A unanimous US Supreme Court has ruled that the First Amendment applies to New York’s law regulating credit card surcharge fees, in Expressions Hair Design v. Schneiderman, No. 15-1391.
The Court held that New York General Business Law §518 − which 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” − regulates speech and, therefore, is subject to challenge under the First Amendment. The Court reversed and remanded a decision of the US Court of Appeals for the Second Circuit, which had ruled that §518 regulated conduct, not speech, and thus was not subject to challenge under the First Amendment. The Court instructed the Second Circuit to now determine whether §518 runs afoul of First Amendment protections.
This case involves a challenge to §518 by five New York businesses and their owners (the petitioners), that impose surcharges on customers who use credit cards to purchase goods. Section 518 and similar laws in other states are virtually the only source of regulation of the legality of surcharges for credit card use. Congress previously regulated the use of surcharges through the Truth in Lending Act, prohibiting merchants from imposing surcharges on customers who used credit cards. But the federal law lapsed in 1984. New York and other states then adopted laws that tracked the federal legislation. During this same time, many credit card issuers had contractual prohibitions on barring discounts for cash purchases. In 2013, however, many of the major credit card companies began to drop the contractual surcharge provisions. This left the state laws, like §518, the only hindrance to surcharges. At that time, the petitioners filed suit ,contending that (1) §518 violated the First Amendment by regulating how they communicated their prices and (2) the law was unconstitutionally vague.
In an opinion by Chief Justice John G. Roberts, the Supreme Court reversed the Second Circuit’s decision that §518 was merely a price regulation that did not implicate free speech. The Court first noted the petitioners pressed only an as-applied challenge to §518, asking whether merchants could post a cash price and then post the percentage surcharge or a “dollars-and-cents” additional amount. With that narrow question in mind, the Court next agreed with the Second Circuit that §518 applies to the petitioners’ proposed pricing scheme − hence teeing up the constitutional questions.
The Court then turned to the crux of the case: whether §518 regulates speech or conduct. The Court rejected the Second Circuit’s reasoning that §518 was a price control that regulated conduct alone. The Court explained that §518 was “not like a typical price regulation.” (Op. at 8.) The Court contrasted §518 with a hypothetical law requiring all New York delis to charge $10 for a sandwich. Such a law would regulate only the price for a sandwich, not how that price is conveyed to customers, and the law’s effect on speech “would be only incidental to its primary effect on conduct.” (Op. at 9.) Section 518, in contrast, does not regulate how much a merchant must charge. Instead, §518 specifically regulates how merchants can communicate that charge, whatever it is, to customers. Therefore, §518 may be subject to a First Amendment challenge because it regulates “the communication of prices rather than prices themselves.” (Id.)
The Court’s opinion stopped there, however, because the Second Circuit’s decision was based only upon the conclusion that §518 regulated conduct. The Court remanded the case to the Second Circuit to “analyze §518 as a speech regulation.” (Op. at 10.) The Court also rejected the petitioners vagueness challenge, because, as applied to the petitioners, there was no question that “§518 proscribes their intended speech.” (Op. at 11.)
Although the judgment was unanimous, the reasoning was not. Justice Stephen G. Breyer agreed that §518 regulates speech, but that was “because virtually all government regulation affects speech.” (Breyer, J., concurring, at 1.) Justice Breyer would not have focused on the distinction between speech and conduct, but instead would have focused on how “a challenged statute, rule or regulation affects an interest that the First Amendment protects.” (Id.) He thought it was “more important” to determine the proper level of scrutiny for a particular category of speech, rather than distinguish “speech from conduct.” (Id. at 2.)
Justice Sonia Sotomayor, joined by Justice Samuel A. Alito, wrote that the majority’s opinion was a “quarter-loaf outcome” because the Court addressed “only one part of one half of petitioners’ first Amendment challenge.” (Sotomayor, J., concurring, at 1.) Justice Sotomayor explained that §518 is an ambiguous statute, and even the Second Circuit did not take a position on how far §518’s prohibitions reached. She therefore would have vacated the judgment and told the Second Circuit to ask the New York Court of Appeals to interpret §518.
The Court’s opinion will require the Second Circuit to determine both the breadth of §518 and whether the law can withstand a First Amendment challenge. The road to that determination could be a winding one. The Second Circuit can take the route that Justice Sotomayor suggests and certify the question of §518’s scope to the New York Court of Appeals. Then, after §518’s breadth is determined, the Second Circuit will decide which level of judicial scrutiny governs §518: is it pure commercial speech or is it merely a disclosure?
In all events, the case may circle back to the Supreme Court again to finally decide whether the First Amendment protects from government regulation the manner in which a merchant advertises a credit card price differential.
Find out more about this decision and its implications by contacting any of the authors.