Mark Hamblett of the Connecticut Law Tribune explains the decision in detail:
The Circuit has struck down a Connecticut law that forced an insurance company and auto glass repair business to mention a competitor's name if the insurer violated a ban on promoting its own repair shops.
The U.S. Court of Appeals for the Second Circuit blocked enforcement of a newly-passed Connecticut state law, saying it violated the First Amendment as an impermissible constraint on commercial speech. In Safelite Group v. Jepsen, the Second Circuit reversed a lower court, which dismissed a challenge to Connecticut's Pubic Act 38a-354.
Effective Jan. 1, 2014, the law barred insurance companies and claims administrators from requiring customers to patronize their auto glass repair affiliates and prevented them from mentioning those affiliates without also naming a competitor.
Second Circuit Judges Ralph Winter, John Walker and Jose Cabranes said that Connecticut U.S. District Judge Janet Bond Arterton should have applied intermediate scrutiny to distinguish between laws that impermissibly compel speech and those that merely require disclosure of information.
Safelite is a national insurance claims management company whose affiliate, Safelite Autoglass, provides auto glass repair and replacement in Connecticut. In 2013, several state legislators cited the need for legislation to protect local glass dealers not affiliated with Safelite when they passed Public Act 38a354.
"The legislative history of PA 13-67 revealed no consumer dissatisfaction with Safelite's business model but substantial concerns on the part of unaffiliated glass dealers," Winter said in the court's opinion.
Winter explained that the standard for reviewing a restriction on commercial speech was laid out by the U.S. Supreme Court in Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S. 557 (1980), where the court required intermediate scrutiny—"a determination of whether the restriction directly advances a substantial governmental interest and is not overly restrictive."
But in Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, 471 U.S. 626 (1985), the Supreme Court laid out an exception to Central Hudson for an information disclosure law when it applied the less-exacting standard of rational basis review and upheld an Ohio regulation on attorney advertising.
Zauderer had advertised that a client's "full legal fee would be refunded if they were convicted of drunk driving." The Supreme Court credited Ohio's justifications of ensuring that attorneys advertise "in a dignified manner" and "do not use false or misleading adverting to stir up meritless litigation against innocent defendants."
In interpreting these and other cases, Winter said the circuit drew the distinction between laws that restrict speech and laws that require disclosure, including when the court upheld New York City's requirement that certain restaurants post calorie content on menu and menu boards on the grounds it only required disclosure of factual content and was "reasonably related to New York City's goals of combatting obesity."
Arterton concluded that the Safelite law merely required disclosure of factual information, but Winter said the circuit's own case law applying Zauderer, as well as that of other courts, "has dealt with disclosure requirements about a company's own products and services," not the products and services of others.
"Prohibiting a business from promoting its own product on the condition that it also promote the product of a competitor is a very serious deterrent to commercial speech," he said. "Moreover, such laws are highly likely to further covertly protectionist, rather than consumer information, goals—--in particular, by protecting existing businesses, which may be well known, against new entrants."
Because the disclosure requirement "compels speech that goes beyond the speaker's own product or service," intermediate scrutiny applies, as the court concluded that "the speech requirement here does more to inhibit First Amendment values than it does to enhance them."
Applying that scrutiny, Winter said there was no claim or evidence that Saflite was misleading customers or lying to them, the court was skeptical of the government's interest in the law, noting that Connecticut consumers were already protected from "undue steering and influence" under pre-existing law and the new law was "more extensive than necessary."
The circuit vacated the lower court's ruling and issued a preliminary injunction against the law.
Jay Lefkowitz, partner at Kirkland & Ellis, argued for Safelite with Steven Menashi, of counsel at Kirkland & Ellis, and Benjamin Jense, counsel at Robinson & Cole in Hartford, on the brief.
"This is a great decision," Lefkowitz said. "The court clearly saw the pretext behind the statute for what it was—a clear violation of the First Amendment."
Assistant Attorney General Joseph Chambers argued for Connecticut, with Assistant Attorney General Matthew Budzik on the brief.