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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)


STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6033

February 4, 1982

ADVERTISING:

Alcoholic liquor, beer and wine--price and brand advertising

INTOXICATING LIQUOR:

Prohibition against price and brand advertising

LIQUOR CONTROL:

Prohibition against price and brand advertising

The prohibition against price and brand advertising of alcoholic liquor including beer and wine by retail licensees of the Liquor Control Commission as set forth in administrative rule 436.1333(2) is unlawful as an unreasonable exercise of the Commission's police power authority and a violation of the First Amendment's guarantee of free speech.

The prohibition against price advertising of beer and wine by manufacturers, outstate sellers and wholesalers as set forth in administrative rule 436.1333(4) of the Liquor Control Commission is unlawful as an unreasonable exercise of the Commission's police power authority and a violation of the First Amendment's guarantee of free speech.

Honorable Richard Fitzpatrick

State Representative

The Capitol

Lansing, Michigan

You have requested my 'opinion on the question of the state Liquor Control Commission's authority to prohibit truthful price advertising.'

The Michigan Liquor Control Commission has adopted 3 MAC 1979, R 436.1301 et seq, which regulates and limits the advertising of beer, wine and distilled spirits. 3 MAC 1979, R 436.1333 provides, in pertinent part:

'(1) A retail licensee may advertise that he sells alcoholic liquor.

'(2) A retail licensee shall not advertise the brands or the prices of alcoholic liquor off the licensed premises.

'. . .

'(4) A manufacturer of beer or wine, an outstate seller of beer, an outstate seller of wine, or a wholesaler shall not advertise the price of beer or wine.' (Emphasis added.)

Your opinion request raises two issues concerning the Commission's authority to prohibit price advertising. Is such a prohibition:

1. a valid exercise of the police power; and

2. a permissible restraint on the freedom of commercial speech guaranteed by the First and Fourteenth Amendments of the United States Constitution and by art 1, Sec. 5 of the Michigan Constitution of 1963?

Consideration of these two questions must begin with a brief review of the law regulating and permitting the sale of liquor in Michigan.

The Twenty-first Amendment to the Constitution of the United States ended our national experiment with prohibition and gave to the states control of liquor within their boundaries by providing in section 2:

'The 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.'

The United States Supreme Court in California Retail Liquor Dealers Assn v Midcal Aluminum, Inc, 445 US 97, 110; 100 S Ct 937; 63 L Ed 2d 233 (1980), commenting on that amendment said:

'The Twenty-first Amendment grants the States virtually complete control over whether to permit importation or sale of liquor and how to structure the [intra-state] liquor distribution system.'

In Michigan, Const 1963, art 4, Sec. 40, authorizes the creation of a commission to control alcoholic beverages:

'the legislature may by law establish a liquor control commission which, subject to statutory limitations, shall exercise complete control of the alcoholic beverage traffic within this state, including the retail sales thereof.' (Emphasis supplied.)

Art 4, Sec. 40 was originally placed in the constitution of 1908 when Michigan voters approved an initiative petition in the November, 1933 general election. Following approval of the initiative proposal and ratification by three-fourths of the states of the Twenty-first Amendment to the United States Constitution, supra, the Michigan Legislature enacted 1933 Ex Sess PA 8, as amended; MCLA 436.1 et seq; MSA 18.971 et seq. Section 1 of that act provides in pertinent part:

'Except as by this act otherwise provided, the commission shall have the sole right, power and duty to control the alcoholic beverage traffic and traffic in other alcoholic liquor within the state of Michigan, including the manufacture, importation, possession, transportation and sale thereof.

'No rule, regulation and/or order made by the commission shall unreasonably discriminate against Michigan manufacturers of alcoholic liquor.'

It must be conceded that the regulatory authority of the Liquor Control Commission pursuant to Const 1963, art 4, Sec. 40, supra, and pursuant to 1933 Ex Sess PA 8, supra, is extensive. In Terre Haute Brewing Co v Liquor Control Commission, 291 Mich 73, 78; 288 NW 339 (1939), for example, the Court observed:

'Except as limited or defined by statute, the Constitution itself vests the statutory commission with plenary power to control alcoholic beverage traffic in this State.'

This does not mean, however, that the Commission enjoys absolutely unfettered power to regulate traffic in alcoholic beverages. As the United States Court of Appeals noted in Glicker v Michigan Liquor Control Commission, 160 F2d 96, 98 (CA6, 1947), '[t]he regulation of the liquor traffic in any state is exclusively under the police power of that particular state. . . .' Accordingly, in order to be sustained as a valid exercise of that police power, it must appear that '. . . the regulations represent a reasonable exercise of a state's Twenty-first Amendment authority and are rationally related to the furtherance of legitimate state interests.' Felix v Young, 536 F2d 1126, 1132 (CA6, 1976). Similarly, the Commission's authority must be exercised in a manner which is consistent with the fundamental rights guaranteed by the Bill of Rights and the Fourteenth Amendment to the United States Constitution. As the Michigan Supreme Court stated in Bundo v Walled Lake, 395 Mich 679, 687; 238 NW2d 154 (1976):

'if an individual has important interests which otherwise would be entitled to the protection of procedural due process, he cannot be denied this constitutional safeguard because the business in which he is engaged happens to involve alcoholic beverages.'

Indeed, as the United States Supreme Court noted in Craig v Boren, 429 US 190, 206; 97 S Ct 451; 50 L Ed 2d 397 (1976), reh den, 429, US 1124; 97 S Ct 1161; 51 L Ed 2d 574:

'Once passing beyond consideration of the Commerce Clause, the relevance of the Twenty-first Amendment to other constitutional provisions becomes increasingly doubtful. As one commentator has remarked: 'Neither the text nor the history of the Twenty-first Amendment suggests that it qualifies individual rights protected by the Bill of Rights and the Fourteenth Amendment where the sale or use of liquor is concerned.' P. Brest, Processes of Constitutional Decisionmaking, Cases and Materials, 258 (1975). Any departures from this historical view have been limited and sporadic.'

With this background in mind, we turn to the first question posed by your inquiry: is the rule prohibiting price advertising a valid exercise of Michigan's police power? That power was discussed at length by the Supreme Court in Grocers Dairy Co v Department of Agriculture, 377 Mich 71, 75-76; 138 NW2d 767 (1966), as follows:

'. . . the issue is not the wisdom or judgment displayed by the legislature, but, rather, the reasonableness of the statutory regulation. The correct principles were expressed by this Court in Carolene Products Co. v. Thomson, 276 Mich 172, 178:

'The Constitution guarantees to citizens the general right to engage in any business which does not harm the public. The constitutional right to engage in business is subject to the sovereign police power of the State to preserve public health, safety, morals or general welfare and prevent fraud. In the exercise of the police power there must be not only a public welfare to be conserved or public wrong to be corrected, but there must be also a reasonable relation between the remedy adopted and the public purpose.' (Emphasis supplied [in original].)

'The test of legitimacy of the exercise of the police power is 'the existence of a real and substantial relationship between the exercise of those powers in a particular manner in a given case and public health, safety, morals, or the general welfare. Roman Catholic Archbishop of Detroit v. Village of Orchard Lake, 333 Mich 389, 392. [Emphasis supplied.]

'. . .

'The primary determination of public need and character of remedy in the exercise of the police power is in the legislature, and its statutes must be sustained unless the remedy is palpably unreasonable and arbitrary so as needlessly to invade property or personal rights as protected by the Constitution. Carolene Products Co. v. Thomson, supra.

'The presumption of the constitutionality of a statute favors validity and, if the relation between the statute and the public welfare is debatable, the legislative judgment must be accepted. Kelley v. Judge of Recorder's Court of Detroit, 239 Mich 204.'

As is stated in 48 CJS, Intoxicating Liquors, Sec. 225, p 721, '[t]he purpose of regulating advertisements of liquor is to discourage artificial stimulation of liquor consumption.' The theory, presumably, is that in the absence of persuasive advertising the public will be less inclined to purchase alcoholic beverages.

Michigan's appellate courts have not had occasion to consider whether the regulation of liquor advertising advances the public's health, safety, morals or welfare by discouraging excessive liquor consumption. However, the California Supreme Court has in a recent case considered a related claim that California's liquor retail price maintenance law promoted temperance. In Rice v Alcoholic Beverage Control Appeals Board, 21 Cal 3d 431, 457-458; 579 P 2d 476 (1978), the California Supreme Court said:

'. . . the major declared purpose for retail price maintenance of liquor is to promote temperance. The board determined that these provisions do not promote temperance, relying upon a report of the Moreland Commission in New York, cited in Seagram & Sons, Inc v. Hostetter, supra, 384 U.S. 35, 39. According to that report, 'compulsory resale price maintenance had 'no significant effect upon the consumption of alcoholic beverages, upon temperance or upon the incidence of social problems related to alcohol."

'A 1974 study referred to above found that per capita consumption of distilled spirits in California had increased by 42 percent between 1950 and 1972, and it concluded that 'There is little compeling evidence to suggest that . . . far trade . . . promote[s] temperance or contribute[s] in any significant way to the minimization of the current problem of alcohol abuse.' (Alcohol and the State: A Reappraisal of California's Alcohol Control Policies, op. cit., pp. xi, 15.) Other authorities reach similar conclusions. (See, e.g., Sen. Select Com. Rep. on Laws Relating to Alcoholic Beverages, op. cit., vol. 3, p. 69; Dunsford, State Monopoly and Price-Fixing in Retail Liquor Distribution, 1962 Wis.L.Rev. 454, 483.)' (Ellipsis appears in original.)

The report of New York's Moreland Commission referred to in Rice, supra, was discussed in greater length by the New York Court of Appeals in Seagram & Sons v Hostetter, 16 NY2d 47, 53-54; 209 NE2d 701 (1965):

'The commission addressed itself, among other things, to the price of liquor in New York and the effect of price on temperance in the use of liquor. One of the basic assumptions of the statute then in effect was that, if the price of liquor were cheap, its consumption would increase and the policy effected by the statute was to sustain the price.

'. . .

'The commission's studies led it to believe that the assumed favorable relation of high-priced liquor to temperance was chimerical. The prices of liquor in New York were high, but consumption had steadily risen and this did not indicate high prices increased temperance. It found 'a greater than average' increase in per capita consumption in New York (Moreland Comm. Report No. 1, p 3).

'The principal benefit from the minimum price requirement for liquor in New York went to the liquor interests. This served 'merely', said the commission, 'to insure profit margins of the various segments of the industry' (Report No. 3, p. 19, offered as Exhibit E by plaintiffs at Special Term) and 'The argument that high prices promote temperance in that they keep liquor out of the hands of those who should not have it' is 'unfounded' (id., p. 17).

'Its studies showed no correlation between consumption and prices, looking at the experience in States in which prices were high compared with those in which they were low.'

In Midcal Aluminum, supra, the United States Supreme Court reviewed the California Court of Appeals' decision in Rice, supra, and considered the argument that liquor resale price maintenance promoted temperance:

'. . . The [California] court found little correlation between resale price maintenance and temperance. It cited a state study showing a 42% increase in per capita liquor consumption in California from 1950 to 1972, while resale price maintenance was in effect. . . . Such studies, the court wrote, 'at the very least raise a doubt regarding the justification for such laws on the ground that they promote temperance.' [Citations omitted.]

'. . .

'We have no basis for disagreeing with the view of the California courts that the asserted state interests are less substantial than the national policy in favor of competition. . . . Neither the petitioner nor the State Attorney General in his amicus brief has demonstrated that the program inhibits the consumption of alcohol by Californians. We need not consider whether the legitimate state interests in temperance and the protection of small retailers ever could prevail against the undoubted federal interest in a competitive economy. The unsubstantiated state concerns put forward in this case simply are not of the same statute as the goals of the Sherman Act.

'We conclude that the California Court of Appeals correctly decided that the Twenty-first Amendment provides no shelter for the violation of the Sherman Act caused by the State's wine pricing program. . . .' 445 US 97, 113-114.

As was observed above, in order for a statute to be sustained under the police power, it must be shown to be reasonable. Grocers Dairy Co, supra. The same showing of reasonableness is also a prerequisite to the validity of an administrative regulation such as that in question here. Michigan Farm Bureau v Bureau of Workmen's Compensation, 408 Mich 141, 149; 289 NW2d 699 (1980). See also, Daniels v Bureau of State Lottery, 98 Mich App 628, 635; 296 NW2d 324 (1980), citing Chesapeake & O R Co, v Public Service Commission, 59 Mich App 88, 98-99; 228 NW2d 843, lv den 394 Mich 818 (1975). The test for establishing that such a regulation is a reasonable exercise of the police power is 'the existence of a real and substantial relationship' between the regulation and the public purpose which it is to serve. Grocers Dairy Co, supra.

When 3 MAC 1979, R 436.1333(2), supra, is viewed in light of the foregoing cases, I am constrained to conclude that the Commission's ban contained therein on off-premise price advertising of alcoholic liquor by retail licensees lacks a reasonable relationship to the purpose of promoting temperance. For the same reason, the prohibition in 3 MAC 1979, R 436.1333(4), supra, against advertising by manufacturers and others in the chain of sale of the price of beer and wine also lacks a reasonable relationship to that purpose. The primary effect of these provisions is to discourage price competition and to inhibit cost-effective and informed purchasing by consumers. The studies relied upon by cases such as Midcal Aluminum, supra, Rice, supra, and Hostetter, supra, make it clear that such measures, directed primarily to the price of alcoholic beverages, are at best ineffective. Moreover, as the United States Supreme Court noted in Bates v State Bar of Arizona, 433 US 350, 374-375; 97 S Ct 2691; 53 L Ed 2d 810 (1977), such a restriction upon price advertising:

'serves only to restrict information that flows to consumers. . . . We suspect that the argument rests on an underestimation of the public. In any event, we view as dubious any justification that is based on the benefits of public ignorance.' (Emphasis supplied.)

In addition, it must also be observed that it is the express public policy of this State to encourage and foster commercial competition. See, e.g., 1899 PA 255; MCLA 445.701 et seq; MSA 28.31 et seq; 1909 PA 229; MCLA 445.731 et seq; MSA 28.51 et seq; 1905 PA 329; MCLA 445.761 et seq; MSA 28.61 et seq. The effect of 3 MAC 1979, R 436.1333(2) and (4), supra, is to discourage price competition by and among retailers, manufacturers, and others in the chain of sale, and to inhibit consumers in the exercise of cost-effective and informed purchasing.

It is my opinion, therefore, that the ban on liquor price advertising contained in 1979 MAC, R 436.1333(2) and (4) does not bear a reasonable relationship to the purpose of fostering temperance and, moreover, is contrary to the express public purpose of promoting commercial competition; consequently, I must conclude that 3 MAC 1979, R 436.1333(2) and (4) are invalid as an improper exercise of the police power vested in the Commission pursuant to Const 1963, art 4, Sec. 40, and by 1933 Ex Sess PA 8, supra.

The second issue posed by your inquiry is whether the ban on price advertising contained in 3 MAC 1979, R 436.1333(2) and (4) is a permissible restraint upon the freedom of commercial speech guaranteed by the First and Fourteenth Amendments to the United States Constitution and by art 1, Sec. 5 of the Michigan Constitution of 1963.

The First Amendment to the Constitution of the United States provides in pertinent part that 'Congress shall make no law . . . abridging the freedom of speech, . . .' By virtue of the Fourteenth Amendment, this freedom is also guaranteed against action by the states. Virginia State Board of Pharmacy v Virginia Citizens Consumer Council, Inc, 425 US 748; 96 S Ct 1817; 48 L Ed 2d 346 (1976). A similar guarantee is embodied in Michigan's Constitution:

'Every person may freely speak, write, express and publish his views on all subjects, being responsible for the abuse of such right; and no law shall be enacted to restrain or abridge the liberty of speech or of the press.' Const 1963, art 1, Sec. 5.

Price and brand advertising of the type prohibited by the Michigan Liquor Control Commission is plainly commercial speech. Virginia State Board of Pharmacy, supra. Until quite recently, it was thought that such speech constituted an exception to the First Amendment and was unprotected by its guarantees. See, e.g., Morgan v. Detroit, 389 F Supp 922 (ED Mich, 1975) and Boscia v Warren, 359 F Supp 900 (ED Wis, 1973). However, a recent series of cases decided by the United States Supreme Court has left no doubt that commercial speech is protected by the First Amendment's guarantee of free speech.

In Virginia State Board of Pharmacy, supra, the Court was confronted with a First Amendment challenge to a Virginia statute which prohibited price advertising of prescription drugs. The court noted that, for the first time:

'the question whether there is a First Amendment exception for 'commercial speech' is squarely before us. Our pharmacist does not wish to editorialize on any subject, cultural, philosophical, or political. He does not wish to report any particularly newsworthy fact, or to make generalized observations even about commercial matters. The 'idea' he wishes to communicate is simply this: 'I will sell you the X prescription drug at the Y price.' Our question, then, is whether this communication is wholly outside the protection of the First Amendment.' Virginia State Board of Pharmacy, supra, 425 US, at 760-761.

The court concluded that commercial speech does enjoy at least a measure of First Amendment protection. There are, the court conceded, 'common sense differences' between commercial and other varieties of speech which suggest that a 'different degree of protection is necessary to insure that the flow of truthful and legitimate commercial information is unimpaired.' 425 US at 771-772, n 24. However, while a state may impose some regulations upon commercial speech which might well be impermissible in other contexts, Virginia's absolute ban on prescription drug price advertising was found to exceed the permissible bounds of such regulations:

'What is at issue is whether a State may completely suppress the dissemination of concededly truthful information about entirely lawful activity, fearful of that information's effect upon its disseminators and its recipients. . . . [W]e conclude that the answer . . . is in the negative.' 425 US, at 773.

The following year, the court reaffirmed this holding in Bates v State Bar of Arizona, 433 US 350; 97 S Ct 2691; 53 L Ed 2d 810 (1977), invalidating a rule of the Supreme Court of Arizona which prohibited attorneys from advertising the price at which they were willing to perform legal services.

Central Hudson Gas & Electric Corp v Public Service Commission of New York, 447 US 557; 100 S Ct 2343; 65 L Ed 2d 341 (1980), further clarified the status of commercial speech under the First Amendment and established a four-part test for assessing commercial speech cases:

'In commercial speech cases, then, a four-part analysis has developed. [1] At the outset, we must determine whether the exression 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. [2] Next, we ask whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine [3] whether the regulation directly advances the governmental interest asserted, and [4] whether it is not more extensive than is necessary to serve that interest.' 447 US, at 566.

This four-part test was recently reaffirmed in Metromedia, Inc v City of San Diego, ---- US ----; 101 S Ct 2882; 69 L Ed 2d 800 (1981).

It is with the third step of the Central Hudson test, which requires a determination of 'whether the regulation directly advances the governmental interest asserted,' that the Commission's ban on off-premise price advertising runs into constitutional difficulty. This criterion is a stringent one. As the Court explained in Central Hudson, supra, 447 US, at 564:

'[T]he restriction must directly advance the state interest involved; the regulation may not be sustained if it provides only ineffective or remote support for the government's purpose.' (Emphasis supplied.)

The Court later warned that:

'We review with special care regulations that entirely suppress commercial speech in order to pursue a nonspeech-related policy. In those circumstances, a ban on speech could screen from public view the underlying governmental policy. See Virginia Pharmacy Board, 427 U.S., at 780, n. 8 (Stewart, J., concurring). Indeed, in recent years, this Court has not approved a blanket ban on commercial speech unless the expression itself was flawed in some way, either because it was deceptive or related to unlawful activity.' 447 US, at 566, n 9.

It must be acknowledged that the Twenty-first Amendment to the United States Constitution, supra, serves to 'strengthen' the right of the state to regulate alcoholic beverages and, even in the face of a First Amendment challenge, provides an 'added presumption in favor of the validity of the state regulation . . ..' California v LaRue, 409 US 109, 118; 93 S Ct 390; 34 L Ed 2d 342 (1972), reh den, 410 US 948; 93 S Ct 1351; 35 L Ed 2d 615; New York State Liquor Authority v Bellanca, ---- US ----; 101 S Ct 2599; 69 1 Ed 2d 357 (1981). However, as was noted above in the discussion of the police power, the primary public purpose advanced in support of restrictions upon liquor price advertising is the promotion of temperance. That discussion concluded that the ban on off-premise liquor price advertising contained in 3 MAC 1979, R 436.1333(2) and (4) not only fails to effectuate this purpose, but actually runs contrary to the express policy of this State to foster commercial competition. For these same reasons, it must be concluded that, even with this added presumption of validity, 3 MAC 1979, R 436.1333(2) and (4) fail to directly advance these governmental interests as required by the third prong of the Central Hudson test, supra.

It is my opinion, therefore, that 3 MAC 1979, R 436.1333(2) and (4) are invalid as an improper exercise of the police power vested in the Commission pursuant to Const 1963, art 4, Sec. 40 and by 1933 Ex Sess PA 8, supra. It is further my opinion that 3 MAC 1979, R 436.1333(2) and (4) are also invalid as an unconstitutional restraint upon the freedom of commercial speech guaranteed by the First and Fourteenth Amendments to the United States Constitution and by Const 1963, art 1, Sec. 5. However, this conclusion does not invalidate the remaining subsections of 3 MAC 1979, R 436.1333, supra. 3 MAC 1979, R 436.1333(1), (3), and (5) are not deficient; because the latter provisions are severable, they remain valid and enforceable. People v McMurchy, 249 Mich 147; 228 NW 723 (1930); OAG, 1979-1980, No 5688, p 723 (April 21, 1980).

Frank J. Kelley

Attorney General

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