeasure with the use the name Crazy Horse. (Vultaggio Aff. Ex. 7.) On May 19, 1992, Dr. Novello appeared before the House Select Committee on Children, Youth and Family. Representative Patricia Schroeder had called the hearing to consider legislation to prohibit use of the name Crazy Horse on alcoholic beverages. No representative of Hornell was permitted to appear at the hearing. (Pls.' Mem. Supp. Mot. at 7; see also Confronting the Impact of Alcohol Labeling and Marketing on Native American Health and Culture: Hearing before the House Select Committee on Children, Youth, and Families, 102d Cong., 2d Sess. (1992), Defs.' Mem. Ex. A.)

 Subsequently, Representative Frank Wolf offered an amendment to the Treasury, Postal Service and General Government Appropriations Bill then under consideration. The amendment would have prohibited the use of trade names or brand names for alcoholic beverages that bore the name of any deceased individual of public prominence if the use of the name were likely to degrade or disparage the reputation of the individual. (138 Cong. Rec. H5769-70 (July 1, 1992), Vultaggio Aff. Ex. 10.) Representative Wolf made clear that the introduction of the Crazy Horse product was the impetus for the proposed amendment, stating, "The language has been put in because this brewer has developed an alcoholic beverage called Crazy Horse. Crazy Horse was an Indian chief who was known for urging his people not to drink alcohol." A Point of Order was sustained because the amendment attempted to create legislation through an appropriations bill in violation of House of Representatives rules. (138 Cong. Rec. H. 5769-70 (July 1, 1992), Vultaggio Aff. Ex. 10.) Wolf then proposed an amendment explicitly aimed at prohibiting the use of the name "Crazy Horse" on any alcoholic beverage. (138 Cong. Rec. H. 5775 (July 1, 1992), Vultaggio Aff. Ex. 11.) The House approved this bill and referred it to the Conference Committee. Rather than adopting the House bill, the Senate Committee adopted a resolution directing Hornell to negotiate with Sioux leaders and enter into a binding agreement abandoning the use of Crazy Horse as a brand name to "obviate the need for legislation." S. Rep. No. 584, 102d Cong., 2d Sess. 17 (July 31 (legislative day, July 23), 1992), Vultaggio Aff. Ex. 13.)

 Hornell claims in its moving papers that Hornell representatives met with Sioux leaders to negotiate a resolution. (Pls.' Mem. Supp. Mot. at 9.) Hornell sought to protect its investment, distributors, suppliers, and work force, in the discontinuation of the Crazy Horse product. (Id.) Hornell claims that the Sioux insisted on a general ban of Native American names and symbols in connection with the sale of all commercial products and services. (Letter from John Yellow Bird Steele to Mark Rodman, dated August 12, 1992, Vultaggio Aff. Ex. 16.) Because this demand was beyond the scope of Hornell's authority, negotiations were terminated.

 
Upon the date of enactment of this Act, the Bureau of Alcohol, Tobacco, and Firearms (ATF) shall deny any application for a certificate of label approval, including a certificate of label approval already issued, which authorizes the use of the name Crazy Horse an any distilled spirit, wine, or malt beverage product; Provided, that no funds appropriated under this Act or any other Act shall be expended by ATF for enforcement of this section and regulations thereunder, as it related to malt beverage glass bottles to which labels have been permanently affixed by means of painting and heat treatment, which were ordered on or before September 15, 1992, or which are owned for resale by wholesalers or retailers.

 Pub. L. 102-393, § 633. On November 17, 1992, defendant William T. Earle, Chief of the Industry Compliance Division of BATF issued a letter to G. Heileman Brewing Company ("GHBC"), which bottles Crazy Horse Malt Liquor for Hornell, stating that Public Law 102-393, § 633 "mandates the denial of labels [for Crazy Horse Malt Liquor] which have already been approved" and that "BATF is required to 'deny any application for a certificate of label approval, including a certificate of label approval already issued, which authorizes the use of the name Crazy Horse on any distilled spirit, wine, or malt beverage product.'" (Letter from William T. Earle to Jim Kennedy of November 17, 1992, Declaration of Candace E. Moberly, Ex. 2, Defs.' Mem. Ex. B.)

 Plaintiff filed its Complaint for declaratory and injunctive relief on December 4, 1992, and also moved the court for a preliminary injunction, preventing defendants from enforcing Public Law 102-393, § 633. As stated above, the parties recast the motion as a summary judgment motion and defendants filed a cross-motion for summary judgment.

 DISCUSSION

 A. Summary Judgment

 The standards by which a summary judgment motion is decided are well settled. Summary judgment is appropriate where the submitted papers "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). In this case, the parties have stipulated that no issues of fact exist; they dispute only the conclusions of law to be drawn by the Court. See Brookpark Entertainment Inc. v. Taft, 951 F.2d 710, 714 (6th Cir. 1991) ("Since [plaintiff] attacks the constitutional validity of the statute on its face, there are no real issues of material fact to be resolved."), reh'g denied, 1992 U.S. App. LEXIS 3961 (6th Cir. 1992), cert. denied, 121 L. Ed. 2d 35, 113 S. Ct. 68 (1992).

 In their Complaint, plaintiffs allege that the Public Law 102-393, § 633 violates the Constitution in the following respects: the suppression of speech in violation of the First Amendment, the denial of equal protection and due process rights in violation of the Fifth Amendment, the issuance of a bill of attainder in violation of Article I, section nine, the taking of property without just compensation in violation of the Fifth Amendment, and a violation of the separation of powers principle. This Report and Recommendation will address each alleged violation, presuming that no issues of fact exist, and will make the necessary conclusions of law with respect to each alleged violation.

 B. First Amendment

 The fundamental principle of the First Amendment is that the government may not prohibit speech because the ideas expressed therein are offensive. Texas v. Johnson, 491 U.S. 397, 414 (1989) ("If there is a bedrock principle of the First Amendment, it is that the government may not prohibit the expression of an idea simply because society finds the idea itself offensive or disagreeable."). When the government does regulate to prohibit speech based on its content, the regulation is presumptively invalid unless the speech falls into an unprotected category to which lesser standards apply. R.A.V. v. St. Paul, 120 L. Ed. 2d 305, 112 S. Ct. 2538, 2542 (1992). *fn3" Commercial speech is not considered unprotected, but it does enjoy a lesser degree of First Amendment protection than protected speech. Ohralik v. Ohio State Bar Ass'n, 436 U.S. 447, 456-57 (1978), reh'g denied, 439 U.S. 883 (1978).

 Plaintiffs argue that although this case involves commercial speech, a strict scrutiny standard nonetheless applies by reason of the Supreme Court's recent decision in R.A.V. v. St. Paul, 120 L. Ed. 2d 305, 112 S. Ct. 2538 (1992). *fn4" R.A.V. held that although a city ordinance against the placement of certain symbols on public or private property was facially unconstitutional because it prohibited only those fighting words that would insult or provoke violence on the basis of race, color, creed, religion or gender. The ordinance did not proscribe any other categories of fighting words, such as those which would incite violence on the basis of political affiliation. Because the ordinance's prohibition was content-based, the Court subjected it to a strict scrutiny standard even though a less rigorous standard would have applied had the ordinance more generally addressed all forms of fighting words. R.A.V., 112 S. Ct. at 2550. Thus, plaintiffs argue that R.A.V. sets forth a new requirement that all content-based regulations be analyzed under strict scrutiny, regardless of whether they restrict unprotected categories of speech otherwise subject to a lesser standard. See Citizens United for Free Speech II v. Long Beach Township Board of Comm'rs, 802 F. Supp. 1223, 1232-34 (D.N.J. 1992) (following R.A.V. and applying strict scrutiny to content-based regulation of commercial speech).

 The Supreme Court in R.A.V., however, did not go so far as plaintiffs' argument suggests. The Court stated that there are certain types of content-based restrictions of protected speech that may be valid and not subject to strict scrutiny. Two such exceptions, according to the Court, are content discrimination based on the very reason that the particular class of speech is proscribable, 112 S. Ct. at 2548, and content-based discrimination that proscribes a subclass of speech due to the secondary effects of the speech. R.A.V., 112 S. Ct. at 2549. *fn5" Thus, it is not clear, absent Supreme Court clarification, that plaintiffs' broad-based argument reflects the Supreme Court's current teaching. *fn6" This Court, therefore, will first analyze Public Law 102-393, § 633 under the traditional, less rigorous inquiry applied to the regulation of commercial speech, then under the strict scrutiny standard.

 1. Traditional Commercial Speech Inquiry

 Commercial speech is defined as that speech which proposes a commercial transaction. Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 762 (1976). In order to regulate commercial speech the government must satisfy a four prong test. Central Hudson Gas & Electric Corp. v. Public Serv. Comm'n, 447 U.S. 557 (1980). First, the expression must be protected by the First Amendment; that is, it must concern lawful activity and not be misleading. Central Hudson, 447 U.S. at 563-64. Second, the government must establish a substantial interest. 447 U.S. at 564. Third, the regulation must directly advance the governmental interest asserted. 447 U.S. at 564. Finally, the regulation must be no more extensive than necessary to serve the interest asserted. 447 U.S. at 565. See Board of Trustees v. Fox, 492 U.S. 469, 476-81 (1989).

 The Crazy Horse Malt Liquor label is indisputably commercial speech. Friedman v. Rogers, 440 U.S. 1, 11 (1979) ("The trade name is used as part of a proposal of a commercial transaction and nothing more."); Adolph Coors Co. v. Brady, 944 F.2d 1543, 1546 (10th Cir. 1991) ("Product labels, which are part of a firm's marketing plan to provide certain information to the consumer, also constitute commercial speech."). *fn7" Thus, Public Law 102-393, § 633, which requires that BATF prohibit use of the name Crazy Horse on any distilled spirit, wine, or malt beverage, is subject to the test set forth in Central Hudson, 447 U.S. 557, and Board of Trustees, 492 U.S. 469. It is the finding of the undersigned that Public Law 102-393, § 633 does not satisfy the third and fourth prongs of this test and is unconstitutional.

 a. Crazy Horse Label is Lawful and Is Not Misleading

 First, the Crazy Horse label, as commercial speech, is entitled to First Amendment protection because it concerns lawful activity and is not misleading. Central Hudson, 447 U.S. at 563-64. The sale and distribution of labeled malt beverage is a lawful activity under federal law. U.S. Const. amend. XXI, § 1 (repeal of Prohibition); Coors, 944 F.2d at 1547. Additionally, the fact that the Crazy Horse COLA was approved by BATF on February 19, 1992 is evidence that the underlying conduct (use of the name on a malt liquor label) is legal. See 27 U.S.C. § 205(e) and 27 C.F.R. 7.20(b). Nor is the Crazy Horse name in any way misleading, as is demonstrated by BATF's own finding for COLA purposes. *fn8" Defendants concede both these points.

 b. Substantial Interest

 Plaintiffs claim that Public Law 102-393, § 633 was enacted for the purpose of "protecting Native Americans from the offensive exploitation of a former Sioux leader's name." (Pls.' Mem. at 42.) It bears repeating that the desire to protect society or certain members of society from the purported offensiveness of particular speech is not a substantial interest which justifies its prohibition. Texas v. Johnson, 491 U.S. 397, 399 (1989) (overturning conviction for flag desecration); see also Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 71 (1983) (striking ban on mailing contraceptive advertisements) (citing Carey v. Population Services International, 431 U.S. 678, 701 (1977) (striking a New York statute that banned advertisement of display or contraceptives)).

 Illustrative of this in the context of commercial speech are lower court decisions addressing governmental efforts to prohibit commercial use of "Sambo's", an appellation with patently offensive connotations to African Americans. In Sambo's of Ohio, Inc. v. City Council of Toledo, 466 F. Supp. 177 (N.D. Ohio 1979), the city of Toledo revoked permits to display the name Sambo's on the premises of a restaurant. Because the case was decided before Central Hudson, the Sambo's court did not formally apply the Central Hudson test; however, the court did enjoin the city from enforcing the permit revocation, essentially holding that the government did not have a substantial interest in prohibiting use of the name merely because it was offensive to some. Sambo's of Ohio, 466 F. Supp. at 180 (prevention of the use of the name Sambo's because of its offensiveness is an unconstitutional deprivation of the First Amendment right of free speech). As the district court emphasized,

 
One of the basic premises of advertising is that if it is too offensive to too many people, its use will be counterproductive, for those who are offended will not only refuse to buy the product, but also, if they are sufficiently ...

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