Could the U.S. Supreme Court take up the issue of state surcharge laws? The plaintiffs challenging the Texas law banning surcharges on credit card purchases certainly hope so, having filed a certiorari petition in Rowell v. Pettijohnafter their loss before the Fifth Circuit Court of Appeals.

What happened

A group of merchants filed suit arguing that the Texas surcharge law violates their free speech rights. While the law permits customers to be charged different prices depending on whether they pay with cash or use a credit card, merchants are prohibited from labeling the price difference as a "surcharge" for credit cards. Instead, merchants must describe the difference as a cash discount.

For example, "a merchant who charges two different prices for a widget depending on how the customer pays (for example, $100 for cash and $102 for credit) may say that the widget costs $102 and that there is a $2 discount for paying in cash," the merchants explained in their cert petition. "But if the merchant instead says that the widget costs $100 and there is a $2 surcharge for using credit to account for the swipe fee, the merchant has run afoul of the law."

Retailers ranging from a self-storage facility to a landscaping business told the court that the law is clearly a restriction on their free speech rights because any law regulating the ability of a merchant to truthfully convey price information runs headlong into the protections of the First Amendment. A federal district court and a panel of the Fifth Circuit disagreed, upholding the law as a limitation on conduct, not speech, and therefore constitutional.

"[T]he merchants simply object to their inability to characterize price differentials as a 'surcharge,' juxtaposed with a 'discount,' " a majority of the panel wrote, noting that the Texas law allows a merchant to "dual-price as it wishes," and achieve "the same ultimate economic result" whether expressed as a cash discount or credit card surcharge, concluding that the law "does not implicate the First Amendment."

Seeking review from the U.S. Supreme Court, the merchants filed a writ of certiorari, offering the Justices the following question to answer: "Do these state no-surcharge laws unconstitutionally restrict speech conveying price information (as the Eleventh Circuit has held), or do they regulate only economic conduct (as the Second and Fifth Circuits have held)?"

In their petition, the Texas merchants emphasized that the Fifth Circuit's decision broadened a circuit split and has left the industry with a lack of clarity. Ten states have passed so-called surcharge bans. Courts in California and Florida have struck down the laws, with the Eleventh Circuit affirming the Florida decision, finding the state's law anunconstitutional restriction on speech.

However, other courts have reached the opposite conclusion. In addition to the Fifth Circuit decision, the Second Circuit affirmed a New York federal court finding that its state surcharge ban was valid.

The net result: "a state of constitutional limbo," the merchants told the Supreme Court. "Thus because of the conflict, New York and Texas merchants—unlike those in Florida and California, and the 40 states without a no-surcharge law—cannot reap the benefit of the historic national antitrust settlement protecting merchants' rights to truthfully inform customers about the cost of credit. And given the size and importance of the economies of New York and Texas, and the need for uniform pricing schemes, the reality is that national retailers are unlikely to use the surcharge label at all, even where it is permissible, as long as the split endures."

Further, the issue is important, the cert petition added. Given the need for national uniformity in the retail economy, such uncertainty "is intolerable" with "enormous stakes for our economy." U.S. merchants pay some of the highest swipe fees in the world, they wrote, and allowing them "to truthfully inform consumers of the cost of credit will also reduce the substantial 'regressive transfer of income from low-income to high-income consumers.' "

To read the writ of certiorari filed by the merchants in Rowell v. Pettijohn, click here.

Why it matters

What are the odds of the Court taking the case? With a smaller roster of Justices, the Court has decreased the already small number of cases on its docket. But the clear circuit split on the issue—with opposite conclusions from the Second, Fifth, and Eleventh Circuits and a case pending in the Ninth Circuit on California's law—and the free speech questions could push the Court to make space to consider the issue. The Texas merchants suggested that the Court grant either their petition or that of the merchants in the New York case, who similarly sought review from the Justices after their loss in the Second Circuit.