Why it matters: In an effort to resolve a conflict between Circuits, the Supreme Court has agreed to hear arguments in a challenge to New York’s credit card surcharge law, one of several similar pending lawsuits. For all players in the retail and electronic payments world, the New York challenge will be an important one to watch.
Detailed discussion: The New York law at issue states 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.” N.Y. Gen. Bus. Law § 518. Several businesses challenged this statute as a violation of the First Amendment. Specifically, they asserted that the statute allowed the use of the word “discount” while prohibiting the use of the word “surcharge” when pricing retail items. These retailers challenged the law in New York, and while they won in the trial court, that decision was reversed by the Second Circuit Court of Appeals, which upheld the validity of the statute. Expressions Hair Design v. Schneiderman, 808 F.3d 118 (2d Cir. 2015).
This New York challenge is one of several that are currently working their way through the court system. The four most populous states—California, Texas, Florida, and New York—each have a statute on this issue, and each statute has been challenged as constitutionally infirm. The Fifth Circuit has upheld the Texas statute, while the Eleventh Circuit has struck it down. In California, the trial court held the statute to be unconstitutional and the matter is before the Ninth Circuit.
The heart of the conflict between the Second and Eleventh Circuits rests in the significance, or lack thereof, of the nomenclature used. The New York analysis centered on established case law regarding prices; as it held, “If prohibiting certain prices does not implicate the First Amendment, it follows that prohibiting certain relationships between prices also does not implicate the First Amendment.” As the Second Circuit reasoned, if the seller charges something more than the list price because the consumer uses a credit card, that is a violation of the surcharge statute; that there might be a cash discount would not run afoul of the statute. The court held that prices are not speech within the meaning of the First Amendment, and that the statute relates only to conduct, i.e., the prohibited imposition of an additional credit card fee on top of the list price.
Conversely, the Eleventh Circuit directly held that the statute affects speech, not conduct. Applying a higher level of scrutiny, the Eleventh Circuit faulted the statute for not addressing any false or misleading speech, or otherwise addressing any significant government interest. The court stated that “holding out discounts as more equal than surcharge” (emphasis in original) was unconstitutionally beyond the scope of governmental authority.
With this conflict, the matter was ripe for Supreme Court review. The issue is far from academic, as these statutes are on the books in the four most populous states and in several others. Retailers should pay close attention to the developments in this case.