Thursday, August 24, 2017

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  Competition was a gatekeeping factor that had been superseded by Lexmark.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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