COMPANY v. KAWAMURA

Filed 2/01/08

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

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APPEAL from a judgment of the Superior Court of Sacramento County, Raymond M. Cadei, Judge. Affirmed.

McCormick, Barstow, Sheppard, Wayte & Carruth, Marshall C. Whitney; and Brian C. Leighton for Plaintiff and Appellant.

Edmund G. Brown, Jr., Attorney General, Janet Gaard, Acting Chief Assistant Attorney General, Mary E. Hackenbracht, Senior Assistant Attorney General, Ellen M. Peter and Daniel M. Fuchs, Deputy Attorneys General; Linda Berg Gandara; and William A. Wineberg for Defendant and Respondent.

This case concerns the constitutionality, under the California Constitutions right to freedom of speech,^[1]of use of milk producer assessments, authorized by statute, for generic advertising to stimulate sales of milk. The validity of such commodity advertising, under the federal Constitution, recently came before the United States Supreme Court in Johanns v. Livestock Marketing Assn. (2005) 544 U.S. 550 [161 L.Ed.2d 896] (Johanns). We will decide to follow the reasoning in Johanns in applying the California Constitutions freedom of speech clause. We will also decide that the milk producer advertising program does not unconstitutionally compel speech because it uses a cheese package certification seal, a label that boosts sales only of cheese makers who agree to use it.

Gallo Cattle Company, a California limited partnership (Gallo) appeals from a judgment denying relief from milk production assessments, imposed by the California Department of Food and Agriculture (CDFA or the Department). The assessments are used in part to fund the Real California Cheese (a registered name) advertising campaign. The assessments are levied pursuant to a marketing order (Food & Agr. Code,  58615)^[2]issued by respondent A. G. Kawamura, Secretary of the CDFA (the Secretary), under The California Marketing Act of 1937 ( 58601 et seq.). Gallo contends the trial court erred in finding that this use of the assessed funds is not a violation of its right to freedom of speech under the California Constitution, article I, section 2.

The trial court decided that the measure of the California Constitution free speech right is provided by Johanns. Johanns holds that where commodity advertising is authorized and the basic message is prescribed by statute and where its content is overseen and subject to the control of a politically accountable official, it is government speech. Furthermore, it holds that whether the funds for such advertising are raised by general taxes or through a targeted assessment, the taxpayers have no free speech right not to fund this government speech. (Johanns, supra, 544 U.S. at pp. 562-563 [161 L.Ed.2d at pp. 908-909].)

Gallo contends that: (1) there are persuasive reasons not to adopt the rule of Johanns as the measure of the California Constitutions free speech right, and (2) in any event, its claim should be distinguished and upheld because Gallo is compelled by economic necessity to use the Real California Cheese certification seal on its cheese packages and thus, to voice the government speech to which it objects. These contentions are not meritorious and we shall affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Gallo has long engaged in the business of producing market milk ( 32510) in Merced County. It, unlike the great majority of milk producers, also makes cheese. Gallos cheese plant processes almost all of the milk it produces for cheese packaged for retail sales under the label Joseph Farms. Gallo promotes itself as the California Cheesemaker and uses a registered trademark, California Natural. Some kinds of Gallo cheese are sometimes imported from out-of-state vendors.

Gallo has paid to CDFA assessments prescribed under the Marketing Order for Research, Education and Promotion of Market Milk and Dairy Products in California (Milk Marketing Order) since it began dairy operations. At the time of trial, the assessment was $.10 per hundredweight of milk produced.

The Milk Marketing Order establishes an industry advisory board, the California Milk Producers Advisory Board (the Milk Board), composed of 24 members who are milk producers and one public member. The milk producer members are appointed by CDFA from persons nominated at annual regional district meetings of milk producers. The Milk Board, subject to the approval of CDFA, administers the Milk Marketing Order.

The Milk Board is authorized to develop recommendations of programs for CDFA approval for advertising and trade promotion relating to market milk and dairy products, including cheese. The programs must be directed toward increasing sale of milk products without reference to any private brand or trade name. However, promotions may use brand or trade names, when incidental to the promotion of California milk products and not in direct promotion of the brand or trade name. The majority of the annual budget of the Milk Board is spent promoting dairy products made from California milk.

We take a brief description of the promotional program in issue from Gallo Cattle Co. v. California Milk Advisory Bd. (9th Cir. 1999) 185 F.3d 969 (Gallo I), an earlier federal lawsuit between the parties:^[3]

Since its formation, [the Milk Board, hereafter in this excerpt CMAB] has conducted an integrated program for the promotion of milk and dairy products which includes advertising, merchandising, public relations, education and research. CMAB spends the majority of its annual budget promoting dairy products made from raw milk (such as fluid milk, cream, butter, cottage cheese, yogurt, cheese and ice cream). In doing so, CMAB attempts to increase the demand for milk produced by the California dairy farmers.

In the early 1980s, CMAB sponsored a task force designed to expand the then fledgling cheese industry in California. After determining that the vast majority of cheese sold in California was imported and therefore not produced with California milk, CMAB began a campaign to reverse this trend. One of the steps CMAB took to further this campaign was the development of the Real California Cheese[] seal as a certification mark.^[[4]]

CMAB licenses this seal, free of charge and on a nondiscriminatory basis, to all manufacturers of cheese on the condition that the cheese was manufactured from California milk, that it contains no preservatives and that it meets minimal quality standards prescribed by law. (See CMAB Real California Cheese Seal Certified User Agreement.) CMAB then seeks to generate demand for cheese, either branded or private label, which voluntarily carries the seal on its package. Consumer demand is created through various promotional activities including television, newspaper and billboard advertising; point-of-sale material in grocery stores; coupons; and in-store demonstrations and tastings in which all cheese bearing the seal in a particular store may participate.

By creating a demand for cheese bearing the Real California Cheese[] seal, CMAB seeks to increase the demand for California raw milk by persuading cheese manufacturers to purchase raw milk from California dairy farmers, and by persuading retail outlets to purchase and offer for sale cheese produced from California milk. The beneficiaries of this effort are the dairy farmers of California who pay the assessment and who produce and sell the raw milk that is the principal ingredient of Real California Cheese[].^[[5]] (Gallo I, supra, 185 F.3d at p. 971 & fns. 3 & 4.)

This ends our account of the Real California Cheese program from Gallo I.

Gallo does not take issue with the trial courts resolution of issues of the Milk Boards status as a government entity and CDFAs control of the advertising and promotions. The trial court found, in pertinent part: (1) the advertising program in issue is authorized and the basic message is prescribed by statute; (2) the responsible administrative official is a politically accountable official, the Secretary of the CDFA; (3) the Secretary appoints the members of the Milk Board pursuant to statute; (4) the Secretary is responsible for the preparation, issuance, administration and enforcement of plans for promoting the sale of any commodity and has the final power to consider and approve any programs of advertising and trade promotion developed by the Milk Board; (5) the Secretary or his official representatives exercise final approval over the specific content of all promotional campaigns carried out under the Milk Marketing Order; (6) all proposed promotional messages were reviewed by representatives of CDFA for both substance and wording, and no message was disseminated without Department approval; (7) some proposals were rejected or rewritten by or at the behest of Department representatives, or, in particular cases, by the Secretary himself; and (8) representatives of the Department regularly both attend and participate in meetings in which proposals are developed and reviewed, and frequently offer feedback on the creative content of the proposed advertising campaigns.

In the portion of its statement of decision concerning the issue of disclosure of government sponsorship in the challenged advertising campaign, the trial court observed the following: Some of the advertisements contain no language identifying the sponsor as the Milk Board or the State of California or any department or agency of the State. Some advertisements did contain language identifying the Milk Board as the sponsor of the message. Recent television advertisements have included taglines identifying the Board as an instrumentality of the State of California. The taglines appear very briefly in the advertisements, too briefly to alert the average viewer to the fact that the commercials are being presented on behalf of a government agency.

DISCUSSION

I. Johanns Applies to Free Speech Rights Under the
California Constitution, Article I, Section 2

Gallo first contends that the trial court erred in accepting the reasoning of Johanns, supra, 544 U.S. 550 [161 L.Ed.2d 896] for use in resolving free speech issues arising under the California Constitution. Gallo notes that the California Supreme Court has at times departed from federal doctrine concerning free speech in applying California Constitution, article I, section 2. Gallo argues that there are persuasive reasons for taking a different course on this issue. We do not find the reasons Gallo offers persuasive and find no merit in the contention of error.

A. Case Law on Freedom of Speech Infringement Arising
from Compulsory Fees Used to Fund Speech

The United States Supreme Court has led the way in developing a doctrine of freedom of speech infringement arising from compulsory fees used to fund speech. In Abood v. Detroit Board of Education (1977) 431 U.S. 209 [52 L.Ed.2d 261] (Abood) and then Keller v. State Bar of California (1990) 496 U.S. 1 [110 L.Ed.2d 1] (Keller), the high court invalidated the use of the compulsory fees to fund union and bar speech, respectively, on political matters not germane to the regulatory interests that justified compelled membership. The application of these landmark precedents to a compelled subsidy of commodity advertising has not been smooth sailing.

The high courts first foray into the waters of the compulsory subsidy of commodity advertising was in Glickman v. Wileman Bros. & Elliott (1997) 521 U.S. 457 [138 L.Ed.2d 585] (Glickman). In Glickman, the court majority found no First Amendment violation in compulsory fees for generic advertising under a federal marketing order that regulated nectarines, peaches, pears, and plums grown in California.^[6] The majority decided assessments to fund a lawful collective program may sometimes be used to pay for speech over the objection of some members of the group. (Glickman, at pp. 472-473 [138 L.Ed.2d at p. 602].) Specifically, the generic advertising of California peaches and nectarines is unquestionably germane to the purposes of the marketing orders and, . . . in any event, the assessments are not used to fund ideological activities. (Id. at p. 473 [138 L.Ed.2d at p. 602].) The rationale was: In sum, what we are reviewing is a species of economic regulation that should enjoy the same strong presumption of validity that we accord to other policy judgments made by Congress. (Id. at p. 477 [138 L.Ed.2d at p. 604].)

The high courts second foray into this area was in United States v. United Foods, Inc. (2001) 533 U.S. 405 [150 L.Ed.2d 438]. The majority concluded that Abood and Keller were controlling and that a mandatory assessment for generic mushroom advertising violated the First Amendment. (United Foods, at pp. 413-414 [150 L.Ed.2d at pp. 446-447].) Abood and Keller would permit the mandatory fee if it were germane to a broader regulatory scheme, however, the court in United Foods held (unlike the more complex scheme of Glickman) that the only regulatory purpose was funding the very advertising scheme in question. The claim that the advertising in issue was government speech, and so immune from the scrutiny that would otherwise apply, was raised when the matter came before the Supreme Court. However, the court declined to consider the claim as untimely. (United Foods, at pp. 416-417 [150 L.Ed.2d. at pp. 448-449].)

In Johanns the court revisited the question from the omitted analytic perspective of government speech. [T]he dispositive question is whether the generic advertising at issue is the Governments own speech and therefore is exempt from First Amendment scrutiny. (Johanns, supra, 544 U.S. at p. 553 [161 L.Ed.2d at p. 902].) The answer of the Johanns majority is, yes. As a result, although the beef program in issue in Johanns closely resembles the generic mushroom program overturned in United Foods (Johanns, at p. 555 [161 L.Ed.2d at p. 904), the court majority in Johanns came to the opposite conclusion.^[7]

The Johanns majority opinion delineates two categories of cases: true compelled-speech cases, in which an individual is obliged personally to express a message he disagrees with, imposed by the government; and compelled-subsidy cases, in which an individual is required by the government to subsidize a message he disagrees with . . . . (Johanns, supra, 544 U.S. at p. 557 [161 L.Ed.2d at p. 905].) It then notes: We have not heretofore considered the First Amendment consequences of government-compelled subsidy of the governments own speech. (Ibid.)

As related, Johanns holds that where commodity advertising is authorized and the basic message is prescribed by statute and where its content is overseen and subject to the control of a politically accountable official, it is government speech. Furthermore, it holds that whether the funds for such promotions are raised by general taxes or through a targeted assessment, citizens have no free speech right not to fund such government speech. (Johanns, supra, 544 U.S. at pp. 562-563 [161 L.Ed.2d at p. 908].)

The California Supreme Court has tracked this federal case law on tacks of its own. In Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468 (Gerawan I), our Supreme Court declined to follow Glickman as to free speech rights under the California Constitution in a case addressing a plum marketing program under a California marketing order. The Gerawan I majority opinion rejected so applying the rationale in Glickman: [T]he Glickman majoritys analysis results from, and results in, the proposition that the First Amendments right to freedom of speech does not protect commercial speech against compelled funding. Any such proposition is simply untenable with respect to article Is [free speech clause]. The Glickman majority found no . . . right whatsoever under the First Amendment to be free of coerced subsidization of commercial speech. (Glickman[, supra,] 521 U.S. at p. 477 [138 L.Ed.2d at p. 605] (dis. opn. of Souter, J.).) We cannot so find under article I. (Gerawan I, 24 Cal.4th at p. 514.) However, the court did not hold that the marketing program actually resulted in a violation under the California Constitution.

Our conclusion, however, brings no conclusion to this cause. That the California Plum Marketing Program implicates Gerawans right to freedom of speech under article I does not mean that it violates such right. But it does indeed raise the question. That question, in turn, raises others, including what test is appropriate for use in determining a violation. And that question, in its turn, raises still others as well, including what protection, precisely, does article I afford commercial speech, at what level, of what kind, and, perhaps most difficult, subject to what test (Spiritual Psychic Science Church v. City of Azusa [(1985)] 39 Cal.3d [501,] 513[, disapproved in part on a different ground in Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 968]). To address such questions belongs, in the first instance, to the Court of Appeal on remand. It did not reach beyond the issue whether the California Plum Marketing Program implicates Gerawans right to freedom of speech under article I when the cause was before it originally. (Gerawan I, supra, 24 Cal.4th at p. 517.)

The case returned to the California Supreme Court in Gerawan Farming, Inc. v. Kawamura (2004) 33 Cal.4th 1 (Gerawan II). The majority opinion made the following dispositions: The Court of Appeal concluded that the program to which plaintiff Gerawan Farms, Inc. (Gerawan), objected was unconstitutional because, as discussed below, it was not supportedby a valid government interest, owing to the fact that it had to be approved by a private association. We granted review specifically to assess the validity of this holding and more generally to address the constitutional questions remaining from Gerawan I. We conclude the compelled funding of generic advertising in this case should be tested by the intermediate scrutiny standard articulated by the United States Supreme Court in Central Hudson Gas & Elec. v. Public Serv. Commn (1980) 447 U.S. 557 [65 L.Ed.2d 341] (Central Hudson), and that remand for further factfinding is required to determine whether the program at issue is constitutional. We conclude as well the Secretary of Food and Agricultures (Secretary) claim that the generic advertising in question is constitutional because it is government speech also cannot be resolved on the pleadings and requires further factfinding. (Gerawan II, at p. 6.)

The majority opinion makes the following salient observations about the lattermost question: In the present case, the marketing board is comprised of and funded by plum producers, and is in that respect similar to the State Bar. But, as United Foods suggests, the speech may nonetheless be considered government speech if in fact the message is decided upon by the Secretary or other government official pursuant to statutorily derived regulatory authority. Because there are factual questions that may be determinative of the outcome‑‑for example, whether the Secretarys approval of the marketing boards message is in fact pro forma, whether the marketing board is in de facto control of the generic advertising program, and whether the speech is attributed to the government‑‑this issue cannot be resolved on the pleadings and requires further factfinding. (Gerawan II, supra, 33 Cal.4th at p. 28.)

Story Continues as Part II .

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^[1] The California Constitution, article I, section 2, subdivision (a) states: Every person may freely speak, write and publish his or her sentiments on all subjects, being responsible for the abuse of this right. A law may not restrain or abridge liberty of speech or press.

^[2] Undesignated statutory references are to the Food and Agriculture Code.

^[3] In Gallo I, Gallo alleged that the Milk Boards compulsory assessments for the promotion and advertising of California milk and dairy products violate Gallos First Amendment rights. (Gallo I, supra, 185 F.3d at p. 977.) The pre-Johanns First Amendment challenge was rejected on summary judgment, upheld on the view the Marketing Order is a species of economic regulation that does not abridge Gallos First Amendment rights. (Gallo I, at p. 977.)

^[4] A certification mark is a federally registered trademark which certifies that the product bearing the mark meets certain standards. (See 15 U.S.C.  1127.) (Gallo I, supra, 185 F.3d at p. 971, fn. 3.)

^[5] In fact, the milk producers benefit tenfold from increased consumption of cheese produced from California raw milk because it takes ten pounds of raw milk to make one pound of cheese. (Gallo I, supra, 185 F.3d at p. 971, fn. 4.)

^[6] The government speech issue was eschewed. In a footnote, the Glickman dissent acknowledged: The Secretary of Agriculture does not argue that the advertisements at issue represent so-called government speech, with respect to which the Government may have greater latitude in selecting content than otherwise permissible under the First Amendment. (See Keller[, supra,] 496 U.S. [at pp.] 10-13 [110 L.Ed.2d [at pp. 11-14]]; Abood[, supra,] 431 U.S. [at p.] 259, fn. 13 [52 L.Ed.2d [at p. 299, fn. 13]] (Powell, J., concurring in judgment).) (See Brief for Petitioner 25, fn. 16 [waiving argument].) (Glickman, supra, 521 U.S. at p. 482, fn. 2 [138 L.Ed.2d at p. 607, fn. 2] (dis. opn. of Souter, J.).)

^[7] See also, e.g., Paramount Land Co. LP v. California Pistachio Commn (9th Cir. 2007) 491 F.3d 1003, 1010-1011: The California Pistachio Act of 1980, sections 69001-69114, administered by the California Pistachio Commission, compelling California pistachio growers to fund generic advertising through the commission, does not violate the First Amendment.