(Jan. 31) SAN FRANCISCO — The 9th District Court of Appeals has ruled that table grape growers do not have to pay for generic advertising conducted by the California Table Grape Commission, Fresno.

The decision overturns a U.S. District Court ruling that generic advertising did not violate constitutional rights of growers opposed to paying the assessments.

Appellants in the case — Delano Farms Co., Delano; Susan Neill Fresh Fruit Co. and Lucas Bros., both of Visalia — sued for a judgment that assessments violated their First Amendment rights.

Assessments collected by the table grape commission total about $10 million annually.

The commission still has several options, including appealing the decision to the Supreme Court. However, the first course of action will be to petition for a rehearing of the case by a panel of 9th Circuit appeals court judges, said Robert Wilkinson, attorney for the commission.

Kathleen Nave, commission president, said the decision contains factual errors that she expects the courts will correct. She added that if the decision were upheld, it would not put the commission out of business.

However, Brian Leighton, attorney for the appellants, paints a much different picture.

“They will never get enough votes to get a rehearing,” Leighton said, adding that the commission will need four of four votes to win a rehearing.

Leighton added that about 90% of the commission’s work is in advertising and promotion. As such, he said, the commission, without an advertising program, will be forced to close down.

Nave said Leighton was lumping in other functions — retail promotion, category management, etc. — that did not figure into advertising. As far as true advertising expenses go, Nave said the commission spent $2.8 million of its 2002 budget of $10.4 million.

Nave points out the commission has multiple functions, including advertising and promotion, education programs, scientific research programs, foodservice education and promotions, market access programs and health research.

When the suit was filed in 1996, Delano Farms paid $221,000 in assessments. Neill Fresh Fruit and Lucas Bros. paid a combined $35,000 in assessments that year, according to court filings. Those firms, which continued to pay assessments until only recently, should get reparations dating back to the filing, Leighton said.

MAKING THE RULE

In ruling, the appellate court judges had the option of siding with a 1997 U.S. Supreme Court ruling that generic advertising for California growers of peaches, plums and nectarines did not violate the First Amendment.

Instead, the judges cited a 2001 Supreme Court decision that banned mandatory assessments for generic mushroom promotions by the Mushroom Council, Dublin.

United Foods Inc., Bells, Tenn., was the challenger in the mushroom case.

Wilkinson said it was wrong for the appellate judges to follow the mushroom ruling. He said that unlike mushrooms, table grapes are heavily regulated in the areas of grading, fruit maturity and container standards.

“We are more like the tree fruit marketing order,” Wilkinson said.

The tree fruit industry is regulated by price, quality and quantity of its products, Leighton said. That is what sets tree fruit apart from table grapes, he said.

Leighton said the table grapes are not regulated in the areas of price and quantity.

“The regulations do not discipline competition in the marketplace,” Leighton said.

The judges in the mushroom case decided that the mushroom program’s main function was advertising. And the appeals court judges in the grape case decided the table grape commission is more like the Mushroom Council.

MULTIPLICITY

Wilkinson insisted the commission has multiple functions, is part of a regulated industry and has antitrust immunity.

Leighton countered that the commission’s antitrust immunity only pertains to holding meetings and accepting a budget and an advertising campaign. He said it does not pertain to setting prices and quantity controls.

Nave said the issue has come down to whether the laws creating a commodity group are part of a larger regulatory scheme or stand alone in a relatively unregulated industry.

If it is ultimately decided that grapes are not part of a larger regulatory scheme, then the table grape commission could wind up like the Mushroom Council.

The Mushroom Council can no longer use mandatory assessments to conduct generic advertising, said Stephanie Grunenfelder, director of resources and information for the council.

“We do nonpromotional activities like research, category management and consumer trends,” she said. “We also do information gathering, educational activities like training chefs and we go to trade shows.”

Voluntary assessments paid to the Mushroom Council are used for promotional activities, however.