The U.S. Court of Appeals for the Eleventh Circuit recently struck down Florida's "anti-surcharge" statute, Fla. Stat. § 501.0117, holding that the Florida law prohibiting charging a fee to pay by credit card was an unconstitutional restriction of free speech.

A copy of the opinion is available at:  http://media.ca11.uscourts.gov/opinions/pub/files/201414426.pdf

Four small businesses filed suit after receiving cease-and-desist letters from the Florida Attorney General demanding they refrain from charging lower prices for customers using cash and higher prices for those using credit cards, and demanding that they refrain from telling their customers the price difference is an additional amount for credit-card users rather than a lesser amount for paying in cash. 

According to the Florida Attorney General, this practice ran afoul of the Florida's "anti-surcharge" law in Fla. Stat. §  501.0117 (the "Anti-Surcharge Statute"), which provided, in relevant part:

A seller or lessor in a sales or lease transaction may not impose a surcharge on the buyer or lessee for electing to use a credit card in lieu of payment by cash, check, or similar means, if the seller or lessor accepts payment by credit card. A surcharge is any additional amount imposed at the time of a sale or lease transaction by the seller or lessor that increases the charge to the buyer or lessee for the privilege of using a credit card to make payment . . . This section does not apply to the offering of a discount for the purpose of inducing payment by cash, check, or other means not involving the use of a credit card, if the discount is offered to all prospective customers.

See Fla. Stat. § 501.0117(1).

The businesses asserted that Anti-Surcharge Statute violated the First Amendment as an unjustified restriction on speech, and that the Anti-Surcharge Statute provided insufficient guidance on how to comply with its mandates and was therefore void for vagueness. 

The U.S. District Court for the Middle District of Florida granted summary judgment in favor of Florida's Attorney General, holding that the Anti-Surcharge Statute was a restriction on pricing that fell within the Florida Legislature's broad discretion in regulating economic affairs, and therefore subjected the law to rational-basis review. 

In so ruling, the District Court hypothesized three possible justifications.  First, the law was aimed at preventing "bait and switch" tactics, i.e., initially communicating only the lower, cash price, and then later charging a higher price, the credit card price.  Second, the law prevented "unpleasant surprises" in the marketplace.  Third, the law prevented "competitive disadvantage" in the marketplace by preventing merchants from imposing credit card surcharges at their discretion.

The Eleventh Circuit reversed the District Court, holding that Florida's Anti-Surcharge Statute violated the First Amended to the United States Constitution as an unlawful restriction on free speech.

The Eleventh Circuit began its analysis by analyzing whether Florida's Anti-Surcharge Statute regulated speech, which triggered First Amendment scrutiny, or whether it only regulated other non-speech conduct, which would be subject only to rational basis review as economic regulation.  

Looking to the plain language of the statute, the Eleventh Circuit noted that the Anti-Surcharge Statute expressly allowed businesses to offer a "discount for the purpose of inducing payment by cash."  Fla. Stat. §  501.0117(1).  According to the Eleventh Circuit, by allowing businesses to offer discounts for cash payments, the statute did not ban dual-pricing. 

Instead, the Court held, the statute banned the selective raising of previously announced prices "imposed at the time of sale" for credit card users.  Fla. Stat. §  501.0117(1).  Under this reading of the Anti-Surcharge Statute, a business could charge customers different rates based on their method of payment, but could charge a higher price to credit card users if that price is announced before the transaction occurs.

The Eleventh Circuit rejected this construction because it would nullify the goal of preventing bait-and-switch tactics.  The Court noted that all a business would have to do to avoid liability is to announce to potential customers the price difference in advance of any sale through notice posted on signs, on price tags, as a line item on receipts, and the like. 

Moreover, the Court noted that consumers may already be protected against "bait-and-switch" practices by Florida's Deceptive and Unfair Trade Practices Act, the state's unfair and deceptive acts and practices (UDAP) law.  See Fla. Stat. §§ 501.201-501.213.  Without finding any textual or contextual indication that the Florida Legislature intended the Anti-Surcharge Statute to function solely as a backstop to its UDAP law, the Eleventh Circuit declined to read the law contrary to its plain meaning.

Instead, the Eleventh Circuit determined that the Anti-Surcharge Statute must have meant that businesses can engage in dual-pricing so long as they offer only cash discounts, while credit-card surcharges are prohibited.  Therefore, the Court held, the statute targeted expression alone.  To violate the statute, a defendant must communicate the price difference to a customer and that communication must denote the relevant price difference as a credit card surcharge. 

The Court provided the following example:

Ostensibly worried about customers' dining experiences being adversely affected by their unquenched thirst, a state makes it a crime for restaurateurs to serve half-empty beverages.  Restaurateurs are, however, expressly allowed to serve half-full beverages. 

Liability for violating this glass-half-full mandate turned solely on the restaurateurs' choice of words.  Absent any communication from the restaurateurs, there would be no real world difference between the two formulations.  Thus, according to the Eleventh Circuit, calling § 501.0117 an Anti-Surcharge Statute is something of a misnomer because statute targets expression, dictating what the restaurateurs can talk about and how restaurateurs can speak about those subjects.

Because the Anti-Surcharge Statute was a restriction on speech, and not conduct, the Eleventh Circuit determined that the statute triggered First Amendment scrutiny.   

As you may recall, content based restrictions on speech are presumptively unconstitutional and may be justified only if the government proves that they are narrowly tailored to serve compelling state interests.  See, e.g., Reed v. Town of Gilbert, 576 U.S. __, 135 S. Ct. 2218, 2226 (2015).  However, content based restrictions on certain categories of speech such as commercial and professional speech have more leeway under the First Amendment because of the greater need for regulatory flexibility in those areas.  See, e.g., Sorrell v. IMS Health Inc., 564 U.S. ___, 131 S. Ct. 2653 (2011).  For these categories of speech, the inquiry is the more flexible standard of intermediate scrutiny.  See, e.g., Cent. Hudson Gas v. Pub. Serv. Comm'n of N.Y., 447 U.S. 557, 564, 100 S. Ct. 2343, 2350 (1980). 

Noting that Florida's Anti-Surcharge Statute skirted the line between targeting commercial speech and restricting speech at large, the Eleventh Circuit began its analysis by determining whether the statute was subject to strict scrutiny or intermediate scrutiny.

On one hand, the Eleventh Circuit noted, the statute clearly touched on economic activity.  The law on its face appeared to regulate businesses engaged in dual pricing.  On the other, the Court noted, the law purged the term surcharge and replaced it with the state's preferred term, discount.  In so doing, the Court held, the law regulated more than commercial speech, it imposed a direct and substantial burden on disfavored speech by silencing it.   Thus, the Eleventh Circuit determined that the Anti-Surcharge Statute was a content based restriction regulating only how a business may frame the price difference between cash and credit card payments.

Additionally, the Eleventh Circuit held that the Anti-Surcharge Statute is also viewpoint based because it denied one's equally accurate account of reality in favor of the state's preferred term of expression.  Viewpoint based restrictions warranted the greatest level of First Amendment protection due to the obvious threat to freedom of speech and freedom of conscience. 

Ultimately, however, the Eleventh Circuit analyzed Florida's Anti-Surcharge Statute as if it were commercial speech because it failed even under the more forgiving standard of intermediate scrutiny.  Therefore, the Court noted, the law would also fail if it were subject to the heightened strict scrutiny.

As you may recall, the constitutionality of regulations on commercial speech is assessed under the four part Central Hudson test.  First, does the challenged law regulate speech that is neither misleading nor related to unlawful activity?  Second, does the government have a substantial interest at stake?  Third, does the law directly advance the government's interest?  Fourth, would a more limited restriction be insufficient for that interest to be served as well?  Cent. Hudson, 447 U.S. at 564, 100 S. Ct. at 2350.

The Eleventh Circuit held that Florida's Anti-Surcharge Statute foundered at every step of this inquiry. 

To start, calling the additional fee paid by a credit card user a surcharge rather than a discount is, according to the Eleventh Circuit, no more misleading than is calling the temperature warmer in Savannah rather than colder in Escanaba.  Thus, the Court held the Anti-Surcharge Statute did not target only false or misleading speech.  Instead, the Court held the law targeted speech, and not conduct, because businesses may engage in dual pricing as long as they disclosed the surcharge in a specific manner.

Next, the Eleventh Circuit determined that a generalized interest in "consumer protection" was too abstract to provide a meaningful benchmark for weighing the Anti-Surcharge Statute against the state's purported interest.  In fact, the Court noted that Florida's proffered interest in protecting consumers was undermined by the fact that the state exempted certain state agencies from the Anti-Surcharge Statute -- allowing them to charge "convenience fees" for the privilege of using a credit card, Fla. Stat.  § 215.322(2), (3)(b) -- without advancing any relevant distinction between private businesses and state agencies that referenced the interests being served.

Considering the third and fourth Central Hudson prongs together, the Eleventh Circuit concluded that the Anti-Surcharge Statute neither advanced any substantial state interest nor was it narrowly tailored. 

The Eleventh Circuit explained that any governmental interest in preventing "bait-and-switch" tactics and leveling the playing field among businesses would be better served by direct and focused regulation on actual pricing behavior.  Florida could simply prohibit dual pricing altogether, or cap the difference in price that can be charged to customers paying with cash and those using credit cards, just as it had done for the use of credit cards at state agencies and for the use of a "money transmitter service."  See Fla. Stat. §§ 215.322(3)(b), 560.208(2).  Or, the Court noted, it could ban false and deceptive trade practices as it generally did for acts of unfair competition under the state's Unfair Trade Practice Act, Fla. Stat. §§  501.201-501.213. 

The Eleventh Circuit concluded that less restrictive alternatives were available and therefore the Anti-Surcharge Statute failed survive intermediate scrutiny.

Accordingly, the Eleventh Circuit reversed the summary judgment in favor of the Florida Attorney General and remanded for further proceeding consistent with its opinion.