Ameri v. City Of Chicago

Filing 76

MEMORANDUM Opinion and Order Signed by the Honorable John Z. Lee on 11/17/2015. Mailed notice (ao,)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
PETRU AMAREI, d/b/a
U.S. TAX EXPRESS, LTD.,
Plaintiff,
v.
CITY OF CHICAGO,
Defendant.

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Case No. 13 C 2805
Hon. John Z. Lee

MEMORANDUM OPINION AND ORDER
Plaintiff Petru Amarei, a tax preparer, sues Defendant, the City of Chicago (“the City”),
for various constitutional violations related to the City’s Tax Preparer Ordinance, Municipal
Code § 4-44 (“the Ordinance”). On prior occasions, the Court dismissed Amarei’s Second
Amended Complaint and most of his Third Amended Complaint pursuant to Federal Rules of
Civil Procedure 12(b)(6) and 15(a)(2), respectively. See 3/21/14 Order; 3/5/15 Order. Amarei
has now filed a Fourth Amended Complaint, which the City moves to dismiss pursuant to Rule
12(b)(6). For the following reasons, that motion is granted in part and denied in part.
Factual Background
The Ordinance at issue in this case requires tax preparers in the City of Chicago to
provide their customers with a copy of the City’s Consumer Bill of Rights Regarding Tax
Preparation Services and a disclosure form prior to discussing tax matters with them. See § 444-030(a). The disclosure form must be approved annually by the City and contain five things: a
list of services provided by the preparer, the corresponding fees associated with those services,
an estimate of the total charge to the consumer, an estimate of the time it will likely take to
receive any tax refund, and a certification verifying that the tax preparer has reviewed all the

required disclosures with consumer.

See § 4-44-030(a)–(b).

According to Amarei, these

disclosure requirements violate his First Amendment rights by interfering with his ability to
engage in commercial speech with customers.
Legal Standard
To survive a motion to dismiss pursuant to Rule 12(b)(6), a complaint must “state a claim
to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A
claim has facial plausibility when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009). Additionally, when considering motions to dismiss, the
Court accepts “all well-pleaded factual allegations as true and view[s] them in the light most
favorable to the plaintiff.” Lavalais v. Vill. of Melrose Park, 734 F.3d 629, 632 (7th Cir. 2013)
(citing Luevano v. Wal–Mart Stores, Inc., 722 F.3d 1014, 1027 (7th Cir. 2013)). At the same
time, “allegations in the form of legal conclusions are insufficient to survive a Rule 12(b)(6)
motion.” McReynolds v. Merrill Lynch & Co., Inc., 694 F.3d 873, 885 (7th Cir. 2012) (citing
Iqbal, 556 U.S. at 678). As such, “[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678.
Analysis
All that remains of Amarei’s previous complaints is Count VII. See 4th Am. Compl.
¶¶ 133–70. Count VII, although presented as one count, in fact contains two separate claims. Id.
The first part of Count VII alleges that the Ordinance is an unconstitutional restriction on
commercial speech, insofar as it compels speech on his behalf in the form of the mandatory
disclosures and interferes with his ability to engage in commercial speech with his customers.
The second part of Count VII contends the Ordinance is an impermissible prior restraint, as it

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restricts his ability to engage in commercial speech until the City annually approves his
disclosure form.
I.

Compelled Speech
In a prior order, this Court declined to dismiss the first part of Count VII. See 3/5/15

Order 4. In its analysis, the Court applied the four-part test outlined in Cent. Hudson Gas &
Elec. Corp. v. Pub. Serv. Comm’n of New York, 447 U.S. 557, 562–63 (1980), which is a form of
intermediate scrutiny. See Florida Bar v. Went For It, Inc., 515 U.S. 618, 623 (1995). The City
argues the Court erred in applying Central Hudson, however, and urges the Court to instead
apply the less-exacting “reasonable relationship” standard established by Zauderer v. Office of
Disciplinary Counsel of the Supreme Court of Ohio, 471 U.S. 626 (1985). See Def.’s Mem. 5–8.
At issue in Zauderer was whether the First Amendment permitted Ohio to sanction an
attorney for an advertisement that failed to disclose the percentages associated with his
contingency-fee agreement, as required by an Ohio disciplinary rule. Zauderer, 471 U.S. at 633.
In finding that the Ohio disciplinary rule was constitutionally permissible, the Supreme Court
noted that the interest to the attorney “in not providing any particular factual information in his
advertising is minimal.” Id. at 651. Thus, “an advertiser’s rights are adequately protected as
long as disclosure requirements are reasonably related to the State’s interest in preventing
deception of consumers.” Id.
The difference between this case and Zauderer is apparent; here, the City does not seek to
sanction Amarei for an advertisement, but seeks to prevent the dissemination of misleading
information by requiring certain disclosures before he provides services. This Court previously
applied Central Hudson based upon the reasoning stated in R.J. Reynolds Tobacco Co. v. Food
& Drug Admin., 696 F.3d 1205, 1214 (D.C. Cir. 2012) (“[A] disclosure requirement is only

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appropriate if the government shows that, absent a warning, there is a self-evident—or at least
‘potentially real’—danger that an advertisement will mislead consumers.”). There, the D.C.
Circuit held that Zauderer applied only to situations in which the relevant government action
aims to correct an existing and potentially misleading advertisement. Order 3/21/14 n.3. The
D.C. Circuit, however, has since overruled Reynolds, prompting the Court to revisit the issue.
See Am. Meat Inst. v. U.S. Dep’t of Agric., 760 F.3d 18, 22–23 (D.C. Cir. 2014) (expressly
overruling R.J. Reynolds Tobacco Co. in this regard).
The First and Second Circuits join the D.C. Circuit in holding that the Zauderer standard
applies when reviewing the constitutionality of forced disclosures in a commercial context,
regardless of whether those disclosures seek to correct a preexisting, misleading advertisement.
See Pharm. Care Mgmt. Ass’n v. Rowe, 429 F.3d 294, 310 (1st Cir. 2005) (applying Zauderer to
compelled disclosures by pharmacy benefit managers to clients); New York State Rest. Ass’n v.
New York City Bd. of Health, 556 F.3d 114, 132 (2d Cir. 2009) (applying Zauderer to disclosure
of calorie counts on menus). Adopting a more restrictive reading of Zauderer, the Sixth Circuit,
however, declined to extend Zauderer’s application beyond its facts. See Disc. Tobacco City &
Lottery, Inc. v. United States, 674 F.3d 509, 524 (6th Cir. 2012) (declining to apply Zauderer to
law mandating cigarette warning labels). The Seventh Circuit has not explicitly adopted either
approach, but its most recent case applying Zauderer suggests that it would agree with the
majority view.
In Entertainment Software Association v. Blagojevich, the Seventh Circuit examined an
Illinois law requiring video game retailers to affix a large sticker on the packaging of certain
games that contain sexually explicit material. 469 F.3d 641, 643 (7th Cir. 2006). There, the
government argued that the purpose of the law was to inform parents of a game’s potentially

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offensive content and not to correct any existing false advertisement. Noting that Zauderer
“allowed states to require the inclusion of ‘purely factual and uncontroversial information . . . as
long as disclosure requirements are reasonably related to the State’s interest in preventing
deception of consumers,’” the Seventh Circuit opined that “[t]he question that we must answer is
whether the . . . labeling and signage requirements are compelled speech in violation of the
Constitution or simply requirements of purely factual disclosures.” Id. at 652 (citation omitted).
Ultimately, the court determined that the language in question was not purely factual in nature
and did not apply Zauderer. Id. But its reasoning indicates the Seventh Circuit’s approval of
Zauderer’s application even in the absence of potentially misleading statements. Consequently,
the Court agrees with the City that Zauderer provides the relevant analysis here.
Applying Zauderer, the Court finds the Ordinance survives Amarei’s facial challenge.
First, the required disclosures contain only the sort of uncontroversial factual information that
Zauderer contemplated: a list of services rendered by the tax preparer, a list of corresponding
prices, the estimated time a customer can expect to receive a refund, and a short certification
statement. Moreover, the disclosures quite clearly further the City’s goal of preventing tax
preparers from taking advantage of customers with “hidden fees, false advertising, and the
recommendation of unnecessary and expensive tax refund products.” See Pl.’s Mem. 9–10. It
goes without saying that an unscrupulous tax preparer would find it far more difficult to defraud
consumers in such a manner if said consumers had previously been apprised of the precise
services being rendered and their total cost. In short, the disclosures merely arm the consumer
with the basic facts necessary to prevent fraud, and thus meet Zauderer’s “reasonable
relationship” standard.

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That said, it should be noted that, despite its “reasonable relationship” language,
Zauderer is not a form of rational basis review. And although the D.C. Circuit noted that under
Zauderer, “the government’s burden . . . is to show a ‘reasonable fit’ between . . . means and
end,” Am. Meat Inst., 760 F.3d at 26 (internal citations omitted), it is unclear whether the
Seventh Circuit would adopt this “reasonable fit” standard. See Commodity Trend Serv., Inc. v.
Commodity Futures Trading Comm’n, 233 F.3d 981, 994 (7th Cir. 2000) (stating that disclosure
requirements must “be no broader than necessary to prevent the [deception]”). In any event, the
Court concludes that the ordinance in question would meet even the “no broader than necessary”
standard. The requirements are closely aimed at preventing consumer deception, and Amarei has
failed to explain how the content of the disclosures might otherwise interfere with lawful forms
of commercial speech.
Nor, for that matter, are the Ordinance’s requirements particularly burdensome. All it
asks is that a tax preparer spend a few short moments discussing the disclosures with the
consumer and have the forms approved once annually via email. Indeed, the only burden
Amarei truly complains of is that the disclosure requirement would prohibit him from engaging
in commercial speech in the rare situation a potential customer approached him for tax advice
while he was not in his office. See Resp. ¶ 7. The Court previously addressed these concerns in
a prior order with respect to Count IV. See 3/5/15 Order 3. And in any event, to the extent the
Ordinance might prevent Amarei from giving on-the-fly tax preparation services to a passerby,
the impact is quite frankly minimal; even in the off-chance someone should seek his services in a
public place or outside his office, it is hardly a significant burden for Amarei to schedule a future
meeting to go over the necessary disclosures. For these reasons, Amarei’s facial challenge fails
under Zauderer, and the Court dismisses the first part of Count VII, with prejudice.

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II.

Prior Restraint
Amarei also argues the Ordinance is an impermissible prior restraint, as the City

indefinitely suppresses his ability to engage commercial speech while it approves his disclosure
form. A prior restraint can be established by the following four characteristics:
(1) [T]he speaker must apply to the decision maker before engaging in the
proposed communication; (2) the decision maker is empowered to determine
whether the applicant should be granted permission on the basis of its review of
the content of the communication; (3) approval of the application requires the
decision maker’s affirmative action; and (4) approval is not a matter of routine,
but involves appraisal of facts, the exercise of judgment, and the formation of an
opinion by the decision maker.
Samuelson v. LaPorte Cmty. Sch. Corp., 526 F.3d 1046, 1051 (7th Cir. 2008). Moreover, “[a]
scheme that fails to set reasonable time limits on the decisionmaker” can be unlawful as it
“creates the risk of indefinitely suppressing permissible speech.” FW/PBS, Inc. v. City of Dallas,
493 U.S. 215, 227 (1990).
In his Fourth Amended Complaint, Amarei pleads that in January 2013 he filed with the
City a disclosure form for approval. Compl. ¶ 135. The City never approved that form, nor did
it reject it; the City simply took no action. Id. After attempting to engage in his practice as a tax
preparer, Amarei was fined by the City. Id. ¶ 136. Amarei submitted another disclosure form in
March 2013, which was approved only a short time before the April deadline for filing taxes. Id.
Perhaps further factual development will show that the City is required to provide a reasonable
prompt response and it did so here, but construing all allegations in Amarei’s favor (as the Court
must here at this stage), the Court finds that he has pleaded enough to state a plausible claim.
Conclusion
For these reasons, Defendant’s motion to dismiss [63] is granted in part and denied in
part.

To the extent Count VII raises a facial challenge to the Ordinance for restricting

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commercial speech through mandatory disclosures, it is dismissed with prejudice. In all other
respects, the motion is denied.

SO ORDERED

ENTER: November 17, 2015
/s/ John Z. Lee
________________________________________
JOHN Z. LEE
United States District Judge

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