Business Law Chapter 4 Homework Twentyfirst Amendment Granted The States The Authority

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Chapter 4

Constitutional Authority to

Regulate Business

Case 4.1

C.A.1 (Mass.),2010.

Family Winemakers of California v. Jenkins

592 F.3d 1

United States Court of Appeals,

First Circuit.

FAMILY WINEMAKERS OF CALIFORNIA, Stephen J. Poor, III, M.D., Gerald C. Leader,

Plaintiffs, Appellees,

50 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW

Massachusetts officials appeal from an injunction against a 2006 Massachusetts statute establishing differential methods by which

wineries distribute wines in Massachusetts, Mass. Gen. Laws ch. 138, § 19F. The district court enjoined enforcement of § 19F on

wholesalers to distribute their wines in-state or applying for a “large winery shipping license” to sell directly to Massachusetts

consumers. They cannot, by law, use both methods to sell their wines in Massachusetts, and they cannot sell wines directly to

retailers under either option. No “large” wineries are located inside Massachusetts.

Plaintiffs, a group of California winemakers and Massachusetts residents, assert § 19F was designed with the purpose, and has

the effect, of advantaging Massachusetts wineries to the detriment of those wineries that produce 98 percent of the country’s wine,

FN1. The Commerce Clause vests Congress with the authority to “regulate Commerce … among the several States.” U.S.

Const. art. I, § 8, cl. 3. This grant of exclusive federal power carries an implicit consequence for states’ powers. When

(1994). This aspect of the Commerce Clause is commonly referred to as the “dormant commerce clause” because its

limitations upon states are not stated in the text.

FN2. Section 2 of the Twenty-first Amendment states that “[t]he transportation or importation into any State, Territory, or

possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby

prohibited.” It thereby gives states certain limited authority to regulate the transportation, importation, and use of alcohol

within their borders notwithstanding the effects on interstate commerce.

[1] It is clear that § 2 of the Twenty-first Amendment does not protect state alcohol laws that explicitly favor in-state over out-of–

also yield the unavoidable conclusion that this discrimination was purposeful. Nor does § 19F serve any legitimate local purpose

that cannot be furthered by a non-discriminatory alternative.

We further hold that the Twenty-first Amendment cannot save § 19F from invalidation under the Commerce Clause. Section 2 of

the Twenty-first Amendment does not exempt or otherwise immunize facially neutral but discriminatory state alcohol laws like §

19F from scrutiny under the Commerce Clause. We affirm the grant of injunctive relief.

which include stores, taverns, restaurants, and bars, must in turn obtain licenses to sell to consumers or to serve alcohol on their

premises.

Id.

§§ 12, 15. Recently, as to wine, Massachusetts has adjusted the separation between these three tiers, as we

describe below.

The structure of the usual three-tier system is commonly described as an hourglass, with wholesalers at the constriction point.

There are thousands of producers nationwide, a handful of licensed Massachusetts wholesalers, and approximately ten thousand

FN3. These figures were derived from industry statistics tracked by Wine Business Monthly and from data provided by the

federal Alcohol and Tobacco Tax and Trade Bureau (TTB) for 2006, both of which are publicly available and were

introduced either in the record or by various amici.

See

The Top 30 Wine Companies of 2006,

available at

http:// www.

winebusiness. com/ wbm/? goget Article & dataID=46697;

see also

Gina Riekhof and Michael Sykuta, Politics,

Economics, and the Regulation of Direct Interstate Shipping in the Wine Industry, April 2004, Working Paper No.2003-04

at 7,

available at

http:// cori. missouri. edu/ wps.

The concentration of wine production among the largest producers is driven by another feature of the wine industry: there are,

broadly speaking, two categories of wine, high-volume, lower-cost wines and low-volume, higher-quality, higher-priced boutique

wines. The largest wineries produce millions of gallons of wine per year because they have generally specialized in the former, but

not to the exclusion of the latter. Wineries smaller than the largest producers have tended to specialize in low-volume boutique

wines, which can be produced with a relatively small quantity of grapes and a much lower initial outlay of resources. At least until

(2002). Five months after

Granholm

invalidated similar facially discriminatory state laws, § 19B was held to be invalid under the

Commerce Clause.

Stonington Vineyards v. Jenkins,

No. 05-10982-JLT, slip op. at 1-2 (D.Mass. Oct. 5, 2005).

In 2006, the Massachusetts legislature enacted § 19F over then-Governor Romney’s veto. Section 19F does not distinguish on its

face between in-state and out-of-state wineries’ eligibility for direct shipping licenses, but instead distinguishes between “small” or

FN4. Massachusetts tries to dismiss these statements as the isolated and unrepresentative comments of a few

legislators. But such statements are precisely the kind of evidence the Supreme Court has looked to in previous

Commerce Clause cases challenging a statute as discriminatory in purpose.

See Minnesota v. Clover Leaf Creamery Co.,

449 U.S. 456, 465-68, 101 S.Ct. 715, 66 L.Ed.2d 659 (1981) (looking to a senator’s and representatives’ statements

during floor debates as probative evidence of purpose);

Hunt v. Wash. State Apple Adver. Comm’n,

432 U.S. 333, 352, 97

CHAPTER 4: CONSTITUTIONAL AUTHORITY TO REGULATE BUSINESS 53

There were 4,713 “small” wineries in the United States in 2006, as the term “small” is defined by § 19F(b). Of these wineries,

1,780-more than a third-produced less than one gallon per year and had virtually no market share. The remaining 2,933 “small”

wineries accounted for 2 percent of the total annual wine production in the United States in 2006.FN5

FN5. We accept these facts as true, as both parties have agreed upon them, although important gaps appear in these

statistics. TTB counted the number of wineries in the U.S. and their total gallonage based on the records it keeps for the

purpose of levying a federal excise tax on “wine premises.”

See

27 C.F.R. § 24.100 (2009). These statistics do not

FN6. They collectively produced 235,690 gallons of wine in 2007, though Massachusetts’s statistics do not say whether

this is all wine or just grape wine. While this was well under one tenth of one percent of U.S. annual wine production,

Massachusetts’s wine industry is in its early stages and is growing rapidly.

See

An Economic Snapshot of the Mass.

FN7. While the Supreme Court has said “[a] finding that state legislation constitutes economic protectionism may be made

on the basis of either discriminatory purpose or discriminatory effect,”

Chem. Waste Mgmt., Inc. v. Hunt,

504 U.S. 334,

344 n. 6, 112 S.Ct. 2009, 119 L.Ed.2d 121 (1992) (quoting

Bacchus Imps., Ltd. v. Dias,

468 U.S. 263, 270, 104 S.Ct.

FN8. Though this standard is stringent, it is also quite different from a standard requiring the state to demonstrate a

“compelling state interest” that cannot be served through a non-discriminatory alternative. We reject plaintiffs’ contention

FN9. Of course, even if the challenged law regulates in-state and out-of-state interests even-handedly, it may still violate

the Commerce Clause if “the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local

benefits” under the test first set forth in

Pike. Dep’t of Revenue,

128 S.Ct. at 1808 (quoting

Pike v. Bruce Church Inc.,

397

U.S. 137, 142, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970)) (alteration in original) (internal quotation marks omitted).

[8] We explain in more detail the arguments being made. Plaintiffs argue that Massachusetts’s choice of 30,000 gallons as the

FN10. Massachusetts further asserted, but only at oral argument, that there are no other feasible means of giving small

wineries a limited exemption from the three-tier system than through § 19F.

We explain below our reasons for rejecting Massachusetts’s arguments. Because we hold that § 19F discriminates against

interstate commerce, it is unnecessary for us to decide whether § 19F would also violate the Commerce Clause under

Pike. See C

& A Carbone, Inc. v. Town of Clarkstown,

511 U.S. 383, 390, 114 S.Ct. 1677, 128 L.Ed.2d 399 (1994).

FN11.

Baldacci

only addressed the kind of showing required when a statute is challenged as discriminatory in effect but is

concededly non-discriminatory in purpose. 505 F.3d at 36. We did not address whether a lesser showing might suffice

when a law is allegedly discriminatory in both effect and purpose. We do not reach this question because even under the

standard in

Baldacci,

plaintiffs have shown § 19F is discriminatory in effect.

Section 19F confers a clear competitive advantage to “small” wineries, which include all Massachusetts’s wineries, and creates a

FN12. It is true, as Massachusetts argues, that in 2006, 4,713 wineries qualified as “small” under § 19F(b). But more than

a third of these wineries produced less than a gallon of wine a year and cannot really be considered part of the interstate

wine market. Moreover, many “small” out–of-state wineries likely distribute virtually all of their wine through in-person sales

or to their home-state markets.

The 637 out-of-state wineries that qualified as “large” under § 19F(a) in 2006 do not get these advantages and must instead

practice face the same difficulties in distributing most of their wines as the “small” § 19F(b) wineries. Massachusetts’s own

evidence shows that only the largest 50 to 100 wineries can distribute most of their wines through wholesalers under the three-tier

system. The remaining 537 or so “large” wineries each produce between 30,001 and 680,000 gallons per year of a mix of mass-

market and boutique wines. In 2006, their percentage of the market share for wine production far exceeded that of § 19F(b) “small”

wineries.

FN13. Our decision in

Baldacci

is consistent with this conclusion. That case involved a challenge to a Maine law that

allowed wineries to sell to consumers only in face-to-face transactions. 505 F.3d at 30-31. That challenge failed because

plaintiffs did not introduce any evidence that the law benefitted Maine vineyards or harmed out-of-state wineries.

Id.

at 38.

Massachusetts argues that there can be no discrimination because the favored “small” winery group created by § 19F(b) is almost

entirely comprised of out-of-state wineries. Massachusetts claims this means that whatever the burden on out-of-state wineries

56 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW

deprives “large” wineries–and especially those “large” wineries that have trouble obtaining wholesale distribution-of the competitive

advantages of specialization and higher-volume production. These disadvantages exceed the benefits that out-of–state “small”

wineries receive.

Exxon

does not support Massachusetts’s argument.

Exxon

held that a law that restricts a market consisting entirely of out-of-state

interests is not discriminatory because there is no local market to benefit. 437 U.S. at 125-26, 98 S.Ct. 2207.

Exxon

is not apposite

where, as here, there is an in-state market and the law operates to its competitive benefit. Massachusetts cannot apply

Exxon

only

to “large” wineries as distinct from “small” wineries; the wine market is a single although differentiated market, and § 19F‘s two

provisions operate on that market together.

Likewise, the fact that § 19F(b) benefits both in-state and some out-of–state “small” wineries does not prove that § 19F is non-

discriminatory. We have previously rejected the notion that “a favored group must be

entirely

in-state for a law to have a

discriminatory effect on commerce,” reasoning that when a law burdened a group whose members were entirely out-of-state and

benefitted a class whose members were largely but not wholly located in-state, it was still impermissibly discriminatory in effect.FN14

See Walgreen Co. v. Rullan,

405 F.3d 50, 59 (1st Cir.2005).

FN14. Nor do we find the reasoning of the two district court cases that have upheld other states’ gallonage caps to be

persuasive.

See Black Star Farms, LLC v. Oliver,

544 F.Supp.2d 913 (D.Ariz.2008);

Cherry Hill Vineyards, LLC v.

Hudgins,

488 F.Supp.2d 601 (W.D.Ky.2006).

FN15. Other courts have invalidated state statutes as motivated by a discriminatory intent after examining an even wider

range of sources. Some have done so based on the test for discriminatory purpose used in the Equal Protection context,

which looks for a history or pattern of discrimination.

See, e.g., S.D. Farm Bureau, Inc. v. Hazeltine,

340 F.3d 583, 593-96

(8th Cir.2003);

Waste Mgmt. Holdings, Inc. v. Gilmore,

252 F.3d 316, 336 (4th Cir.2001);

see also

M.K. Ohlhausen and G.L. Luib,

Moving Sideways: Post

-Granholm

Developments

Case 4.2

134 F.3d 87

(Cite as: 134 F.3d 87)

BAD FROG BREWERY, INC., Plaintiff-Appellant,

NEW YORK STATE LIQUOR AUTHORITY, Anthony J. Casale, Lawrence J. Gedda, Edward F.

York State Liquor Authority (“NYSLA” or “the Authority”) denied Bad Frog’s application.

Bad Frog appeals from the July 29, 1997, judgment of the District Court for the Northern District of New York (Frederic J. Scullin,

Jr., Judge) granting summary judgment in favor of NYSLA and its three Commissioners and rejecting Bad Frog’s commercial free

speech challenge to NYSLA’s decision. We conclude that the State’s prohibition of the labels from use in all circumstances does

not materially advance its asserted interests in insulating children from vulgarity or promoting temperance, and is not narrowly

membranous webbing that connects the digits of a real frog’s foot is absent from the drawing, enhancing the prominence of the

extended “finger.” Bad Frog does not dispute that the frog depicted in the label artwork is making the gesture generally known as

“giving the finger” and that the gesture is widely regarded as an offensive insult, conveying a message that the company has

characterized as “traditionally ... negative and nasty.” [FN1] Versions of the label feature slogans such as “He just don’t care,” “An

amphibian with an attitude,” “Turning bad into good,” and “The beer so good … it’s bad.” Another slogan, originally used but now

abandoned, was “He’s mean, green and obscene.”

FN1. The gesture, also sometimes referred to as “flipping the bird,” see New Dictionary of American Slang 133, 141 (1986), is

acknowledged by Bad Frog to convey, among other things, the message “fuck you.” The District Court found that the gesture

“connotes a patently offensive suggestion,” presumably a suggestion to having intercourse with one’s self.

Hand gestures signifying an insult have been in use throughout the world for many centuries. The gesture of the extended middle

finger is said to have been used by Diogenes to insult Demosthenes. See Betty J. Bauml & Franz H. Bauml, Dictionary of

into good.” The second application, like the first, included promotional material making the extravagant claim that the frog‘s

gesture, whatever its past meaning in other contexts, now means “I want a Bad Frog beer,” and that the company’s goal was to

claim the gesture as its own and as a symbol of peace, solidarity, and good will. In September 1996, NYSLA denied Bad Frog’s

second application, finding Bad Frog’s contention as to the meaning of the frog’s gesture “ludicrous and disingenuous.” NYSLA

letter to Renaissance Beer Co. at 2 (Sept. 18, 1996) (“NYSLA Decision”). Explaining its rationale for the rejection, the Authority

theatre, … [and] finds that to approve this admittedly obscene, provocative confrontational gesture, would not be conducive to

proper regulation and control and would tend to adversely affect the health, safety and welfare of the People of the State of New

York.

Id.

Bad Frog filed the present action in October 1996 and sought a preliminary injunction barring NYSLA from taking any steps to

prohibit the sale of beer by Bad Frog under the controversial labels. The District Court denied the motion on the ground that Bad

temperance and respect for the law” and (b) “protecting minors from profane advertising.” Id. at 283.

Assessing these interests under the third prong of Central Hudson, the Court ruled that the State had failed to show that the

rejection of Bad Frog’s labels “directly and materially advances the substantial governmental interest in temperance and respect for

the law.” Id. at 286. In reaching this conclusion the Court appears to have accepted Bad Frog’s contention that marketing

gimmicks for beer such as the “Budweiser Frogs,” “Spuds Mackenzie,” the “Bud-Ice Penguins,” and the “Red Dog” of Red Dog

(1984)). The Court acknowledged the State’s failure to present evidence to show that the label rejection would advance this

64 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW

(1993); Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 73, 103 S.Ct. 2875, 2883-84, 77 L.Ed.2d 469 (1983)), but not in

cases “where the link between the regulation and the government interest advanced is self evident,” 973 F.Supp. at 285 (citing

Florida Bar v. Went for It, Inc., 515 U.S. 618, 625- 27, 115 S.Ct. 2371, 2376-78, 132 L.Ed.2d 541 (1995); Posadas de Puerto Rico

Associates v. Tourism Co., 478 U.S. 328, 341-42, 106 S.Ct. 2968, 2976-77, 92 L.Ed.2d 266 (1986)). The Court concluded that

common sense requires this Court to conclude that the prohibition of the use of the profane image on the label in question will

declined to exercise supplemental jurisdiction over Bad Frog’s pendent state law claims pursuant to 28 U.S.C. § 1367(c)(3) (1994),

id. at 288.

Discussion

I. New York’s Label Approval Regime and Pullman Abstention

Under New York’s Alcoholic Beverage Control Law, labels affixed to liquor, wine, and beer products sold in the State must be

84.1(e).

NYSLA’s actions raise at least three uncertain issues of state law. First, there is some doubt as to whether section 83.3 of the

regulations, concerning designs that are not “in good taste,” is authorized by a statute requiring that regulations shall be calculated

to prohibit deception of consumers, increase the flow of truthful information, and/or promote national uniformity. It is questionable

whether a restriction on offensive labels serves any of these statutory goals. Second, there is some doubt as to whether it was

appropriate for NYSLA to apply section 83.3, a regulation governing interior signage, to a product label, especially since the

regulations appear to establish separate sets of rules for interior signage and labels. Third, there is some doubt as to whether

section 84.1(e) of the regulations, applicable explicitly to labels, authorizes NYSLA to prohibit labels for any reason other than their

tendency to deceive consumers.

[1][2] It is well settled that federal courts may not grant declaratory or injunctive relief against a state agency based on violations of

state law. See Pennhurst State School and Hospital v. Halderman, 465 U.S. 89, 106, 104 S.Ct. 900, 911, 79 L.Ed.2d 67 (1984).

“The scope of authority of a state agency is a question of state law and not within the jurisdiction of federal courts.” Allen v.

Cuomo, 100 F.3d 253, 260 (2d Cir.1996) (citing Pennhurst ). Moreover, where a federal constitutional claim turns on an uncertain

issue of state law and the controlling state statute is susceptible to an interpretation that would avoid or modify the federal

constitutional *94 question presented, abstention may be appropriate pursuant to the doctrine articulated in Railroad Commission

v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941). See Ohio Bureau of Employment Services v. Hodory, 431 U.S.

CHAPTER 4: CONSTITUTIONAL AUTHORITY TO REGULATE BUSINESS 65

471, 477, 97 S.Ct. 1898, 1902-03, 52 L.Ed.2d 513 (1977); Planned Parenthood of Dutchess-Ulster, Inc. v. Steinhaus, 60 F.3d 122,

126 (2d Cir.1995). Were a state court to decide that NYSLA was not authorized to promulgate decency regulations, or that NYSLA

erred in applying a regulation purporting to govern interior signs to bottle labels, or that the label regulation applies only to

misleading labels, it might become unnecessary for this Court to decide whether NYSLA’s actions violate Bad Frog’s First

Amendment rights.

[3][4][5][6] However, we have observed that abstention is reserved for “very unusual or exceptional circumstances,” Williams v.

Lambert, 46 F.3d 1275, 1281 (2d Cir.1995). In the context of First Amendment claims, Pullman abstention has generally been

disfavored where state statutes have been subjected to facial challenges, see Dombrowski v. Pfister, 380 U.S. 479, 489-90, 85

S.Ct. 1116, 1122-23, 14 L.Ed.2d 22 (1965); see also City of Houston v. Hill, 482 U.S. 451, 467, 107 S.Ct. 2502, 2512-13, 96

L.Ed.2d 398 (1987). Even where such abstention has been required, despite a claim of facial invalidity, see Babbitt v. United

Farm Workers National Union, 442 U.S. 289, 307-12, 99 S.Ct. 2301, 2313-16, 60 L.Ed.2d 895 (1979), the plaintiffs, unlike Bad

Frog, were not challenging the application of state law to prohibit a specific example of allegedly protected expression. If

abstention is normally unwarranted where an allegedly overbroad state statute, challenged facially, will inhibit allegedly protected

speech, it is even less appropriate here, where such speech has been specifically prohibited. Abstention would risk substantial

delay while Bad Frog litigated its state law issues in the state courts. See Zwickler v. Koota, 389 U.S. 241, 252, 88 S.Ct. 391, 397-

98, 19 L.Ed.2d 444 (1967); Baggett v. Bullitt, 377 U.S. 360, 378-79, 84 S.Ct. 1316, 1326-27, 12 L.Ed.2d 377 (1964).

II. Commercial or Noncommercial Speech?

FN2. Bad Frog also describes the “message” of its labels as “parody,” Brief for Appellant at 12, but does not identify any particular

prior work of art, literature, advertising, or labeling that is claimed to be the target of the parody. If Bad Frog means that its

depiction of an insolent frog on its labels is intended as a general commentary on an aspect of contemporary culture, the

“message” of its labels would more aptly be described as satire rather than parody. See generally Campbell v. Acuff-Rose Music,

Inc., 510 U.S. 569, 580-81, 114 S.Ct. 1164, 1171-73, 127 L.Ed.2d 500 (1994) (explaining that “[p]arody needs to mimic an original

commercial advertising.” Valentine v. Chrestensen, 316 U.S. 52, 54, 62 S.Ct. 920, 921, 86 L.Ed. 1262 (1942). In Chrestensen,

the Court sustained the validity of an ordinance banning the distribution on public streets of handbills advertising a tour of a

submarine. Twenty-two years later, in New York Times Co. v. Sullivan, 376 U.S. 254, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964), the

Court characterized Chrestensen as resting on “the factual conclusion [ ] that the handbill was ‘purely commercial advertising,’ ” id.

at 266, 84 S.Ct. at 718 (quoting Chrestensen, 316 U.S. at 54, 62 S.Ct. at 921), and noted that Chrestensen itself had “reaffirmed

66 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW

Id. at 266, 84 S.Ct. at 718 (emphasis added). The implication of this distinction between the King Committee advertisement and

the submarine tour handbill was that the handbill’s solicitation of customers for the tour was not “information” entitled to First

Amendment protection.

In 1973, the Court referred to Chrestensen as supporting the argument that “commercial speech [is] unprotected by the First

Amendment.” Pittsburgh Press Co. v. Pittsburgh Commission on Human Relations, 413 U.S. 376, 384, 93 S.Ct. 2553, 2558, 37

L.Ed.2d 669 (1973). Pittsburgh Press also endeavored to give content to the then “unprotected” category of “commercial speech”

by noting that “[t]he critical feature of the advertisement in Valentine v. Chrestensen was that, in the Court’s view, it did no more

than propose a commercial transaction.” Id. at 385, 93 S.Ct. at 2558. Similarly, the gender-separate help-wanted ads in

388-89, 93 S.Ct. at 2560-61.

Just two years later, Chrestensen was relegated to a decision upholding only the “manner in which commercial advertising could

be distributed.” Bigelow v. Virginia, 421 U.S. 809, 819, 95 S.Ct. 2222, 2231, 44 L.Ed.2d 600 (1975) (emphasis added). Bigelow

somewhat generously read Pittsburgh Press as “indicat[ing] that the advertisements would have received some degree of First

Amendment protection if the commercial proposal had been legal.” Id. at 821, 95 S.Ct. at 2232. However, in according protection

895. Moreover, the Court noted, “the factual information associated with trade names may be communicated freely and explicitly

to the public,” id. at 16, 99 S.Ct. at 897, presumably through the type of informational advertising protected in Virginia State Board.

The trade name prohibition was ultimately upheld because use of the trade name had permitted misleading practices, such as

claiming standardized care, see id. at 14, 99 S.Ct. at 896, but the Court added that the prohibition was sustainable just because of

the “opportunity” for misleading practices, see id. at 15, 99 S.Ct. at 896-97.

FN3. The attempt to identify the product’s source suffices to render the ad the type of proposal for a commercial transaction that

receives the First Amendment protection for commercial speech. We intimate no view on whether the plaintiff’s mark has acquired

secondary meaning for trademark law purposes.

FN4. Since we conclude that Bad Frog’s label is entitled to the protection available for commercial speech, we need not resolve the

parties’ dispute as to whether a label without much (or any) information receives no protection because it is commercial speech

that lacks protectable information, or full protection because it is commercial speech that lacks the potential to be misleading. Cf.

Rubin, 514 U.S. at 491, 115 S.Ct. at 1593-94 (Stevens, J., concurring in the judgment) (contending that label statement with no

capacity to mislead because it is indisputably truthful should not be subjected to reduced standards of protection applicable to

3030-31.

We thus assess the prohibition of Bad Frog’s labels under the commercial speech standards outlined in Central Hudson.

III. The Central Hudson Test

[11][12][13] Central Hudson sets forth the analytical framework for assessing governmental restrictions on commercial speech:

At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come

within that provision, it at least must concern lawful activity and not be misleading. Next, we ask whether the asserted government

We agree with the District Court that Bad Frog’s labels pass Central Hudson ‘s threshold requirement that the speech “must

concern lawful activity and not be misleading.” See Bad Frog, 973 F.Supp. at 283 n. 4. The consumption of beer (at least by

adults) is legal in New York, and the labels cannot be said to be deceptive, even if they are offensive. Indeed, although NYSLA

argues that the labels convey no useful information, it concedes that “the commercial speech at issue … may not be characterized

as misleading or related to illegal activity.” Brief for Defendants-Appellees at 24.

interest in protecting children from harmful materials.”).

The Supreme Court also has recognized that states have a substantial interest in regulating alcohol consumption. See, e.g., 44

Liquormart, 517 U.S. at —-, 116 S.Ct. at 1509; Rubin, 514 U.S. at 485, 115 S.Ct. at 1591. We agree with the District Court that

New York’s asserted concern for “temperance” is also a substantial state interest. See Bad Frog, 973 F.Supp. at 284.

C. Direct Advancement of the State Interest

FN5. In Central Hudson, the Supreme Court held that a regulation prohibiting advertising by public utilities promoting the use of

electricity directly advanced New York State’s substantial interest in energy conservation. See Central Hudson,447 U.S. at 569,

(1) Advancing the interest in protecting children from vulgarity. Whether the prohibition of Bad Frog’s labels can be said to

materially advance the state interest in protecting minors from vulgarity depends on the extent to which underinclusiveness of

regulation is pertinent to the relevant inquiry. The *99 Supreme Court has made it clear in the commercial speech context that