New York’s "no surcharge" law, prohibiting merchants from imposing a surcharge for the use of a credit card but not prohibiting merchants from recognizing a cash discount, "regulates speech" under the First Amendment to the U.S. Constitution, the U.S. Supreme Court has ruled. At the same time, however, the Supreme Court did not decide the constitutional issue, and remanded the matter to the U.S. Court of Appeals for the Second Circuit to determine "in the first instance" whether the state law’s regulation of speech is constitutional. According to the Court’s majority, because the Second Circuit previously and inaccurately viewed the state law as predominately regulating prices rather than speech, the Second Circuit did not conduct the extensive type of analysis required to determine whether New York’s no-surcharge law survives First Amendment scrutiny. Further, the Court rejected the merchants’ challenge that the New York law was unconstitutionally vague (Expressions Hair Design v. Schneiderman, March 29, 2017, Roberts, J.).
Justices Kennedy, Thomas, Ginsburg, and Kagan joined Chief Justice Roberts, who authored the majority opinion. Justice Sotomayor filed an opinion concurring in the judgment, in which Justice Alito joined, and Justice Breyer filed a separate concurring opinion.
New York law. New York’s no-surcharge law (N.Y. Gen. Bus. Law §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." The Court pointed out that the state law does not provide any definition of what constitutes a "surcharge."
Backdrop. As observed by the Court, when customers pay with a credit card, merchants generally pay a transaction fee to the company issuing the credit card. Many merchants seek to pass these transaction fees along to their customers who choose to use credit cards, but the merchants want to make clear that "the credit card companies, not the merchants, are responsible for the higher prices." Five New York businesses and their owners challenged the New York no-surcharge law, arguing that the law violated the First Amendment by regulating how they communicated their prices, and that the state law was unconstitutionally vague.
While the federal trial court ruled in favor of the merchants, the Second Circuit directed the trial court to dismiss the merchants’ claims. The Second Circuit focused on the "single sticker pricing," where merchants post one price and seek to charge more to customers who pay by credit card. The Second Circuit ruled that the New York 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).
As-applied challenge. At the outset, the Supreme Court noted that, based on the merchant petitioners’ representations on appeal, the Court was not addressing a "facial challenge" to the New York law but was addressing the surcharge ban "as applied." Further, the Court stated, "Although the merchants have presented a wide array of hypothetical pricing regimes, they have expressly identified only one pricing scheme that they seek to employ: posting a cash price and an additional credit card surcharge, expressed either as a percentage surcharge or a ‘dollars-and-cents’ additional amount."
Merchants’ pricing choice obstructed. Next, the Court reviewed the Second Circuit’s determination that the New York no-surcharge law prohibits the type of "pricing regime" the merchants "wish to employ." According to the Court, when a merchant seller "posts a single sticker price, it is reasonable to treat that sticker price as the ‘usual or normal amount’ and conclude, as the court below did, that a merchant imposes a surcharge when he charges a credit card user more than that sticker price. In short, we cannot dismiss the [Second Circuit’s] interpretation of §518 as ‘clearly wrong’."
Speech regulated. While the Second Circuit had concluded that New York’s no-surcharge law did not pose a First Amendment problem because "price controls regulate conduct, not speech," the Supreme Court, in contrast, underscored that the state law "is not like a typical price regulation." According to the Court, the New York law "tells merchants nothing about the amount they are allowed to collect from a cash or credit card payer." Instead, the law "regulates how sellers may communicate their prices. In regulating the communication of prices rather than prices themselves, §518 regulates speech," the Court held.
‘Vagueness’ challenge rejected. Lastly, the Court rejected the merchants’ contention that the New York law is unconstitutionally vague in violation of their due process rights. The Court noted that it had already determined that the state law regulated speech, and a "plaintiff whose speech is clearly proscribed cannot raise a successful vagueness claim." The Court added, "Although the merchants argue that ‘no one can seem to put a finger on just how far the law sweeps’ …, it is at least clear that §518 proscribes their intended speech. Accordingly, the law is not vague as applied to them."
The Court vacated the judgment of the Second Circuit and remanded the case to that federal appellate court.
Concurring opinions. Concurring in the Court’s judgment only, Justices Sotomayor and Alito would "vacate the judgment below and remand with directions to certify the case to the New York Court of Appeals for a definitive interpretation of the statute that would permit the full resolution of petitioners’ claims." Similarly, in his separate concurring opinion, Justice Breyer stated that it may well be helpful for the Second Circuit to ask the New York Court of Appeals to clarify the nature of the obligations the statute imposes." In addition, Breyer asserted that, because the underlying New York law’s operation "is unclear and because its interpretation is a matter of state law, I agree with the majority that we should remand the case to the Second Circuit."
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.
The case is No. 15-1391.
Attorneys: Deepak Gupta (Gupta Wessler PLLC) for Expressions Hair Design, Brooklyn Farmacy & Soda Fountain, Inc., Bunda Starr Corp., Five Points Academy, and Patio.com. Barbara D. Underwood, New York State Office of the Attorney General, for Eric T. Schneiderman in his capacity as the Attorney General of the State of New York.
Companies: Brooklyn Farmacy & Soda Fountain, Inc.; Bunda Starr Corp.; Expressions Hair Design; Five Points Academy; Patio.com
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