The Supreme Court in Expressions Hair Design et al. v. Schneiderman held that New York’s law prohibiting credit card surcharging (General Business Law §5 18) regulates speech, and on Wednesday asked the Second Circuit to determine whether a New York law limiting retailers ability to post their credit card transaction pricing scheme survives First Amendment scrutiny. The Court limited its review of New York General Business Law §518’s constitutionality under the First Amendment to the specific situation of dual pricing asserted by petitioner merchants. In the end, the Court unanimously decided the preliminary issue that §518 regulates speech rather than conduct and kicked the constitutionality determination back to the Second Circuit.

Section 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 Second Circuit decided that §518 regulated the conduct of imposing a surcharge and not speech. Under that analysis, the Second Circuit did not reach the First Amendment speech question.

In reversing the Second Circuit, the Supreme Court found that §518 blocked petitioner merchants from posting that they add a surcharge to customers who pay with credit cards, but did not block the merchants from posting the credit card price as the sticker price and giving a ‘discount’ to those who pay with cash. Based on those findings, the Court reasoned that §518 does not regulate conduct - “the amount that a store could collect” - but instead regulates speech - “how the sellers may communicate their prices.”

While the Court held that §518 regulates speech it did not opine on the First Amendment question. Because the Second Circuit never reached the First Amendment question, the Supreme Court could not review a decision. Therefore, the Court kicked the First Amendment question to the Second Circuit consistent with the decision that §518 regulates speech.

As an as-applied challenge specific to whether the statute unconstitutionally limits merchants asserted practice, a ruling in favor of the merchants would not necessarily strike down the law but merely limit its scope, thereby carving out the merchant’s asserted pricing model. It is unclear at this time what teeth §518 would have with such a limitation or how an adverse ruling would affect its overall enforceability.

Justice Sotomayor, in a concurring opinion, highlighted the ambiguity in the law and the Court’s “quarter-loaf outcome” in the decision. She suggested that the Second Circuit request the New York state appeals court to certify the actual definition and scope of the law before coming to its decision. The ambiguity in the law which led to the quarter-loaf outcome could be removed with a clear understanding of the law which is left to the New York courts.

In addition to New York, California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Maine, Oklahoma and Texas also prohibit credit card surcharging. While the Supreme Court’s decision in Expressions Hair Design does not directly impact the “no-surcharge” laws in those states, the ruling provides additional support to merchants and retailers seeking to invalidate those laws.