Jakanna Woodworks, Inc. v. Montgomery County

CHASANOW, Judge. The issue in this case is whether Chapter 30-10 of the Montgomery County Code, which requires merchants to obtain a license before advertising a “closing-out sale,” impermissibly infringes upon the constitutional rights of merchants to engage in truthful and non-misleading commercial speech, both because Chapter 30-10 is not narrowly tailored to advance directly a substantial government interest and because it constitutes a prior restraint on speech. For the reasons set forth below, we hold that Chapter 30-10 does impermissibly impinge upon truthful and non-misleading commercial speech and that it is unconstitutional. I. Petitioner is a small, family-owned furniture store.

The store has been in operation for fifteen years in Rockville, ⁵⁹¹ Maryland. In April 1995, Petitioner’s proprietors, Morton Jacobs and his wife, Anna Wheeler, decided to look for a larger store with additional space in which to display furniture and to store inventory. The proprietors found a suitable space across the street from the Rockville store and entered into a lease in May of 1995. In order to minimize inventory damage and moving costs, Jacobs decided to attempt to sell all of his old inventory before the move and to order all new inventory for the new store.

A successful sale of the old inventory would require advertisement, and Jacobs decided to place an advertisement in the Montgomery Gazette. The advertisement, which appeared on May 17, 1995, read: “PUBLIC NOTICE FURNITURE LIQUIDATION One of the metro area’s largest wood furniture specialty stores is selling off their entire store and warehouse inventory!.] Every Floor Sample and Every Item In Stock Must Be Sold! SELLING OUT TO THE BARE WALLS NOTHING HELD BACK!” The advertisement went on to list the store’s address, its hours of operation, and the prices of some of the furnishings that would be available for purchase. It is undisputed that the address, hours, and prices listed in the advertisement were truthful.

Unbeknownst to Jacobs, by using the word “liquidation” in the advertisement, and perhaps based on the advertisement’s content, he had advertised a “closing-out sale” in violation of Chapter 30-10 of the Montgomery County Code. “ ‘Closing-out sale’ includes any sale advertised, represented or held under the designation of ‘going out of business,’ ‘discontinuance of business,’ ‘selling out,’ ‘liquidation,’ ‘lost our lease,’ ‘must vacate,’ ‘forced out,’ ‘removal’ or any similar designation but does not include the closing out of an item of merchandise.” 1 ⁵⁹² Montgomery County Code, § 30-10(a)(2)(1994). Chapter 30-10 prohibits any person from advertising a “closing-out sale” without first obtaining a license from the Director of the Office of Consumer Affairs (“Director”). Montgomery County Code, § 30-10(b)(1). 2 To receive such a license, one must file an application under oath and pay an application fee. Montgomery County Code, § 30-10(b)(2),(3).

The application, which must be filed no later than 14 days before the opening date of the sale, must contain “all relevant facts relating to the sale, including: (A) the first and last dates of the proposed sale; (B) the date when the owner of the business intends to stop the operations of the business at the location or locations listed in the application; (C) a complete inventory of the merchandise to be sold; (D) a list of all persons with an ownership interest in the business if the business does not have publicly-traded shares; (E) the text of all advertising that will be placed in print or electronic media in connection with the proposed sale; and (F) all details necessary to locate exactly and identify the merchandise to be sold.” ⁵⁹³ Montgomery County Code, § 30-10(b)(2)(A)-(F). The penalty for violating Chapter 30-10 is a $500 fine for every day that the advertisement appears. Montgomery County Code, §§ 1— 19, 30—10(d). The statute states that, after receiving all of the information required by Chapter 30-10 and the application fee, the Director “may” grant a license if she is “satisfied ... that the proposed sale is consistent with the proposed advertising.” Montgomery County Code, § 30—10(b)(3).

The Director testified at trial that, although not required to do so by the statute, she would make an on-site investigation of an applicant’s premises before deciding whether to grant a license. The inspections “could take a couple of days.” Chapter 30-10 does not explicitly establish any time within which the Director must announce his or her decision whether to grant or deny a license. Jacobs was not aware of the requirements of Chapter 30-10, and he did not apply for a license before he placed his advertisement in the Montgomery Gazette. As a result of his advertisement, Jacobs was issued a citation, which provided that he could either stand trial or pay a $500 fine.

The citation read: “the word [liquidation] can only be used in connection with a closing out sale, which requires a License. [Jakanna Woodworks] did not have a License.” Petitioner chose to stand trial in the District Court of Maryland rather than to pay the fine assessed, and the proceedings took place in October of 1995. The judge found that Petitioner had violated Chapter 30-10 and imposed a $100 fine. Petitioner appealed the judgment to the Circuit Court for Montgomery County, and a trial de novo was held in January of 1996 before Judge Pincus. Petitioner argued that Chapter 30-10 was an overly broad regulation of commercial speech and an invalid prior restraint that violated the First and Fourteenth Amendments to the United States Constitution and Article 40 of the Maryland Declaration of Rights.

Petitioner argued that the circuit court should apply a four-part, intermediate scrutiny test to resolve the issue of overbreadth ⁵⁹⁴ and that the court should examine whether the statute provided sufficient procedural safeguards to determine whether it was a valid prior restraint. Montgomery County (“the County”), the defendant below, did not address the overbreadth argument, and it only briefly addressed one of Petitioner’s prior restraint arguments. Instead, it argued that the ordinance should be presumed valid and that it had a “clear, rational purpose to protect consumers.” Based on its belief that advertisements containing the words listed in the ordinance often are untruthful or misleading, the County enacted the ordinance to protect consumers. The Director confirmed, however, that a citation was issued to Petitioner solely because the word “liquidation” appeared in its advertisement and not because she knew or suspected that the advertisement was false or misleading.

Petitioner was issued a citation because its advertisement, which used one of the trigger words listed in the ordinance, fell within the scope of Chapter 30-10 and, therefore, required a license. At the close of all evidence, Judge Pincus, apparently accepting the County’s argument that no serious First Amendment violation was at hand and that no overbreadth or prior restraint analysis was required, concluded that Chapter 30-10 was a “legitimate exercise of governmental power” and that the ordinance served “a legitimate governmental interest.” The judge stated that he could find nothing unreasonable about the law and found that it did not violate either the U.S. Constitution or the Maryland Declaration of Rights. Judge Pincus imposed a $100 fine. Because the Circuit Court for Montgomery County had already provided appellate review of the District Court judgment, Petitioner was not able to have the judgment of the circuiTcourt reviewed by the Court of Special Appeals.

Maryland Code (1974, 1995 Repl.Vol.), Courts & Judicial Proceedings, §§ 12-302,. 12-305. This Court granted Petitioner’s petition for a writ of certiorari in April of 1996. ⁵⁹⁵ II. We begin by recalling that the First Amendment to the United States Constitution applies to the states via the Fourteenth Amendment, see Central Hudson Gas v. Public Service Comm’n, 447 U.S. 557, 561 , 100 S.Ct. 2343, 2349 , 65 L.Ed.2d 341, 348 (1980); Freedman v. State, 233 Md. 498, 501 , 197 A.2d 232, 234 (1964), rev’d on other grounds, 380 U.S. 51 , 85 S.Ct. 734 , 13 L.Ed.2d 649 (1965), and that the freedoms protected by Article 40 of the Maryland Declaration of Rights have been interpreted by this Court to be co-extensive with the freedoms protected by the First Amendment. Freedman, 233 Md. at 505 , 197 A.2d at 235-36 (“The guaranty of freedom of speech and press ordained in Art. 40 would appear to be, in legal effect, substantially similar to that enunciated in the First Amendment, and it is significant that Art. 40 has been treated by this Court as in pari materia with the First Amendment.”).

Thus, the issues in this case may be resolved by applying United States Supreme Court case law interpreting the First Amendment. Several well-settled principles have emerged from the Supreme Court’s interpretation of the First Amendment, both as to commercial speech and as to prior restraints on speech. A. Commercial speech is “expression related solely to the economic interests of the speaker and its audience.” Central Hudson, 447 U.S. at 561 , 100 S.Ct. at 2349 , 65 L.Ed.2d at 348 (citing Virginia Pharmacy Board v. Virginia Citizens Consumer Council, 425 U.S. 748, 762 , 96 S.Ct. 1817, 1825-26 , 48 L.Ed.2d 346, 359 (1976)). Commercial speech is protected from unwarranted governmental regulation, however, because commercial speech “not only serves the economic interest of the speaker, but also furthers the societal interest in the fullest possible dissemination of information.” Central Hudson, 447 U.S. at 561-62 , 100 S.Ct. at 2349 , 65 L.Ed.2d at 348 .

Because society benefits only from the full dissemination of certain kinds of commercial speech, however, “[t]he Constitu ⁵⁹⁶ tion ... accords a lesser protection to commercial speech than to other constitutionally guaranteed expression.” Central Hudson, 447 U.S. at 562-63 , 100 S.Ct. at 2350 , 65 L.Ed.2d at 348 -49 (citing Ohralik v. Ohio State Bar Assn., 436 U.S. 447, 456-57 , 98 S.Ct. 1912, 1918-19 , 56 L.Ed.2d 444, 453-54 (1978)). A governmental restriction on commercial speech will be tolerated if the restriction satisfies the four-part, intermediate scrutiny test enunciated by the Supreme Court in Central Hudson: “At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask whether the asserted governmental interest is substantial.

If both inquiries yield positive answers, we must determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest.” Central Hudson, 447 U.S. at 566 , 100 S.Ct. at 2351 , 65 L.Ed.2d at 351 . In Central Hudson, the Supreme Court struck down a regulation of the Public Service Commission of the State of New York that banned all forms of promotional advertising by an electrical utility. The Commission argued that the regulation served the substantial state interests of promoting energy conservation and ensuring fair rates. Central Hudson, 447 U.S. at 559-60 , 100 S.Ct. at 2347-48 , 65 L.Ed.2d at 346-47 .

Promotional advertising, the Commission argued, could send “misleading signals” to consumers by appearing to promote energy consumption, which necessarily would be detrimental to the state’s goal of energy conservation. Central Hudson, 447 U.S. at 560 , 100 S.Ct. at 2348 , 65 L.Ed.2d at 347 . Also, the Commission stated that any additional electricity would be more expensive to produce, yet the Commission argued that the additional power would likely be sold at a cost lower than the cost of generation. Id.

All consumers would be forced to pay higher rates to subsidize the lower pricing, and this would not serve the state’s goal of ensuring fair and efficient rates. Id. ⁵⁹⁷ The Supreme Court analyzed the New York regulation pursuant to the four-part test outlined above. The Court explained that the speech being banned, which was not inaccurate and did not concern illegal activity, was entitled to First Amendment protection. Central Hudson, 447 U.S. at 566-68 , 100 S.Ct. at 2351-52 , 65 L.Ed.2d at 351-52 .

The Court agreed that the two governmental interests served by the regulation, ensuring fair and efficient rates and conserving energy, were substantial. Central Hudson, 447 U.S. at 568-69 , 100 S.Ct. at 2352-53 , 65 L.Ed.2d at 352-53 . The Court then stated that the regulation did not directly promote the interest of ensuring fair and efficient rates but that the regulation did directly advance the interest of energy conservation. Central Hudson, 447 U.S. at 569 , 100 S.Ct. at 2353 , 65 L.Ed.2d at 353 .

The Court noted, however, that the complete ban prohibited promotional advertising “that would cause no net increase in total energy use” or that could have a beneficial impact. Central Hudson, 447 U.S. at 570 , 100 S.Ct. at 2353 , 65 L.Ed.2d at 353 . Thus, the Court declared the regulation to be invalid because it was “more extensive than necessary to further the State’s interest in energy conservation.” See Central Hudson, 447 U.S. at 569-71 , 100 S.Ct. at 2353-54 , 65 L.Ed.2d at 353-54 . The Central Hudson intermediate scrutiny test was recently applied in Florida Bar v. Went For It, Inc., 515 U.S. -, 115 S.Ct. 2371 , 132 L.Ed.2d 541 (1995).

In Florida Bar , the Supreme Court upheld two rules of the Florida Bar that, together, prohibited lawyers from soliciting, directly or indirectly, victims of an accident or disaster, or the relatives of such victims, by direct mail within 30 days of the accident or disaster. Florida Bar , 515 U.S. at -, 115 S.Ct. at 2374 , 132 L.Ed.2d at 547 . The rules were adopted in response to the results of a two-year study, conducted by the Florida Bar, of the effects of lawyer advertising on public opinion. Id.

The study revealed that “direct mail solicitations in the wake of accidents are perceived by [Floridians] as intrusive.... ” See Florida Bar, 515 U.S. at -, 115 S.Ct. at 2376 , 132 L.Ed.2d at 550 . The Bar adopted the rules to prevent Florida attorneys from engaging in “deplorable” conduct that would further ⁵⁹⁸ injure victims and their relatives and that would degrade the already “flagging” reputations of the attorneys themselves. Florida Bar , 515 U.S. at -, 115 S.Ct. at 2376 , 132 L.Ed.2d at 549-50 . A Florida attorney and his wholly-owned lawyer referral service challenged the constitutionality of the two rules on First and Fourteenth Amendment grounds.

Florida Bar , 515 U.S. at -, 115 S.Ct. at 2374 , 132 L.Ed.2d at 547 . The Court explained that the speech the Bar sought to regulate was not misleading and, therefore, that the rules could be tolerated only if they survived intermediate scrutiny under the Central Hudson test. Florida Bar , 515 U.S. at -, 115 S.Ct. at 2375-76 , 132 L.Ed.2d at 549 . The Court easily concluded that the rules served the substantial interest of “protecting the privacy and tranquility of personal injury victims and their loved ones against intrusive, unsolicited contact by lawyers,” Florida Bar , 515 U.S. at -, 115 S.Ct. at 2376-77 , 132 L.Ed.2d at 549-50 , as well as the interest of preserving the integrity of the legal profession.

Florida Bar , 515 U.S. at -, 115 S.Ct. at 2381 , 132 L.Ed.2d at 556 . A summary of the Bar’s two-year study of the effects of lawyer advertising on public opinion, which contained anecdotal and statistical data supporting the Bar’s position, was submitted to the Court, and the summary convinced the Court that the rules directly and materially advanced the Bar’s interest. See Florida Bar, 515 U.S. at -, 115 S.Ct. at 2377-79 , 132 L.Ed.2d at 550-52 . Finally, the Court held that because solicitations were banned for such a brief time, and because ample opportunities to obtain similar information elsewhere during the temporary ban existed, the rules were “reasonably well-tailored to [the Bar’s] stated objective____” Florida Bar , 515 U.S. at -, 115 S.Ct. at 2380 , 132 L.Ed.2d at 555 .

The Court concluded with a summary of its holdings: “The Bar has [a] substantial interest both in protecting injured Floridians from invasive conduct by lawyers and in preventing the erosion of confidence in the profession that such repeated invasions have engendered. The Bar’s proffered study, unrebutted by respondents below, provides evidence indicating that the harms it targets are far from ⁵⁹⁹ illusory. The palliative devised by the Bar to address these harms is narrow both in scope and duration. The Constitution, in our view, requires nothing more.” Florida Bar , 515 U.S. at -, 115 S.Ct. at 2381 , 132 L.Ed.2d at 556 .

B. A statute, ordinance, or regulation that prevents expression unless and until a license or permit is obtained from a governmental official or group is a prior restraint on speech. See, e.g., Saia v. New York, 334 U.S. 558, 559-60 , 68 S.Ct. 1148, 1149 , 92 L.Ed. 1574, 1577 (1948); Shuttlesworth v. Birmingham, 394 U.S. 147, 150-51 , 89 S.Ct. 935, 938-39 , 22 L.Ed.2d 162, 167 (1969). Prior restraints “present[ the] danger of unduly suppressing protected expression,” see Freedman v. Maryland, 380 U.S. at 54 , 85 S.Ct. at 737 , 13 L.Ed.2d at 652 , and therefore, “bear[] a heavy presumption against [their] constitutional validity.” Bantam Books v. Sullivan, 372 U.S. 58, 70 , 83 S.Ct. 631, 639 , 9 L.Ed.2d 584, 593 (1963). That heavy burden may be rebutted, however, and a prior restraint on speech may be tolerated, if adequate procedural safeguards exist to protect against unduly suppressing protected speech.

Freedman, 380 U.S. at 58-60 , 85 S.Ct. at 738-39 , 13 L.Ed.2d at 654-55 . In Freedman, the Court struck down a Maryland statute that prohibited, among other things, the sale or exhibition of any film without a license from the State Board of Censors. 380 U.S. at 52 , 85 S.Ct. at 735 , 13 L.Ed.2d at 651 . Freedman, a filmmaker, challenged the statute on the ground that it risked unduly suppressing protected expression because any exhibition of a film was prohibited until the Board reached a decision or, if the Board denied a license, until the exhibitor could pursue a time-consuming appeal in the Maryland courts. Freedman, 380 U.S. at 54-55 , 85 S.Ct. at 737 , 13 L.Ed.2d at 652 .

Thus, speech that might later be held, after judicial review, to be protected by the First Amendment potentially could be suppressed for a lengthy period of time. ⁶⁰⁰ To avoid such an occurrence, the Supreme Court outlined three procedural safeguards that a prior restraint on speech must contain if it is to be upheld against a First Amendment challenge: “(1) any restraint prior to judicial review can be imposed only for a specified brief period during which the status quo must be maintained; (2) expeditious judicial review of that decision must be available; and (3) the censor must bear the burden of going to court to suppress the speech and must bear the burden of proof once in court.” FW/PBS, Inc. v. Dallas, 493 U.S. 215, 227 , 110 S.Ct. 596, 606 , 107 L.Ed.2d 603, 619 (1990)(citing Freedman, 380 U.S. at 58-60 , 85 S.Ct. at 739 , 13 L.Ed.2d at 654-55 ). The Court struck down the Maryland film statute as an unconstitutional prior restraint on speech because the statute failed to provide any of these safeguards. Since Freedman, Supreme Court cases concerning pri- or restraints have tended to focus on two evils: (1) a scheme that places unfettered discretion in the hands of a government official or group to grant or deny a permit or license, and (2) a scheme that does not place limits on the time within which the decision maker must issue the permit or license. FW/PBS, 493 U.S. at 225-26 , 110 S.Ct. at 604-05 , 107 L.Ed.2d at 618 .

A scheme that places unfettered discretion in the hands of a government official or group to grant or deny a permit or license to engage in a right that is guaranteed by the First Amendment is an impermissible prior restraint on speech. Staub v. Baxley, 355 U.S. 313, 325 , 78 S.Ct. 277, 284 , 2 L.Ed.2d 302, 313 (1958). “It is settled by a long line of recent decisions of this Court that an ordinance which ... makes the peaceful enjoyment of freedoms which the Constitution guarantees contingent upon the uncontrolled will of an official—as by requiring a permit or license which may be granted or withheld in the discretion of such official—is an unconstitu ⁶⁰¹ tional censorship or prior restraint upon the enjoyment of those freedoms.” Staub, 355 U.S. at 322 , 78 S.Ct. at 282 , 2 L.Ed.2d at 311 . For example, in Lakewood v. Plain Dealer, 486 U.S. 750 , 108 S.Ct. 2138 , 100 L.Ed.2d 771 (1988), the Supreme Court invalidated portions of an ordinance regulating the placement of news racks in the City of Lakewood, Ohio. The ordinance allowed newspaper dispensing machines to be placed on city sidewalks only with a permit, and the ordinance gave authority to Lakewood’s mayor to grant or deny permit applications.

Lakewood, 486 U.S. at 753 , 108 S.Ct. at 2142 , 100 L.Ed.2d at 780 . The ordinance stated: “ ‘The Mayor shall either deny the application, stating the reasons for such denial or grant said permit subject to