United States Court of Appeals
For the First Circuit
No. 04-1697
EL DÍA, INC.,
Plaintiff, Appellee,
v.
PUERTO RICO DEPARTMENT OF CONSUMER AFFAIRS;
SECRETARY OF THE DEPARTMENT OF CONSUMER AFFAIRS,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jay A. García-Gregory, U.S. District Judge]
Before
Torruella, Circuit Judge,
Campbell, Senior Circuit Judge,
and Lynch, Circuit Judge.
Doraliz E. Ortiz-De León, with whom Roberto J. Sánchez-Ramos,
Solicitor General, Kenneth Pamias-Velázquez, Deputy Solicitor
General, and Camelia Fernández-Romeu, Assistant Solicitor General,
were on brief, for appellants.
Etienne Totti-del Valle, with whom Cristina A. Fernández-
Rodríguez and Totti & Rodríguez Díaz, were on brief, for appellee.
June 3, 2005
TORRUELLA, Circuit Judge. This case is before us on
appeal from a grant of summary judgment in favor of plaintiff-
appellee El Día, Inc. ("El Día"), against defendants-appellants,
Puerto Rico Department of Consumer Affairs and the Secretary of
Consumer Affairs in his official capacity (collectively, "DACO").
The judgment declares that Article 24 of DACO's Regulation 43391 is
unconstitutional insofar as it impermissibly restricts commercial
speech entitled to First Amendment protection. El Día, Inc. v.
P.R. Dep't of Consumer Affairs, 313 F. Supp. 2d 54 (D.P.R. 2004).
I. Background
A. Facts
El Día is a Puerto Rico corporation that publishes "El
Nuevo Día," a newspaper of general circulation in Puerto Rico.
DACO is an administrative agency of the Commonwealth of Puerto Rico
whose stated mission is "to defend and implement the rights of the
consumer, to restrain the inflationary trends; as well as [to]
establish[] and inspect[] . . . price control[s] over . . . goods
and services . . . ." 3 P.R. Laws Ann. § 341b (2002).
On October 3, 1990, DACO adopted Regulation 4339 ("the
Regulation"), entitled "Regulations Governing Misleading Practices
and Advertising," for the stated purpose of protecting consumers
from fraudulent or deceptive advertisement of goods and services
1
A certified English translation of Article 24 appears at
Appendix A.
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offered in commerce in Puerto Rico, and to proscribe certain
misleading practices connected therewith. See DACO Reg. 4339 art.
2. The Regulation applies "to all persons dedicated to offering
goods and services to consumers, on their own or through a
representative, agent, intermediary or as a representative agent"
in Puerto Rico, including "all persons engaged in the business of
advertising or in similar activity." Id. art. 3 (certified
translation). Various specific advertising and merchandising
practices are proscribed as deceptive or misleading to the
consumer, id. art. 7, and thus the Regulation attempts to establish
a comprehensive set of rules as to the manner and content of
commercial advertisements, id. arts. 8-22.
As part of this regulatory scheme, Article 24 requires
that:
Any non-resident advertiser in Puerto Rico,
who is interested in broadcasting[2] one or
more advertisements in Puerto Rico, must
previously deposit with [DACO] a twenty-five
thousand ($25,000.00) dollar bond to cover the
imposition of fines for any noncompliance with
2
Although the term "broadcasting" is used in the certified
English translation of the Spanish-language Regulation, the proper
translation for the term used in the original, "difundir," is more
akin to "divulge," "propagate," or "publish." See Diccionario
Manual Vox, Lengua Española, Sinónimos y Antónimos, Nueva Edición
236 (1995); María Moliner, Diccionario del Uso Español 997 (1991).
Article 4 of the Regulation provides that in the event of a
discrepancy between the original text in Spanish and its English
translation, the Spanish text shall prevail. Nevertheless, the
parties apparently agree that publication of an advertisement in a
newspaper is within the purported coverage of the Regulation.
Thus, the mistranslation is irrelevant for our purposes.
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the provisions, orders and resolutions of
these regulations, as well as any pertinent
legal remedy in favor of the consumers.
. . .
The posting of the required bond entails
voluntarily surrendering to the jurisdiction
of [DACO] and of the General Court of Justice
of the Commonwealth of Puerto Rico.
This provision is intended to provide DACO with an enforcement
mechanism for fines imposed against nonresident advertisers who
violate the substantive requirements of the Regulation.
See Defendant's Statement of Uncontested Material Facts para. 19,
El Día, Inc. (No. 00-2631).
Article 24 goes on to require "[a]ny resident
intermediary in Puerto Rico [to] make sure, before broadcasting an
advertisement in Puerto Rico, that the advertiser has posted the
required bond," DACO Reg. art. 24(B), and allows resident
intermediaries, like El Día, to "comply with [their] responsibility
under this regulation by assuming the advertiser's responsibility
with respect to the posting of the required bond," id. art. 24(C).
One $25,000 bond suffices to cover all of the advertisements that
an intermediary publishes for an unlimited number of nonresident
advertisers. Id.
Violation of the Regulation can result in the imposition
of civil penalties up to $10,000, and may lead to the filing of a
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criminal action by DACO.3 Id. arts. 26, 27. Although the
Regulation appears to have been enforced with sporadic vigor, there
are several instances in which DACO imposed, or sought to impose,
civil fines upon El Día for alleged infractions of Article 24.
DACO sent notices of infraction to El Día for failure to determine
whether a nonresident advertiser had secured the required bond: in
May 1995, imposing a $5000 fine; on August 26, 1996, imposing a
$600 fine; and on October 6, 2000, imposing a $750 fine. See
Defendant's Statement of Uncontested Material Facts paras. 23-25.
El Día was also fined $500 for failing to respond to DACO's inquiry
about whether a bond had been secured by the nonresident purchaser
of an advertisement El Día published on September 17, 2001. See
id. para. 26.
B. Proceedings
Following the October 6, 2000 Notice of Infraction, El
Día filed an action in the United States District Court for the
District of Puerto Rico challenging Article 24's bond requirement
for nonresident advertisers and its requirement that resident
intermediaries act as guarantors of the bonds.4 El Día sought
3
Under Puerto Rico criminal law, this would be a misdemeanor
charge with a maximum sanction of six months' imprisonment and a
$5000 fine. See 33 P.R. Laws Ann. §§ 3044-3045 (2002).
4
El Día raised both its own interests, and those of its
advertisers, before the district court. DACO's challenge to El
Día's standing was rejected by the district court, see El Día, 33
F. Supp. 2d at 59-60, and has not been appealed.
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declaratory and injunctive relief under the Declaratory Judgment
Act, 28 U.S.C. §§ 2201-2202, and the Civil Rights Act of 1871, 42
U.S.C. § 1983, arguing that Article 24 violated the First and
Fourteenth Amendments, the Privileges and Immunities Clause, and
the Commerce Clause of the Constitution of the United States.
After various procedural skirmishes between the parties and
extensive discovery, cross motions for summary judgment were filed.
The district court referred these to a magistrate judge, and
ultimately adopted the magistrate judge's Report and Recommendation
in its Opinion and Order granting summary judgment in favor of El
Día.
The district court concluded, and we agree, that no
material issues of fact were in dispute, and that only legal
questions remained to be resolved. Thus, a classic case for
disposition by summary judgment was presented. See Fed. R. Civ. P.
56. In adopting the substance of the magistrate judge's reasoning,
the district court concluded that the Regulation violates the First
Amendment because it fails the test for commercial speech
restrictions established in Central Hudson Gas & Electric Corp. v.
Public Service Commission, 447 U.S. 557 (1980).5 In that case, the
Supreme Court stated that when commercial speech is entitled to
5
Although several members of the Court have since questioned the
Central Hudson framework, see Thompson v. W. States Med. Center,
535 U.S. 357, 367-68 (2002), the Court has continued to apply the
framework.
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First Amendment protection -- that is, when it concerns lawful
activity and is not misleading -- it can only be limited if the
restriction (1) is in support of a substantial government interest,
(2) "directly advances the governmental interest asserted," and (3)
"is not more extensive than is necessary to serve that interest."
Id. at 566.
Echoing the conclusions of the magistrate judge, the
district court found that, although the first Central Hudson prong
was met, Article 24's bond requirement failed to meet the second
prong. The district court found that DACO had failed to provide
evidence that the harms it sought to avoid with Article 24 are
real. Moreover, Article 24 "provided ineffective and remote
support to the [asserted governmental] interest of protecting
consumers." El Día, 313 F. Supp. 2d at 61. Because it found that
the second Central Hudson prong was not met, the district court
determined that it was unnecessary to decide whether Article 24
complied with the third prong. Id. We focus our attention, as the
parties did on appeal, on the second and third prongs.
II. Discussion
This is a case of first impression, as we are unaware of
any other federal or state regulation in the United States that
restricts the exercise of First Amendment rights in the manner
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utilized by Article 24 of the Regulation.6 Nonetheless, the unique
nature of a restriction on expression will not cause it to run
afoul of the First Amendment. In the instant case, the Regulation
fails because it does not meet the requirements set out in Central
Hudson for valid restrictions on commercial speech.
A. Litigation-related bonds
We note at the outset that the instant case challenges
the bond requirement on First Amendment grounds. Accordingly,
DACO's reliance on Hawes v. Club Ecuestre El Comandante, 535 F.2d
140 (1st Cir. 1976), is misplaced. In Hawes, we upheld the United
States District Court for the District of Puerto Rico's local rule
6
DACO notes that the Supreme Court of Nevada upheld, under
Central Hudson, a regulation that required telephone solicitors to
pay an annual registration fee and post a bond as security for the
recoupment of potential losses sustained by consumers as a result
of solicitors' deceptive practices or cessation of business,
provided the amounts of the fee and bond were "nominal and
reasonable." See Erwin v. Nevada, 908 P.2d 1367, 1370-72 (Nev.
1995). Article 24, however, does not impose a registration fee
like the one in Erwin, which was meant to cover the administrative
costs of a licensing scheme. See id. at 1370 ("[L]icensing fees
imposed upon expression-related businesses must be . . . imposed
only as a regulatory measure to defray the expenses of policing
such activities.") (internal quotation marks omitted). Rather,
like the Nevada regulation's bond requirement, Article 24 requires
security for a potential future cost that may never -- if the
advertiser refrains from fraudulent or deceptive practices -- be
incurred. Unlike the Nevada requirement, however, Article 24 does
not apply equally to all engaged in advertising in Puerto Rico, but
only to those who do so from outside the jurisdiction, along with
their intermediaries. Moreover, Nevada's law did not require a
third party -- the phone company, for example -- to act, under
penalty, as guarantor of telephone solicitors' compliance with the
law and continued operation. Because of these distinctions, the
Nevada court's decision in Erwin will not guide our analysis in the
instant case.
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requiring nonresident plaintiffs to post a bond as security against
the assessment of costs, expenses, and attorney's fees against
equal protection and Privileges and Immunities Clause challenges.
Id. at 143. The bond requirement in Hawes was not a restriction of
the right of expression, and was not challenged on First Amendment
grounds. It was therefore not evaluated under the standards
required for commercial speech restrictions after Central Hudson.
Instead, because the right of access to the courts was not deemed
a fundamental right that could be abridged only in support of a
compelling government interest, the rule's discrimination between
residents and nonresidents was evaluated for a rational basis. Id.
at 144. The reasoning of Hawes is accordingly inapplicable in the
First Amendment context.
In addition, the balance of interests involved with the
District of Puerto Rico's bond requirement, and similar rules in
other jurisdictions, see, e.g., id. at 143 n.4, is dramatically
different from the instant case. The bond in Hawes was not
required of nonresidents wishing to engage in commercial
expression, but rather of nonresidents wishing to hale Puerto Rico
residents into the federal courts of that district, forcing the
latter to incur significant litigation-related expenses. Where the
resident defendant prevailed, the costs of litigation would
ordinarily have been taxed against the nonresident plaintiff. See
Fed. R. Civ. P. 54(d)(1). Because of the likelihood that funds
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would need to be collected from a nonresident plaintiff, the risk
of harm from unenforceability was, accordingly, higher in Hawes.
Conversely, the nature of the restriction was more narrowly
tailored, insofar as the rule permitted the district court to waive
the bond requirement when it would be so excessive as to preclude
a plaintiff's right to sue. No such waiver is available under
Article 24 to nonresident advertisers or their resident
intermediaries.
B. Central Hudson test
The parties agree that this case involves commercial
speech, which is defined as "expression related solely to the
economic interests of the speaker and its audience." Central
Hudson, 447 U.S. at 561. Although commercial speech is generally
entitled to less protection under the First Amendment than other
forms of speech, it nonetheless has a claim to safekeeping from
unwarranted government intrusion. See Va. State Bd. of Pharmacy v.
Va. Citizens Consumer Council, 425 U.S. 748, 758-70 (1976).
Article 24 of the Regulation clearly represents such an intrusion
as to El Día, and, as we will explain, as to its nonresident
client/advertisers because it fails to meet the second and third
prongs of the Central Hudson test.
1. Advancing governmental interest
In order to satisfy the second prong of Central Hudson,
"a governmental body seeking to sustain a restriction on commercial
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speech must demonstrate that the harms it recites are real and that
its restrictions will in fact alleviate them to a material degree."
Edenfield v. Fane, 507 U.S. 761, 770-71 (1993). "[M]ere
speculation or conjecture" is insufficient to fulfill these
requirements. Id. at 770.
We agree with the district court that DACO fails to meet
this standard: "The record lacks evidence that support the
allegations that the harms Article 24 is intended to remedy are
real," and "the bond requirement provides only ineffective and
remote support" for DACO's asserted purpose of enforcing the
consumer protections contained in the Regulation. El Día, 313
F. Supp. 2d at 61.
a. Demonstration of harms
DACO alleges that the harm Article 24 prevents is
difficulty enforcing the Regulation's consumer protections against
nonresident advertisers. Article 24 addresses this harm, according
to DACO, by providing a mechanism for in personam jurisdiction
over, and funds for the payment of fines or damages charged to,
advertisers who often lack assets in Puerto Rico. But DACO has
failed to provide any evidence, other than conclusory assertions,
that nonresident advertisers pose a greater enforcement problem
than resident advertisers, who are not subject to the bond
requirement. Neither has it justified the distinction drawn in
Article 24(B) between resident intermediaries, who must act as
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guarantors of their advertisers' compliance with the bond
requirement, and nonresident intermediaries, who are not obliged to
act as guarantors.7
DACO argues that it need not provide empirical data to
meet the second prong of Central Hudson, but rather that speech
restrictions can be justified solely on "history, consensus, and
'simple common sense.'" Florida Bar v. Went For It, Inc., 515 U.S.
618, 628 (1995) (quoting Burson v. Freeman, 504 U.S. 191, 211
(1992)). The Supreme Court recognized in Florida Bar, however,
that the government's burden is not met when a "State offer[s] no
evidence or anecdotes in support of its restriction . . . ."
Id. (emphasis in original) (explaining finding of First Amendment
violation in Edenfield). That is exactly the case here.
The only available evidence concerning the Regulation's
enforcement directly contradicts DACO's assertion that it might
have difficulty enforcing the Regulation against nonresident
advertisers. DACO estimates that it imposed approximately 355
fines against resident advertisers for violations of the Regulation
between March and July 2003, although it was able to collect on
only 318. See Defendant's Answers to Plaintiff's Supplementary Set
7
On its face, Article 24(D) could arguably apply to both resident
and nonresident intermediaries, prohibiting both from broadcasting,
in Puerto Rico, advertisements for which no bond has been posted.
Read in context, however, it is not clear that Article 24(D)
applies to nonresident intermediaries, and, at any rate, there is
no indication that DACO has ever sought to enforce the prohibition
contained therein against nonresident intermediaries.
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of Interrogatories at 3, El Día, Inc. (No. 00-2631). In contrast,
there was no evidence of difficulty enforcing fines levied against
nonresident advertisers. DACO has no record of any resolution or
adjudication requiring execution of a bond posted by a nonresident
advertiser or a resident intermediary. See Defendant's Answers to
Plaintiff's First Set of Interrogatories at 5-6, El Día, Inc. (No.
00-2631). Plainly, DACO has failed to demonstrate that the harm it
seeks to avoid with Article 24 is real.
b. Evidence of material effect
A "regulation may not be sustained if it provides only
ineffective or remote support for the government's purpose."
Central Hudson, 447 U.S. at 564. Thus, even if there were a
documented enforcement problem with regard to nonresident
advertisers, DACO would still have to demonstrate that Article 24
has a material effect thereon.
Aside from Article 24, the Regulation is facially
applicable to both resident and nonresident advertisers: it is
aimed at protecting Puerto Rico consumers from false advertisements
and illicit merchandising practices regardless of who engages in
such actions or where they originate. Nevertheless, it is mostly
unenforced against a large segment of the nonresident advertising
trade, and the resident intermediaries therefor. DACO was able to
produce records of only seven entities having obtained bonds in
compliance with Article 24, see Defendant's Answers to Plaintiff's
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First Set of Interrogatories, exhibits 1-7, and it has not alleged
that any additional, unrecorded bonds exist. Countless other
nonresident advertisers reach Puerto Rico residents every day,
without having posted a bond, through media ranging from newspapers
to satellite television to direct mail. DACO, however, could
identify records of only three fines having been imposed for
violations of Article 24, two of which were against El Día.8 See
Defendant's Answers to Plaintiff's Supplementary Set of
Interrogatories at 2.
There is no evidence that DACO has attempted to enforce
the Regulation, including the provisions of Article 24, against the
vast majority of newspapers, magazines, television broadcasts,
internet announcements, satellite communications, and other
varieties of information media with access to consumers in Puerto
Rico. From all of these sources, the Puerto Rican consumer is
subjected to, and in many cases is the intended target of,
commercial messages directly from nonresident advertisers. Many of
these messages are broadcast within Puerto Rico via nonresident
intermediaries,9 to whom Article 24(B)'s resident intermediary
requirements do not apply and against whom Article 24(D)'s
8
This figure, reported by DACO, apparently does not include the
$750 fine against El Día which gave rise to the instant litigation.
9
For example, the New York Times, the Wall Street Journal, and
the Miami Herald are all available daily in Puerto Rico via news
stands, delivery by mail, and access over the internet.
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prohibition on broadcasting has not been enforced. Meanwhile, DACO
issued well over three hundred fines for violating the Regulation
to resident advertisers in a single four-month period of 2003.
Thus, Article 24 imposes no restraint on the resident
advertisers who are the principal violators of the Regulation, nor
does it improve DACO's apparently limited ability to enforce the
fines levied against resident violators. Neither has Article 24
restrained nonresident intermediaries, through which myriad
advertisements reach Puerto Rico residents every day. Finally, the
bulk of incoming advertising traffic remains de facto unsupervised
due to DACO's failure to enforce compliance with Article 24's bond
requirement. Article 24, therefore, has no material effect on
DACO's ability to enforce the other provisions of the Regulation.
2. Narrow tailoring
Although we are dealing with commercial speech, "the
First Amendment mandates that speech restrictions be narrowly
drawn." Central Hudson, 447 U.S. at 565 (internal quotation marks
omitted). "The regulatory technique may extend only as far as the
interest it serves." Id. The bond requirement has a direct
discriminatory effect against nonresident advertisers, who must
have the resources to obtain a $25,000 bond before they can engage
in commercial speech in Puerto Rico. In effect, it penalizes
protected commercial speech preemptively, on the possibility that
some commercial speech may be subject to proscription under the
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Regulation. Moreover, Article 24 places a heavy burden on resident
intermediaries, who must either post a $25,000 bond or forego
advertising revenue from those nonresidents unwilling or unable to
supply the bond. Resident intermediaries like El Día are forced,
thereby, to serve as guarantors of their nonresident advertisers'
compliance with the substantive requirements of the Regulation.
DACO makes no effort, however, to explain why less
drastic methods of ensuring nonresident advertisers' compliance
with the Regulation are not available. It argues only that the
narrow tailoring prong of Central Hudson requires only a
"reasonable fit" between the restriction and the government
interest it serves. See Bd. of Trustees v. Fox, 492 U.S. 469, 480
(1989). A "reasonable fit," however, "represents not necessarily
the single best disposition but one whose scope is in proportion to
the interest served." Id. (internal quotation marks omitted). In
the instant case, given the speculative nature of, and Article 24's
failure to have an effect on, the purported nonresident enforcement
problem, the net is cast too broadly for such a small catch.
III. Conclusion
Because we find no evidence of an enforceability problem
particular to nonresident advertisers, nor of Article 24 having any
material effect thereon, and because the bond requirement it
establishes is not narrowly tailored to achieve the government's
interest in enforcing the Regulation, we find that Article 24
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violates the First Amendment. Having so decided, we do not reach
any other arguments concerning the unconstitutionality of Article
24. The judgment of the district court is affirmed.
Affirmed.
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Appendix A
ARTICLE 24. - RESPONSIBILITY AND BOND OF THE NON-RESIDENT
ADVERTISER AND INTERMEDIARIES
Any non-resident advertiser in Puerto Rico, who is interested in
broadcasting one or more advertisements in Puerto Rico, must
previously deposit with the Department a twenty-five thousand
($25,000.00) dollar bond to cover the imposition of fines for any
noncompliance with the provisions, orders and resolutions of these
regulations, as well as any pertinent legal remedy in favor of the
consumers.
A. The required bond may be in cash, in an insurance policy
collectable in Puerto Rico, or in a document issued by a
bondsman registered in Puerto Rico, in favor of the
Secretary of the Treasury. If it is in cash, it shall be
posted with the Secretary and shall be kept in a special
account, or it may be obtained through a guarantor duly
authorized for that purpose in Puerto Rico. If it is not
available, the same shall be secured through an
authorized broker for surplus lines. In all other cases,
the bond or insurance document shall be delivered to the
Secretary for his safekeeping and custody.
The bond shall be effective for the duration of the
advertisement, plus one year from the date of publication
of the last advertisement, or the date of expiration of
the last advertisement, whichever expires last.
The posting of the required bond entails voluntarily
surrendering to the jurisdiction of the Department and of
the General Court of Justice of the Commonwealth of
Puerto Rico. Any order or document issued by the
Department, sent by mail or personally served on the
person and address indicated by the advertiser upon the
posting of the required bond, shall be deemed sufficient
notification. The advertiser shall be responsible for
providing the full name and exact address for purposes of
the required notice.
B. Any resident intermediary in Puerto Rico must make sure,
before broadcasting an advertisement in Puerto Rico, that
the advertiser has posted the required bond.
In order to comply with the requirement, it shall be
sufficient to obtain a certified copy of the advertiser's
bond certifying so. Said document must state, besides
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the date on which it was obtained, the type of bond
posted and the date it was consigned with the Department.
The intermediary shall keep the document available to the
Department throughout the term the advertisement
mentioned in the statement is broadcast, plus one year
from the last broadcast date.
C. Said intermediary can also comply with his responsibility
under this regulation by assuming the advertiser's
responsibility with respect to the posting of the
required bond. In this case one bond is sufficient to
cover all the advertisements that the intermediary of
non-resident advertisers in Puerto Rico broadcasts.
D. Advertisers that are non-residents in Puerto Rico, or
their intermediaries, may not broadcast in Puerto Rico an
advertisement without first posting the bond required by
these regulations.
E. The non posting of the required bond shall be sufficient
reason for the Secretary to order the advertiser or his
intermediary to cease from broadcasting the unsecured
advertisement.
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