Petition — Forest E. Olson, Inc. v. Superior Court of California

FOREST E. OLSON, INC. AND COLDWELL,

BANKER AND CO.,

v.

SUPERIOR COURT OF THE STATE

OF CALIFORNIA, COUNTY OF ORANGE

(CALIFORNIA REAL PARTY IN INTEREST).

TOPICAL INDEX

Page

I ara ed!

Question Presented... paca ae

Jurisdiction And The Finality Of Judgment Rule 2

1. Procedural Posture Of The Case _—_" 2

2. The Case For Jurisdiction §_—s_" ee

ES A a 7

Statement Of The Case... Y@

The Constitutional Balancing oe 10

1. Petitioner's Position... 10

2. Petitioner's Concessions... ist . Ii

Reasons For Granting A Hearing To Petitioner __ 12

1. The Importance And Novelty Of The

Ee SS 12

2. The Impact Of Misleading Advertising

i eee 14

3. TheImpact Of ThisCase. sist 15

4. Inability Of The Petitioner To Raise The

Constitutional Issue And The Resulting

EE -e

Issue Will Reappear For Supreme Court

eS er

Conclusion eee ee MS cha: 17

Appendix | a ' 19

ii

TABLE OF AUTHORITIES CITED

Cases Page

Adderly v. Florida, 385 U.S. 39 (1966) 13

Bates v. State Bar of Arizona, 433 U.S. 350 (1977)

a a ie

Bigelow v. Virginia, 421 U.S. 809 (1975) ‘ 13

California v. Steward, 384 U.S. 436 (1966) | 5

Construction Laborers v. Curry, 371 U.S. 542

(iveal..:...... 6

Cox Broadcasting v. Cohn, 420 U. S. 469 (1975)

aie RS A

Friedman v. Rogers, 99 S. Ct. 887, 47 U.S.L.W.

Cho >) 13

Grayned v. City of Rockford, 408 U. S. 104 (1972)

| ie

Herbert v v. Lando, ane x: Ed. 2d 1 15,

99 S.Ct.___ (1979) i | oe Y.

Kovacs v. Cooper, 336 U. S. 71 (1949) ee a. 13

Linnmark Associates, Inc. v. Willingboro, 431 U.S

85 (1977)... ee me

Mercantile National Bank v v. . Langdeau, 371 U. S.

RSIS ape ie mete ier vee Ve ~—6

Miami Herald Publishing Company v. Tornillo, 418

go RR ec eeCnete ea 6

Mills v. Alabama, 384 U.S. 214 (1966)... =e

National Commission on Egg Nutrition v. F TC, 570

F.2d 157, 161-163 (7th Cir. 1977) cert. denied

Dow Ww RAO TOD: ooo cdhlink. 14

New York Times v. Sullivan, 376 U.S. 254 (1963)

Ja os a a

North Dakota State Board of Pharmacy v. Snyder’s

Drug Stores, Inc., 414 U.S. 156 (1973). 5

Ohralik v. Ohio State Bar Association, 436 U.S.

REPU es aoe 12

Virginia Citizen’s Consumer Council, Inc., 425 U.S.

FR TEOTEE yk eee ae 2 BS

ill

Statutes

28 U.S.C.

§ 1254(1) aa \

§ 1257(2) | a

§ 1257(3) ya

§ 2103 Pd 2,2

California Business & Professions Code

§ 17200 =n ee o | 7

§ 17206 7

§ 17500 7 i 2, 7, 14

§ 17536 | | . 8

Idaho Code

§ 48-601 to 619 AP 14

ORS

646.605-665 | 14

Virginia Code Ann.

§ 18.2-11(a) 14

§ 128.2-216 : 14

§ 59 1-68.2-5 , iz 14

United States Constitution

Amendment I 2, 3, 4; 6,

10, 12, 14, 15, 16, 17

Amendment IV 3

Amendment XIV 2, 3,4

Law Journals

13 Willamette L.J., 455 (1977) 14

ee

|

In the Supreme Court of the

United States

October Term, 1979

No.

FOREST E. OLSON, INC. AND COLDWELL,

BANKER AND CO.,

Petitioners,

Vv.

THE PEOPLE OF THE STATE OF

CALIFORNIA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

The petitioners Forest E. Olson, Inc., and Coldwell,

Banker and Company respectfully pray that a Writ of

| Certiorari issue to review a peremptory writ of mandate

| issued by the California Court of Appeals, which com-

manded the trial court to vacate its order granting

petitioners motion for summary judgment, the opinion

entered August 21, 1979 and the writ issued December |

18, 1979. A timely petition for hearing to the California

Supreme Court was denied on November 18, 1979.

oe)

OPINION BELOW

The opinion of the Court of Appeals is reported at 96

Cal. App.3d 181 and appears in the appendix hereto. No

opinion was rendered by the Supreme Court of the State of

California in denying the petition for hearing filed by

petitioners. This petition for certiorari was filed within 90

days of that date. This Court’s jurisdiction is invoked

under 28 U.S.C. §§ 1254 (1), 1257 (2) and (3), and

2103.

QUESTION PRESENTED

Does the protection afforded commercial speech by the

First and Fourteenth Amendments of the United States

Constitution prohibit the State of California from punish-

ing false or misleading advertising by civil monetary

penalty and/or criminal fine and/or imprisonment on a

showing of negligence, or do these constitutional protec-

tions require the state to prove legal malice: that the

advertisement was published with the knowledge by the

advertiser that the advertisement was false or misleading

or that the advertiser published the ad with reckless

disregard for whether the advertisement was false or

misleading? If the New York Times v. Sullivan malice

standard is a constitutional minimum for imposition of

such penalties, then the California Court of Appeals was

in error in upholding the statutes under attack and the

California Supreme Court was in error in denying a

petition for hearing.

JURISDICTION AND THE FINALITY

OF JUDGMENT RULE

1. Procedural Posture of the Case

The trial court in the case at bar declared California

Business and Professions Code § 17500 et seq. unconsti-

3

tutional on its face because it punished the negligent

publication of false or misleading advertising by monetary

fine. In granting summary judgment, it dismissed the

complaint filed on behalf of the Peopie of the State of

California by the District Attorney of Orange County.

Because the summary judgment did not dismiss the

cross-complaint filed by petitioner on an unrelated search

and seizure-Fourth Amendment issue, the People sought

reversal of the entry of summary judgment by means of a

writ of mandate ordering the trial court to reverse the order

entered granting summary judgment. The Court of Appeal

issued the writ, and thus upheld the constitutionality of the

California statute. This opinion was filed on August 21,

1979.

A timely petition for hearing to the California Supreme

Court was denied on November 18, 1979.

2. The Case for Jurisdiction

This court’s jurisdiction is invoked under 28 U.S.C. §

1254 (1); 1257 (2) (3), and if these jurisdictional bases are

found to be absent, through a petition for certiorari under

28 U.S.C. § 2103.

The case of Cox Broadcasting v. Cohn, 420 U.S. 469

(1975) is controlling as to the jurisdiction of the United

States Supreme Court to issue the writ of certiorari or

grant the appeal, as the case may be.

In Cox, the plaintiff-appellee father of a deceased rape

victim sued the defendant, defendant’s reporter and

broadcaster for civil damages under a Georgia statute and

under a tort theory of common law invasion of privacy.

The trial court granted the father’s motion for summary

judgment as to liability, rejecting the First and Fourteenth

Amendment challenges to the constitutionality of the

Georgia statute. The determination of damages was to

await trial.

On appeal, the Georgia Supreme Court held that the

trial court erred in construing the Georgia statute to allow

a civil cause of action for invasion of privacy and thus

found it unnecessary to consider the constitutionality of

the statute. The Georgia Supreme Court held that a

common law tort cause of action for invasion of privacy

did exist, but summary judgment was improper because

there were still factual questions on the issue of liability,

and the case was remanded to trial.

On rehearing, the Georgia high court agreed that the First

and Fourteenth Amendments, as a matter of law, did not

require judgment for appellant on the common law tort

theory, but it skirted the issue of whether the statute was

constitutional. On rehearing, the court upheld the perti-

nent Georgia statute as constitutional. Jd at 474-475.

Despite the remand for trial as to both liability and

damages, the United States Supreme Court upheld juris-

diction. In so doing, the opinion sets forth several

categories of cases in which jurisdiction is appropriate

even though there are still proceedings remaining in the

lower courts. The case at bench fits several of those

categories.

“In the first category are those cases in which

there are further proceedings — even entire

trials — yet to occur in the state courts but where

for one reason or another the federal issue is

conclusive or the outcome of further proceed-

ings ordained . . . the judgment of the state

court on the federal issue is deemed final.”’ Jd at

479. Accord, Mills v. Alabama, 384 U.S. 214

(1966).

In the case at bench, the First Amendment issue is

preordained for the purposes of trial and further appeal by

the doctrines of law of the case and/or res judicata.

5

A second category discussed in Cox is also Satisfied by

the case at bench. The Cox opinion states that the high

court has jurisdiction:

“Where the federal claim has been finally

decided, with further proceedings on the merits

in the state courts to .>me, but in which later

review of the federal issue cannot be had,

whatever the ultimate outcome of the case.

Thus, in these cases, if the party seeking interim

review ultimately prevails on the merits, the

federal issue will be mooted; if he were to lose on

the merits, however, the governing state law

would not permit him again to present his federal

claims for review. The court has taken jurisdic-

tion in these circumstances prior to completion

of the case in the state courts.” Cox, supra at

481. Accord, California v, Steward, 384 U.S.

436 (1966) (decided with Miranda v. Arizona);

North Dakota State Board of Pharmacy y.

Snyder's Drug Stores, Inc., 414 U.S. 156

(1973).

A third category of cases in which jurisdiction has been

upheld is also satisfied by the case at bench. The Cox

opinion reads as follows:

“Lastly, there are those situations where the

federal issue has been finally decided in state

courts with further proceedings pending in which

the party seeking review here might prevail on

the merits on non-federal grounds, thus render-

ing unnecessary reveiw of the federal issue by

this court, and where reversal of the state court

on the federal issue would be preclusive of any

further litigation on the relevant cause of action

rather than merely controlling the nature and

character of, or determining the admissibility of

evidence in, the state proceedings still to come.

In these circumstances, if a refusal immediately

to review the state-court decision might serious-

ly erode federal policy, the court has entertained

and decided the federal issue, which itself has

been finally determined by the state courts for

the purposes of the state litigation.” Jd at 482-

482. (Emphasis added.) Accord Construction

Laborers v. Curry, 371 U.S. 542 (1963);

Mercantile National Bank v. Langdeau, 371

U.S. 555 (1963); Miami Herald Publishing

Company v. Tornillo, 418 U.S. 241 (1974).!

The Cox court thus concluded that the Georgia Su-

preme Court’s judgment was final on the federal issue, that

the proof of the elements of the state cause of action would

induce liability for damages on the constitutionally pro-

tected speaker, and that even though the defendants could

prevail at trial on non-federal grounds, the defendants

would be forced to go through a trial which should not

occur if the statute was erroneously upheld. Additionally,

the fact that there would remain in effect an unreviewed

decision controlling state law on an important First

Amendment issue would “leave unanswered . . .an

important question of freedom ... under the First

Amendment.” Citing Tornillo, supra at 247 n.6.

' Of particular relevance to the case at bench is the Cox discussion

of Tornillo, supra at 484. The quoted portion of Tornillo concludes

that it is intolerable to leave unanswered an important question of the

freedom of the press under the First Amendment where to leave the

question unanswered would only further harm the operation of a free

press.

To leave the question in this petition unanswered is to leave every

commercial speaker open to suit for monetary or criminal penalty for

the negligent exercise of a constitutionally protected First Amend-

ment right if the advertising statutes so provide.

The court concluded that it should not leave the press in

Georgia operating under the shadow of civil and criminal

sanctions embodied in a statute the constitutionality of

which was in serious doubt, and it decided to reach the

merits of the case. Cox, supra at 486.

Petitioner asks that the same opportunity for 2 hearing

on this important issue be granted to the commercial

Speaker and that an important balancing of the First

Amendment and consumer protection occur so as to

clarify the right of commercial speakers under various

false and misleading advertising statutes throughout this

nation.

THE STATUTES

The following statutes codified in the California Busi-

ness and Professions Code are collectively referred to as

the “Statutes”’:

Business and Professions § 17200 (formerly at

Civ. Code § 3309 et seq.):

“As used in this chapter, unfair competition

Shall mean and include unlawful, unfair or

fraudulent business practice and unfair, decep-

tive, untrue or misleading advertising and any

act prohibited by Chapter 1 (commencing with

Section 17500) of Part 3 of Division 7 of the

Business and Professions Code.”

Business and Professions Code § 17206:

‘Any person who violates any provision of

this chapter shall be liable for a civil penalty not

to exceed Two Thousand Five Hundred Dol-

lars ($2,500) for each violation. . .”

Business and Professions Code § 17500:

“It is unlawful for any person, firm, corpora-

tion or association, or any employee thereof with

intent directly or indirectly to dispose of real or

personal property or to perform services, profes-

sional or otherwise, or anything of any nature

whatsoever or to induce the public to enter into

any obligation relating thereto, to make or

disseminate or cause to be made or disseminated

before the public in this state, in any newspaper

or other publication, or any advertising device,

or by public outcry or proclamation or in any

other manner or means whatever, any state-

ment, professional or otherwise, concerning

such real property or services or concerning any

circumstance or matter of fact connected with

the proposed performance or disposition there-

of, which is untrue or misleading, or which is

known, or which by the exercise of reasonable

care should be known, to be untrue or mislead-

ing, or for any such person, firm or corporation

to so make or disseminate or cause to be so made

or disseminate any such statement as part of a

plan or scheme with the intent not to sell such

personal property or services, professional or

otherwise, so advertised at the price stated

therein, or as so advertised. Any violation of the

provisions of this section is a misdemeanor

punishable by imprisonment in the county jail

not exceeding six months, or by a fine not

exceeding Two Thousand Five Hundred Dol-

lars ($2,500), or by both.” (Emphasis added.)

Additionally, Section 17536 of the Business and Pro-

fessions Code provides for a maximum civil penalty of

$2,500 for each violation. Suit may be brought by the

California Attorney General, or any district attorney,

county counsel or city attorney.

STATEMENT OF THE CASE

On eight occasions during 1974 and 1975, defendant

Forest E. Olson, Inc, (hereinafater FEO) published an

advertisement in Southern California newspapers which

listed 406 street addresses surrounding a box which stated

the following:

“SOLD IN 8 DAYS OR LESS in Orange and

Riverside Counties! When You List Your Home

With FOREST E. OLSON BE PREPARED

TO MOVE FAST! Information from Forest E.

Olson’s Computer Center, 1/1/74 - 3/31/75,”

The advertisement identified 406 properties as “sold in

eight days or less”’, or “sold in four days or less’’, and it is

on these sales that respondent bases its misleading

advertising allegation. Approximately 173 of the proper-

ties were tract sales of either townhouses or multilevel

condominiums, Approximately 10 residences were locat-

ed outside of Orange and Riverside Counties, and 51 of

the residences were not sold within eight days or less, but

were sold within 20 days, and in most instances within 10

days.

There was no showing of actual reliance on the ad by

any prospective purchaser, no showing of unjust enrich-

ment by petitioners, and no showing of actual injury to any

reader of the ad.

The tract sales that appeared in the advertisement as

sold within 4 or 8 days comprised the heart of respondent's

case. These homes were subject to “master-sales con-

tracts’’ with builder-developers. When an individual unit

was sold, a listing agreement and deposit receipt on the

unit were prepared by the tract sales person and submitted

to the FEO computer prior to the advertisement ever being

conceived and data requested from the FEO computer.

When data for the ad was requested, the computer

10

returned the tract sales in its report of homes sold within

four or eight days, and these sales then became a part of

the ad, even though FEO’s authority to sell the entire tract

pursuant to the mavter contract may have existed for

months,

In summary, the evidence before the Court showed

inadvertent oversight by different people who had sepa-

rate business functions and who worked in different

departments in a corporate organization. There was no

evidence of intentional publication of misleading advertis-

ing or of reckless disregard for whether or not the

advertising was misleading. At most, there was a factual

issue as to whether there was a negligent publication of

misleading advertising.

THE CONSTITUTIONAL BALANCING

1. Petitioner’s Position

Petitioner’s position is straight forward. It involves

recognition of two rules of law and agreement with two

judgmental conclusions.

(i) A Balancing test must be applied to de-

termine the correct constitutional minimum;

(ii) Laws regulating a consitutionally pro-

tected First Amendment right must be narrowly

drawn;

(iii) A balancing of the additional protection

of the public afforded by allowing civil monetary

penalties for the negligent publication of decep-

tive advertising as compared to a requirement

that civil monetary penalties and criminal penal-

ties could only be imposed upon proof of malice

leads to a conclusion that the additional protec-

tion is minimal or nonexistent;

1]

(iv) The burden imposed on commercial

speech by the punishment of the negligent

exercise of the right of commerical speech is

substantial;

therefore, the appropriate conclusion is as follows:

An application of the balancing test requires

that the proof of actual malice as defined in New

York Times v. Sullivan, 376 U.S. 254 (1963)

and its progeny be required as a constitutional

minimum for punishing commercial speech with

motiary and/or criminal penalties.

2. Petitioner’s Concessions

Petitioners concede that the state has the right to

regulate false or misleading advertising, and that the state

interest in protecting the public from false and misleading

advertising is a substantial state interest.

Petitioners also concede that injunctive relief, both

temporary and permanent, are available on a showing of

negligent publication of a false or misleading advertise-

ment.

Petitioners additionally concede that restitutionary

recovery, securing from the false or misleading advertiser

any profits or other tangible gains derived from false or

misleading advertising, can be recovered by the state or

private individuals, by statute or by common law reme-

dies, on a showing of negligence. Restitutionary recovery

was not before the court in this case.

It is further conceded that recovery by the state and/or

members of the public of actual damages incurred by the

public or the state as a result of a misleading advertisement

is recoverable without proof of malice.

-

12

Petitioners’ position is that only the imposition of

penalties, not redressing actual injury or return of unjust

enrichment, requires proof of malice as a condition

precedent to the state penalizing the constitutionally

protected speaker.

REASONS FOR GRANTING A

HEARING TO PETITIONER

There are five reasons for granting a hearing in this case.

They are as follows:

1. The importance and novelty of the issue;

2. The great impact of the misleading advertising

Statutes across the nation;

3. The impact of this case;

4. The inability of the petitioners to raise the consti-

tutional issue if the petition is denied;

5. It is unlikely that any constitutionally protected

speaker will bring this issue to the United States Supreme

Court.

1. The Importance and Novelty of the Issue

The importance of the First Amendment as one of our

most cherished freedoms is without question. New York

Times v. Sullivan, 376 U.S. at 270, Herbert v. Lando,

ont 60 L.Ed.2d 115, 141, 99 S.Ct.__ (1979).

In this decade, this Court has carved out a protected

sphere for commercial speech which protects the right of

the speaker, yet recognizes the common sense conclusion

that commercial speech is afforded ‘‘a limited measure of

protection, commensurate with its subordinate position in

the scale of the First Amendment values. . .” Ohralik v.

Ohio State Bar Association, 436 U.S. 447, 456 (1978).

13

The High Court has evolved this protection to strike

down statutes which, in effect, prohibit a speaker to

advertise a certain type of information on the grounds that

both the speaker and listener have a protected right which

is not outweighed by the state’s regulatory interest.

Bigelow v. Virginia, 421 U.S. 809 (1975) (criminal

punishment for publishing an advertisement encouraging

abortion). Virginia Citizen’s Consumer Council, Inc.,

425 U.S. 748 (1976) (statute prohibits advertisement of

prices for prescription drugs); Bates v. State Bar of

Arizona, 433 U.S. 350 (1977) (prohibition of advertising

by attorneys).

In all of these cases, the content of the advertisement

was of significant interest to the listener.

In the case of an ordinance which prohibited “‘for sale”

signs on resale of residential homes, but did not prohibit

such signs on other types of property, on model homes, or

in newspapers, this Court was not faced with a blanket

prohibition, but was presented with a limitation on the

time, place and manner of speech. Linnmark Associates,

Inc. v. Willingboro, 431 U.S. 85, 93 (1977). Though this

limited restraint on speech is of constitutional signifi-

cance, Cf! eg. Kovacs v. Cooper, 336 U.S. 77 (1949),

Adderly v. Florida, 385 U.S. 39 (1966); Grayned v. City

of Rockford, 408 U.S. 104 (1972), the dual interest of the

advertiser and the “reader” of the commercial speech

dealing with one defined subject matter (resale of homes)

was, on application of a balancing test, of greater constitu-

tional weight than the compelling state interest to be

served by the ordinance.

In another circumstance of a time, place, and manner

restriction, the prohibition of practicing optometry under

a trade name was upheld based on a minimal effect on the

defined content akin to an injunction. Friedman vy.

Rogers, 99 S.Ct. 887, 897, 47 U.S.L.W. 4151 (1979).

14

The case at bench presents a further step in this First

Amendment path. The statute challenged punishes un-

limited and undefined subject matter by content if the

advertisment is found to be false or misleading. It

functions as far more than a prohibition of defined

conduct; it operates to deter misieading advertising and to

raise revenue for the state by punishing speech in which

there is assumed to be no value to misleading advertising.

Revenue raising and protection of the public are squarely

balanced against punishment of the exercise of a protect-

ed First Amendment right to which the “listener” loses

little by denial of access to the prohibited content, yet the

definition of the prohibited content itself is so unclear that

the boundry line between punishable and permissive

advertising is impossible to predict.

As such, the issue is both important and unique to this

Court.2

2. The Impact of Misleading Advertising Statutes

The rising tide of consumer protectionist legislation in

the 1960’s and early 1970’s has resulted in passage of

many state statutes designed to prohibit and/or punish

false and/or misleading advertising.3 Millions of citizens

?National Commission on Egg Nutrition v. FTC, 570 F.2d 157,

161-163 (7th Cir. 1977) cert. denied 439 U.S. 821 (1978) presented

the issue of whether the malice standard was required as a condition

precedent to the issuance of a cease and desist order. This is akin to

the application of the malice standard to injunctive relief ordered after

an administrative trial. Petitioners conceded that injunctive relief

does not require malice.

5See e.g. California Business Profession Code § 17500 et seq.;

Virginia Code Ann. § 18.2-11(a), 128.2-216, 59 1-68.2-5, Idaho

Code § 48-601 to 619; ORS 646.605-665 (Oregon). According to

one commentator, forty-eight states, Puerto Rico, and Guam have

enacted consumer protection acts. Uranga, “Idaho and Oregon

Consumer Protection Acts: Administrative Powers of the Attorneys

General”., 13 Willamette L.J., 455 (1977).

15

are thus susceptible to punishment by fine and/or impris-

onment under a variety of legal standards in the exercise of

First Amendment rights.

3. The Impact of This Case

By its denial of the petition for hearing in this case, the

decision of the California Court of Appeals is the law of

California. Twenty million Americans have the First

Amendment right of commercial speech limited by threat

of punishment by monetary and/or criminal penalty under

a Statute which is constitutionally suspect.

Additionally, this case stands as precedent to presuade

other courts and legislatures to allow imposition of civil or

criminal penalties for the negligent publication of false or

misleading advertising. It stands as the view of the

prestigious California courts, and the conclusion reached

is of some persuasive weight.

4. Inability of The Petitioner to Raise The Con-

stitutional Issue and The Resulting Prejudice

If this petition for hearing is denied, petitioners will be

returned to the lower court for trial. The appellate opinion

will be binding as the law of the case.

Petitioner will then be faced with a choice of settling the

case and buying peace or incurring the expense of trial

plus the following procedures: (1) a hearing on findings

of fact and conclusions of law, (2) the possible require-

ment of posting a bond on appeal, (3) a fruitless appeal to

the court of appeals, (4) a fruitless petition for rehearing

to the court of appeals, (5) a fruitless petition for hearing

to the California Supreme Court, and (6) a petition for a

writ of certiorari to this Court on the same First Amend-

ment issue presented here.

16

If petitioners settle and buy peace, this Court is denied

review of the issue.

If petitioners win at trial, this Court is denied review of

the issue.

If petitioners lose at trial but judgment is rendered in a

nominal sum, petitioners may find that the duty to their

stockholders compels giving up the expenditure of further

corporate resources to litigate the First Amendment issue.

This Court is thus denied review of the issue.

5. It Is Unlikely That This First Amendment

Issue Will Reappear For Supreme Court

Review

In cases involving regulation of business, a trade or

labor association of the industry regulated, or a large

corporate or union entity representing the industry, usual-

ly challenges the regulation. It does so because the

regulation affects its business. There is thus economic

incentive and a “‘business need” to absorb the substantial

cost associated with an appeal up several levels of courts

to this Court.

In misleading advertising statutes such as are at issue

here, the activity punished is advertising, but the media or

advertising agency involved is not the defendant in such

suits. The advertiser is the victim. Though it is conceiv-

able that an advertising agency or publisher could be

brought into the suit by a cross-complaint for indemnity,

this procedure is untested in a quasi-criminal statute such

as iS at issue in the case at bench, and these cross-

defendants would face a serious problem of standing to

raise the First Amendment right of the advertiser-defend-

ant on appeal.

Secondly, most defendants in misleading advertising

cases are not large corporate defendants whose advertis-

17

ing is the product of an advertising agency. The defendants

are small businessmen who cannot afford to absorb the

adverse publicity and the economic burdens of litigation

against the resources of the state through trial, one or two

appellate levels of review, and then to this Court. The

course of business prudence is plain: settle on whatever

terms are insisted on by the state after some discovery and

negotiation. The First Amendment rights are lost in the

small businessman’s attempt to avoid great cost and the

time away from his business associated with resisting the

litigation efforts of the state.

CONCLUSION

It is submitted that the best vehicle to protect the

constitutionally protected right of commercial speech in

the context of misleading advertising statutes is the malice

standard: a threshold standard which discourages the

state from filing suits which involve inadvertent errors,

advertising exaggeration and puffing, yet allows the state

to redress actual injury and secure restitution on a showing

of negligence.

It is further submitted that this case may be the only

case to come to the High Court to establish the appropri-

ate balance in the protection of the public from advertising

deception and the protection of the First Amendment.

Sixteen years ago this Court balanced the state’s right to

provide a remedy for libel and the individual’ s right to seek

remedial relief for libel as against the competing interest of

the First Amendment. This Court stated:

‘Like insurrection, contempt, advocacy of un-

lawful acts, breach of the peace, obscenity,

solicitation of legal business, and the various

other formulae for the repression of expression

that have been challenged in this Court, libel can

18

claim no talismanic immunity from constitu-

tional limitations. It must be measured by

standards that satisfy the First Amendment.”

New York Times v. Sullivan, 376 U.S. at 269.

It is submitted that statutes punishing false and mis-

leading advertising now join this list.

It is respectfully petitioned that this Court set this case

for hearing and issue a writ of certiorari to the Court of

Appeal of the State of California, 4th Appellate District,

Division 2, and that this Court order a withdrawal of the

peremptory writ of mandate issued by said court com-

manding the trial court to vacate its order granting Peti-

tioners’ motion for summary judgment.

Respectfully Submitted,

SHELLY JAY SHAFRON,

Coldwell Banker Legal Department

533 Fremont Avenue

Los Angeles, California 90071

Counsel for Petitioners

APPENDIX

19

APPENDIX

The PEOPLE of the State of California,

Petitioner,

v.

SUPERIOR COURT, ORANGE COUNTY,

Respondent.

FOREST E. OLSON, INC., etc., et al,

Real Parties in Interest.

FOURTH DISTRICT

DIVISION 2

No. Civ. 21098

Aug. 21, 1979

Cecil Hicks, Dist. Atty., Michael R. Capizzi, Asst.

Dist. Atty., John D. Conley and Charles D. McFarland,

Deputy Dist. Attys., for petitioner.

George Deukmejian, Att. Gen., Herschel T. Elkins,

Asst. Atty. Gen., Ronald A. Reiter and Michael R.

Botwin, Deputy Attys. Gen., for amicus curiae State of

California.

No appearance for respondent.

Shelly Jay Shafron, Los Angeles, for real parties in

interest.

20

OPINION

TAMURA, Associate Justice.

The central issue in this original proceeding is whether

the California statutes dealing with false and misleading

advertising (Bus. & Prof. Code, § 17500 et seq.) and

unfair competition (Bus. & Prof. code, § 17200 et seq.)

are violative of the First Amendment protection accorded

to commercial speech.!

'Unless otherwise indicated all section references in this opinion

are to the Business and Professions Code.

Section 17500 provides:

“It is unlawful for any person, firm, corporation or association, or

any employee thereof with intent directly or indirectly to dispose of

real or personal property or to perform services, professional or

otherwise, or anything of any nature whatsoever or to induce the

public to enter into any obligation relating thereto, to make or

disseminate or cause to be made or disseminated before the public in

this state, in any newspaper or other publication, or any advertising

device, or by public outcry or proclamation, or in any other manner or

means whatever, any statement, concerning such real or personal

property or services, professional or otherwise, or concerning any

circumstance or matter of fact connected with the proposed per-

formance or disposition thereof, which is untrue or misleading, and

which is known, or which by the exercise of reasonable care should be

known, to be untrue or misleading, or for any such person, firm, or

corporation to so make or disseminate or cause to be so made or

disseminated any such statement as part of a plan or scheme with the

intent not to sell such personal property or services, professional or

otherwise, so advertised at the price stated therein, or as so advertised.

Any violation of the provisions of this section is a misdemeanor

punishable by imprisonment in the county jail not exceeding six

months, or by a fine not exceeding two thousand five hundred dollars

($2,500), or by both.”

Section 17200 provides:

‘* As used in this chapter, unfair competition shall mean and include

unlawful, unfair or fraudulent business practice and unfair, deceptive,

untrue or misleading advertising and any act prohibited by Chapter |

(commencing with Section 17500) of Part 3 of Division 7 of the

Business and Professions Code.”

21

The District attorney brought an action in the name of

the People against Forest E. Olson, Inc., and Coldwell,

Banker & Company (defendants) to enjoin and recover

civil penalties for the alleged dissemination of false and

deceptive newspaper advertisements in violation of the

two statutes. To the extent the complaint sought recovery

of the statutory civil penalties, the trial court granted

defendants’ motion for summary judgment on the ground

that imposition of penalties for negligent dissemination of

false or misleading advertising violates the First and

Fourteenth Amendments to the United States Constitu-

tion and article 1, section 2 of the California Constitution

and further that the provision authorizing imposition of a

civil penalty not to exceed $2,500 for each violation is

unconstitutional because it permits imposition of exces-

sive fines. The District Attorney filed a petition for a writ

of mandate to have this court review and set aside the

order granting the summary judgment. We issued an

alternative writ and order to show cause.

The pertinent facts on which the motion for summary

judgment was based may be summarized as follows:

In July 1974, defendant Forest E. Olson, Inc. began

running a full page advertisement in several Southern

California newspapers. The advertisement consisted of a

list of 406 street addresses surrounding a box containing

the following message: ““SOLD IN 8 DAYS OR LESS in

Orange and Riverside Counties! When you list your home

with FOREST E. OLSON BE PREPARED TO MOVE FAST!

Information from Forest E. Olson’s Computer Center,

1/1/74-3/31/75” The same advertisement with the same

message modified to say “IN 4 DAYS OR LESS” instead of

“8 DAYS OR LESS” was run on at least four occasions

during 1975.2

2The advertisements appeared in the Los Angeles Times, the

Orange County Register, the Anaheim Bulletin, and the Ventura Star

Free Press.

LL

22

Also during 1975, Forest E. Olson aired a radio

advertisement over | | stations consisting of the following

message played against a background of a male monotone

voice reading a list of addresses from a computer readout

so rapidly that the addresses could only be identified as

property locations: “You are listening to the computer

readout of homes sold by Forest E. Olson Realtors in no

more than eight days. . . . However, some people are

skeptical so realizing this, Forest E. Olson, a Coldwell

Banker Company, was reluctant to release this following

computer readout. . . Each of these homes was sold by

Forest E. Olson Realtors in no more than four days

. . . Startling information? Yes. If you doubt the authen-

ticity of this computer readout, consider this; if it weren’t

true, we couldn’t say it. That’s why we insist when you list

your house for sale with Forest E. Olson, you'd better be

prepared to move . . . fast.”

Approximately 176 of the street addresses shown in the

newspaper advertisements were of new tract houses,

condominiums, and town houses for which Forest E.

Olson, Inc. had exclusive sales contracts with builder

developers. Although the sales contracts were executed

long before the sales, a listing agreement bearing the date

of sale was made out for each sale. The properties thus

appeared to have been sold on the day they were listed.

Additionally, approximately 10 of the addresses in the

advertisement were outside of Orange and Riverside

Counties and 51 houses on the list were not sold in either

four or eight days.

Forest E. Olson, Inc. explained that the appearance of

the new tract sales in the advertisement was the result of

inadvertence; that the advertising department had re-

quested the data processing department for a list of all

property sold in four days or less and had relied upon a

23

computer readout list furnished by data processing; that

there had been no “formal vice presidential approval” or

review of the advertisement by the company’s legal

department. In short, defendants maintained that the

evidence showed at most an inadvertent oversight by

different people in the organization with separate business

functions and not an intentional misstatement or reckless

disregard of the truth. Defendants conceded, however,

that the evidence presented a factual issue as to whether

there was negligent dissemination of false or misleading

advertising.

Defendants filed a motion for summary judgment and

for an order determining certain issues to be without

substantial controversy. The thrust of the motion was that

imposition of civil penalties for negligently disseminating

false or misleading information in defendants’ commercial

advertisements would violate defendants’ free speech

rights guaranteed by the federal and state Constitutions;

that civil penalties may be imposed only upon proof that

the misstatements were made with knowledge of their

falsity or in reckless disregard of the truth. Defendants

also contended that under sections 175363 and 172064

3Section 17536 provides:

(a) Any person who violates any provision of this chapter shall be

liable for a civil penalty not to exceed two thousand five hundred

dollars ($2,500) for each violation, which shall be assessed and

recovered in a civil action brought in the name of the people of the

State of California by the Attorney General or by any district

attorney, county counsel, or city attorney in any court of competent

jurisdiction.

““(b) If the action is brought by the Attorney General, one-half of

the penalty collected shall be paid to the treasurer of the county in

which the judgment was entered, and one-half to the State Treasurer.

If brought by district attorney or county counsel, the entire amount of

penalty collected shall be paid to the treasurer of the county in which

the judgment was entered. If brought by a city attorney or city

24

only one violation of section 17500 and of section 17200

can occur for running a false or misleading advertisement

in a single edition of a newspaper and that since publica-

tion occurred only on eight occasions, the maximum

liability for civil penalties would be $40,000.

prosecutor, one-half of the penalty shall be paid to the treasurer of the

county and one-half to the city.

““(c) If the action is brought at the request of a board within the

Department of Consumer Affairs, the court shall determine the

reasonable expenses incurred by the board in the investigation and

prosecution of the action.

‘Before any penalty collected is paid out pursuant to subdivision

(b), the amount of such reasonable expenses incurred by the board

shall be paid to the State Treasurer for deposit in the special fund of

the board described in Section 205. If the board has no such special

fund the moneys shall be paid to the State Treasurer.

** As used in this subdivision, ‘board’ includes commission, bureau,

division, and other similarly constituted agency.

“‘(d) As applied to the penalties for acts in violation of Section

17530, the remedies provided by this section and Section 17534 are

mutually exclusive.”

4Section 17206 provides:

‘Any person who violates any provision of this chapter shall be

liable for a civil penalty not to exceed two thousand five hundred

dollars ($2,500) for each violation, which shall be assessed and

recovered in a civil action brought in the name of the people of the

State of California by the Attorney General or by any district attorney

or any city attorney of a city having a population in excess of 750,000,

and, with the consent of the district attorney, by a city prosecutor in

any city or city and county having a full-time city prosecutor in any

court of competent jurisdiction. If brought by the Attorney General,

one-half of the penalty collected shall be paid to the treasurer of the

county in which the judgment was entered, and one-half of the State

General fund. If brought by a district attorney, the penalty collected

shall be paid to the treasurer of the county in which the judgment was

entered. If brought by a city attorney or city prosecutor, one-half of

the penalty collected shall be paid to the treasurer of the city in which

the judgment was entered, and one-half to the treasurer of the county

in which the judgment was entered.”

25

The court granted defendants’ motion, holding that

section 17500 of the false advertising statute is facially

unconstitutional because it permits recovery of civil

penalties for negligently making false or misleading

statements in an advertisement, that section 17200 of the

unfair competition statute is unconstitutional as applied

because it defines unlawful and unfair business practices

to include a violation of section 17500 thereby permitting

recovery of civil penalties under section 17206 for the

negligent dissemination of false advertising, and that

section 17536 is unconstitutional because it imposes

excessive fines in violation of the First, Eighth and

Fourteenth Amendments to the United States Constitu-

tion and article I, sections 2 and 17 of the California

Constitution.

The court further ordered that should an appellate court

hold section 17500 et seq. and section 17200 et seq. to be

constitutional, civil penalties would be recoverable only

on proof that defendants disseminated the advertisements

with knowledge they were false or misleading or with

reckless disregard for whether they were false or mislead-

ing. The court further ordered that there can be but one

violation of section 17500 and section 17200 for each day

the advertisement appeared in a single edition of a

newspaper so that the maximum civil penalties recover-

able by the People would be $40,000.5

‘The following is the text of the order granting the motion for

summary judgment:

“IT IS ORDERED that Defendant’s Motion for Sumntary

Judgment as to the Complaint on file herein is hereby

granted because § 17500 et seq. of the Business and Professions

Code is void on its face and unconstitutional because said section

violates the First and Fourteenth Amendments to the U.S. Constitu-

tion and Article 1 § 2 of the California Constitution.

“1. Section 17500 of the Business and Professions Code is

unconstitutional because a civil monetary penalty may be levied

26

against a*person who negligently disseminates false or misleading

information in an advertisement. It is the court’s ruling that a false

advertising statute (§ 17500) may constitutionally impose civil

monetary penalties only if it is limited to situations where the

advertiser knows the statements to be false or misleading or where the

advertiser makes the statement with reckless disregard for whether or

not the advertisement is false or misleading.

2. Section 17536 of the California Business and Professions

Code is unconstitutional on its face because it imposes an excessive

fine in violation of the First, Eighth and Fourteenth Amendments to

the United States Constitution and Article I, Section 2 and Section 17

of the California State Constitution.

3. Section 17200 of the California Business and Professions

Code (formerly § 3369 of the California Civil Code) is unconstitu-

tional as applied to the complaint in the instant case in that it defines

an unlawful and unfair business practice to include a violation of

Section 17500 of the Business and Professions Code, and because it

imposes punishment by way of a civil monetary fine for the negligent

publication of false or misleading advertising under the general

definition of unfair competition.

“IT IS FURTHER ORDERED that should § 17500 of the

Business and Professions Code be held constitutional by an appellate

court and § 17200 of the Business and Professions Code (formerly §

3369 of the California Civil Code) to be held by an appellate court to

be constitutional as applied to the Complaint herein, this Court does

hereby grant the following order to deem certain issues to be without

controversy.

“Issues Without Controversy

“1. The First and Fourteenth Amendments to the United States

Constitution and Article 1 § 2 of the Constitution of the State of

California, as applied to Business and Professions Code § 17500 and

§ 17200 et seq. (formerly § 3369 of the Civil Code et seq.), require

Plaintiff to prove that Defendant disseminated the advertisements at -

issue with the knowledge that they were false or misleading or with

reckless disregard for whether or not the advertisements were false or

misleading, as a precondition to imposing any civil penalty. Proof by

Plaintiff of a lack of the exercise of reasonable care by Defendants in

the publishing of false or misleading advertising is insufficient as a

matter of law to support a monetary judgment for Plaintiff.

‘2. A maximum of one violation of Business and Professions Code

§ 17500 and § 17200 (formerly § 3369 of the Civil Code) occurs

when an advertisement appears in one day’s edition of a newspaper,

a

eR BATS Sardis sel Me

Se alata ad ela att bo ow ee

27

[1,2] The pendency of a cross-complaint for damages

for alleged violation of defendants’ constitutional rights

precluded entry of a judgment on the complaint in favor of

defendants. Since an order granting summary judgment is

nonappealable, the People seek its review by extraordi-

nary writ.6

and as such, since a maximum of eight publications occurred, a

maximum of $40,000 liability exists in the case at bar.

“Denial of Defense Motion for an Order Deeming an

Issue Without Controversy.

“The Court denied the defense motion to deem the following issue

without controversy:

**3. Plaintiff must prove that the Defendant violated Business and

Professions Code § 17500 and § 17200 (formerly § 3369 of the

Civil Code) by clear and convincing evidence.

“4. This Court further finds that the issues presented by the

Defendant’s Motion for Summary Judgment are issues of First

Impression in this state and that the court’s ruling raises serious

questions about the state’s ability to curb false and misleading

advertising. This Court believes that these issues should be deter-

mined by the apellate courts with all due dispatch because they are

matters of widespread importance.”

6Mandamus is an appropriate means of reviewing an otherwise

nonappealable order of a trial court where the issue presented is one of

law and it is in the public interest to have a prompt determination of

the question presented. (Brown v. Superior Court, 5 Cal.3d 509,

514-515, 96 Cal. Rptr. 584, 487 P.2d 1224; Randone v. Appellate

Department, 5 Cal.3d 536, 542-543, 96 Cal. Rptr. 709, 488 P.2d 13;

City of Huntington Beach v. Superior Court, 78 Cal. App.3d 333,

339, 144 Cal. Rptr. 236.) The statutes whose validity have been

brought into question by the trial court’s order are the basic tools of

the Attorney General and district attorneys in combating consumer

fraud. Prompt resolution of the questions raised is therefore inthe

public interest. By issuing an alternative writ, we necessarily deter-

mined that the People have no other adequate remedy and that this is a

proper case for the exercise of our original jurisdiction through the

prerogative writ. (People ex rel. Younger v. County of El Dorado, 5

Cal.3d 480,492, 96 Cal. Rptr. 553, 487 P.2d 1193; City of

Huntington Beach v. Superior Court, supra, 78 Cal. App.3d 333,

339, 144 Cal. Rptr. 236.)

28

The People contend that the statutes as applied in the

instant case do ot offend the free speech guarantees of the

United States Constitution or the state Constitution and

that the trial court’s order should be set aside in its

entirety. Defendants respond that the trial court correctly

interpreted, defined and applied the First Amendment

protection extended to commercial speech and that the

petition sh-:Id therefore be denied. For reasons we shall

explain, we have concluded that the statutes as applied in

the case at bench do not abridge defendants’ free speech

rights and further that the trial court erred in its perception

of the proper method of determining the number of

statutory violations of sections 17500 and 17200 for the

dissemination of a false or misleading advertisement

through newspapers. We have therefore concluded that a

peremptory writ of mandate should issue commanding the

trial court to vacate its order in its entirety.

I.

Before addressing the issues presented, we briefly

review the statutes in question.

Section 17500 is the major California legislation de-

signed to protect consumers from false or deceptive

advertising. It is derived from the 1915 version of the

former Penal Code section 654a which in turn was based

on the so-called “Printers’ Ink Model Statute” drafted in

1911 at the behest of the advertising journal of the same

name.’ (Note, The Regulation of Advertising (1956) 56

Colum.L.Rev. 1019, 1058-1059; Note, Enforcing Cali-

fornia’s False Advertising Law: A Guide to Adjudica-

tion (1974) 25 Hastings L.J. 1105, 1106.) The “Printers’

Ink Model” made it a misdemeanor to place before the

7The ‘“‘Printer’s Ink Model,” either in its original form or as

modified, has been adopted in 44 states and the District of Columbia.

(Note, supra, 25 Hastings L.J. 1105, 1106, fn. 9.)

29

public any advertisement containing “any assertion,

representation or statement of fact which is untrue,

deceptive or misleading”; proof of intent to deceive or

knowledge of the improper character or the advertisement

was not required. (Note, supra, 56 Colum.L.Rev. 1019,

1058, fn. 245, 1059.) The model statute made advertisers

absolutely liable for what they said in the advertisement.

In adopting the “Printers’ Ink Model” in California, the

Legislature added the requirement that the false or

misleading character of the advertisement either be known

or in the exercise of reasonable care should have been

known by the advertiser. (Stats. 1915, ch. 634, pp. 1252-

1253.) Section 17500 continues to carry the same

qualification; the section makes it unlawful for any person

to disseminate any statement concerning the product or

service advertised “which is untrue or misleading, and

which is known, or which by the exercise of reasonable

care should be known, to be untrue or misleading.”’

(Emphasis supplied.)

The Attorney General, district attorneys, and certain

other designated public legal officers are empowered to

seek and obtain injunctive relief against violations of

section 17500 (§ 17535) and section 17200 (§ 17203)

and to recover civil penalties on behalf of the government

in an amount not to exceed $2,500 for each violation of the

false advertising statute (§ 17536) and for each violation

of the unfair competition statute ( § 17206). A violation of

the false advertising statute is also made a misdemeanor.

(§ 17500).

Section 17536 providing civil penalties for violation of

the false advertising statute was added in 1965 (Stats.

1965, ch. 827, p. 2419) because injunctions and misde-

meanor prosecutions were found to be inadequate weap-

ons with which to combat false advertising. (People v.

30

Superior Court (Jayhill Corp.),9 Cal. 3d 283, 288-289,

107 Cal. Rptr. 192, 507 P.2d 1400; Note, supra 25

Hastings L.J. 1105, 1107-1108; Review of Selected 1965

Code Legislation (Cont. Ed. Bar 1965) p. 21 .) As in the

case of false advertising, the injunctive remedy was found

to be an ineffective deterrent against violations of the

unfair competition law. (Review of Selected 1972 Cali-

fornia Legislation, 4 Pac. L.J. 335, 342.)

Il.

In order to focus upon the precise First Amendment

argument advanced by defendants, we make the following

preliminary observations:

[3, 4] Defendants’ advertisement was pure commer-

cial speech and defendants do not contend otherwise; the

advertisement did not editoralize on any political, cultur-

al, social or other subject. Thus, we are not confronted

with the difficult task of drawing a distinction between

“talk for profit, and talk for other purposes” or of

determining the degree of First Amendment protection

which should be accorded speech embodying both quali-

ties. (See Tribe, American Constitutional Law (1978) p.

656.) Further, defendants agree that the state has a

compelling interest in protecting the public and business

competitors from being victimized by false and deceptive

advertising. “Protection of unwary consumers from being

duped by unscrupulous sellers is an exigency of the utmost

priority in contemporary society.” (Vasquez v. Superior

Court, 4 Cal.3d 800, 808, 94 Cal. Rptr. 796, 484 P.2d

964, 968; Fletcher v. Security Pacific National Bank,.23

Cal.3d 442, 451, 153 Cal.Rptr. 28, 591 P.2d 51.)

Defendants also concede that an injunction against dis-

Semination of false and misleading commercial advertis-

ing does not offend First Admentment rights of the

advertiser. (People v. Columbia Research Corp., 71

31

Cal.App.3d 607, 614, 139 Cal.Rptr. 517, cert. den. 434

U.S. 904, 98 S.Ct. 302, 54 L.Ed.2d 191.)

Defendants’ attack is upon the monetary sanctions

authorized by section 17536 and section 17206 for

negligently disseminating false or deceptive advertising.

Their arguments takes the following form: First, since

commercial speech is protected by the First Amendment,

regulation of such speech must be accomplished by the

means least likely to inhibit the exercise of the protected

right; that imposition of the civil sanctions authorized by

the statutes would have a chilling effect on the exercise of

the protected right; and that injunctive relief, civil action

by defrauded consumers or injured competitors, class

actions on behalf of victimized consumers, and enforce-

ment of governmental rules and regulations, state and

federal, pertaining to standards of business and profes-

sional practices provide adequate public and competitor

protection against false or misleading advertising. Defen-

dants therefore maintain that section 17500 is unconstitu-

tional on its face and that section 17200 is unconstitution-

al as applied. It is further their position that should

sections 17500 and 17200 be determined to be constitu-

tional, civil penalties may only be imposed for dissemina-

tion of false advertising with knowledge of the improper

character of the advertising or in reckless disregard

thereof. |

[5] Defendants’ contentions assume that since com-

mercial speech has been brought under the protective

umbrella of the First Amendment, it is perforce entitled to

the same degree of protection as noncommercial speech.

However, the decisions of the United States Supreme

Court extending First Amendment protection to commer-

cial speech dispel any such assumption.

On the theory that societal interest in the free flow of

commercial information if indispensable to the proper

allocation of resources in a free enterprise system, the

United States Supreme Court has in a series of recent

decisions repudiated the notion expressed in Valentine v.

Chrestensen, 316 U.S. 52, 62 S.Ct. 920, 86 L.Ed. 1262,

that pure commercial speech is unprotected by the First

Amendment (Bates v. State Bar of Arizona, 433 US.

350, 97 S.Ct. 2691, 53 L.Ed.2d 810; Linmark Associ-

ates, Inc. v. Willingboro, 431 U.S. 85,97 S.Ct. 1614, 52

L.Ed.2d 155; Va. Pharmacy Bd. v. Va. Consumer

Council, 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346;

Bigelow v. Virginia, 421 U.S. 809, 95 S.Ct. 2222, 44

L.Ed.2d 600), and has held that advertising which “‘does’

no more than propose a commercial transaction’ ” is

deemed an exercise of a First Amendment right (Va.

Pharmacy Bd. v. Va. Consumer Council, supra, 425

U.S. 748, 771, fn. 24, 96 S.Ct. 1817, 1830 fn. 24, 48

L.Ed. 2d 346, quoting Pittsburgh Press Co. v. Human

Relations Comm’n., 413 U.S. 376, 385, 93 S.Ct. 2553,

37 L.Ed.2d 669). In extending First Amendment protec-

tion to commercial speech in the seminal Va. Pharmacy

Bd. case, however, the high court hastened to add that

commercial speech is subject to reasonable state regula-

tions and that among those which “are surely permissible”’

are restraints on false, deceptive or misleading advertis-

ing. (Va. Pharmacy Bd. v. Va. Consumer Council

supra, 425 U.S. 748, 770-771, 96 S.Ct. 1817, 46

L.Ed.2d 346.) The court foresaw no First Amendment

impediment to the exercise of the state’s power to deal

effectively with false or misleading commercial speech.

“The First Amendment, as we construe it today,” said the

court, ““does not prohibit the State from insuring that the

stream of commercial information flow cleanly as well as

freely.” ([d., at pp. 771-772, 96 S.Ct. at p. 1830; accord

Friedman y. Rogers, ___U.S , 99 S.Ct. 887, 893-

894, 59 L.Ed.2d 100; Bates v. State Bar of Arizona,

supra, 433 U.S. 350, 383, 97 S.Ct. 2691, 53 L.Ed.2d

810.)

33

The Supreme Court has consistently emphasized that in

rejecting the notion that commercial speech is unprotect-

ed, the court was not elevating commercial speech to the

same level on the scale of First Amendment values it has

accorded other types of speech and has cautioned that its

decision dealing with more traditional noncommercial

speech are not to be automatically applied to commercial

speech. (Ohralik v. Ohio State Bar Assn., 436 U.S. 447,

462, fn. 20, 98 S.Ct. 1912, 56 L.Ed.2d 444; Bates v.

State Bar of Arizona, supra, 433 U.S. 350, 380-381, 97

S.Ct. 2691, 53 L.Ed.2d 810; Va. Pharmacy Bad. v. Va.

Consumer Council, supra, 425 U.S. 748, 771, fn. 24, 96

S.Ct. 1817, 48 L.Ed.2d 346.) Thus, in Ohralik, the court

summarized its view concerning the degree of First

Amendment protection it intended to extend to commer-

cial speech: “In rejecting the notion that such [commer-

cial] speech “‘is wholly outside the protection of the First

Amendment.’ Virginia Pharmacy, 425 U.S. at 761, 96

S.Ct. 1817, 48 L.Ed.2d 346, we were careful not to hold

‘that it is wholly indifferentiable from other forms’ of

speech. 425 U.S. at 771 n. 24, 96 S.Ct. 1817, 48 L.Ed.2d

346. We have not discarded the ‘common-sense’ distinc-

tion between speech proposing a commercial transaction,

which occurs in an area traditionally subject to govern-

ment regulation, and other varieties of speech. Ibid. To

require a parity of constitutional protection for commer-

cial and noncommercial speech alike could invite dilution,

simply by a leveling process, of the force of the Amend-

ment’s guarantee with respect to the latter kind of speech.

Rather than subject the First Amendment to such a

devitalization, we instead have afforded commercial

speech a limited measure of protection, commensurate

with its subordinate position in the scale of First Amend-

ment values, while allowing modes of regulation that

might be impermissible in the realm of noncommercial

expression.” (/d., at pp. 455-456, 98 S.Ct., at p. 1918.)

34

The high court has justified the different degree of

protection accorded commercial speech as compared to

other varieties of speech on the ‘“‘common-sense”’ differ-

ence between them. “The truth of commercial speech, for

example, may be more easily verifiable by its dissemina-

tor than, let us say, news reporting or political commen-

tary, in that ordinarily the advertiser seeks to disseminate

information about a specific product or service that he

himself provides and presumably knows more about than

anyone else. Also, commercial speech may be more

durable than other kinds. Since advertising is the sine qua

non of commercial profits, there is little likelihood of it

being chilled by proper regulations and foregone entirely. |

‘Attributes such as these, the greater objectivity and

hardiness of commercial speech, may make it less neces-

Sary to tolerate inaccurate statements for fear of silencing

the speaker. Compare New York Times Co. y. Sullivan,

supra, with Dun & Bradstreet, Inc. v. Grove, supra. They

may also make it appropriate to require that a commercial

message appear in such a form, or include such additional

information, warnings, and disclaimers, as are necessary

to prevent its being deceptive. [Citations.] They may also

make inapplicable the prohibition against prior restrains.

[Citations.]!” (Va. Pharmacy Bd. vy. Va. Consumer

Council, supra, 425 U.S. 748,771, fn. 24, 96 S.Ct. 1817,

1830, 48 L.Ed.2d 346.)

_In Justice Stewart’s concurring opinion in Va. Phar-

macy Bd., he emphasized the fact that the “advertiser’s

access to the truth about his product and its price

substantially eliminates any danger that governmental

regulation of false or misleading price or product advertis-

ing will chill accurate and nondeceptive commercial

expression” and that therefore there is “little need to

sanction ‘some falsehood in order to protect speech that

matters.’ ” (Jd., conc. opn. Stewart, J., pp. 777-778, 96

aaa ais

S.Ct., p. 1833.) Justice Stewart’s view was echoed in

Bates v. State Bar of Arizona, supra, 433 U.S. 350, 97

S.Ct. 2691, 53 L.Ed.2d 810, where the court said:

“Since the advertiser knows his product and has a

commercial interest in its dissemination, we have little

worry that regulation to assure truthfulness will discour-

age protected speech. [Citation.] And any concern that

strict requirements for truthfulness will undesirably inhi-

bit spontaneity seems inapplicable because commercial

speech generally is calculated. Indeed, the public and

private benefits from commercial speech derive from

confidence in its accuracy and reliability. Thus, the

leeway for untruthful or misleading expression that has

been allowed in other contexts has little force in the

commercial arena.” (/d., at p. 383,97 S.Ct., at pp. 2708-

2709.)

[6-8] We conclude that a state regulation providing for

the imposition of civil monetary penalties for the negligent

dissemination of untruthful or misleading advertising does

not offend the First Amendment. If knowledge of falsity or

reckless disregard of the truth were made an essential

element of proof in order to invoke the sanction, difficulty

of proof would frustrate the state’s most effective weapon

against consumer fraud. The injury to consumers victim-

ized by false or deceptive advertising is no less when it

results from negligence than when knowingly or recklessly

made. The constitutional protection extended to commer-

cial speech “Does not prohibit the State from insuring that

the stream of commercial information flow cleanly as well

as freely.” (Va, Pharmacy Bad. v. Va. Consumer Council,

supra, 425 U.S. 748, 772, 96 S.Ct. 1817, 1831, 48

L.Ed.2d 346.) We hold that sections 17500 and 17200

are neither facially, nor as applied, violative of the First

Amendment.

36

[9] Although the trial judge ruled that the statutes in

question violated the free speech clause of article I,

section 2 of the California Constitution 8 as well as the

First Amendment, defendants make no contention that

commercial speech enjoys greater protection under the

California Constitution than it does under the First

Amendment. Our Supreme Court has in certain contexts

declared the free speech clause of the California Constitu-

tion to be “* ‘more definitive and inclusive than the First

Amendment’ ”’ (Robins y, Pruneyard Shopping Center,

23 Cal.3d 899, 908, 153 Cal. Rptr. 854.859, 592 P.2d

341, 346, quoting Wilson v, Superior Court, 13 Cal.3d

652, 658, 119 Cal. Rptr. 468, 532 P.2d 116), but there

has been no pronouncement by our high court that the

California Constitution affords pure commercial speech

greater protection than that accorded by the First

Amendment.

The remaining issues concern the validity and inter-

pretation of section 17536 and section 17206 providing

for civil penalties of up to $2,500 for each violation of the

respective statute, :

[10] The decision to provide for the imposition of a

monetary sanction for a violation of a regulatory statute is

a matter resting well within the discretion of the Legisla-

ture. A “state may impose reasonable penalties as a

means of securing obedience to statutes validly enacted

under the police power.” (Hale v, Morgan, 22 Cal.3d

*California Constitution, article 1, section 2, 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,”

~

a

37

388, 398, 149 Cal. Rptr. 375, 381, 584 P.2d 512, 518.)

“Imposition of civil penalties has, increasingly in modern

times, become a means by which legislatures implement

statutory policy.” (Jd; see Developments in the Law—

Corporate Crime: Regulating Corporate Behavior

Through Criminal Sanctions (1979) 92 Harv.L.Rev.

1227, 1369.)

The People contend that for the purpose of fixing the

civil penalties recoverable under section 17536 and

section 17206 the number of violations is to be determined

by the number of persons to whom the misrepresentations

were made, citing People v. Superior Court (Jayhill

Corp.), supra, 9 Cal.3d 283, 107 Cal. Rptr. 192, 507

P.2d 1400, and People v. Bestline Products, Inc., 61 Cal.

App.3d 879, 132 Cal. Rptr. 767. In the case of a false

newspaper advertisement, it is urged that the circulation of

the newspaper should be the measure of the number of

violations,

The trial court ruled that the People’s interpretation of

section 17536 would render it facially unconstitutional as

authorizing the imposition of excessive penalties. Accord-

ingly, the court determined that if the statute is to be

upheld, each appearance of an advertisement in a single

edition of a newspaper can constitute but a single violation

of section 17500 and of section 17200 for which a

maximum penalty of $5,000 may be imposed. Since the

advertisement appeared in newspapers on eight occa-

sions, the court ruled that the maximum penalties recov-

erable would be $40,000. The People contend that the

trial court’s interpretation is in defiance of the rule

established by People v. Superior Court (Jayhill Corp.),

supra, andPeople v. Bestline Products, Inc., supra.

People v.. Superior Court (Jayhill Corp.), supra, 9

Cal.3d 283, 107 Cal. Rptr. 192, 507 P.2d 1400, involved

38

door-to-door solicitation by book sellers. The Attorney

General contended that each misrepresentation consti-

tuted a separate violation subject to the maximum $2,500

penalty. The Supreme Court rejected the contention

noting that since not less than 25 misrepresentations were

alleged to have been made to each prospect, under the

Attorney General’s theory defendants could be liable for

$62,500 for each person solicited. The court declared that

“it is unreasonable to assume that the Legislature in-

tended to impose a penalty of this magnitude for the

solicitation of one potential customer. Rather, we believe

the Legislature intended that the number of violations is to

be determined by the number of persons to whom the

misrepresentations were made, and not by the number of

Separately identifiable misrepresentations involved.

Thus, regardless of how many misrepresentations were

allegedly made to any one potential customer, the penalty

may not exceed $2,500 for each customer solicited by a

defendant.” (/d., at p. 289, 107 Cal. Rptr., at p. 196, 507

P.2d, at p. 1404).9

People v. Bestline Products, Inc., supra, 61 Cal.

App.3d 879, 132 Cal. Rptr. 767, also relied upon by the

People, involved false representations made in connection

with a marketing scheme for the sale of household cleaning

products. The court found that some 10,000 distributors

attended meetings at which misrepresentations were made

and that 3,000 of them responded by becoming distribu-

tors and paying $3,000 each for merchandise. The trial

court imposed a civil penalty of one million dollars against

the corporate defendants and $500,000 against five

in ‘viduals. On appeal, the reviewing court held that while

* The “‘per victim” rather than a “per culpable statement”’ basis was

also approved in People v. Witzerman, 29 Cal. App.3d 169, 180, 105

as a 284, as the most reasonable interpretation of section

NAM es

39

the Jayhill court may not have intended to establish a test

for determining the number of violations of section 17500

under all circumstances, it was not unreasonable to find

the corporate defendants guilty of at least 3,000 violations

and to impose a civil penalty of approximately $330 per

violation. Considering the fact that the $3,000 each for a

total of nine million dollars, the court held that the penalty

was entirely reasonable.

The People maintain that/ayhill stands for the proposi-

tion that the number of violations is to be determined by

the number of persons to whom the representations were

made so that the number of violations resulting from a

false advertisement in a newspaper may theoretically be

equated with the circulation of the paper. As the Bestline

Products court indicated, it is unlikely that Jayhill

intended to establish a test for determining the number of

violations applicable to all situations. (People v. Bestline

Products, Inc., supra, 61 Cal. App.3d 879, 923, 132 Cal.

Rptr. 767.) Jayhill certainly does not suggest use of the

newspaper circulation as the number of violations for false

advertising in a newspaper.

If the People’s theory of determining the number of

violations were applied in the case at bench, a false

advertisement published in the Los Angeles Times which

has a circulation in excess of one million could result in

more than one million violations for each edition with a

potential civil penalty in excess of two and a half billion

dollars under edch statute. In keeping with the observa-

tions of the Supreme Court in People v. Superior Court

(Jayhill Corp.), supra, 9 Cal.3d 282, 289, 107 Cal. Rptr.

192, 507 P.2d 1400, it is “‘unreasonable”’ to assume that

the Legislature contemplated penalties of that magnitude

for a false advertisement in a single edition of a newspaper.

To so interpret the statute would rend it violative of the due

process prohibition against “‘oppressive’’ or “‘unreason-

40

able’ statutory penalties. (Hale v. Morgan, supra, 22

Cal.3d 388, 399, 149 Cal. Rptr. 375, 584 P.2d 512.)

Common sense tells us that every newspaper subscriber

does not read all of the advertisements published in the

paper and could hardly be termed “‘a person solicited” in

the sense of one personally solicited by a door-to-door

salespersons.

[11, 12] At the same time, however, we cannot agree

with the trial court that dissemination of a false or

deceptive advertisement through a single edition of a

newspaper can constitute but one violation of each statute

as a matter of law. We believe a reasonable interpretation

of the statute in the context of a newspaper advertisement

would be that a single publication constitutes a minimum

of one violation with as many additional violations as

there are persons who read the advertisement or who

responded to the advertisement by purchasing the adver-

tised product or service or by making inquiries concerning

such product or service. Violations so calculated would be

reasonably related to the gain or the opportunity for gain

achieved by the dissemination of the untruthful or decep-

tive advertisement. While the method by which the

number of violations may be proved is not before us, it

would appear that it might well include expert testimony

and circumstantial evidence. We do not see the difficulty

of proof to be so onerous as to undermine the effectiveness

of the civil monetary penalty as an enforcement tool.

[13,14] The People say that in arguing that the number

of violations could be based upon the circulation of the

newspaper, it is not suggesting that the court must so

calculate the number of violations but only that it is a

theoretical possibility. It is urged that the court would in

any event only be empowered to impose a reasonable

_ penalty. The question before us, however, is not the

reasonableness of the penalty imposed, but the interpreta-

|

Oa re EES Ble as We ct iy eh nla

4]

tion to be placed on the term “each violation’’ in the

context of a newspaper advertisement. Even under our

interpretation of the statute, the trial court must manifestly

act reasonably in light of all pertinent factors including the

kind of misrepresentations or deceptions, whether they

were intentionally made or the result of negligence, the

circulation of the newspaper, the nature and extent of the

public injury, and the size and wealth of the advertising

enterprise.

DISPOSITION

Let a peremptoryy writ of mandate issue commanding

the trial court to vacate its ““Order granting defendants’

motion for summary judgment and in the alternative

determining issues without controversy” and to take

further proceedings in the case consistent with the views

herein expressed.

GARDNER, P. J., and MORRIS, J., concur.

EE ee