4th Cir. holds certification nonprofit’s self-promotion to retailers is commercial speech

Handsome Brook Farm, LLC v. Humane Farm Animal Care, Inc.,
No. 16-1813, 2017 WL 3601506, — F. Appx. – (4th Cir. Aug. 22, 2017)
The court of appeals affirmed the district
court ruling
that a nonprofit egg certifier’s disparagement of an egg
seller who wasn’t certified by the nonprofit was commercial speech.  HFAC certifies egg producers for humane
treatment of their laying hens, and it sent an email to thirty-six grocery
retailers, including some of the largest grocery chains in the nation, stating
that Handsome Brook Farm lacked up-to-date certifications to support its
representations that its eggs are organic and pasture raised. The email
continued, “I hope you reconsider changing suppliers,” and touted egg producers
with HFAC’s certification.  Though Handsome
Brook lost existing and potential retailers as a result, its organic
certifications were up-to-date and its pasture-raised certification had been
recently audited. The district court preliminarily enjoined HFAC from circulating
the email and required HFAC to publish a retraction email.
HFAC’s “Certified Humane” certification process is one of
several in the market.  HFAC charges
between $75 and $300 for an application, $600 per day per inspector for any
farm inspection, and five cents for every thirty dozen eggs the producer sells
with the Certified Humane label. It also solicits donations, because its
revenue doesn’t fully cover its expenses.
Gordon & Breach,
once the leading case on the matter, defined “commercial advertising or
promotion” as (1) commercial speech (2) by a defendant in commercial
competition with the plaintiff (3) for the purpose of influencing consumers to
buy goods or services, (4) sufficiently disseminated to the relevant purchasing
public to constitute advertising or promotion within that industry.  The court of appeals adopted the Gordon & Breach factors, except for
(2), indicating that Lexmark had
defined standing beyond direct commercial competition.   “[A]ny communication that is commercial
speech, promotes a good, and is sufficiently disseminated is an advertisement
for the promoted good, regardless of the speaker.”  Competition was a gatekeeping factor that had
been superseded by Lexmark.
So, was the email commercial speech?  The basic factors are: whether the message is
economically motivated, promotes a specific product, and is an advertisement. The
Fourth Circuit has also previously asked whether the message is “placed in a
commercial context and [is] directed at the providing of services rather than
toward an exchange of ideas.” Greater Balt. Ctr. for Pregnancy Concerns, Inc.
v. Mayor & City Council of Balt., 721 F.3d 264 (4th Cir. 2013).
HFAC, as a nonprofit, had a noneconomic purpose in
advocating for the humane treatment of farm animals. But it also had an
economic motivation in the sale of its licensees’ eggs, not just from revenue
from egg sales, but also from becoming a market leader in certification.  “This hope of economic gain is made even more
apparent by the email’s target audience: grocery store chains, including some
of the largest in the nation, that HFAC had a relationship with and that were
considering switching their egg supplier from another brand to Handsome Brook.” 
The speaker’s identity “factors into the reasonable
recipient’s perception of economic motivation,” such that a for-profit company
“is often presumed to have primarily economic motivations for its speech. Thus,
a corporation’s informative literature or seminar is often still seen as
commercial speech, especially if it includes any product promotion,” as in Bolger.  “Conversely, a non-profit organization is
often presumed to have primarily noneconomic motivations for its speech, even
if there are ancillary economic benefits. Thus, a watchdog non-profit
organization’s report on allegedly abusive or unethical practices is still
likely noncommercial speech, even if the report garners more donations; a
reader would know that the watchdog organization’s primary motivation for
publishing the report is noneconomic.” 
But the speaker’s nonprofit status isn’t categorically determinative.  “Where a non-profit organization has a direct
economic stake in the provision of its product or service, and structures its
message in the hopes of realizing an economic gain rather than merely informing
the public or pursuing its ideological views, it may reasonably be viewed as
economically motivated.”  Given the
targeting of retailers considering or recently switched to Handsome Brooks
eggs, and given the comparative touting of HFAC-certified eggs, the court found
that HFAC had an economic motivation despite its status as a nonprofit.
HFAC argued that its email didn’t specifically promote HFAC-certified
eggs, but merely urged retailers to purchase any eggs that were humane, rather
than Handsome Brook’s allegedly inhumane eggs. But the email “implicitly
compared its licensees to the licensees of any other humane certification, and
touted HFAC-certified eggs over all other eggs, including eggs certified by
other organizations.”  Given this, “HFAC’s
message was placed in a commercial context and fixated on the provision of
services rather than advocacy of its ideological commitments.”  Its message “focused, not on ideological or
moral concerns, but on economic and legal ones—‘this in turn protects you.’” Indeed,
“HFAC’s message fits neatly into the type of promotional, commercial activity
an identical for-profit organization would engage in.”  Thus, the email could be distinguished from a
nonprofit’s charity auction or ancillary sales of paraphernalia, like hats or
t-shirts or pens.  In such contexts, a
reasonable audience “would recognize that the context was meant to celebrate,
promote, and spread [the nonprofit’s] ideological mission.”
The email, however, “also in part disseminates noncommercial
speech: its warning to retailers about Handsome Brook’s allegedly fraudulent
labeling.” But this message wasn’t “inextricably intertwined” with HFAC’s
promotion of its license, and so the email was correctly treated as commercial
speech.  [Note the conceptual weirdness
of this reasoning: the speech that the court specifically calls out as
noncommercial is also the speech that was false, and for which HFAC was held
strictly liable because the email as a whole was commercial speech.  Why do this slicing?  The same motive/focus on competing services
reasoning absolutely applies to the warning, making it pure commercial speech
under the court of appeals’ own reasoning. 
Just because the same words could, in another context, be noncommercial
speech doesn’t change that; the same words in HFAC’s self-promotion could also
be noncommercial speech in another context.]
Under “inextricably intertwined” analysis, nonprofit
solicitation for charitable donations is noncommercial speech, wholly protected
by the First Amendment, even though it solicits money. Such solicitations are
intertwined with informative/persuasive speech, and without solicitations, the
flow of such speech might stop. Anyway, a nonprofit isn’t primarily concerned
with providing information about the characteristics and costs of goods and
services.  But “[n]o law of man or of
nature makes it impossible” to warn the public of misleading labeling without
promoting one’s own products, so the “commercial proposition” in HFAC’s email wasn’t
“inextricably intertwined” with its noncommercial message, making the email as
a whole commercial speech despite its mixed messages.
Finally, dissemination to thirty-six retailers, including
some of the largest supermarket companies in the nation, was sufficient. “[A]
‘cold-send’ to anonymous recipients is not needed for a dissemination to be
considered advertising.”
HFAC also argued that its statements weren’t false or
misleading, because it had in fact received a complaint about Handsome Brook’s
eggs from another producer’s employee, justifying the statement: “Based upon a
whistleblower complaint we recently conducted a traceability inspection of a
packing plant that packs Certified Humane® eggs and also packs Handsome
Brook[’s ] eggs.”  But that didn’t
matter, because HFAC never conducted an audit “based on” the complaint it
received. In fact, HFAC wasn’t Handsome Brook’s licenser, so it couldn’t do any
inspection.
Irreparable harm: in extraordinary circumstances, were
monetary damages are unavailable or unquantifiable, they can constitute
irreparable harm.  The district court
found that the email caused two retailers to remove Handsome Brook eggs from
their shelves and a third retailer to indefinitely suspend plans to sell
Handsome Brook eggs. In addition, the email strained client relationships and
led to continued discussion.  Under these
circumstances, finding irreparable harm wasn’t abuse of discretion. “The
business’s reputation continues to be tarnished as questions about the
reliability of its labeling continue to circulate. And even if the monetary
damages from Handsome Brook’s lost profits were quantifiable, they would likely
be unattainable at judgment; Handsome Brook estimated that its monthly loss of
revenue could number in the hundreds of thousands, and HFAC is a non-profit
organization that likely cannot pay the damages Handsome Brook would be due.”

HFAC argued that the injunction was an unconstitutional
prior restraint on its speech and mandated an unconstitutional compelled
disclosure. Commercial speech isn’t subject to prior restraint doctrine, and compelled
speech is more likely to be constitutionally permissible in the context of
commercial speech. Thus, “disclosure requirements aimed at misleading
commercial speech need only survive rational basis scrutiny, by being
‘reasonably related to the State’s interest in preventing deception of
consumers.’ ”  A retraction email
satisfied that standard, mitigating the harm of the first message.  It also served the public interest in
truthful information.

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