The U.S. Supreme Court heard oral arguments in Expressions Hair Design v. Schneiderman about whether a New York law that prohibits the imposition of surcharges on customers who use credit cards but allows discounts for customers who use cash is an unconstitutional abridgment of the First Amendment’s guarantee of free speech.
In the underlying case, the U.S. Court of Appeals for the Second Circuit held that New York’s credit card "no surcharge" law does not violate the First Amendment because it is directed more toward price regulation and conduct than toward "speech" and does not regulate speech as applied to "single-sticker-price" sellers (see Banking and Finance Law Daily, Dec. 15, 2015, and Sept. 29, 2016).
New York law. Among other things, New York’s credit card "no surcharge" law (N.Y. Gen. Bus. Law Article 29-A, §518) provides that "[n]o seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means."
Petitioners. At the outset of the oral argument, on behalf of the petitioning New York merchants who are challenging the state law, attorney Deepak Gupta clarified that one of the merchants has engaged in dual pricing—charging two different prices: one price for cash and another price for credit. That merchant focuses on communicating the cash discount to comply with New York’s "no surcharge" law, Gupta related. The other merchants have refrained from dual pricing altogether because they don’t want to run the risk of "failing to comply with this regime."
"As applied" challenge. During questioning by the Justices, Gupta emphasized that the merchants "want to engage in truthful speech. They want to disclose more." However, some of the Justices questioned the anchor for the constitutional challenge, given the language of the New York law. For instance, Justice Breyer maintained that the statute states only that a merchant "can’t charge a surcharge" for credit and is silent about any cash discount. Similarly, Justice Sotomayor commented, "I just don’t see anything about speech in the statute." Further, Justice Alito indicated he was not entirely comfortable about ruling on the state law’s constitutionality without knowing how New York’s highest court would interpret the statute.
In response, Gupta emphasized that the merchants were raising an "as applied" constitutional challenge, which focuses on how the law has been applied and on the way the law has been enforced by New York officials. He also noted that the state law provides a criminal penalty for its violation.
In response to Justice Breyer’s comment that the state law appeared to be "a form of price regulation," Gupta asserted that New York officials told various merchants that they didn’t need to change what they charged but needed to change what they said. According to Gupta, "that’s not price regulation. That’s the regulation of how prices are communicated." Justice Kagan remarked that Gupta’s stance placed a lot of emphasis "on a few cases in which prosecutors describe the law in a certain way," but that the New York law, "as written, doesn’t really do any of the things that you’re saying."
Assistant Solicitor General. Next, Eric Feigin, Assistant to the Solicitor General, spoke as amicus curiae on behalf of the United States. Feigin suggested that the Court should analyze the case by consulting precedents on "speech regulation." Justice Sotomayor asked Feigin to walk through several hypothetical scenarios in which the state law would or would not likely be violated, and the Justices commented and queried accordingly.
Feigin suggested that the Court use the former federal law on credit card surcharges as a makeshift "baseline" for discussing the issue. Notably, Feigin ultimately recommended that the Court remand the case to the Second Circuit "and allow for the New York Court of Appeals to have a definitive interpretation of the law, because there's clearly some dispute about what the New York law does."
Price regulation. On behalf of the Attorney General of New York, Steven Wu, Deputy Solicitor General of New York, argued that the "plain text of New York's statute refers only to a pricing practice and not to any speech."
In an exchange with Wu, Justice Alito expressed his concern about the fact that individual attorneys general or district attorneys in New York could arrive at different interpretations of the New York law prohibiting surcharges. In addition, Justice Kagan remarked that New York’s "enforcement history" of the state law appeared to be at odds with Wu’s argument that as long as a merchant’s listed price is the credit card price, the merchant’s cashier "can call it whatever she wants."
In response to Wu’s statement that the case involved "direct price regulation" that was not subject to First Amendment scrutiny, Justice Ginsburg commented that the New York law "doesn't set any price at all. It lets the merchant set the price. And the question is how that price is described."
After further questioning by the Justices about hypothetical pricing scenarios and how the state law would be engaged in those scenarios, Justice Kennedy wondered whether these "complicated" pricing schemes might support the notion that the New York law is too vague. Wu disagreed, contending that the state law would withstand a "vagueness" challenge under the Due Process Clause.
In an exchange with Justice Kagan, Wu indicated that a "dual pricing scheme" would be legal under the state statute. Kagan noted that the Second Circuit had "abstained" from deciding that issue.
Rebuttal. In his rebuttal, Gupta underscored that the case involved a "criminal speech restriction." According to Gupta, while a typical governmental "disclosure regime" tells a merchant "precisely what to say," serious constitutional issues arise in the New York law’s situation because the governmental disclosure regime "does not tell the merchant precisely what to say." Further, Gupta queried whether the cost of credit card usage was being suppressed as part of the law’s mix.
The Docket is No. 15-1391.
Supreme Court docket. For details about this and other petitions and cases pending before the Supreme Court, please consult this list of selected banking and finance law cases awaiting action in the 2016 term. Issued opinions, granted petitions, pending petitions, and denied petitions are listed separately, along with a summary of the questions presented and the current status of each case.
Attorneys: Deepak Gupta (Gupta Wessler PLLC) for Brooklyn Farmacy & Soda Fountain, Inc., Bunda Starr Corp., Expressions Hair Design, Five Points Academy, and Patio.com. Eric J. Feigin, Assistant to the Solicitor General, as amicus curiae for the United States. Steven C. Wu, Deputy Solicitor General of New York, for Eric T Schneiderman in his capacity as the Attorney General of New York.
Companies: Brooklyn Farmacy & Soda Fountain, Inc.; Bunda Starr Corp.; Expressions Hair Design; Five Points Academy; Patio.com
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