Supreme Court of California Justia
Citation 58 Cal. 4th 329, 165 Cal. Rptr. 3d 800, 315 P.3d 71, 13 Cal. Daily Op. Serv. 13,572, 2013 Daily Journal D.A.R. 16,437 (CA 2013)

Beeman v. Anthem Prescription Mgmt.



Filed 12/19/13



IN THE SUPREME COURT OF CALIFORNIA



JERRY BEEMAN et al.,

S203124

Plaintiffs and Respondents,

v.

Ninth Cir. U.S. Ct. App.

No. 07-56692

ANTHEM PRESCRIPTION

MANAGEMENT, LLC, et al.,

C.D. Cal.

No. CV 04–00407–VAP

Defendants and Appellants.

___________________________________ )


JERRY BEEMAN et al.,

Plaintiffs and Respondents,

v.

Ninth Cir. U.S. Ct. App.

No. 07-56693

TDI MANAGED CARE SERVICES,

INC., et al.,

C.D. Cal.

No. CV–02–01327–VAP

Defendants and Appellants.



We granted a request from the United States Court of Appeals for the Ninth

Circuit, sitting en banc, to address the following issue of state law pursuant to California

Rules of Court, rule 8.548: Does Civil Code section 2527 compel speech in violation of

article I, section 2 of the California Constitution?

Civil Code section 2527 requires prescription drug claims processors to compile

and summarize information on pharmacy fees and to transmit the information to their

1




clients. Defendants contend that this statute is a content-based speech requirement that

cannot satisfy either strict scrutiny or intermediate scrutiny under California‘s free speech

guarantee. Plaintiffs counter that the statute only requires the transmission of ―objective,

statistical data‖ and therefore does not implicate any free speech protection. In addition,

plaintiffs contend that the statute, if it implicates a right to free speech, is ordinary

economic regulation subject to rational basis review and, in any event, would satisfy the

intermediate scrutiny standard that applies to restrictions on commercial speech.

As explained herein, we hold that Civil Code section 2527 does implicate the right

to free speech guaranteed by article I of the California Constitution. At the same time,

we hold that the statute, which requires factual disclosures in a commercial setting, is

subject to rational basis review and satisfies that standard because the compelled

disclosures are reasonably related to the Legislature‘s legitimate objective of promoting

informed decisionmaking about prescription drug reimbursement rates.

I.

In the panel decision now being reviewed en banc, the Ninth Circuit provided the

following description of the parties to this litigation: ―Plaintiffs own five independent

retail pharmacies licensed in California. Defendants are current or former pharmacy

benefit managers (‗PBMs‘). They ‗contract with third-party payors or health plan

administrators such as insurers, HMOs, governmental entities, and employer groups to

facilitate cost-effective delivery of prescription drugs to health plan members or other

persons to whom the third-party payors provide prescription drug benefits.‘ PBMs assist

in the ‗processing of prepaid or insured prescription drug benefit claims submitted by a

licensed California pharmacy or patron thereof.‘ In other words, PBMs act as

intermediaries between pharmacies and third-party payors such as health insurance

companies. Pursuant to this role, PBMs may create networks of retail pharmacies that

agree to accept certain reimbursement rates when they fill prescriptions for health plan

members. According to Defendants, network reimbursements ‗generally are lower than

2



what pharmacies would charge uninsured, cash-paying customers.‘ ‖ (Jerry Beeman and

Pharmacy Services v. Anthem Prescription Management (9th Cir. 2011) 652 F.3d 1085,

1090 (Beeman II).)

In 2002, plaintiffs filed a federal class action suit alleging that defendants failed to

comply with Civil Code section 2527. (All further statutory references are to the Civil

Code unless otherwise indicated.) Section 2527 imposes specific obligations on

―prescription drug claims processor[s]‖ as a prerequisite of entering into or performing

any contracts with licensed California pharmacies or processing or assisting with the

processing of any prescription drug claim involving licensed California pharmacies.

(§ 2527, subd. (a).) The act defines ―prescription drug claims processor‖ as ―any

nongovernmental entity which has a contractual relationship with purchasers of prepaid

or insured prescription drug benefits, and which processes, consults, advises on, or

otherwise assists in the processing of prepaid or insured prescription drug benefit claims

submitted by a licensed California pharmacy or patron thereof.‖ (§ 2527, subd. (b).) For

purposes of this litigation, defendants do not contest that they are ―prescription drug

claims processors‖ subject to section 2527. (Beeman II, supra, 652 F.3d at p. 1090,

fn. 1.)

Section 2527, subdivision (c) requires prescription drug claims processors to

―conduct[] or obtain[] the results of a study or studies which identifies the fees, separate

from ingredient costs, of all, or of a statistically significant sample, of California

pharmacies, for pharmaceutical dispensing services to private consumers. The study or

studies shall meet reasonable professional standards of the statistical profession. The

determination of the pharmacy‘s fee made for purposes of the study or studies shall be

computed by reviewing a sample of the pharmacy‘s usual charges for a random or other

representative sample of commonly prescribed drug products, subtracting the average

wholesale price of drug ingredients, and averaging the resulting fees by dividing the

aggregate of the fees by the number of prescriptions reviewed. A study report shall

3



include a preface, an explanatory summary of the results and findings including a

comparison of the fees of California pharmacies by setting forth the mean fee and

standard deviation, the range of fees and fee percentiles (10th, 20th, 30th, 40th, 50th,

60th, 70th, 80th, 90th). This study or these studies shall be conducted or obtained no less

often than every 24 months.‖

Section 2527, subdivision (d) requires prescription drug claims processors to send

the studies to their clients: ―The study report or reports obtained pursuant to subdivision

(c) shall be transmitted by certified mail by each prescription drug claims processor to the

chief executive officer or designee, of each client for whom it performs claims processing

services. Consistent with subdivision (c), the processor shall transmit the study or studies

to clients no less often than every 24 months. [¶] Nothing in this section shall be

construed to require a prescription drug claims processor to transmit to its clients more

than two studies meeting the requirements of subdivision (c) during any such 24-month

period. [¶] Effective January 1, 1986, a claims processor may comply with subdivision

(c) and this subdivision, in the event that no new study or studies meeting the criteria of

subdivision (c) have been conducted or obtained subsequent to January 1, 1984, by

transmitting the same study or studies previously transmitted, with notice of cost-of-

living changes as measured by the Consumer Price Index (CPI) of the United States

Department of Labor.‖

Section 2528 provides for civil enforcement of section 2527: ―A violation of

Section 2527 may result only in imposition of a civil remedy, which includes, but is not

limited to, imposition of statutory damages of not less than one thousand dollars ($1,000)

or more than ten thousand dollars ($10,000) depending on the severity or gravity of the

violation, plus reasonable attorney‘s fees and costs, declaratory and injunctive relief, and

any other relief which the court deems proper. Any owner of a licensed California

pharmacy shall have standing to bring an action seeking a civil remedy pursuant to this

section so long as his or her pharmacy has a contractual relationship with, or renders

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pharmaceutical services to, a beneficiary of a client of the prescription drug claims

processor, against whom the action is brought provided that no such action may be

commenced by the owner unless he or she has notified the processor in writing as to the

nature of the alleged violation and the processor fails to remedy the violation within 30

days from the receipt of the notice or fails to undertake steps to remedy the violation

within that period and complete the steps promptly thereafter.‖

Sections 2527 and 2528 were enacted in 1982. (Stats. 1982, ch. 296, § 1, pp. 936–

938; Assem. Bill No. 2044 (1981–1982 Reg. Sess.) (Assembly Bill 2044).) The bill was

sponsored by the California Pharmacists Association in an effort to increase the rate of

reimbursement by third-party payors. (Assem. Com. on Finance, Insurance &

Commerce, Analysis of Assem. Bill No. 2044 (1981–1982 Reg. Sess.) for hearing on

May 12, 1981, p. 6 (Bill Analysis).) Assembly Bill 2044 was prompted not only by a

concern with the reimbursement rates to pharmacists (see Bill Analysis, at pp. 1–2) but

also by the United States Supreme Court‘s 1979 decision holding that the federal antitrust

exemption for the ―business of insurance,‖ where regulated by state law, does not extend

to contracts between insurers and pharmacies (Group Life & Health Ins. Co. v. Royal

Drug Co. (1979) 440 U.S. 205; see Bill Analysis, at p. 5). As a result of that decision,

pharmacists were unable to collectively bargain for fees or collectively refuse to

participate in third-party payment programs. (Bill Analysis, at pp. 5, 7.)

As introduced, Assembly Bill 2044 would have imposed specific prices on

prescription drug claims processors by requiring nongovernmental third-party payors to

reimburse pharmacies for services rendered to group plan members at no less than the

―usual charges of the pharmacy for the same or similar services to private consumers not

covered by a group plan.‖ (Bill Analysis, at pp. 1–2, underscoring omitted.) The bill

also prohibited any third-party payor from imposing any payment systems in which the

upper limit on claim payments was ―less than the 90th percentile of usual charges within

the state.‖ (Id. at p. 2.) The bill was opposed by insurance companies, unions, and

5



healthcare service plans, all of which were concerned it would result in increased costs.

(Id. at pp. 3–4.) The Governor and the Department of Insurance also opposed the bill

because it would ―inhibit or prevent attempts by insurers at cost control‖ and ―would

have the probable result of raising the reimbursable amounts throughout a large portion

of the state.‖ (Legis. Counsel Brian L. Walkup, Dept. Insurance, letter to

Assemblymember Bill Lancaster, June 2, 1981, p. 1.)

After failing to make it out of committee, Assembly Bill 2044 was amended to

replace the minimum-reimbursement requirements with the current requirement that

prescription drug claims processors conduct or obtain, and transmit to their clients,

studies identifying the prevailing fees of California pharmacies for pharmaceutical

dispensing services. (Assem. Bill 2044, as amended Jan. 18, 1982.) These changes were

proposed by the original bill sponsor, the California Pharmacists Association. (See John

H. Simons, Cal. Pharmacists Association, mem., Dec. 22, 1981, in Assem. Com. on

Finance, Insurance & Commerce bill file.) As the bill‘s author explained in a letter to the

Governor: ―An interim hearing of the Assembly Finance, Insurance and Commerce

Committee last November established that because of antitrust constraints, pharmacists

are unable to negotiate directly with the underwriters or processors. And neither the

underwriters or processors conduct statistical analyses of pharmacy pricing levels prior to

adopting a reimbursement policy. [¶] These findings caused me to amend [Assembly

Bill] 2044 to include essentially the provisions that are now before you . . . . [¶] I am

hopeful that the legislation will serve to break the reimbursement logjam that has

temporarily strained relationships between pharmacists, underwriters and claims

processors.‖ (Assemblymember Bill Lancaster, letter to Governor (1981–1982 Reg.

Sess.) June 14, 1982, Governor‘s chaptered bill files.) The Department of Insurance

offered this analysis of the enrolled bill: ―[T]he bill is significantly limited in scope . . . .

[¶] We point out that the bill is fairly innocuous in its impact, since it merely requires a

study to be made and distributed to clients, and does not require any action to be taken

6



based on the study. Nevertheless, it may help identify areas for cost-containment in the

future.‖ (Dept. of Insurance, Enrolled Bill Rep. on Assem. Bill No. 2044 (1981–1982

Reg. Sess.) p. 2.)

Although section 2528 provides for private enforcement of section 2527, it does

not appear that the statute prompted any litigation until 2002, when plaintiffs initiated a

series of suits in federal and state court. In its request for this court‘s review, the Ninth

Circuit, sitting en banc, provided this account: ―Plaintiffs filed class action complaints

against defendant prescription drug claims processors in the Central District of California

in 2002 and 2004 (the Beeman cases) alleging, among other things, that Defendants failed

to comply with the reporting requirements of section 2527. The district court dismissed

the cases for lack of standing without reaching the merits. While Plaintiffs‘ appeal of the

standing issue was pending in our court, three of the five plaintiffs sued some, but not all,

of the defendants in Los Angeles Superior Court, again alleging violations of section

2527. The California Court of Appeal affirmed the trial court‘s dismissal of the suit in an

unpublished opinion and declared section 2527 unconstitutional under article I, section 2

of the California Constitution. See Bradley[ v. First Health Services Corp. (Feb. 28,

2007, B185672) [nonpub. opn.] ]. The Bradley court relied on ARP Pharmacy [Services,

Inc. v. Gallagher Bassett Services, Inc. (2006) 138 Cal.App.4th 1307, 1312] in which the

Court of Appeal also found section 2527‘s reporting requirements unconstitutional. The

California Supreme Court denied review of Bradley on June 13, 2007.

―In the Beeman cases, the Ninth Circuit panel concluded that Plaintiffs had

standing, reversed the district court and remanded for further proceedings. See Beeman v.

TDI Managed Care [Services, Inc. (2006)] 449 F.3d 1035, 1037 . . . . On remand,

Defendants moved for judgment on the pleadings, arguing that section 2527

unconstitutionally compels speech in violation of both the United States and California

Constitutions. Defendants based their constitutional arguments on the decisions in

Bradley, ARP [Pharmacy Services], and A.A.M. [Health Group, Inc. v. Argus Health

7



Systems, Inc. (Feb. 28, 2007, B183468) [nonpub. opn.]]. Each of those California Court

of Appeal decisions holds the reporting requirement of section 2527 unconstitutional

under article I, section 2 of the California Constitution. Denying Defendants‘ motions,

the district court concluded that there was ‗convincing evidence‘ that the California

Supreme Court would not follow the holdings of the intermediate appellate courts.

Defendants then filed this interlocutory appeal.

―The majority of a three-judge panel of this court also declined to follow the

intermediate California court decisions striking down section 2527 as unconstitutional

under California‘s free speech clause. Instead, it independently assessed the

constitutionality of the statute under First Amendment principles, reasoning that the

California Supreme Court would decide the state constitutional question ‗by relying,

primarily, if not exclusively, on First Amendment precedent.‘ Beeman [II, supra], 652

F.3d at 1094. The majority identified two critical errors in the Court of Appeal decisions

that it was convinced the California Supreme Court would not make: (1) giving

insufficient weight to Rumsfeld v. Forum for Academic and Institutional Rights, Inc., 547

U.S. 47, 126 S.Ct. 1297, 164 L.Ed.2d 156 (2006) . . . and (2) misinterpreting Riley v.

National Federation of the Blind of North Carolina, Inc., 487 U.S. 781, 108 S.Ct. 2667,

101 L.Ed.2d 669 (1988).

―The dissent argued (1) we were bound by the Erie doctrine to follow the

California Court of Appeal decisions; (2) the California Supreme Court would not

necessarily rely upon First Amendment jurisprudence to interpret its own state‘s

constitutional free speech clause, which ‗enjoys existence and force independent of the

First Amendment,‘ [citation], and is ‗broader and more protective‘ than the First

Amendment, [citation]; and (3) the California Courts of Appeal had in fact correctly

analyzed First Amendment law and incorporated those principles into the decisions to

strike down section 2527 under the California Constitution.‖ (Beeman v. Anthem

Prescription Management, LLC (9th Cir. 2012) 689 F.3d 1002, 1006–1007, fn. omitted

8



(en banc) (Beeman III), quoting Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468,

489, and Los Angeles Alliance for Survival v. City of Los Angeles (2000) 22 Cal.4th 352,

366.)

The Ninth Circuit explained the need for guidance from this court as follows:

―The outcome of this appeal is dictated by the scope of the free speech clause of the

California Constitution as applied to section 2527. This constitutional question is critical

to California‘s interest in consistent enforcement and interpretation of its constitution and

laws in both state and federal courts. It is only because the panel‘s Beeman [II] decision

has been withdrawn that the result that section 2527 is enforceable in federal, but not

state, courts has been avoided. The majority of the three judge panel acknowledged that

this situation, if left in place, would lead to forum shopping and the inconsistent

enforcement of state law. [(See Erie R. Co. v. Tompkins (1938) 304 U.S. 64, 74–78.)]

Without the California Supreme Court‘s examination of this question, the risk remains

that the en banc court would follow the lead of the panel majority to the same end. If, of

course, the California Supreme Court itself were to agree with the panel majority, then it

too would conclude that the statute is constitutional, and its decision would control in

California state and federal courts. The conflicting views of the law in the panel opinion

illustrate the importance of this question in the context of (1) whether our court is bound

to follow the precedent of ARP Pharmacy [Services], and (2) to what degree, if any,

federal First Amendment precedent affects the constitutionality of section 2527 under

California‘s free speech clause.‖ (Beeman III, supra, 689 F.3d at p. 1007.)

We granted review in order to resolve this question of state constitutional law.

II.

The free speech guarantee of the California Constitution provides: ―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.‖ (Cal. Const., art. I, § 2, subd. (a).)

9



In considering a free speech claim under article I, ―we begin with the unquestioned

proposition that the California Constitution is an independent document and its

constitutional protections are separate from and not dependent upon the federal

Constitution . . . .‖ (Los Angeles Alliance for Survival v. City of Los Angeles, supra, 22

Cal.4th at p. 365; see Gerawan Farming, Inc. v. Lyons, supra, 24 Cal.4th at pp. 489–490

(Gerawan I).) ―The state Constitution‘s free speech provision is ‗at least as broad‘ as

[citation] and in some ways is broader than [citations] the comparable provision of the

federal Constitution‘s First Amendment.‖ (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939,

958–959 (Kasky).) Unlike the First Amendment, California‘s free speech clause

―specifies a ‗right‘ to freedom of speech explicitly and not merely by implication,‖ ―runs

against . . . private parties as well as governmental actors‖ and expressly ―embrace[s] all

subjects.‖ (Gerawan I, at pp. 491–493.) However, ―[m]erely because our provision is

worded more expansively and has been interpreted as more protective than the First

Amendment . . . does not mean that it is broader than the First Amendment in all its

applications.‖ (Alliance for Survival, at p. 367; see Kasky, at p. 969.) Our case law

interpreting California‘s free speech clause has given respectful consideration to First

Amendment case law for its persuasive value, while making clear that ―federal decisions

interpreting the First Amendment are not controlling.‖ (Alliance for Survival, at p. 367.)

Applying this approach here, we examine the constitutionality of section 2527 by

disentangling two questions: Does the statute‘s requirement that prescription drug claims

processors transmit information on pharmacy fees to their clients implicate the right to

freedom of speech under the California Constitution? If so, what level of judicial

scrutiny applies to section 2527‘s speech requirement? We address the first question in

this part and, answering it in the affirmative, turn to the second question in part III below.

As noted, section 2527 requires prescription drug claims processors to conduct or

obtain, and to transmit to their clients, the results of studies identifying the fees charged

by California pharmacies to private customers. The information at issue — a ―study

10



report‖ that includes ―a preface, an explanatory summary of the results and findings‖ that

provide various statistics comparing pharmacy fees (§ 2527, subd. (c)) — is factual in

nature. This statutorily required communication, we conclude, implicates California‘s

free speech guarantee.

The text of California‘s free speech guarantee makes clear that the freedom to

speak extends to ―all subjects.‖ (Cal. Const., art. I, § 2, subd. (a).) In Gerawan I, we

emphasized the ― ‗unlimited‘ scope‖ of this language in contrast to the First Amendment,

which ―was ‗not intended‘ to embrace all subjects.‖ (Gerawan I, supra, 24 Cal.4th at

pp. 493, 486.) Just as we observed in Gerawan I that the phrase ―all subjects‖ in article I

― ‗does not exclude‘ commercial speech from its ‗protection‘ ‖ (Gerawan I, at p. 494),

here we see no textual basis for excluding from article I‘s coverage factual statements

like the study report required by section 2527.

Further, it is well established that freedom of speech under article I includes both

the right to speak and the right to refrain from speaking. ―Article I‘s right to freedom of

speech, like the First Amendment‘s, is implicated in speaking itself. Because speech

results from what a speaker chooses to say and what he chooses not to say, the right in

question comprises both a right to speak freely and also a right to refrain from doing so at

all, and is therefore put at risk both by prohibiting a speaker from saying what he

otherwise would say and also by compelling him to say what he otherwise would not

say.‖ (Gerawan I, supra, 24 Cal.4th at p. 491.) In Gerawan I, we observed that when

article I was originally adopted in 1849, ―the prevailing political, legal, and social culture

was that of Jacksonian democracy,‖ a culture that valued ―equality and open opportunity,

economic individualism, and wide and unrestrained commercial speech.‖ (Gerawan I, at

p. 495.) Informed by article I‘s text and the historical context of its adoption, we held —

in a departure from then-controlling First Amendment precedent (Gerawan I, at pp. 497–

509 [discussing Glickman v. Wileman Bros. & Elliott, Inc. (1997) 521 U.S. 457

(Glickman)]) — that a government order requiring a plum grower to fund generic

11



advertising about plums implicates (but does not necessarily violate) the right to freedom

of speech under article I. (Gerawan I, at pp. 509–515, 517.) The broad principles set

forth in Gerawan I — that article I‘s coverage of ―all subjects‖ is ― ‗unlimited‘ in scope‖

(Gerawan I, at p. 493) and that the right to speak freely includes the right not to speak at

all (id. at p. 487) — support the conclusion that a statute requiring transmission of factual

information to a business entity in a commercial context implicates article I‘s free speech

clause.

This understanding draws further support from principles articulated by the United

States Supreme Court in interpreting ―freedom of speech‖ under the First Amendment.

The high court precedent involving speech that most closely approximates the factual

information at issue in section 2527 is Sorrell v. IMS Health Inc. (2011) 564 U.S. __ [131

S.Ct. 2653] (Sorrell). There, the high court considered a First Amendment challenge to a

Vermont law ―restrict[ing] the sale, disclosure, and use of pharmacy records that reveal

the prescribing practices of individual doctors.‖ (Id. at p. __ [131 S.Ct. at p. 2659].) In

discussing whether the ―prescriber-identifying information‖ should be characterized as ―a

mere ‗commodity‘ ‖ or as protected speech, the high court noted the general rule that ―the

creation and dissemination of information are speech within the meaning of the First

Amendment.‖ (Id. at pp. __–__ [131 S.Ct. at pp. 2666–2667].) The high court then said:

―Facts, after all, are the beginning point for much of the speech that is most essential to

advance human knowledge and to conduct human affairs. There is thus a strong

argument that prescriber-identifying information is speech for First Amendment

purposes.‖ (Id. at p. __ [131 S.Ct. at p. 2667].) But the high court stopped short of

deciding the issue and instead held that the state restriction, which specifically prohibited

disseminating or using the information for marketing, worked an impermissible ―speaker-

and content-based burden on protected expression,‖ ―even assuming . . . that prescriber-

identifying information is a mere commodity.‖ (Ibid.)

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In support of its suggestion that factual information qualifies as protected speech,

the high court in Sorrell cited Rubin v. Coors Brewing Co. (1995) 514 U.S. 476 (Rubin),

which invalidated a federal regulation banning disclosure of alcohol content on beer

labels. (See Sorrell, supra, 564 U.S. at p. __ [131 S.Ct. at p. 2667].) In Rubin, there was

no dispute that the brewing company sought ―to disclose only truthful, verifiable, and

nonmisleading factual information about alcohol content on its beer labels.‖ (Rubin, at

p. 483.) The high court concluded that the factual information about alcohol content was

protected commercial speech and that restrictions on such speech require substantial

justification, which the government in that case failed to provide. (Id. at pp. 481–486.)

The Ninth Circuit panel here recognized that the government ―may not prohibit

speakers from disseminating facts‖ but determined that it is ―quite different‖ for the

government to compel factual speech. (Beeman II, supra, 652 F.3d at p. 1100, fn. 14.)

Citing Rumsfeld v. Forum for Academic and Institutional Rights, Inc., supra, 547 U.S. 47

(FAIR) and Riley v. National Federation of Blind, supra, 487 U.S. 781 (Riley), the Ninth

Circuit panel concluded that ―not all fact-based disclosure requirements are subject to

First Amendment scrutiny. Instead, such requirements implicate the First Amendment

only if they affect the content of the message or speech by forcing the speaker to endorse

a particular viewpoint or by chilling or burdening a message that the speaker would

otherwise choose to make.‖ (Beeman II, at pp. 1099–1100, fn. omitted.) Respectfully,

we do not believe FAIR or Riley supports the Ninth Circuit panel‘s conclusion that the

reporting requirements of section 2527 ―are not subject to any form of First Amendment

scrutiny.‖ (Beeman II, at p. 1106.)

FAIR rejected a First Amendment challenge by various law schools to the 1996

Solomon Amendment‘s requirement that institutions of higher education, as a condition

of receiving federal funds, provide military recruiters the same access provided to other

recruiters. (10 U.S.C. § 983.) Addressing the law schools‘ claim of compelled speech,

the high court observed that ―recruiting assistance provided by the schools often includes

13



elements of speech. For example, schools may send e-mails or post notices on bulletin

boards on an employer‘s behalf. [Citations.] Law schools offering such services to other

recruiters must also send e-mails and post notices on behalf of the military to comply

with the Solomon Amendment.‖ (FAIR, supra, 547 U.S. at pp. 61–62.) But the high

court observed that ―[t]he compelled speech to which the law schools point is plainly

incidental to the Solomon Amendment‘s regulation of conduct‖ and explained that

―[c]ompelling a law school that sends scheduling e-mails for other recruiters to send one

for a military recruiter is simply not the same as forcing a student to pledge allegiance, or

forcing a Jehovah‘s Witness to display the motto ‗Live Free or Die,‘ and it trivializes the

freedom protected in [Board of Education v.] Barnette [(1943) 319 U.S. 624] and Wooley

[v. Maynard (1977) 430 U.S. 705] to suggest that it is.‖ (FAIR, at p. 62.)

In rejecting the law schools‘ compelled speech claim, FAIR did not hold that

compelled statements of fact fall outside the ambit of First Amendment protection. To

the contrary, the high court said that ―these compelled statements of fact (‗The U.S.

Army recruiter will meet interested students in Room 123 at 11 a.m.‘), like compelled

statements of opinion, are subject to First Amendment scrutiny.‖ (FAIR, supra, 547 U.S.

at p. 62, italics added.) FAIR concluded that such compelled speech withstands First

Amendment scrutiny because it does not force a school to speak the government‘s

message or otherwise affect a school‘s ability to express its own viewpoints (id. at

pp. 62–65) and because the speech is ―only ‗compelled‘ if, and to the extent, the school

provides such speech for other recruiters‖ (id. at p. 62).

In Riley, the high court invalidated a North Carolina statute that, among other

things, required professional fundraisers to disclose, ― ‗[d]uring any solicitation and

before requesting or appealing either directly or indirectly for any charitable

contribution,‘ ‖ the percentage of charitable collections actually remitted to charities over

the past 12 months. (Riley, supra, 487 U.S. at p. 786, fn. 3, quoting N.C. Gen. Stat.

§ 131C-16.1.) In describing this requirement, the high court said: ―Mandating speech

14



that a speaker would not otherwise make necessarily alters the content of the speech. We

therefore consider the Act as a content-based regulation of speech.‖ (Riley, at p. 795.)

The high court then addressed the parties‘ dispute as to whether the disclosure

requirement should be analyzed under the intermediate scrutiny standard applicable to

commercial speech or under the strict scrutiny standard applicable to fully protected

expression. In that discussion, the high court said that ―even assuming, without deciding,

that such speech in the abstract is indeed merely ‗commercial,‘ we do not believe that the

speech retains its commercial character when it is inextricably intertwined with otherwise

fully protected speech,‖ i.e., charitable solicitations. (Id. at p. 796.) Accordingly, Riley

concluded that although ―here we deal with compelled statements of ‗fact‘ ‖ and not

―compelled statements of opinion,‖ the disclosure requirement ―burdens protected

speech‖ and ―is subject to exacting First Amendment scrutiny.‖ (Id. at pp. 797–798.)

Contrary to the Ninth Circuit panel‘s suggestion (Beeman II, supra, 652 F.3d at

pp. 1098–1099), Riley did not hold that the compelled factual disclosure at issue was

subject to First Amendment scrutiny only because it was ―inextricably intertwined with

otherwise fully protected speech,‖ i.e., charitable solicitations. (Riley, supra, 487 U.S. at

p. 796.) The high court in Riley made the latter observation in the course of addressing

what level of First Amendment scrutiny should apply to the disclosure requirement, not

whether First Amendment scrutiny should apply at all. Before addressing what level of

scrutiny should apply, the high court had already concluded that the disclosure

requirement was ―a content-based regulation of speech‖ because ―[m]andating speech

that a speaker would not otherwise make necessarily alters the content of the speech.‖

(Riley, at p. 795.)

The high court‘s analyses in the cases discussed above support the conclusion that

the principle of freedom of speech protects ― ‗[e]ven dry information, devoid of

advocacy, political relevance, or artistic expression . . . .‘ [Citation.]‖ (DVD Copy

Control Assn. v. Bunner (2003) 31 Cal.4th 864, 876.) The express compass of

15



California‘s free speech clause — ―Every person may freely speak, write and publish his

or her sentiments on all subjects . . . .‖ (Cal. Const., art. I, § 2, subd. (a), italics added) —

reflects this principle. Accordingly, we conclude that section 2527 implicates the right to

free speech under article I.

III.

A determination that a statute ―implicates [the] right to freedom of speech under

article I does not mean that it violates such right.‖ (Gerawan I, supra, 24 Cal.4th at

p. 517.) We now consider what level of judicial scrutiny applies to section 2527‘s

requirement that prescription drug claims processors transmit to their clients a biennial

study report on pharmacy fees.

The free speech jurisprudence of our court and the United States Supreme Court

reveals no simple formula for deciding what level of scrutiny to apply to a particular

speech regulation. Instead, the case law has distinguished carefully among various

contexts in which compelled speech occurs and has sensitively considered the effects of

compelled speech on both speakers and their audiences. (See Riley, supra, 487 U.S. at

p. 796 [―Our lodestars in deciding what level of scrutiny to apply to a compelled

statement must be the nature of the speech taken as a whole and the effect of the

compelled statement thereon.‖].) In the compelled speech context, we have looked to

First Amendment case law for persuasive guidance when confronted with a paucity of

state constitutional doctrine. In Gerawan Farming, Inc. v. Kawamura (2004) 33 Cal.4th

1, 11–22 (Gerawan II), we found it ―critical‖ to examine several high court precedents on

compelled subsidy of private speech in the course of concluding, partly in reliance on

Justice Souter‘s dissenting opinion in Glickman, supra, 521 U.S. 457, that the proper test

for evaluating the California Plum Marketing Program under article I‘s free speech clause

was the intermediate scrutiny standard of Central Hudson Gas & Elec. v. Public Serv.

Comm’n (1980) 447 U.S. 557, 566 (Central Hudson). Here, as in Gerawan II, we find

instructive ―the cornerstones of United States Supreme Court jurisprudence‖ that have set

16



forth principles relevant to the novel state constitutional claim before us. (Gerawan II,

supra, 33 Cal.4th at p. 11.) Informed by those principles and by basic notions of judicial

restraint, we conclude that section 2527 is subject to rational basis review, not heightened

scrutiny, under California‘s free speech clause.

A.

The leading cases on compelled speech reflect the principle that no law may

require a speaker to adopt a political or ideological viewpoint imposed by government.

In Board of Education v. Barnette, supra, 319 U.S. 624 (Barnette), the high court struck

down a West Virginia law requiring children in public schools to salute the flag and

recite the Pledge of Allegiance. The court explained that ―the compulsory flag salute and

pledge requires affirmation of a belief and an attitude of mind. . . . To sustain the

compulsory flag salute we are required to say that a Bill of Rights which guards the

individual‘s right to speak his own mind, left it open to public authorities to compel him

to utter what is not in his mind.‖ (Id. at pp. 633–634.) Barnette famously said: ―If there

is any fixed star in our constitutional constellation, it is that no official, high or petty, can

prescribe what shall be orthodox in politics, nationalism, religion, or other matters of

opinion or force citizens to confess by word or act their faith therein.‖ (Id. at p. 642.)

Three decades later, the high court in Wooley v. Maynard, supra, 430 U.S. 705

(Wooley) applied similar reasoning to invalidate a New Hampshire law prohibiting

persons from covering up the state motto ―Live Free or Die‖ on their car license plates.

The appellees, who were Jehovah‘s Witnesses, claimed that the motto violated their

moral and religious beliefs, and ―New Hampshire‘s statute in effect require[d] that

appellees use their private property as a ‗mobile billboard‘ for the State‘s ideological

message — or suffer a penalty . . . .‖ (Id. at p. 715.) Citing Barnette, the high court

explained: ―A system which secures the right to proselytize religious, political, and

ideological causes must also guarantee the concomitant right to decline to foster such

concepts. The right to speak and the right to refrain from speaking are complementary

17



components of the broader concept of ‗individual freedom of mind.‘ ‖ (Wooley, at

p. 714.)

And just recently, the high court in Agency for International Development v.

Alliance for Open Society International, Inc. (2013) 570 U.S. __ [133 S.Ct. 2321] held

unconstitutional a federal law requiring nongovernmental organizations, as a condition of

receiving federal funds to combat HIV/AIDS, to have a policy explicitly opposing

prostitution. Again citing Barnette, the high court said the law offends the First

Amendment because it ―requires [organizations] to pledge allegiance to the

Government‘s policy of eradicating prostitution.‖ (Alliance for Open Society, at p. __

[133 S.Ct. at p. 2332]; see id. at p. __ [133 S.Ct. at p. 2330] [the law ―demand[s] that

funding recipients adopt — as their own — the Government‘s view on an issue of public

concern‖].)

In addition to invalidating laws that require speakers to adopt or endorse the

government‘s political or ideological message, the high court‘s compelled speech

jurisprudence has struck down laws requiring a speaker to carry another person‘s

message with which the speaker disagrees. The paradigmatic case is Miami Herald

Publishing Co. v. Tornillo (1974) 418 U.S. 241 (Tornillo), which invalidated a Florida

statute requiring newspapers that criticize a political candidate to provide free and equal

space for the candidate to respond. The high court explained that the statute

unconstitutionally interfered with ―the exercise of editorial control and judgment,‖ which

includes ―[t]he choice of material to go into a newspaper‖ and its ―treatment of public

issues and public officials — whether fair or unfair.‖ (Id. at p. 258.) Under the statute, a

newspaper must ―print that which it would not otherwise print‖ (id. at p. 256), or ―editors

might well conclude that the safe course is to avoid controversy‖ by refraining from

criticizing political candidates in the first place (id. at p. 257). Either way, the statute

undermined the ability of newspapers to advance their own political or electoral views.

(Id. at pp. 255–257; see also Turner Broadcasting Systems, Inc. v. FCC (1994) 512 U.S.

18



622, 640–641 [―laws that single out the press, or certain elements thereof, for special

treatment . . . are always subject to at least some degree of heightened First Amendment

scrutiny‖].)

In Pacific Gas & Elec. Co. v. Public Util. Comm’n (1986) 475 U.S. 1 (PG&E), the

high court struck down a California agency‘s order that required a utility company, in its

billing envelopes, to include third-party materials critical of the utility‘s views. The

plurality opinion observed that the order ―discriminates on the basis of the viewpoints of

the selected speakers‖ (id. at p. 12) by granting access to envelope space only ―to persons

or groups . . . who disagree with [the utility‘s] views.‖ (Id. at p. 13.) Relying extensively

on Tornillo, the four-justice plurality explained that ―[w]ere the government freely able to

compel corporate speakers to propound political messages with which they disagree, this

protection would be empty, for the government could require speakers to affirm in one

breath that which they deny in the next.‖ (PG&E, at p. 16.) The agency‘s order violated

the First Amendment ―because it forces [the utility] to associate with the views of other

speakers, and because it selects the other speakers on the basis of their viewpoints.‖ (Id.

at pp. 20–21; see also Hurley v. Irish-American Gay, Lesbian and Bisexual Group of

Boston, Inc. (1995) 515 U.S. 557, 574–575 [city may not require parade organizer to

allow gay rights group to march in parade carrying its own banner because such

―participation would likely be perceived as having resulted from the [parade organizer‘s]

. . . determination . . . that [the gay rights group‘s] message was worthy of presentation

and quite possibly of support as well,‖ thus impinging on ―the choice of a speaker not to

propound a particular point of view‖].)

In addition to ―true ‗compelled-speech‘ cases, in which an individual is obliged

personally to express a message he disagrees with,‖ the high court has applied similar

reasoning to sustain First Amendment challenges in ― ‗compelled-subsidy‘ cases, in

which an individual is required by the government to subsidize a message he disagrees

with, expressed by a private entity.‖ (Johanns v. Livestock Marketing Assn. (2005) 544

19



U.S. 550, 557.) In United States v. United Foods, Inc. (2001) 533 U.S. 405, the high

court invalidated an assessment on mushroom producers that the Secretary of Agriculture

imposed to fund generic advertisements promoting mushroom sales. By expressing

―[t]he message . . . that mushrooms are worth consuming whether or not they are

branded,‖ the generic advertising was at odds with ―Respondent[‘s] [desire] to convey the

message that its brand of mushrooms is superior to those grown by other producers.‖ (Id.

at p. 411; see id. at pp. 410–411 [―First Amendment concerns apply here because of the

requirement that producers subsidize speech with which they disagree.‖].) Similarly, as

noted, this court in Gerawan II held under the California free speech clause that

intermediate scrutiny applied to a plum marketing order that compelled a plum producer

with a distinctive brand to fund speech — again, generic advertising — with which it

disagreed. (See Gerawan II, supra, 33 Cal.4th at p. 10 [plaintiff plum grower alleged that

― ‗it ―disagrees‖ with, and indeed ―abhors,‖ the generic advertising, otherwise

undescribed, both on political and ideological grounds, as ―socialistic‖ and ―collectivist,‖

and also on commercial grounds, as ―grouping all . . . plums as though they are the same‖

and as ―embarrassingly silly, idiotic and/or totally ineffective‖ ‘ ‖], quoting Gerawan I,

supra, 24 Cal.4th at pp. 480–482.)

The statute at issue in this case, section 2527, does not implicate the free speech

concerns that animate the cases above. Each of those cases involved a law requiring a

speaker to adopt, endorse, accommodate, or subsidize a moral, political, or economic

viewpoint with which the speaker disagreed. Compulsory allegiance to, association with,

or subsidization of a viewpoint strikes at the heart of freedom of expression. Section

2527, which requires prescription drug claims processors to transmit a study report on

pharmacy fees to insurance companies, does not compel speech reflecting any viewpoint,

belief, or ideology. The study report required by section 2527 discloses objective facts

and statistics about pharmacy fees. The speech requirement here ―is simply not the same

as‖ forcing a speaker to support or accommodate an idea, belief, or opinion, and ―it

20



trivializes the freedom protected in Barnette and Wooley [and the other cases discussed

above] to suggest that it is.‖ (FAIR, supra, 547 U.S. at p. 62.)

In attempting to analogize this case to the compelled speech precedents above,

defendants argue that section 2527 requires them to associate with speech with which

they disagree. Further, defendants contend that because ―the pharmacist plaintiffs have

argued that they intend to use the reports to lobby for mandatory higher reimbursement

rates from claims processors,‖ the statute ―forces prescription claims processors to

support a political position that is directly adverse to their interests.‖ These contentions

are not persuasive.

Although defendants object to transmitting the study reports to their clients, they

do not identify any disagreement with the study reports themselves. As noted, section

2527, subdivision (c) prescribes a method for computing pharmacy fees for purposes of

the study reports and specifies that the study reports shall include information about

pharmacy fees presented in the form of particular facts, statistics, and comparisons. In

pressing their free speech claim, defendants do not object to having to conduct or obtain

the studies, nor do they claim that the statutory method of computing pharmacy fees, the

specified format for presenting the data, or any information contained in the study reports

is incorrect, misleading, or otherwise objectionable. Unlike the aggrieved speakers in all

of the compelled speech precedents discussed above, defendants do not point to any

speech with which they disagree.

Nor do defendants convincingly argue that section 2527 forces them to support a

political position adverse to their interests. The possibility that pharmacists may use the

study reports to influence public debate over reimbursement rate regulation does not

mean that section 2527 makes prescription drug claims processors into conduits for the

pharmacists‘ political message. For one thing, the study reports are not public

documents; section 2527, subdivision (d) requires prescription drug claims processors to

transmit the studies only to their clients, not to pharmacists or to the general public.

21



Further, defendants cite no evidence that pharmacists have used the reports to influence

public debate, even though section 2527 has been the law for three decades.

More importantly, even if pharmacists were to use the study reports to advance

their own policy views on reimbursement rates, the objective data in the reports are not

themselves reasonably construed as conveying a political position that reimbursement

rates are too low. The study reports may reveal that pharmacy fees charged to private

customers are typically higher than network reimbursement rates. But this fact, which is

already known and undisputed by the parties, entails no particular view on whether

reimbursement rates should be increased, decreased, or kept the same — an issue

implicating broader questions of health care economics and the proper balance among

policy objectives such as ensuring access and containing costs.

Nor do we believe that defendants‘ transmission of the reports would cause their

clients or anyone else to believe that defendants support the pharmacists‘ policy views.

Justice Corrigan notes that although defendants ―may have no quarrel regarding the

accuracy of the data required to be reported,‖ ―they vehemently disagree that this data is

at all relevant in determining proper reimbursement rates . . . .‖ (Conc. & dis., post, at

pp. 14–15.) But section 2527 does not require defendants to affirm the relevance of the

study reports to reimbursement rates, and mandatory transmission of the reports does not

connote that defendants endorse their relevance. Nothing about the study reports

suggests that defendants agree with the policy views of pharmacists or anyone else, and

nothing in the statute restricts or compels any speech by defendants about the

pharmacists‘ views, the relevance or irrelevance of the study reports, or reimbursement

rates in general. (Cf. FAIR, supra, 547 U.S. at p. 65 [―Nothing about recruiting suggests

that law schools agree with any speech by recruiters, and nothing in the Solomon

Amendment restricts what the law schools may say about the military‘s policies.‖].)

Defendants‘ clients and the public at large ―can appreciate the difference between speech

22



[a company] sponsors and speech [a company engages in] because legally required to do

so.‖ (Ibid.)

Defendants further contend, relying on Riley, that the same level of scrutiny

applies to compelled statements of fact as to compelled statements of opinion. As noted,

the high court in Riley applied ―exacting First Amendment scrutiny‖ to invalidate a state

law requiring professional fundraisers, before or during any solicitation, to make a

specific factual disclosure: the percentage of charitable collections actually remitted to

charities over the past 12 months. (Riley, supra, 487 U.S. at p. 798.) Crucial to Riley‘s

analysis, however, was the high court‘s observation that the required disclosure was

―inextricably intertwined with otherwise fully protected speech,‖ namely, the advocacy

and persuasive speech characteristic of charitable solicitations. (Id. at p. 796; see

Schaumburg v. Citizens for Better Environ. (1980) 444 U.S. 620, 632 [charitable

solicitations typically involve ―persuasive speech seeking support for particular causes or

for particular views on economic, political, or social issues‖].) The high court in Riley

explained that ―where, as here, the component parts of a single speech are inextricably

intertwined, we cannot parcel out the speech, applying one test to one phrase and another

test to another phrase. Such an endeavor would be both artificial and impractical.

Therefore, we apply our test for fully protected speech.‖ (Riley, at p. 796.) It was on that

basis that Riley found applicable the principles governing ―compelled speech . . . in the

context of fully protected expression‖ established in cases like Barnette, Wooley,

Tornillo, and PG&E. (Riley, at p. 797.) Riley‘s conclusion that ―[t]hese cases cannot be

distinguished simply because they involved compelled statements of opinion while here

we deal with compelled statements of ‗fact‘ ‖ (ibid.) followed directly from the court‘s

―refus[al] to separate the component parts of charitable solicitations from the fully

protected whole‖ (id. at p. 796).

Unlike the disclosure requirement at issue in Riley, section 2527 involves a

compelled statement of facts that is not temporally, tangibly, or otherwise linked to other

23



fully protected speech. Riley did not hold that such compelled speech is subject to

heightened scrutiny. Indeed, the high court said that, ―as a general rule,‖ requiring

professional fundraisers to make financial disclosures to the state, which the state may

itself publish, would be unproblematic because compelled speech of that sort would

avoid ―burdening a speaker with unwanted speech during the course of a solicitation.‖

(Riley, supra, 487 U.S. at p. 800, italics added.) Section 2527 does not require

prescription drug claims processors to transmit the study reports to their clients during the

course of negotiating reimbursement rates, renewing a contract, or processing claims.

The statute does not require transmission of the study reports at any particular time or in

any particular context, so long as it occurs every two years. (§ 2527, subd. (d).) Unlike

the professional fundraisers in Riley, prescription drug claims processors can satisfy the

statutory mandate independently of any other speech they wish to undertake. Although

defendants object to being compelled to transmit the study reports to their clients, the fact

of compulsion alone, which exists in equal measure when government requires a public

disclosure (see Riley, at p. 800), is not sufficient to trigger the ―exacting‖ scrutiny applied

in Riley (id. at p. 798).

B.

Although section 2527 does not implicate the core concerns that have motivated

searching judicial scrutiny of compelled speech regulations, the Court of Appeal in ARP

Pharmacy nonetheless concluded that section 2527 must be evaluated under strict

scrutiny because it is a content-based regulation of noncommercial speech. (ARP

Pharmacy Services, Inc. v. Gallagher Bassett Services, Inc., supra, 138 Cal.App.4th at

pp. 1315–1317 (ARP Pharmacy).) It is true that section 2527 ―requires transmission of

specific content‖ in a study report. (ARP Pharmacy, at p. 1315.) But the fact that

―[n]othing about the content of this report proposes a commercial transaction between the

speaker . . . and its audience‖ (id. at p. 1317) does not necessarily mean the report is not

commercial speech. And although ARP Pharmacy said the study report ―does not affect

24



the economic interests of the required speakers‖ (ibid.), we conclude otherwise, as

explained below.

Section 2527 operates in a commercial setting; it prescribes a specific

communication that a business entity must make to its clients. The prescribed

communication is purely factual in nature, but it is information that defendants would

rather not provide because, as they acknowledge, it could potentially affect prescription

drug reimbursement rates. Although commercial speech is often described as ―speech

proposing a commercial transaction‖ (Ohralik v. Ohio State Bar Assn. (1978) 436 U.S.

447, 456 (Ohralik)), the high court has also referred to commercial speech more broadly

as ―expression related solely to the economic interests of the speaker and its audience‖

(Central Hudson, supra, 447 U.S. at p. 561). The study reports required by section 2527,

though not proposing a commercial transaction, readily qualify as expression related to

the economic interests of prescription drug claims processors and their clients. (See

Kasky, supra, 27 Cal.4th at p. 963 [characterizing speech as commercial speech where it

involved ―a commercial speaker,‖ ―an intended commercial audience,‖ and

―representations of fact of a commercial nature‖].) Further, as we observed in Kasky, one

reason for drawing a constitutional distinction between commercial and noncommercial

speech is that ―governmental authority to regulate commercial transactions to prevent

commercial harms justifies a power to regulate speech that is ‗ ―linked inextricably‖ to

those transactions.‘ ‖ (Kasky, supra, 27 Cal.4th at p. 955, quoting 44 Liquormart, Inc. v.

Rhode Island (1996) 517 U.S. 484, 499 (44 Liquormart) (plur. opn.).) The

communication required by section 2527 is linked inextricably to government-regulated

health insurance transactions, further confirming its commercial nature.

Labeling the study reports ―commercial speech,‖ however, does not dispositively

determine the level of judicial scrutiny applicable to section 2527. In Gerawan II, we

held under article I that the proper standard for evaluating a compelled subsidy of generic

advertising was intermediate scrutiny, but as noted, the marketing order there required a

25



commercial speaker to subsidize a public message with which it disagreed. (See

Gerawan II, supra, 33 Cal.4th at p. 10.) We had no occasion in Gerawan II or in any

subsequent case to consider a compelled speech regulation that requires a commercial

speaker to privately transmit purely factual information containing no message with

which it disagrees.

Just as we have consulted First Amendment doctrine to inform our determination

of the boundary between commercial and noncommercial speech under article I (see

Kasky, supra, 27 Cal.4th at pp. 959–962, 969), here we examine First Amendment case

law to inform our determination of the level of scrutiny applicable to the compelled

commercial speech in this case under article I. Although regulation of commercial

speech is conventionally understood to trigger intermediate scrutiny under the First

Amendment (Central Hudson, supra, 447 U.S. at p. 566), the United States Supreme

Court has not automatically applied intermediate scrutiny to all regulations affecting

commercial speech. This is perhaps unsurprising given the breadth and elasticity of what

is commercial speech, as well as the diversity of regulations arising in the commercial

setting. (See Ohralik, supra, 436 U.S. at p. 456 [commercial speech ―occurs in an area

traditionally subject to government regulation‖].) As explained below, the principles that

motivate the commercial speech doctrine lead us to conclude that section 2527 is

properly analyzed under rational basis review, not intermediate scrutiny.

At the outset, we observe that the intermediate scrutiny standard for commercial

speech arose in the context of restrictions on truthful, nonmisleading statements about

products and services, and the high court has consistently applied intermediate scrutiny to

prohibitions on such speech used for marketing or advertising. (See Va. Pharmacy

Board v. Va. Consumer Council (1976) 425 U.S. 748, 761–770 (Virginia Pharmacy

Board); Central Hudson, supra, 447 U.S. at pp. 563–566; 44 Liquormart, 517 U.S. at

pp. 501–504; Lorillard Tobacco Co. v. Reilly (2001) 533 U.S. 525, 553–554; Sorrell,

supra, 564 U.S. at pp. __–__ [131 S.Ct. at pp. 2667–2668].) In stating the rationale for

26



heightened scrutiny of laws restricting commercial speech, the high court has emphasized

the importance of the ―free flow of commercial information‖ (Virginia Pharmacy Board,

at p. 765), ―the informational function of advertising‖ (Central Hudson, at p. 563), and

―consumer choice‖ (44 Liquormart, at p. 503). The commercial speech doctrine looks

skeptically upon the paternalistic ―assumption that the public will respond ‗irrationally‘

to the truth.‖ (Ibid.; see Sorrell, at p. __ [131 S.Ct. at p. 2670] [―the fear that speech

might persuade provides no lawful basis for quieting it‖]; Central Hudson, at p. 562 [―In

applying the First Amendment to this area, we have rejected the ‗highly paternalistic‘

view that government has complete power to suppress or regulate commercial speech.

‗[P]eople will perceive their own best interests if only they are well enough informed,

and . . . the best means to that end is to open the channels of communication, rather than

to close them . . . .‘ [Citations.]‖].)

Section 2527 does not impede the free flow of commercial information. It does

not interfere with consumer choice, nor does it reflect paternalism toward participants in

the marketplace. To the contrary, the Legislature enacted section 2527 in order to make

available commercial information that was previously unavailable and potentially could

not be provided by pharmacies because of antitrust constraints. (See ante, at pp. 5–6.)

The statutorily specified consumers of the information — insurance companies, HMOs,

and other third-party payors — are sophisticated business entities capable of acting on or

ignoring the information as they see fit. If anything, section 2527 furthers the objectives

of the commercial speech doctrine by enhancing the flow of information potentially

relevant to commercial transactions among pharmacies, prescription drug claims

processors, and third-party payors. In challenging section 2527, defendants here —

unlike the complainants in cases that have invalidated laws restricting commercial speech

— seek not to promote the free flow of commercial information for the benefit of the

marketplace, but to vindicate their asserted right to provide their clients with only the

information they wish to provide.

27



In evaluating regulations on commercial speech, the high court has distinguished

between speech restrictions and compelled disclosures, and has adjusted its level of

scrutiny accordingly. In Zauderer v. Office of Disciplinary Counsel (1985) 471 U.S. 626

(Zauderer), an Ohio attorney placed an advertisement in various newspapers offering to

represent, on a contingent fee basis, women who had suffered injuries from using a

contraceptive device. The Office of Disciplinary Counsel of the Supreme Court of Ohio

filed a complaint against the attorney, alleging that the advertisement was deceptive and

thus violated a state disciplinary rule because it failed to inform clients they would be

liable for costs, as opposed to legal fees, even if their claims were unsuccessful. The

attorney argued that Ohio‘s disciplinary rule violated the First Amendment by requiring

him to include information in his advertisement that he did not wish to include. The high

court disagreed, explaining that the attorney‘s arguments ―overlook[ed] material

differences between disclosure requirements and outright prohibitions on speech.‖ (Id. at

p. 650.) ―In requiring attorneys who advertise their willingness to represent clients on a

contingent-fee basis to state that the client may have to bear certain expenses even if he

loses,‖ the high court reasoned, ―Ohio has not attempted to prevent attorneys from

conveying information to the public; it has only required them to provide somewhat more

information than they might otherwise be inclined to present.‖ (Ibid.) The First

Amendment interests implicated by Ohio‘s disclosure requirement were therefore

―substantially weaker than those at stake when speech is actually suppressed.‖ (Id. at

p. 651, fn. 14.)

Declining to apply either the strict scrutiny applicable to compelled political

speech or the intermediate scrutiny applicable to prohibitions on commercial speech, the

high court in Zauderer explained: ―Ohio has not attempted to ‗prescribe what shall be

orthodox in politics, nationalism, religion, or other matters of opinion or force citizens to

confess by word or act their faith therein.‘ [(Barnette, supra, 319 U.S. at p. 642.)] The

State has attempted only to prescribe what shall be orthodox in commercial advertising,

28



and its prescription has taken the form of a requirement that appellant include in his

advertising purely factual and uncontroversial information about the terms under which

his services will be available. Because the extension of First Amendment protection to

commercial speech is justified principally by the value to consumers of the information

such speech provides, see [(Virginia Pharmacy Board, supra, 425 U.S. 748)], appellant‘s

constitutionally protected interest in not providing any particular factual information in

his advertising is minimal. Thus, in virtually all our commercial speech decisions to date,

we have emphasized that because disclosure requirements trench much more narrowly on

an advertiser‘s interests than do flat prohibitions on speech, ‗warning[s] or disclaimer[s]

might be appropriately required . . . in order to dissipate the possibility of consumer

confusion or deception.‘ ‖ (Zauderer, supra, 471 U.S. at p. 651.)

The Zauderer court concluded: ―We do not suggest that disclosure requirements

do not implicate the advertiser‘s First Amendment rights at all. We recognize that

unjustified or unduly burdensome disclosure requirements might offend the First

Amendment by chilling protected commercial speech. But we hold that an advertiser‘s

rights are adequately protected as long as disclosure requirements are reasonably related

to the State‘s interest in preventing deception of consumers.‖ (Zauderer, supra, 471 U.S.

at p. 651.) Noting that ―restraints on commercial speech‖ are subject to ― ‗least

restrictive means‘ analysis‖ under Central Hudson‘s intermediate scrutiny standard, the

high court made clear that the level of scrutiny applicable to disclosure requirements is

less rigorous: ―we do not think it appropriate to strike down such requirements merely

because other possible means by which the State might achieve its purposes can be

hypothesized‖ or because a disclosure requirement ―is ‗underinclusive‘ — that is, . . . it

does not get at all facets of the problem it is designed to ameliorate.‖ (Zauderer, at

p. 651, fn. 14.) The Ohio disciplinary rule, the court held, ―easily passes muster‖ under

the rational basis standard. (Id. at p. 652.)

29



Zauderer is not directly analogous to the present case because the record before us

does not indicate that the purpose or effect of section 2527 is to prevent deception or

misleading statements. But we find persuasive the distinction the high court drew

―between disclosure requirements and outright prohibitions on speech‖ (Zauderer, supra,

471 U.S. at p. 650), and we agree that the free speech interests implicated by compelled

disclosure of ―purely factual and uncontroversial information‖ are ―substantially weaker

than those at stake when speech is actually suppressed‖ (id. at p. 651 & fn. 14).

Moreover, although Zauderer addressed a disclosure requirement designed to prevent

deception, the plurality opinion in 44 Liquormart subsequently explained that not ―all

commercial speech regulations are subject to a similar form of constitutional review

simply because they target a similar category of expression. . . . [¶] When a State

regulates commercial messages to protect consumers from misleading, deceptive, or

aggressive sales practices, or requires the disclosure of beneficial consumer information,

the purpose of its regulation is consistent with the reasons for according constitutional

protection to commercial speech‖ and thus justifies the application of judicial review less

strict than the standard applicable to suppression of commercial speech. (44 Liquormart,

supra, 517 U.S. at p. 501, second italics added.)

We find the reasoning above to be sound: Laws requiring a commercial speaker to

make purely factual disclosures related to its business affairs, whether to prevent

deception or simply to promote informational transparency, have a ―purpose . . .

consistent with the reasons for according constitutional protection to commercial

speech.‖ (44 Liquormart, supra, 517 U.S. at p. 501.) Because such laws facilitate rather

than impede the ―free flow of commercial information‖ (Virginia Pharmacy Board,

supra, 425 U.S. at p. 765), they do not warrant intermediate scrutiny. Instead, we hold

that rational basis review is the proper standard for evaluating such laws under

California‘s free speech clause.

30



C.

Justice Corrigan says we cite ―no California case applying rational basis review to

a law implicating free speech under our Constitution.‖ (Conc. & dis. opn., post, at p. 2.)

But that simply reflects ―[t]he absence, over many years, of free speech challenges‖ to the

―hundreds of [California] statutory provisions and regulations . . . enacted or adopted in a

great variety of contexts that require individuals or entities to ascertain and disclose

factual information that the individual or entity might otherwise choose not to disclose.‖

(Conc. opn., post, at pp. 3–4.) Apparently there is a first time for everything, including

this novel claim under California‘s free speech clause.

Although the issue is one of first impression for us, our holding today is consistent

with the reasoning of numerous courts that have applied rational basis review to

disclosure requirements that serve to better inform a commercial audience, whether or not

also intended to prevent deception. In National Electrical Manufacturers Assn. v. Sorrell

(2d Cir. 2001) 272 F.3d 104 (National Electrical), the Second Circuit considered a First

Amendment challenge to a Vermont statute requiring manufacturers of mercury-

containing products to label their products and packaging to inform consumers that the

products contain mercury. A manufacturers association argued that the statute

― ‗ ―indisputably require[d] them to speak when they would rather not.‖ ‘ ‖ (Id. at

p. 113.) In rejecting this claim, the Second Circuit explained that ―within the class of

regulations affecting commercial speech, there are ‗material differences between [purely

factual and uncontroversial] disclosure requirements and outright prohibitions on speech.‘

[(Zauderer, supra, 471 U.S. at p. 650.)] . . . [¶] . . . [M]andated disclosure of accurate,

factual, commercial information does not offend the core First Amendment values of

promoting efficient exchange of information or protecting individual liberty interests.

Such disclosure furthers, rather than hinders, the First Amendment goal of the discovery

of truth and contributes to the efficiency of the ‗marketplace of ideas.‘ Protection of the

robust and free flow of accurate information is the principal First Amendment

31



justification for protecting commercial speech, and requiring disclosure of truthful

information promotes that goal.‖ (National Electrical, at pp. 113–114.) ―Additionally,

the individual liberty interests guarded by the First Amendment, which may be impaired

when personal or political speech is mandated by the state, [citation], are not ordinarily

implicated by compelled commercial disclosure, [citation]. Required disclosure of

accurate, factual commercial information presents little risk that the state is forcing

speakers to adopt disagreeable state-sanctioned positions, suppressing dissent,

confounding the speaker‘s attempts to participate in self-governance, or interfering with

an individual‘s right to define and express his or her own personality.‖ (Id. at p. 114.)

Applying rational basis review, the Second Circuit held that the required labeling

of mercury-containing products did not violate the First Amendment. ―Vermont‘s

interest in protecting human health and the environment from mercury poisoning is a

legitimate and significant public goal,‖ the court held. (National Electrical, supra, 272

F.3d at p. 115.) Although the compelled disclosure ―was not intended to prevent

‗consumer confusion or deception‘ per se,‖ it was ―rationally related to the state‘s goal of

reducing mercury contamination‖ because it would increase consumer awareness of the

need to properly dispose of mercury-containing products. (Ibid.) The court distinguished

its prior holding in International Dairy Foods Assn. v. Amestoy (2d Cir. 1996) 92 F.3d 67

(Amestoy), which applied intermediate scrutiny to a Vermont law that required labeling

of products from cows treated with growth hormone. In that case, the National Electrical

court explained, the ―state disclosure requirement [was] supported by no interest other

than the gratification of ‗consumer curiosity.‘ ‖ (National Electrical, at p. 115, fn. 6,

quoting Amestoy, at p. 73; cf. Amestoy, at p. 81 (dis. opn. of Leval, J.) [Zauderer and 44

Liquormart send ―a clear message‖ that ―[t]he benefit the First Amendment confers in the

area of commercial speech is the provision of accurate, non-misleading, relevant

information to consumers. Thus, regulations designed to prevent the flow of such

information are disfavored; regulations designed to provide such information are not.‖].)

32



The Second Circuit reaffirmed its reasoning in National Electrical eight years later

in New York State Restaurant Assn. v. New York City Board of Health (2009) 556 F.3d

114, which rejected a First Amendment challenge to a city regulation requiring

restaurants to post calorie content information on their menus. The court again held that

rational basis review applies to factual disclosure requirements designed to inform

consumers, whether or not also designed to prevent deception. (See id. at pp. 132–133

[neither Zauderer nor subsequent authority limits rational basis review only to

disclosures designed to prevent deception].)

The District of Columbia Circuit similarly applied rational basis review to uphold

the disclosures required by section 13(f) of the Securities and Exchange Act of 1934

against a First Amendment challenge. (See Full Value Advisors, LLC v. S.E.C. (D.C. Cir.

2011) 633 F.3d 1101 (Full Value).) The statute mandates that ―institutional investment

managers such as Full Value file quarterly reports — a ‗Form 13F Report‘ — with the

[Securities and Exchange] Commission, disclosing, among other things, the names,

shares, and fair market value of the securities over which the institutional managers

exercise control.‖ (Id. at p. 1104.) Unless one of two statutory exemptions applies, the

Securities and Exchange Commission must make the Form 13F Report publicly

available. (Id. at pp. 1104–1105.) Managers seeking an exemption ―must submit enough

information on Form 13F for the Commission to make an informed judgment as to the

merits of the request.‖ (Id. at p. 1105.)

The plaintiff argued that ―its inability to control what the Commission does with

investment information divulged in the course of an application for confidential treatment

or an exemption request [was] a form of compelled speech.‖ (Full Value, supra, 633

F.3d at p. 1108.) While acknowledging that ―[t]he freedom of thought protected by the

First Amendment against state action ‗includes both the right to speak freely and the right

to refrain from speaking at all‘ ‖ (ibid., quoting Wooley, supra, 430 U.S. at p. 714), the

court concluded that the required disclosures did not raise serious constitutional concerns:

33



―Here the Commission — not the public — is Full Value‘s only audience. The Act is an

effort to regulate complex securities markets, inspire confidence in those markets, and

protect proprietary information in the process. It is not a veiled attempt to ‗suppress

unpopular ideas or information or manipulate the public debate through coercion rather

than persuasion.‘ [Citation.]‖ (Full Value, at p. 1108.) The court likened the disclosure

to the mandatory ―submi[ssion] of income tax information to the IRS‖ (ibid.) and upheld

the disclosure as ―a rational means of achieving‖ Congress‘s goal (id. at p. 1109, citing

Zauderer, supra, 471 U.S. at p. 651).

The Ninth Circuit took a similar approach in upholding a federal Clean Water Act

regulation that requires municipal separate storm sewer systems (MS4s) ―to ‗distribute

educational materials to the community . . . about the impacts of stormwater discharges

on water bodies and the steps the public can take to reduce pollutants in stormwater

runoff‘ ‖ and ―to ‗[i]nform public employees, businesses, and the general public of

hazards associated with illegal discharges and improper disposal of waste.‘ ‖

(Environmental Defense Center, Inc. v. U.S. E.P.A. (9th Cir. 2003) 344 F.3d 832, 848

(Environmental Defense).) The petitioners argued that the rule violated the First

Amendment because it compels ―small MS4s to communicate messages that they might

not otherwise wish to deliver.‖ (Ibid.)

The Ninth Circuit disagreed: ―We conclude that the purpose of the challenged

provisions is legitimate and consistent with the regulatory goals of the overall scheme of

the Clean Water Act, [citation], and does not offend the First Amendment. The State

may not constitutionally require an individual to disseminate an ideological message,

[citation], but requiring a provider of storm sewers that discharge into national waters to

educate the public about the impacts of stormwater discharge on water bodies and to

inform affected parties, including the public, about the hazards of improper waste

disposal falls short of compelling such speech.‖ (Environmental Defense, supra, 344

F.3d at p. 849, fn. omitted.) Relying on Zauderer, the court contrasted the public

34



education requirement with the compelled speech in Barnette and Wooley, and said that

―[i]nforming the public about safe toxin disposal is non-ideological; it involves no

‗compelled recitation of a message‘ and no ‗affirmation of belief.‘ [Citation.]‖

(Environmental Defense, at pp. 849–850.) The court further observed that the rule did

not ―prohibit the MS4 from stating its own views about the proper means of managing

toxic materials, or even about the [rule] itself. Nor is the MS4 prevented from identifying

its dissemination of public information as required by federal law, or from making

available federally produced informational materials on the subject and identifying them

as such.‖ (Id. at p. 850.)

Another example is Pharmaceutical Care Management Assn. v. Rowe (1st Cir.

2005) 429 F.3d 294 (Rowe), where a national association of pharmacy benefit managers

(PBMs) claimed that Maine‘s Unfair Prescription Drug Practices Act violated the First

Amendment by requiring PBMs to disclose information about various financial

arrangements and conflicts of interest. Maine enacted the law because PBMs, in their

role as intermediaries, ―have the opportunity to engage in activities that may benefit the

drug manufacturers and PBMs financially to the detriment of the health benefit

providers,‖ and a health benefit provider may have ―no idea that a PBM may not be

working in its interest.‖ (Rowe, at p. 298.) The First Circuit determined that the

compelled disclosure ―does indeed implicate the First Amendment‖ and that the

disclosure was ― ‗expression related solely to the economic interests of the speaker and its

audience‘ ‖ and thus qualified as commercial speech. (Id. at p. 309.) Then, applying

Zauderer, the court found the law reasonably related to the state‘s interest not only in

―preventing deception of consumers‖ but also in ―increasing public access to prescription

drugs‖ by ― ‗creat[ing] incentives within the market for the abandonment of certain

practices that are likely to unnecessarily increase cost without providing any

corresponding benefit to the individual whose prescription is being filled and that appear

35



to be designed merely to improve a drug manufacturer‘s market share.‘ ‖ (Rowe, at

p. 310, quoting district court opinion.)

In a concurring opinion, Chief Judge Boudin said, ―What is at stake here . . . is

simply routine disclosure of economically significant information designed to forward

ordinary regulatory purposes — in this case, protecting covered entities from

questionable PBM business practices. There are literally thousands of similar regulations

on the books — such as product labeling laws, environmental spill reporting, accident

reports by common carriers, SEC reporting as to corporate losses and (most obviously)

the requirement to file tax returns to government units who use the information to the

obvious disadvantage of the taxpayer. [¶] The idea that these thousands of routine

regulations require an extensive First Amendment analysis is mistaken.‖ (Rowe, supra,

429 F.3d at p. 316 (conc. opn. of Boudin, C.J.).)

We find the authorities above persuasive. The same reasons that federal appellate

courts have given for applying rational basis review under the First Amendment to laws

like section 2527 apply with equal force to our interpretation of article I‘s free speech

clause. Basic principles of judicial restraint counsel against making the free speech

clause into a warrant for courts to superintend the Legislature‘s economic policy

judgments. Yet that is the risk we would run if we were to make heightened scrutiny

applicable to factual disclosure requirements in the commercial context, for such

requirements are as ubiquitous in the California Codes as they are in federal law. (See,

e.g., Pub. Resources Code, § 21000 et seq. [Cal. Environmental Quality Act requires

disclosures to inform the public about environmental effects of proposed projects]; Pub.

Resources Code, § 14549, subd. (a) [requiring every glass container manufacturer to

report monthly the total tons of new glass food, drink, and beverage containers made in

California]; Health & Saf. Code, § 38530 [authorizing regulations to require greenhouse

gas emission sources to monitor and report greenhouse gas emissions]; Health & Saf.

Code, § 1339.56, subd. (a) [requiring hospitals to annually compile and disclose a list of

36



25 common outpatient procedures and average charges for those procedures]; Health &

Saf. Code, § 1385.03, subd. (a)(1) [requiring health care service plans to disclose rate

information for individual and small group contracts at least 60 days before implementing

any rate change]; Civ. Code, § 1785.10, subd. (b) [requiring consumer reporting agencies,

upon contact by a consumer, to advise the consumer of statutory rights]; Civ. Code,

§ 1812.509, subd. (b) [requiring employment agencies to notify a jobseeker whether a

labor contract exists and whether union membership is required at the establishment to

which the jobseeker is being sent]; Civ. Code, § 1714.43, subd. (a)(1) [requiring every

retail seller and manufacturer doing business in California with worldwide gross receipts

over $100 million to disclose its efforts to eradicate slavery and human trafficking from

its direct supply chain].)

Like section 2527, the statutes above and many others do not require regulated

entities to adopt or support any viewpoint or opinion. They are not designed to inform or

prescribe any specific business or policy outcome, nor are they predicated on any

particularized interest in preventing deception or confusion. They simply require

disclosure of factual information in order to inform private or public decisionmaking in

the economic or political marketplace. We may assume that the regulated entities would

prefer not to make these disclosures, many of which run counter to their business

interests. But the Legislature has determined that the information should be made

available in order to promote informed choice in the free market and in the development

of sound public policy.

Defendants contend that section 2527 aims merely to alter a private contractual

relationship and thus differs from disclosure laws having clear public welfare, safety, or

consumer protection objectives. But there is no question that laws requiring nutrition

labeling, energy labeling, or calorie disclosures, among others, also aim to alter private

contractual relationships by making available what legislatures believe to be salient

information for market participants to consider. At the same time, it is inaccurate to say

37



that the only objective of section 2527 is to alter a private contractual relationship. As

the court in ARP Pharmacy observed: ―The legislative history suggests that the

governmental purpose in enacting section 2527 was to urge third party payors, by the use

of statistical information, to compensate pharmacists at a fairer rate for providing

pharmaceutical services to their insureds. While increased payment would benefit

pharmacists, it also would potentially benefit insured consumers. The theory was that if

insurers paid the pharmacies dispensing fees closer to the amount paid by uninsured

consumers, pharmacies would be more likely to continue to contract with insurers, and

insured consumers would be able to have their prescriptions filled at the pharmacies of

their choice.‖ (ARP Pharmacy, supra, 138 Cal.App.4th at p. 1320.) Like myriad laws

requiring informational disclosures in private transactions, section 2527 is easily

described as having a public purpose. And the public purpose is not qualitatively

different from the ―public health‖ purpose of other disclosure laws that do not trigger

heightened scrutiny. (Conc. & dis. opn., post, at pp. 10, 14.)

Justice Corrigan contends that ―[w]hether one large, sophisticated corporate entity

provides such information to a similarly sophisticated entity within the context of a

private agreement should be a matter left to negotiation between them, just like any other

provision of a contract between corporations. . . . Simply put, the government has taken

sides, resorting to compelled speech to promote its vision of what this private contract

should look like.‖ (Conc. & dis. opn., post, at p. 12.) Justice Corrigan says this is

―paternalism writ large‖ (id. at p. 15), even as she urges this court to erect a constitutional

shield to protect sophisticated business entities from a state-mandated report that they are

entirely free to ignore.

The reality is that section 2527 is not ―a unique and unprecedented statute‖ that ―is

nothing like any other disclosure statute.‖ (Conc. & dis. opn., post, at p. 14.) Disclosure

requirements are commonplace even for commercial transactions between sophisticated

business entities, and all such laws reflect legislative judgments as to what information

38



should be available for market participants to consider when negotiating or agreeing to a

contract, even when one party ―could easily contract to secure that information‖ from the

other party. (Ibid.; see, e.g., Pub. Resources Code, § 25402.10, subd. (d)(1) [requiring

owners and operators of nonresidential buildings to disclose data on energy consumption

―to a prospective buyer, lessee of the entire building, or lender that would finance the

entire building‖]; Health & Saf. Code, § 25359.7, subd. (a) [requiring owners of

nonresidential real property to give written notice to buyers, lessors, or renters regarding

the presence of hazardous substances]; Civ. Code, § 1101.5, subd. (e) [requiring sellers of

commercial real property, starting in 2019, to disclose in writing to prospective

purchasers the statutory requirement to replace noncompliant plumbing fixtures with

water-conserving fixtures and ―whether the property includes any noncompliant

plumbing fixtures‖]; Civ. Code, § 1938 [requiring commercial property owners and

lessors to state on every lease form or rental agreement whether the property meets

applicable standards for making new construction and existing facilities accessible to

persons with disabilities].) If such laws are held to trigger heightened scrutiny because of

their ―paternalism‖ toward private actors despite the legitimate public interests they are

intended to serve, then our courts will be very busy indeed.

To hold that section 2527 and countless similar laws must be subject to heightened

scrutiny, including least restrictive means analysis (Central Hudson, supra, 447 U.S. at

pp. 564–565), would open the door to intrusive and persistent judicial second-guessing of

legislative choices in the economic sphere. ―Such a result is neither wise nor

constitutionally required.‖ (National Electrical, supra, 272 F.3d at p. 116.) History casts

doubt on the notion that courts applying heightened scrutiny can sort out which

disclosure requirements are sufficiently well justified and which are not — or which

requirements ―tip the scale‖ and which merely ―level the playing field‖ between market

actors (conc. & dis. opn., post, at pp. 11, 12) — without serious risk of constitutionalizing

the economic theories or policy views of individual judges. (See Lochner v. New York

39



(1905) 198 U.S. 45, 75–76 (dis. opn. of Holmes, J.).) Just as we have long repudiated

judicial second-guessing of legislative judgments concerning economic means and ends

under principles of due process of law (see 20th Century Ins. Co. v. Garamendi (1994) 8

Cal.4th 216, 278), we see no basis to resurrect such an approach and improperly

aggrandize the power of courts at the expense of the Legislature under state constitutional

principles of free speech.

Our holding today does not ―all but eviscerate the commercial speech protections

of article I.‖ (Conc. & dis. opn., post, at p. 14.) Laws that restrict commercial speech

remain subject to heightened scrutiny, as do laws that compel a commercial speaker to

adopt, endorse, or subsidize a message or viewpoint with which it disagrees. (See

Gerawan II, supra, 33 Cal.4th at p. 10.) Further, there is nothing ― ‗incongruous‘ ‖

(conc. & dis. opn., post, at p. 5) about holding that section 2527 implicates the right to

free speech under article I while also holding that section 2527 is subject to deferential

judicial review. This approach parallels the settled understanding of due process and

equal protection principles as applied to economic regulations. To say that the

Legislature has broad discretion to enact economic regulations is not to say that the

Legislature may, willy-nilly, impose burdens on private persons or entities. The exercise

of legislative power must not be arbitrary, irrational, or motivated by a bare desire to

harm a particular class; the Legislature must always act within constitutional bounds.

However, the boundaries with respect to the Legislature‘s prerogative to require factual

disclosures in the commercial setting are necessarily broad. Were it otherwise, the

constitutional claims of litigants seeking to avoid duly enacted reporting or disclosure

obligations would routinely invite judges to substitute their policy judgments for those of

the people‘s representatives.

D.

Under rational basis review, a statute ―comes to us bearing a strong presumption

of validity.‖ (FCC v. Beach Communications, Inc. (1993) 508 U.S. 307, 314.) ―So long

40



as the challenged [regulation] ‗bear[s] some rational relationship to a conceivable

legitimate state purpose‘ [citations], it will pass muster; once we identify ‗ ― ‗plausible

reasons‘ for [the regulation] ‗our inquiry is at an end‘ ‖ ‘ [citation].‖ (California Grocers

Assn. v. City of Los Angeles (2011) 52 Cal.4th 177, 209.)

Defendants do not contend that section 2527 is invalid under rational basis review,

and for good reason. The Legislature enacted section 2527 to make certain information

on pharmacy fees available to participants in private negotiations over prescription drug

reimbursement rates and for potential use in legislative or regulatory forums. The

biennial transmittal of study reports on pharmacy fees from prescription drug claims

processors to their clients is reasonably related to the legitimate purpose of promoting

informed decisionmaking about prescription drug reimbursement rates. Like calorie

content information on restaurant menus, nutritional labels on packaged foods, energy

labels on home appliances, information about stormwater discharge impacts, and many

other required disclosures, the study reports required by section 2527 contribute to the

free flow of information in the economic and political marketplace. Accordingly, section

2527 passes rational basis review.

41



CONCLUSION

For the reasons above, we answer the Ninth Circuit‘s question as follows: Section

2527 is subject to rational basis review under California‘s free speech guarantee (Cal.

Const., art. I, § 2, subd. (a)) and satisfies that standard because it is reasonably related to

a legitimate policy objective. We disapprove ARP Pharmacy Services, Inc. v. Gallagher

Bassett Services, Inc., supra, 138 Cal.App.4th 1307, to the extent it applied strict scrutiny

to hold that section 2527 violates the free speech rights of prescription drug claims

processors under the California Constitution.

LIU, J.


WE CONCUR: KENNARD, J.


BAXTER, J.

WERDEGAR, J.

42













CONCURRING OPINION BY CANTIL-SAKAUYE, C. J.




I concur fully in the majority opinion‘s conclusion that Civil Code section

2527 (section 2527) does not violate the state constitutional right of free speech

embodied in article I, section 2 of the California Constitution (article I, section 2).

Unlike the majority, however, I would base that determination on the ground that

the provisions of section 2527 do not even implicate the protections afforded by the

state constitutional free speech clause.

In finding that section 2527 implicates the state free speech clause, the

majority relies heavily on a passage from this court‘s opinion in Gerawan Farming,

Inc. v. Lyons (2000) 24 Cal.4th 468, 491 (Gerawan I) that indicates that a statute

that requires the disclosure of factual information an individual or entity would

otherwise not choose to disclose implicates the right to freedom of speech protected

by article I, section 2. In my view, however, the relied-upon language in Gerawan

I — which was not necessary to the holding in that case — is overbroad and

misleading insofar as it suggests that the state constitutional right of free speech

encompasses not only a right to speak but also a parallel and coextensive right not

to speak. I would take this opportunity to clarify and narrow the language in

question. As explained, I believe it is more faithful to both the language and

historic understanding of the California free speech clause to hold that section 2527

and similar statutory provisions requiring the disclosure of factual information do

1



not implicate (or, in other words, do not fall within the reach of) the state

constitutional free speech clause.

As the majority opinion recognizes, article I, section 2 provides in relevant

part: ―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.‖ (Art. I, § 2, subd. (a).) By its terms, article I,

section 2 declares the right protected by this constitutional provision is the right to

―freely speak, write and publish his or her sentiments on all subjects.‖ On its face,

the provision does not purport to afford a constitutional right to refuse to disclose

information.

I acknowledge that there are unquestionably circumstances in which a

statute that compels speech will implicate the protections of article I, section 2 —

for example, when a statute requires an individual to pledge allegiance to or

express belief in a political, ideological, or philosophical position with which he or

she disagrees, or when the compelled disclosure is so intertwined with protected

speech that it is likely to chill such protected speech. In my view, however, it is not

accurate to state that, as a general matter, article I, section 2 was intended, or

should be interpreted, to afford a broad constitutional right to withhold information.

There are other state constitutional provisions that are ordinarily associated with a

right of nondisclosure — the privilege against self-incrimination and the right of

privacy, for example — but it strains credulity to suggest that an individual who

refuses to provide factual information when questioned at trial or at a legislative

hearing or who declines to provide information required on a tax return or in order

to obtain a permit is, by such refusal, exercising his or her right of free speech. As

the earliest California cases applying the state constitutional free speech clause

make clear, ―[t]he purpose of this provision of the constitution was the abolishment

of censorship‖ (Daily v. Superior Court (1896) 112 Cal. 94, 97; see also In re

2



Shortridge (1893) 99 Cal. 526, 533-535), not to establish a fundamental

constitutional right to decline to provide information.

As noted, the source of the majority‘s contrary conclusion lies in a passage

contained in Gerawan I, supra, 24 Cal.4th 468, that states: ―Article I‘s right to

freedom of speech, like the First Amendment‘s, is implicated in speaking itself.

Because speech results from what a speaker chooses to say and what he chooses

not to say, the right in question comprises both a right to speak freely and also a

right to refrain from doing so at all, and is therefore put at risk both by prohibiting

a speaker from saying what he otherwise would say and also by compelling him to

say what he otherwise would not say.‖ (Id. at p. 491, italics added.) In my view,

the emphasized language is overbroad and misleading insofar as it suggests that, as

a general matter, the state constitutional right of free speech encompasses not only

a right to speak but a parallel and coextensive right not to speak.

In the past, article I, section 2 has been interpreted expansively to protect the

right to speak freely (see, e.g., Robins v. Pruneyard Shopping Center (1979) 23

Cal.3d 899, 908-911; Daily v. Superior Court, supra, 112 Cal. at pp. 97-99), but the

state free speech clause has not historically been understood or interpreted as

affording a parallel broad constitutional right ―not to speak‖ when an individual or

entity is required by a statute or regulation to disclose factual information.

Throughout California‘s history, hundreds of statutory provisions and regulations

have been enacted or adopted in a great variety of contexts that require individuals

or entities to ascertain and disclose factual information that the individual or entity

might otherwise choose not to disclose. For example, disclosure of a significant

amount of information is required whenever an individual or entity seeks to obtain

a permit or license (see, e.g., Bus. & Prof. Code, § 10151), attain admission to a

public university (see, e.g., Code Cal. Reg., tit. 5, § 40753), or qualify for a tax

3



exemption or other public benefit (see, e.g., Rev. & Tax. Code, § 17131 et seq.); a

refusal to disclose such required information has never been viewed as the exercise

of the right of free speech. Similarly, statutes and regulations routinely require

disclosure of, for example, the ingredients and nutritional value of packaged food

(see, e.g., Health & Saf. Code, § 110100), the total interest and fees applicable to a

credit card or loan (Civ. Code §§ 1748.10-1748.14, 1748.20-1748.23, 1917.712;

Bus. & Prof. Code, § 10240 et seq.), the presence of potentially carcinogenic

chemicals on business premises (Health & Saf. Code, § 25249.6 et seq. [Prop. 65]),

the condition of real property upon sale of the property (Civ. Code, § 1102 et seq.),

any breach of security experienced by a business maintaining computerized

personal information data (Civ. Code, §§ 1798.29, 1798.82), or the nature and

investment risk of any insurance product or annuity (Ins. Code, § 762). (See also,

maj. opn., ante, at p. 36 [listing additional California disclosure statutes].)

Although such widespread statutory and regulatory disclosure requirements have

sometimes been challenged on other constitutional grounds — for example, as

violating the right of privacy, due process, or equal protection (see, e.g., Hays v.

Wood (1979) 25 Cal.3d 772, 783, 786-795; Fendrich v. Van de Kamp (1986) 182

Cal.App.3d 246, 258-264; Gerling Global Reinsurance Corp. v. Low (9th Cir.

2002) 296 F.3d 832, 844-848, 851) — such requirements have not been viewed as

implicating the state constitutional right of free speech and historically have not

been challenged on that ground. The absence, over many years, of free speech

challenges to the numerous California disclosure statutes and regulations speaks

volumes regarding the well understood meaning of the state constitutional free

speech guarantee.

This is not to say that there are no instances in which a statute that compels

speech will implicate the interests that the state free speech clause is intended to

protect and will therefore properly be analyzed under the principles generally

4



applicable to other free speech claims. For example, a statute that requires an

individual to express belief in an ideological or philosophical precept with which

the individual disagrees (cf., e.g., Board of Education v. Barnette (1943) 319 U.S.

624, 631-642 [compulsory flag salute and pledge of allegiance]), or that requires a

commercial entity to financially subsidize a promotional advertisement that the

entity does not endorse and that is drafted by the entity‘s competitors (Gerawan I,

supra, 24 Cal.4th at pp. 510-511 [required subsidizing of generic plum marketing

campaign]), are properly found to implicate the interests protected by the free

speech clause. Similarly, a statute that requires the disclosure of information under

circumstances that realistically pose a chilling effect on the exercise of

constitutionally protected speech is also properly subject to evaluation under

constitutional free speech principles. (Cf., e.g., N.A.A.C.P. v. Alabama (1958) 357

U.S. 449, 460-463 [disclosure of membership list of controversial political

organization].)

But I believe it is not accurate to maintain, as the language in Gerawan I

suggests, that every statute that requires an individual or entity to disclose factual

information that the individual or entity would not otherwise disclose falls within

the bounds of the state free speech clause. Instead, because the overwhelming

majority of statutes or regulations that require an individual or entity to ascertain

and disclose factual information do not threaten or otherwise put at risk the

protection that the state free speech clause was intended to provide, I believe that a

statute that simply requires the ascertainment and disclosure of factual information

should be viewed, presumptively, as not implicating the state constitutional free

speech clause. Only when there are special circumstances indicating that the

required disclosure potentially threatens an interest that the free speech clause was

intended to protect should the statute be scrutinized under the free speech guarantee

embodied in article I, section 2.

5



If a statute such as section 2527 is viewed as falling within the reach of the

state free speech clause, I would agree with the majority‘s conclusion that the

validity of the statute would properly be evaluated under the deferential rational

basis standard. In my view, however, it is not only more faithful to the language

and history of article I, section 2, but also more analytically coherent to conclude

that the state free speech clause is not implicated when a statute requiring

disclosure of factual information does not threaten any of the interests that the free

speech clause was intended to protect, rather than to conclude, as the majority does,

that such a statute implicates the free speech clause but is nonetheless subject to no

greater scrutiny than if the statute did not implicate the right of free speech.

CANTIL-SAKAUYE, C. J.

6












CONCURRING AND DISSENTING OPINION BY CORRIGAN, J.




I agree with the majority that Civil Code section 2527 (hereafter section 2527, the

statute, or the provision) implicates the right of free speech under article I, section 2,

subdivision (a) of our state Constitution (article I), which provides: ―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.‖ As

we explained in Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468 (Gerawan I),

―the right in question comprises both a right to speak freely and also a right to refrain

from doing so at all, and is therefore put at risk both by prohibiting a speaker from saying

what he otherwise would say and also by compelling him to say what he otherwise would

not say.‖ (Id. at p. 491.) In light of the history and broad language of article I, ―[t]he

reference to ‗all subjects‘ obviously included commercial speech . . . .‖ (Gerawan

Farming, Inc. v. Kawamura (2004) 33 Cal.4th 1, 15 (Gerawan II).) Even in the First

Amendment context, the United States Supreme Court has held ―that the creation and

dissemination of information are speech‖ within the meaning of that provision. (Sorrell

v. IMS Health Inc. (2011) __ U.S. __ [131 S.Ct. 2653, 2667].) Under our precedent,

forcing someone to speak implicates the free speech right under article I, even in a

commercial context. By compelling preparation and dissemination of a report about

pricing, the statute implicates the state constitutional right not to speak under compulsion.

1



My disagreement with the majority concerns the appropriate standard of

review, which is more than simply a dry legal formalism. When the government

seeks to prohibit or compel speech, the standard of review is an important

safeguard. It requires the government to justify, to varying degrees of rigor, why

it should be permitted to do so. In my view, the majority sets the bar for this

safeguard too low. There are, broadly, three potential standards: strict scrutiny,

intermediate scrutiny, and, least protective, a rational basis justification.

Although recognizing that our state free speech right is implicated, the

majority selects a rational basis standard of review. But that standard is generally

applicable when a statute does not implicate free speech. The majority reasons:

―Laws requiring a commercial speaker to make purely factual disclosures related

to its business affairs, whether to prevent deception or simply to promote

informational transparency, have a ‗purpose . . . consistent with the reasons for

according constitutional protection to commercial speech.‘ [Citation.] Because

such laws facilitate rather than impede the ‗free flow of commercial information‘

[citation], they do not warrant intermediate scrutiny.‖ (Maj. opn., ante, at p. 30,

italics added.) This reasoning is flawed. It is also inconsistent with the history of

article I and our cases construing that provision.

At the outset, it is important to be clear as to our task. We are interpreting a

provision of the California Constitution that has governed free speech in this state

since its inception. We are not bound, in this regard, by United States Supreme

Court or lower federal court rulings that interpret the federal constitutional

provision. In deciding this case, we are adopting as a matter of California law and

policy, the restrictions to be placed on the government when it seeks to control

how its citizens speak or remain silent during the conduct of their own affairs.

2



Initially, the majority cites no California case applying rational basis

review to a law implicating free speech under our Constitution. It relies instead on

various federal authorities. However, in determining the proper standard of

review, we must first examine our Gerawan cases, which addressed both the

protections afforded commercial speech and the relevant standard of review.

There, we considered the constitutionality of a government marketing program

that required plum growers to fund generic advertising for plums. We

acknowledged in Gerawan I that the United States Supreme Court in Glickman v.

Wileman Brothers & Elliott, Inc. (1997) 521 U.S. 457, had held that a similar

program did not implicate the First Amendment‘s free speech clause. However,

we declined to follow Glickman‘s reasoning in construing our own state‘s

protection of free speech. We initially observed that article I‘s free speech clause

did not derive from the First Amendment and is generally broader than that

provision. (Gerawan I, supra, 24 Cal.4th at pp. 489-493; Los Angeles Alliance for

Survival v. City of Los Angeles (2000) 22 Cal.4th 352, 366, fn. 9.)

Gerawan I explained that the state free speech provision, from its inception,

protected commercial speech, many decades before the United States Supreme

Court recognized any commercial speech right in the First Amendment. This was

due both to the breadth of its language, providing a right to speak freely ―on all

subjects,‖ and the history of its origins. (Art. I.) Gerawan I observed that, at the

time of the founding of our state, both American legislatures and courts had a

history of keeping commercial speech free of regulation, except in cases of

unlawful activity or to curb fraud or misleading statements. (Gerawan I, supra, 24

Cal.4th at p. 494.) Gerawan I described this period in our history: ―In California

itself in 1849, the prevailing political, legal, and social culture was that of

Jacksonian democracy. [Citations.] Jacksonian democracy was animated by

‗ideals of equality and open opportunity.‘ [Citation.] Those ideals worked

3



themselves out in a ‗liberal, market-oriented, economic individualism.‘ [Citation.]

What such individualism presupposed, and produced, was wide and unrestrained

speech about economic matters generally, including, obviously, commercial

affairs.‖ (Id. at p. 495.)

Protection of economic speech is not absolute. ―[A]rticle I‘s right to

freedom of speech allows compelling one who engages in commercial speech to

say through advertising what he otherwise would not say, even about a lawful

product or service, in order to render his message truthful and not misleading.‖

(Gerawan I, supra, 24 Cal.4th at p. 509.) However, Gerawan I concluded that the

marketing program at issue compelled funding of ―generic advertising that is

intended not to prevent or correct any otherwise false or misleading message in the

interest of consumer protection, but solely to develop markets and promote sales

in the interest of producer welfare.‖ (Id. at p. 510.) We remanded the matter to

the Court of Appeal, leaving undetermined the proper standard of review. (Id. at

p. 517.)

We addressed that issue in Gerawan II and concluded the proper standard

was ―the intermediate scrutiny standard articulated by the United States Supreme

Court in Central Hudson Gas & Elec. v. Public Serv. Comm’n (1980) 447 U.S.

557.‖ (Gerawan II, supra, 33 Cal.4th at p. 6.) We observed that ―[i]n light of our

recognition in Gerawan I that the generic advertising program does in fact

implicate the free speech clause, . . . we believe it would be incongruous to subject

the program to only minimal scrutiny.‖ (Id. at p. 21.) Finding persuasive Justice

Souter‘s dissenting opinion in Glickman, we stated ―the conclusion of the

Glickman majority that the compelled funding of generic advertising requires only

minimal scrutiny is at variance with the general rule that intrusion into free speech

rights requires substantial justification, even when the intrusion is incidental to the

enforcement of a content-neutral law. [Citation.] The requirement of substantial

4



justification is further supported by the fact that the right to free speech under the

California Constitution is in some respects ‗ ―broader‖ and ―greater‖ ‘ than under

the First Amendment. [Citation to Gerawan I].‖ (Ibid.) ―Because generic

advertising was not self-evidently incidental to the functioning of some important,

legislatively established institution, such as a union shop or an integrated state bar

as in Abood [v. Detroit Board of Education (1977) 431 U.S. 209] and Keller [v.

State Bar of California (1990) 496 U.S. 1], Justice Souter argued for treating

compelled funding of such advertising the same as any other regulation

implicating the right of commercial speech, subjecting it to the test articulated in

Central Hudson . . . . That standard asks (1) ‗whether the expression is protected

by the First Amendment,‘ which means that the expression ‗at least must concern

lawful activity and not be misleading‘; (2) ‗whether the asserted governmental

interest is substantial‘; if yes to both, then (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.‘ ‖ (Id. at p. 22.) Gerawan II also

noted that ―the right Gerawan seeks to exercise has nothing to do with untruthful

or misleading speech on its part.‖ (Ibid.)

The majority‘s application of the rational basis standard is inconsistent with

the language and history of article I‘s free speech provision. The language of our

constitutional provision is broader than the First Amendment, and it originated

during a period in our history when legislatures and courts alike did not interfere

with commercial speech, save to correct fraud or misleading statements. As

Gerawan I observed, our Constitution has a history of protecting commercial

speech that long predated its federal counterpart. We observed in Gerawan II that

if we find a statute implicates the right of free commercial speech, in light of the

broad language of our constitutional provision and its strong history of protecting

5



commercial speech, it would be ―incongruous‖ to apply ―only minimal scrutiny.‖

(Gerawan II, supra, 33 Cal.4th at p. 21.)

The reasoning of the Gerawan cases cannot simply be distinguished away

on their facts. Although the present case involves the compulsion to speak rather

than the compulsion to fund speech, Gerawan I made no distinction between the

two. (See Gerawan I, supra, 24 Cal.4th at p. 491.) Indeed, the funding of speech

was objectionable there because it implicated the right not to speak. (Id. at p. 514

[―One does not speak freely when one is restrained from speaking. But neither

does one speak freely when one is compelled to speak.‖].) That is precisely the

right implicated here, as the majority acknowledges. (See maj. opn., ante, at

pp. 9-16.)

Because free speech is implicated, Gerawan II teaches that the applicable

standard is intermediate scrutiny. In formulating the proper test for intermediate

scrutiny under our constitution, Gerawan II concluded the test of Central Hudson

Gas & Elec. v. Public Serv. Comm’n (1980) 447 U.S. 557 (Central Hudson),

―appropriately protects the free speech rights article I was designed to safeguard‖

in the commercial speech context, which ―neither warrants application of the

strictest scrutiny reserved for such matters as the censorship or compelled

utterance of noncommercial speech [citations], nor can it pass muster simply

because it is rationally based.‖ (Gerawan II, supra, 33 Cal.4th at p. 22.) Thus,

rather than create a new formulation, we adopted the test articulated in Central

Hudson because it was a workable standard that adequately protected the right of

free commercial speech under article I‘s free speech provision.

The Gerawan cases noted some narrow exceptions to this rule, but none

apply here. As the majority acknowledges (see maj. opn., ante, at p. 30), section

2527 does not compel speech for the purpose of correcting false or misleading

statements. (See Gerawan II, supra, 33 Cal.4th at p. 22.) Gerawan I observed, if

6



―the commercial speaker‘s message is already truthful and nonmisleading,

however, compulsion of speech is not supported by the consumer protection

rationale, but must be supported, if at all, by some rationale applicable to all

speech, noncommercial as well as commercial.‖ (Gerawan I, supra, 24 Cal.4th at

p. 498.)

No such general rationale exists here. Section 2527 is ―not self-evidently

incidental to the functioning of some important, legislatively established

institution, such as a union shop or an integrated state bar . . . .‖ (Gerawan II,

supra, 33 Cal.4th at p. 22.) In the First Amendment context, the United States

Supreme Court in United States v. United Foods, Inc. (2001) 533 U.S. 405 (United

Foods), distinguished its decision in Glickman. United Foods noted the marketing

program in Glickman was part of a greater statutory scheme that ―used marketing

orders that to a large extent deprived producers of their ability to compete and

replaced competition with a regime of cooperation. The mandated cooperation

was judged by Congress to be necessary to maintain a stable market. Given that

producers were bound together in the common venture, the imposition upon their

First Amendment rights caused by using compelled contributions for germane

advertising was, as in Abood and Keller, in furtherance of an otherwise legitimate

program.‖ (United Foods, at pp. 414-415.) By contrast, United Foods concluded

the assessment there was not part of a ― ‗broader regulatory system‘ ‖ and ―[w]e

have not upheld compelled subsidies for speech in the context of a program where

the principal object is speech itself.‖ (Id. at p. 415.)

There is no question here that section 2527 is not part of a greater

regulatory scheme. It is a stand-alone statute enacted, as the majority

acknowledges, only because the Legislature could not pass a bill directly

regulating pharmacy reimbursement rates. (See maj. opn., ante, at pp. 5-7.) Thus,

the provision‘s only purpose is directed at speech, to compel speech in the

7



particular context of a contractual relationship between prescription drug claims

processors and third party payers.

The majority suggests another exception to the application of intermediate

scrutiny with respect to a statute compelling speech: The promotion of

―informational transparency.‖ (Maj. opn., ante, at p. 30.) But no such exception

exists. Even assuming the federal cases cited by the majority are relevant here,

they do not support this exception. The majority quotes 44 Liquormart, Inc. v.

Rhode Island (1996) 517 U.S. 484, which stated: ―When a State regulates

commercial messages to protect consumers from misleading, deceptive, or

aggressive sales practices, or requires the disclosure of beneficial consumer

information, the purpose of its regulation is consistent with the reasons for

according constitutional protection to commercial speech and therefore justifies

less than strict review.‖ (Id. at p. 501, italics added; see maj. opn., ante, at p. 30.)

The majority reads too much into the italicized language. 44 Liquormart had

nothing to do with any type of disclosure, involving instead a complete ban on

price advertising of alcohol. The plurality cited other recognized exceptions to the

application of intermediate scrutiny, including regulation designed to curb

―misleading, deceptive, or aggressive sales practices.‖ (44 Liquormart, at p. 501.)

Thus, its reference to the ―disclosure of beneficial consumer information‖ (ibid.)

must also have been a reference to an established exception to the ordinary

intermediate scrutiny standard, namely, consumer protection. However, that

established exception is not as broad as this statement would suggest.

The examples cited by the majority bear this out. The five lower federal

court cases discussed by the majority (see maj. opn., ante, at pp. 31-36) purported

to apply Zauderer v. Office of Disciplinary Counsel (1985) 471 U.S. 626

(Zauderer). That case involved an attorney disciplinary rule requiring that ―any

advertisement that mentions contingent-fee rates must ‗disclos[e] whether

8



percentages are computed before or after deduction of court costs and

expenses,‘ . . .‖ (Id. at p. 633.) In applying rational basis review rather than

intermediate scrutiny, Zauderer reasoned: ―The State has attempted only to

prescribe what shall be orthodox in commercial advertising, and its prescription

has taken the form of a requirement that appellant include in his advertising purely

factual and uncontroversial information about the terms under which his services

will be available. Because the extension of First Amendment protection to

commercial speech is justified principally by the value to consumers of the

information such speech provides, [citation] appellant‘s constitutionally protected

interest in not providing any particular factual information in his advertising is

minimal. Thus, in virtually all our commercial speech decisions to date, we have

emphasized that because disclosure requirements trench much more narrowly on

an advertiser‘s interests than do flat prohibitions on speech, ‗warning[s] or

disclaimer[s] might be appropriately required . . . in order to dissipate the

possibility of consumer confusion or deception.‘ [Citations.]‖ (Id. at p. 651,

italics added, original italics removed.)

Under Zauderer, the principal rationales for applying a lower standard of

review for compelled commercial speech are that speakers had no compelling

right to refrain from disclosing accurate information about their goods or services,

and such disclosures aided consumers by forestalling misleading or fraudulent

statements. Indeed, Zauderer held ―that an advertiser‘s rights are adequately

protected as long as disclosure requirements are reasonably related to the State‘s

interest in preventing deception of consumers.‖ (Zauderer, supra, 471 U.S. at

p. 651, italics added.) Thus, Zauderer did not contemplate that all disclosures of

factual information should be subject to the lowest standard of review, but only

those principally designed to protect consumers.

9



Contrary to the majority‘s reasoning, section 2527 is not a disclosure statute

warranting application of the Zauderer rationale. As described by the dissenting

opinion in the Ninth Circuit‘s panel decision, the provision is ―an unusual law

without clear analogies in existing precedent. . . . Essentially, it requires Business

A to speak about Business B to Business C. Unlike a disclosure law, it does not

require that regulated entities divulge information about themselves to the public,

but rather that they privately produce information about third parties to their

clients. [Citation.] Moreover, § 2527 is a stand-alone law that does nothing more

than mandate speech. It is not ancillary to any comprehensive economic

regulatory scheme. [Citation.]‖ (Beeman v. Anthem Prescription Management

(9th Cir. 2011) 652 F.3d 1085, 1108 (dis. opn. of Wardlaw, J.), opn. vacated (9th

Cir. 2011) 661 F.3d 1199.)

Nothing in the language or spirit of Zauderer justifies deviating from

intermediate scrutiny as required by Gerawan II. Section 2527 does not require a

disclosure intended to prevent misleading or fraudulent speech.1 Nor does it


1

See Zauderer, supra, 471 U.S. at page 651; see also Milavetz, Gallop & Milavetz,

P. A. v. United States (2010) 559 U.S. 229, 250 (―The challenged provisions of § 528
share the essential features of the rule at issue in Zauderer. As in that case, § 528‘s
required disclosures are intended to combat the problem of inherently misleading
commercial advertisements . . . .‖); United Foods, supra, 533 U.S. at page 416 (―There is
no suggestion in the case now before us that the mandatory assessments imposed to
require one group of private persons to pay for speech by others are somehow necessary
to make voluntary advertisements nonmisleading for consumers.‖); Ibanez v. Florida
Dept. of Business and Professional Regulation, Bd. of Accountancy
(1994) 512 U.S. 136,
146 (declining to apply Zauderer standard to a ban on attorneys using specialist
designations: ―We express no opinion whether, in other situations or on a different
record, the Board‘s insistence on a disclaimer might serve as an appropriately tailored
check against deception or confusion, rather than one imposing ‗unduly burdensome
disclosure requirements [that] offend the First Amendment.‘ ‖).

10



require a disclosure aimed at consumer protection or public health.2 Further

distinguishing it from a traditional consumer disclosure statute, the provision does

not require information about the entity compelled to speak or about the

underlying transaction at issue. The statute compels prescription drug claims

processors to compile data concerning prices charged by unrelated third parties, in

transactions involving uninsured patients at retail. These transactions have

nothing to do with insurance claims or reimbursements. Indeed, the sole purpose

of requiring the transmittal of this data is to ―persuade insurers to increase their

reimbursement rates to pharmacies to more closely match the private-pay fees.‖

(ARP Pharmacy Services, Inc. v. Gallagher Bassett Services, Inc. (2006) 138

Cal.App.4th 1307, 1320 (ARP Pharmacy Services).)

The majority‘s attempt to analogize section 2527 to various consumer

disclosure statutes is not sustainable. At their core, ordinary disclosure laws are

intended to level the playing field between economic actors of uneven strength.

These disclosure laws usually require businesses to provide pertinent information

to consumers, information about the businesses or their products that are readily

and easily ascertained by the businesses themselves but would be prohibitively

difficult for consumers to obtain on their own. These disclosures give consumers

information that illuminate and clarify the nature of the transactions they face, i.e.,



2

See Gerawan I, supra, 24 Cal.4th at page 498; see also New York State Restaurant

v. New York City Bd. (2d Cir. 2009) 556 F.3d 114, 134 (restaurant calorie disclosure
regulation enacted to ―(1) reduce consumer confusion and deception; and (2) to promote
informed consumer decision-making so as to reduce obesity and the diseases associated
with it‖); Environmental Defense Center, Inc. v. U.S. E.P.A. (9th Cir. 2003) 344 F.3d
832, 850 (―[i]nforming the public about safe toxin disposal is non-ideological‖); National
Elec. Mfrs. Ass’n v. Sorrell
(2d Cir. 2001) 272 F.3d 104, 115 (―Vermont‘s interest in
protecting human health and the environment from mercury poisoning is a legitimate and
significant public goal.‖).

11



they attempt to tell consumers what they are getting themselves into before they

do so. Armed with this type of information, consumers are placed in a position

closer to equal footing with those businesses.

Rather than leveling the scale, section 2527 serves to tip the scale in one

direction. The statute is not intended to make two unequal actors more equal, but

rather is intended to affect the outcome of negotiations between two equal actors.

There is no doubt that the parties affected by the provision, prescription drug

claims processors and payers, are sophisticated business entities. If insurance

companies deemed information regarding retail drug pricing relevant to their

business, they could easily contract to secure that information from prescription

drug claims processors. Whether one large, sophisticated corporate entity

provides such information to a similarly sophisticated entity within the context of

a private agreement should be a matter left to negotiation between them, just like

any other provision of a contract between corporations. Section 2527 requires one

party to the contract to engage in speech for the sole purpose of potentially

modifying a term of a privately negotiated contract. This imposition serves no

leveling function and has absolutely nothing to do with protecting consumers or

providing the public with relevant information. It is an attempt by the government

to put its thumb on the scale, with the goal of achieving indirectly what it could

not accomplish directly. Simply put, the government has taken sides, resorting to

compelled speech to promote its vision of what this private contract should look

like. Such a purpose hardly warrants deviating from the historical protection of

commercial speech as embodied in article I and articulated in our Gerawan

decisions.

The majority seeks to bolster its position by asserting that section 2527 has

a ―public purpose,‖ noting that increased reimbursement rates might increase

pharmacy participation, thus providing consumers more choice. (Maj. opn., ante,

12



at p. 38; ARP Pharmacy Services, supra, 138 Cal.App.4th at p. 1320.) One would

hope that when the Legislature passes any law it does so with appropriate public

regard. Simply because a provision has some kind of perceived public interest

does not transform it into a consumer or public protection statute justifying a

lower standard of review under Zauderer. The Legislature may determine that

having higher reimbursement rates would ultimately benefit the public. The

Legislature may pass any number of laws to this end, including directly regulating

reimbursement rates. But the Legislature‘s preference, by itself, does not justify

intrusion into protected speech rights. For example, the government‘s stance

against prostitution, while supporting the passage of criminal laws prohibiting

prostitution,3 does not justify conditioning government funding upon adopting a

policy against prostitution. (See AID v. Alliance for Open Society Internat. (2013)

__ U.S. __ [133 S.Ct. 2321, 2327-2332].) The government‘s stance against

smoking, while supporting increased taxes on cigarettes or a ban on cigarette

smoking in certain public places,4 does not justify compelled speech in the form of

graphic images intended to further ―an ongoing effort to discourage consumers

from buying‖ cigarettes. (R.J. Reynolds Tobacco Co. v. Food and Drug Admin.

(D.C. Cir. 2012) 696 F.3d 1205, 1216 (R.J. Reynolds) [applying intermediate


3

See People v. Pulliam (1998) 62 Cal.App.4th 1430, 1438 (statute criminalizing

loitering to commit prostitution ―does not prohibit protected speech‖); People v. Maita
(1984) 157 Cal.App.3d 309, 316 (―It has been flatly held that ‗[t]he governmental interest
in preventing [prostitution] is unrelated to speech or press.‘ ‖).
4

See Roark & Hardee LP v. City of Austin (5th Cir. 2008) 522 F.3d 533, 549-550

(rejecting 1st Amend. challenge against an ordinance banning smoking in enclosed public
spaces); U.S. ex rel. Kneepkins v. Gambro Healthcare, Inc. (D.Mass. 2000) 115
F.Supp.2d 35, 43 (―the tax codes are filled with examples of taxes intended precisely to
get people to avoid them, thus discouraging certain unwanted activities (such as
excessive smoking or the early withdrawal of retirement savings)‖); see also Department
of Revenue of Mont. v. Kurth Ranch
(1994) 511 U.S. 767, 782 (noting that ―[b]y
imposing cigarette taxes . . . a government wants to discourage smoking‖).

13



scrutiny].) In short, a public purpose that may justify a general law not

implicating speech does not necessarily fall within the narrow Zauderer rationale

justifying a lower standard of review with respect to a law that does implicate

speech. Indeed, any other conclusion would all but eviscerate the commercial

speech protections of article I.

The majority suggests that applying intermediate scrutiny here would

―mak[e] the free speech clause into a warrant for courts to superintend the

Legislature‘s economic policy judgments.‖ (Maj. opn., ante, at p. 36.) Not so.

Section 2527 is a unique and unprecedented statute. It is nothing like any other

disclosure statute and does not serve the leveling function usually provided by

such statutes. It does not require a disclosure to prevent consumer confusion or

fraud, further public health or safety, or inform the public about a particular

transaction or entity. Nor is it part of a comprehensive regulatory scheme; it is a

single statute directed only at speech, in one industry, designed to influence

contractual bargaining between sophisticated business entities. The statute

involves none of the factors previously cited to warrant a lesser standard of

review. The majority fails to explain how application of the intermediate scrutiny

standard of Gerawan II under such circumstances would call into question the

legitimacy of any other true disclosure statute. Contrary to the majority‘s

reasoning, judicial restraint counsels against deviating from our precedents by

applying a lesser and unwarranted standard of review.

The majority asserts that section 2527 does not ―reflect paternalism toward

participants in the marketplace‖ (maj. opn., ante, at p. 27), but merely requires

prescription drug claims processors to provide objective information with which

―they do not identify any disagreement‖ (maj. opn., ante, at p. 21). The latter

assertion is somewhat misleading. Prescription drug claims processors may have

no quarrel regarding the accuracy of the data required to be reported. However,

14



they vehemently disagree that this data is at all relevant in determining proper

reimbursement rates and that they can be forced to compile and disseminate it.

The statute‘s requirement reflects the government’s conclusion that such

information is relevant in setting reimbursement rates and should be considered,

even when these contractual entities have not seen fit to compile and consider such

information on their own. Concluding that the government knows better than

sophisticated actors in the marketplace as to how best they might protect their own

interests is paternalism writ large.

Applying the Central Hudson standard to our constitutional free speech

provision, intermediate scrutiny review asks: (1) Is the speech protected under

article I? (2) Is the asserted governmental interest substantial? If one gives

affirmative answers to these questions, then: (3) Does the law directly advance the

asserted governmental interest? (4) Is it more extensive than required to serve that

interest? (Gerawan II, supra, 33 Cal.4th at p. 22; Kasky v. Nike, Inc. (2002) 27

Cal.4th 939, 952; see Central Hudson, supra, 447 U.S. at p. 566.)

Section 2527 fails this test. With respect to the first prong, the statute

involves protected speech, as the majority agrees.

Whether the asserted governmental interest supporting the provision is

substantial may be debated. As noted, ―[t]he theory was that if insurers paid the

pharmacies dispensing fees closer to the amount paid by uninsured consumers,

pharmacies would be more likely to continue to contract with insurers, and insured

consumers would be able to have their prescriptions filled at the pharmacies of

their choice.‖ (ARP Pharmacy Services, supra, 138 Cal.App.4th at p. 1320.)

Even assuming the government‘s interest in raising reimbursement rates is

substantial, section 2527 fails to directly advance this interest. There is no

question that the Legislature has the authority to directly regulate the rate paid by

insurance companies to pharmacies, without any impingement upon free speech.

15



As the majority acknowledges, the Legislature declined to pass such a law. (Maj.

opn., ante, at pp. 5-7.) Failing at that, the Legislature passed a statute that

compelled speech in a way that the majority acknowledges ―could potentially

affect prescription drug reimbursement rates.‖ (Maj. opn., ante, at p. 25.) ―The

mere transmission of the information, unaccompanied by any requirement that it

be considered, utilized, or even read by the insurers, seems poorly designed to

accomplish the state‘s goal.‖ (ARP Pharmacy Services, supra, 138 Cal.App.4th at

p. 1320.) Such an ineffectual law hardly justifies the statute‘s intrusion into free

speech rights.

Further, the fit between the governmental goal of increasing reimbursement

rates and section 2527‘s speech requirement is not sufficiently close to pass muster

under intermediate scrutiny. The fit need not be perfect, only reasonable; ― ‗ ―not

necessarily the single best disposition but one whose scope is ‗in proportion to the

interest served,‘ that employs not necessarily the least restrictive means but . . . a

means narrowly tailored to achieve the desired objective.‖ ‘ [Citation.]‖

(Gerawan II, supra, 33 Cal.4th at p. 23.) The majority asserts that the statute

made available ―commercial information that was previously unavailable and

potentially could not be provided by pharmacies because of antitrust constraints.‖

(Maj. opn., ante, at p. 27.) This assertion seems doubtful. As ARP Pharmacy

Services observed, ―a restraint on direct negotiation is not a prohibition on

gathering and reporting the statistical information called for by section 2527.‖

(ARP Pharmacy Services, supra, 138 Cal.App.4th at p. 1321.) No law precludes

pharmacies from compiling data regarding their own charging practices, or from

disseminating such information to the public at large. Compelling speech from an

unwilling party when the same speech can easily be voluntarily provided by a

willing party hardly provides a proper fit between the government‘s objectives and

the intrusion into protected speech rights. Rather than making available

16



previously unavailable data, section 2527 does two things. (1) It shifts the cost of

compiling and disseminating such data from pharmacies to prescription drug

claims processors. (2) It increases the likelihood that the data will be seen by

insurance companies and other third party payers because it is specifically targeted

at them, as opposed to the public generally. There is simply no justification for

the former. As for the latter, the vague hope that payers will consider the data

because it is directed at them hardly warrants requiring compelled speech. (Cf.

R.J. Reynolds, supra, 696 F.3d at pp. 1217-1221 [concluding that rules requiring

graphic warnings on cigarette packages did not pass intermediate scrutiny, in part

because they went beyond disclosing health effects of smoking and were intended

to discourage smoking].)

In sum, our Constitution has a rich history of protecting commercial

speech, one that predates the protections of the First Amendment. The free speech

right includes the right not to be compelled to speak. Under our precedents, any

law infringing upon that right must be evaluated under intermediate scrutiny,

unless it falls within some narrow exceptions. Those recognized exceptions,

including statements required to prevent fraud, cure misleading statements, protect

consumers, or protect public health and safety, do not apply to section 2527. The

provision is a unique statute requiring speech by one contractual party to another

in the hope of altering a term of their contract in a way deemed preferable by the

government. It is doubtful that our state‘s founding fathers, adherents to the

principles of Jacksonian democracy and economic individualism, would have

countenanced such government-compelled speech within private, arms-length

17



negotiations between sophisticated business entities, for the purpose of promoting

a particular outcome. I would hold that section 2527 is subject to intermediate

scrutiny under article I and that it fails such scrutiny.

CORRIGAN, J.

I CONCUR:

CHIN, J.









18



See last page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Jerry Beeman v. Anthem Prescription Management
__________________________________________________________________________________

Unpublished Opinion

Original Appeal
Original Proceeding XXX on request pursuant to rule 8.548, Cal. Rules of Court
Review Granted
Rehearing Granted

__________________________________________________________________________________

Opinion No.
S203124
Date Filed: December 19, 2013
__________________________________________________________________________________

Court:

County:
Judge:

__________________________________________________________________________________

Counsel:

Morrison & Foerster, Shirley J. Hufstelder and Benjamin J. Fox for Defendant and Appellant Argus Health Systems,
Inc.

Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., Gail E. Lees, Christopher Chorba, Blaine H. Evanson; Husch
Blackwell, Thomas M. Dee and Christopher A. Smith for Defendant and Appellant Express Scripts, Inc.

Morgan, Lewis & Bockius, Thomas M. Peterson, Molly Moriarty Lane and Richard S. Odom for Defendant and
Appellant Anthem-Prescription Management, LLC.

Steptoe & Johnson, Martin D. Schneiderman and Jason Levin for Defendants and Appellants AdvancePCS,
AdvancePCS Health L.P., PharmaCare Management Services, Inc., and TDI Managed Services, Inc.

Holland & Knight, Richard T. Williams and Tara L. Cooper for Defendants and Appellants PharmaCare and TDI
Managed Services.

Heller Ehrman, Richard S. Goldstein, John M. Landry; Orrick, Herrington & Sutcliffe and Richard S. Goldstein for
Defendant and Appellant Medco Health Solutions, Inc.

Troutman Sanders, C. Leeann McCurry; Musick, Peeler & Garrett and Kent A. Halkett for Defendant and Appellant
Benescript Services, Inc.

Pillsbury Winthrop SHaw Pittman, Thomas N. Makris and Brian D. Martin for Defendant and Appellant First
Health Services Corp.

Roxborough, Pomerance & Nye, Roxborough, Pomerance, Nye & Adreani, Craig Pynes, Nicholas P. Roxborough
and Marina N. Vitek for Defendant and Appellant National Medical Health Card.










Page 2 – S203124 – counsel continued

Counsel:

Snell & Wilmer and Sean M. Sherlock for Defendant and Appellant Restat, LLC.

Reed Smith, Kurt C. Peterson, Margaret M. Grignon, Kenneth N. Smersfelt, Judith E. Posner and Brett L. McClure
for Defendant and Appellant Tmesys, Inc.

Sonnenschein Nath & Rosenthal, David S. Alverson, Stephen J. O‘Brien, Rachel M. Milazzo; SNR Denton, Stephen
J. O‘Brien and Rachel M. Milazzo for Defendant and Appellant Cardinal Health MPB, Inc.

Hogan & Hartson, Hogan Lovells US and Neil R. O‘Hanlon for Defendant and Appellant Mede America
Corporation.

Dykema Gossett, J. Kevin Snyder and Vivian I. Kim for Defendant and Appellant Prime Therapeutics.

Kirtland & Packard and Robert A. Muhlbach for Defendant and Appellant RX Solutions, Inc.

McDermott, Will & Emery, Robert Mallory and Matthew Oster for Defendant and Appellant WHP Health
Initiatives.

Deborah J. La Fetra and Lana Harfoush for Pacific Legal Foundation as Amicus Curiae on behalf of Defendants and
Appellants.

The Consumer Law Group, Alan M. Mansfield; Peitzman Weg and Michael A. Bowse for Plaintiffs and
Respondents.

Seth E. Mermin, Thomas Bennigson and Timothy Sun for Consumer Action, Consumers for Auto Reliability and
Safety, The Public Health Law Center, Inc., and Public Good Law Center as Amici Curiae on behalf of Plaintiffs
and Respondents.











Counsel who argued in Supreme Court (not intended for publication with opinion):

Theodore J. Boutrous, Jr.
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, CA 90071
(213) 229-7000

Michael A. Bowse
Peitzman Weg
2029 Century Park East, Suite 3100
Los Angeles, CA 90067
(310) 552-3100


Request under California Rules of Court, rule 8.548, that this court decide a question of California law presented in a matter pending in the United States Court of Appeals for the Ninth Circuit. The question presented is: "Does California Civil Code section 2527 compel speech in violation of article I, section 2 of the California Constitution?"

Opinion Information
Date:Citation:Docket Number:
Thu, 12/19/201358 Cal. 4th 329, 165 Cal. Rptr. 3d 800, 315 P.3d 71, 13 Cal. Daily Op. Serv. 13,572, 2013 Daily Journal D.A.R. 16,437 (CA 2013)S203124

Opinion Authors
OpinionJustice Goodwin Liu
ConcurChief Justice Tani Cantil-Sakauye, Justice Carol A. Corrigan
DissentJustice Carol A. Corrigan

Brief Downloads
application/pdf icon
1-s203124-us-coa-ninth-circuit-req-answer-ques-state-law-060712.pdf (611211 bytes) - United States Court of Appeals for the Ninth Circuit's Request to Answer Question of State Law
application/pdf icon
2-s203124-apps-opening-brief-merits-091912.pdf (584543 bytes) - Appellants' Opening Brief on the Merits
application/pdf icon
3-s203124-resps-answer-brief-merits-120612.pdf (588130 bytes) - Appellants' Reply Brief on the Merits
application/pdf icon
4-s203124-apps-reply-brief-merits-020413.pdf (1763875 bytes) - Appellants' Reply Brief on the Merits
If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website
Jun 22, 2014
Annotated by John Drdek

Facts:

Plaintiff pharmacies sued defendant prescription drug claims processors (see definitions below) because they did not provide “pharmacy fee” information to health insurance companies, as mandated by California Civil Code section 2527. The defendant argued that the statute was a content-based speech disclosure requirement and did not satisfy either strict scrutiny or intermediate scrutiny under California’s free speech guarantee. The plaintiff argued that the statute only required the disclosure of objective, statistical data. Under the plaintiff's definition, the statute would not implicate a right to free speech, and even if it did, the appropriate standard would be a rational basis review. Following a Ninth Circuit appeal and remand, the defendants were granted an interlocutory appeal, during which the Ninth Circuit certified a question to the California Supreme Court: Does section 2527 compel speech in violation of the California Constitution’s free speech guarantee?

Procedural History:

Plaintiff pharmacies filed a federal class action suit against prescription drug claims processors in the United States District Court for the Central District of California, alleging that the defendants failed to comply with California Civil Code section 2527. The Central District dismissed the pharmacies’ claims due to lack of standing. The pharmacies appealed to the United States Court of Appeals for the Ninth Circuit, as well as filing action against the defendants in Los Angeles Superior Court, a state court. The Los Angeles trial court dismissed the suit. On appeal, the California Court of Appeal affirmed the trial court’s dismissal and declared section 2527 unconstitutional under California’s free speech clause. The California Supreme Court denied review. Meanwhile, in the federal circuit, the Ninth Circuit reversed the Central District’s dismissal of the pharmacies' case and remanded back to the Central District. On remand, the Central District denied the defendants a judgment on the pleadings, concluding there was convincing evidence that the California Supreme Court would not follow the California Court of Appeal's holding that section 2527 was unconstitutional. The defendants filed an interlocutory appeal to the Ninth Circuit. The Ninth Circuit affirmed the Central District's denial of a judgment for the defendants on the pleadings, and then granted a rehearing en banc. The Ninth Circuit then certified a question to the California Supreme Court: does section 2527 violate the California constitution’s free speech clause?

Issue:

Does California Civil Code section 2527 compel speech in violation of article I, section 2 (free speech clause) of the California Constitution?

Holding:

No. The California Supreme Court determined that factual information qualifies as protected speech, but the disclosure requirement of section 2527 is subject to only a rational basis review. Because the section is reasonably related to a legitimate state purpose (promoting informed decisions about prescription drug reimbursement rates), it satisfies the rational basis review. This holding disapproved ARP Pharmacy Services, Inc. v. Gallagher Bassett Services, Inc. (2006) 138 Cal.App.4th 1307.

Analysis:

In reaching its holding, the California Supreme Court answered three questions: (1) does the transmission of information on pharmacy fees implicate the right to freedom of speech under the California Constitution?, (2) if so, what level of judicial scrutiny applies to section 2527’s disclosure requirement?, and (3) does section 2527 survive this scrutiny?

(1) The court began by holding that California Civil Code section 2527 did implicate the right to freedom of speech. California’s free speech clause extends to “all subjects.” (Cal. Const., art. I, § 2, subd. (a).) “All subjects” does not exclude “commercial speech” from the clause’s protection. (Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468, 494.) Although section 2527 is a fact-based disclosure, the principle of freedom of speech protects “even dry information, devoid of advocacy, political relevance, or artistic expression.” (DVD Copy Control Assn. v. Bunner (2003) 31 Cal.4th 864, 876.)

(2) Next, because section 2527 did implicate California’s free speech clause, the Court determined the appropriate level of scrutiny to apply. The Court reviewed the three levels of scrutiny traditionally applied in free speech cases: strict scrutiny, heightened or intermediate scrutiny (used interchangeably in this decision), and low scrutiny, also known as “rational basis review.” The court found that section 2527 should be held to a rational basis review rather than the heightened scrutiny applicable to many other forms of compelled commercial speech. In the compelled speech context, the Court looked to First Amendment case law for persuasive guidance. The United States Supreme Court distinguishes between “speech restrictions” and “compelled disclosures” and adjusts the level of scrutiny accordingly. (Zauderer v. Office of Disciplinary Counsel (1985) 471 U.S. 626, 650.) Laws that that compel a commercial speaker to adopt a message with which the speaker disagrees are subject to heightened scrutiny. (Gerawan Farming, Inc. v. Kawamura (2004) 33 Cal.4th 1, 10.) Section 2527, however, was determined to be a fact-based disclosure with no political or ideological message, so heightened scrutiny did not apply. Furthermore, the disclosure requirement was not “inextricably intertwined with otherwise fully protected speech.” (Riley v. National Federation of the Blind of North Carolina, Inc. (1998) 487 U.S. 781, 796.) The Court also disapproved of the California Court of Appeal’s application of strict scrutiny to section 2527 in ARP Pharmacy Services, Inc. v. Gallagher Bassett Services, Inc. (2006) 138 Cal.App.4th 1307. In this case, the Court of Appeal found section 2527 to be a content-based regulation of noncommercial speech and deserving of strict scrutiny. Here, however, the Court found that even though the disclosure is not a “commercial transaction,” it qualifies as an expression relating to the “economic interests” of the parties and should be considered commercial speech. (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 963.) Finally, the Court looked to four federal districts to justify its application of the rational basis review. In all four districts, the federal courts applied rational basis review to disclosure requirements that serve to better inform a commercial audience, whether or not also intended to prevent deception. (National Electrical Manufacturers Assn. v. Sorrell (2d Cir. 2001) 272 F.3d 104; Full Value Advisors, LLC v. S.E.C. (D.C. Cir. 2011) 633 F.3d 1101; Environmental Defense Center, Inc. v. U.S. E.P.A. (9th Cir. 2003) 344 F.3d 832; and Pharmaceutical Care Management Assn. v. Rowe (1st Cir. 2005) 429 F.3d 294.) The Court determined that section 2527 served to better inform a commercial audience and the rational basis review should apply. (It should be noted that the Court stated this is the first California case that applies a rational basis review to a law implicating free speech under the state constitution.)

(3) In applying the rational basis review, the Court found that section 2527 did not violate the California Constitution’s free speech clause. Under a rational basis review, a statute comes bearing “a strong presumption of validity.” (FCC v. Beach Communications, Inc. (1993) 508 U.S. 307, 314.) As long as the challenged statute bears “some rational relationship” to a “legitimate state purpose,” it will “pass muster.” (California Grocers Assn. v. City of Los Angeles (2011) 52 Cal.4th 177, 209.) The Court found that section 2527 was rationally related to the Legislature’s objective to promote informed decision making about prescriptive drug rates. This was determined to be a legitimate state purpose, therefore, section 2527 satisfied the rational basis review and was held constitutional.

Media:

Oral arguments for Supreme Court of California case, Beeman v. Anthem.
http://youtu.be/Q34Rb1mkgfg

Key Statutes:

U.S. Const. amend. I
http://www.archives.gov/exhibits/charters/bill_of_rights_transcript.html

Cal. Const., art. I, § 2, subd. (a)
http://www.leginfo.ca.gov/.const/.article_1

Cal. Civ. Code § 2527
http://www.leginfo.ca.gov/cgi-bin/displaycode?section=civ&group=02001-03...

Key Cases:

FCC v. Beach Communications, Inc. (1993) 508 U.S. 307

Riley v. National Federation of the Blind of North Carolina, Inc. (1998) 487 U.S. 781

Zauderer v. Office of Disciplinary Counsel (1985) 471 U.S. 626

Environmental Defense Center, Inc. v. U.S. E.P.A. (9th Cir. 2003) 344 F.3d 832
http://bit.ly/1kS6fwM

Full Value Advisors, LLC v. S.E.C. (D.C. Cir. 2011) 633 F.3d 1101
http://bit.ly/1jB6nRA

National Electrical Manufacturers Assn. v. Sorrell (2d Cir. 2001) 272 F.3d 104
http://bit.ly/1nmTHjM

Pharmaceutical Care Management Assn. v. Rowe (1st Cir. 2005) 429 F.3d 294
http://bit.ly/1lF0FSW

ARP Pharmacy Services, Inc. v. Gallagher Bassett Services, Inc. (2006) 138 Cal.App.4th 1307 (disapproved)
http://bit.ly/1qij8Wp

California Grocers Assn. v. City of Los Angeles (2011) 52 Cal.4th 177
http://bit.ly/1pjibMi

DVD Copy Control Assn. v. Bunner (2003) 31 Cal.4th 864
http://bit.ly/1m01hCZ

Gerawan Farming, Inc. v. Kawamura (2004) 33 Cal.4th 1
http://bit.ly/UQFN1R

Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468
http://bit.ly/1oLa9zO

Kasky v. Nike, Inc. (2002) 27 Cal.4th 939
http://bit.ly/1l6L1jI

Definitions:

Certified Question: A formal request by one court to another court to answer a question of law.

Commercial Speech: Speech dealing with the economic interests of the parties.

Content-based Speech: Speech that is evaluated by its subject matter and is often protected under a strict scrutiny standard.

Disclosure Requirement: Mandate, often by law or regulation, that requires the release of specific information.

En Banc: A judicial session which is heard before all the judges of the court.

Heightened Scrutiny: See "Intermediate Scrutiny."

HMOs: Health maintenance organizations. HMOs provide or administer care under several types of health insurance.

Interlocutory Appeal: An appeal of a court ruling made before the case is resolved.

Intermediate Scrutiny: A standard for judicial review. To overcome an intermediate scrutiny test, the challenged law must further an important government interest that is substantially related to that interest. Often used interchangeably with "heightened scrutiny."

Judicial Review: The review by a court of actions, regulations, policies, or laws of a government entity.

Low Scrutiny: See "Rational Basis Review."

Pharmacy Benefit Managers (PBMs): Intermediaries between pharmacies and third-party payors, such as health insurance companies, who assist in the processing of insured prescription drug benefit claims submitted by pharmacies.

Pharmacy Fee: Fees of pharmacies for dispensing prescriptions to private consumers.

Prescription Drug Claims Processors: Any nongovernmental entity which has a contractual relationship with purchasers of prepaid or insured prescription drug benefits, and assists in the processing of benefit claims submitted by pharmacies. Processors may also act as PBMs.

Rational Basis Review: The lowest level of scrutiny applied to judicial review of a law. To satisfy a rational basis review, the challenged law must be rationally related to a government interest.

Remand: The act of sending a case back to a lower court for it to take action as ordered by the higher court.

Strict Scrutiny: The highest level of judicial review. A law may only survive a strict scrutiny review if it: (1) justifies a compelling government interest, (2) is narrowly tailored, and (3) is the least restrictive means of achieving that interest. Strict scrutiny is usually applied when fundamental rights are infringed.

Tags: California Civil Code, California Constitution, certified question, Civil Code section 2527, civil rights, commercial speech, compelled speech, constitutional, content-based speech, disclosure requirement, drug companies, en banc, fact-based disclosure, free speech, free speech clause, free speech guarantee, freedom of speech, heightened scrutiny, HMOs, informed choice, insurance, insurance companies, insurers, interlocutory appeal, intermediaries, intermediate scrutiny, judicial review, judicial scrutiny, legitimate state purpose, low scrutiny, PBMs, pharmacies, pharmacy fee, pharmacy benefit managers, prescription drug benefits, prescription drug claims processors, prescriptive drug rates, presumption of validity, public policy, rational basis, rational relationship, remand, state interest, strict scrutiny, third-party payors

Annotated by John Drdek.