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Expressions Hair Design v. Schneiderman

United States Supreme Court

March 29, 2017

EXPRESSIONS HAIR DESIGN ET AL., PETITIONERS
v.
ERIC T. SCHNEIDERMAN, ATTORNEY GENERAL OF NEW YORK, ET AL.

         ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

          Argued January 10, 2017

         New York General Business Law §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." Petitioners, five New York businesses and their owners who wish to impose surcharges for credit card use, filed suit against state officials, arguing that the law violates the First Amendment by regulating how they communicate their prices, and that it is unconstitutionally vague. The District Court ruled in favor of the merchants, but the Court of Appeals vacated the judgment with instructions to dismiss. The Court of Appeals concluded that in the context of single-sticker pricing-where merchants post one price and would like to charge more to customers who pay by credit card-the law required that the sticker price be the same as the price charged to credit card users. In that context, the law regulated a relationship between two prices. Relying on this Court's precedent holding that price regulation alone regulates conduct, not speech, the Court of Appeals concluded that §518 did not violate the First Amendment. The Court of Appeals abstained from reaching the merits of the constitutional challenge to pricing practices outside the single-sticker context.

         Held:

1. This Court's review is limited to whether §518 is unconstitutional as applied to the particular pricing scheme that, before this Court, petitioners have argued they seek to employ: a single-sticker regime, in which merchants post a cash price and an additional credit card surcharge. Pp. 5-6.

         Syllabus

2. Section 518 prohibits the pricing regime petitioners wish to employ. Section 518 does not define "surcharge." Relying on the term's ordinary meaning, the Court of Appeals concluded that a merchant imposes a surcharge when he posts a single sticker price and charges a credit card user more than that sticker price. This Court "generally accord[s] great deference to the interpretation and application of state law by the courts of appeals." Pembaur v. Cincinnati, 475 U.S. 469, 484, n. 13. Because the interpretation of the Court of Appeals is not "clearly wrong, " Brockett v. Spokane Arcades, Inc., 472 U.S. 491, 500, n. 9, this Court follows that interpretation. Pp. 6-8.
3. Section 518 regulates speech. The Court of Appeals concluded that §518 posed no First Amendment problem because price controls regulate conduct, not speech. Section 518, however, is not like a typical price regulation, which simply regulates the amount a store can collect. The law tells merchants nothing about the amount they are allowed to collect from a cash or credit card payer. Instead, it regulates how sellers may communicate their prices. In regulating the communication of prices rather than prices themselves, §518 regulates speech.
Because the Court of Appeals concluded otherwise, it did not determine whether §518 survives First Amendment scrutiny. On remand the Court of Appeals should analyze §518 as a speech regulation. Pp. 8-10.
4. Section 518 is not vague as applied to petitioners. As explained, §518 bans the single-sticker pricing petitioners argue they wish to employ, and "a plaintiff whose speech is clearly proscribed cannot raise a successful vagueness claim, " Holder v. Humanitarian Law Project, 561 U.S. 1, 20. Pp. 10-11.

808 F.3d 118, vacated and remanded.

          ROBERTS, C. J., delivered the opinion of the Court, in which KENNEDY, THOMAS, Ginsburg, and Kagan, JJ., joined. BREYER, J., filed an opinion concurring in the judgment. SOTOMAYOR, J., filed an opinion concurring in the judgment, in which Alito, J., joined.

          OPINION

          Roberts Chief Justice.

         Each time a customer pays for an item with a credit card, the merchant selling that item must pay a transaction fee to the credit card issuer. Some merchants balk at paying the fees and want to discourage the use of credit cards, or at least pass on the fees to customers who use them. One method of achieving those ends is through differential pricing-charging credit card users more than customers using cash. Merchants who wish to employ differential pricing may do so in two ways relevant here: impose a surcharge for the use of a credit card, or offer a discount for the use of cash. In N.Y.Gen. Bus. Law §518, New York has banned the former practice. The question presented is whether §518 regulates merchants' speech and-if so-whether the statute violates the First Amendment. We conclude that §518 does regulate speech and remand for the Court of Appeals to determine in the first instance whether that regulation is unconstitutional.

         I

         A

         When credit cards were first introduced, contracts between card issuers and merchants barred merchants from charging credit card users higher prices than cash customers. Congress put a partial stop to this practice in the 1974 amendments to the Truth in Lending Act (TILA). The amendments prohibited card issuers from contractually preventing merchants from giving discounts to customers who paid in cash. See §306, 88 Stat. 1515. The law, however, said nothing about surcharges for the use of credit.

         Two years later, Congress refined its dissimilar treatment of discounts and surcharges. First, the 1976 version of TILA barred merchants from imposing surcharges on customers who use credit cards. Act of Feb. 27, 1976, §3(c)(1), 90 Stat. 197. Second, Congress added definitions of the two terms. A discount was "a reduction made from the regular price, " while a surcharge was "any means of increasing the regular price to a cardholder which is not imposed upon customers paying by cash, check, or similar means." §3(a), ibid.

         In 1981, Congress further delineated the distinction between discounts and surcharges by defining "regular price." Where a merchant "tagged or posted" a single price, the regular price was that single price. Cash Discount Act, § 102(a), 95 Stat. 144. If no price was tagged or posted, or if a merchant employed a two-tag approach- posting one price for credit and another for cash-the regular price was whatever was charged to credit card users. Ibid. Because a surcharge was defined as an increase from the regular price, there could be no credit card surcharge where the regular price was the same as the amount charged to customers using credit cards. The effect of all this was that a merchant could violate the surcharge ban only by posting a single price and charging credit card users more than that posted price.

         The federal surcharge ban was short lived. Congress allowed it to expire in 1984 and has not renewed the ban since. See §201, ibid. The provision preventing credit card issuers from contractually barring discounts for cash, however, remained in place. With the lapse of the federal surcharge ban, several States, New York among them, immediately enacted their own surcharge bans. Passed in 1984, N.Y.Gen. Bus. Law §518 adopted the operative language of the federal ban verbatim, providing 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 Ann. §518 (West 2012); see also 15 U.S.C. §1666f(a)(2) (1982 ed.). Unlike the federal ban, the New York legislation included no definition of "surcharge."

         In addition to these state legislative bans, credit card companies-though barred from prohibiting discounts for cash-included provisions in their contracts prohibiting merchants from imposing surcharges for credit card use. For most of its history, the New York law was essentially coextensive with these contractual prohibitions. In recent years, however, merchants have brought antitrust challenges to contractual no-surcharge provisions. Those suits have created uncertainty about the legal validity of such contractual surcharge bans. The result is that otherwise redundant legislative surcharge bans like §518 have increasingly gained importance, and increasingly come under scrutiny.

         B

         Petitioners, five New York businesses and their owners, wish to impose surcharges on customers who use credit cards. Each time one of their customers pays with a credit card, these merchants must pay some transaction fee to the company that issued the credit card. The fee is gener- ally two to three percent of the purchase price. Those fees add up, and the merchants allege that they pay tens of thousands of dollars every year to credit card companies. Rather than increase prices across the board to absorb those costs, the merchants want to pass the fees along only to their customers who choose to use credit cards. They also want to make clear that they are not the bad guys-that the credit card companies, not the merchants, are responsible for the higher prices. The merchants believe that surcharges for credit are more effective than discounts for cash in accomplishing these goals.

         In 2013, after several major credit card issuers agreed to drop their contractual surcharge prohibitions, the merchants filed suit against the New York Attorney General and three New York District Attorneys to challenge §518-the only remaining obstacle to their charging surcharges for credit card use. As relevant here, they argued that the law violated the First Amendment by regulating how they communicated their prices, and that it was unconstitutionally vague because liability under the law "turn[ed] on the blurry difference" between surcharges and discounts. App. 39, Complaint ¶51.

         The District Court ruled in favor of the merchants. It read the statute as "draw[ing a] line between prohibited 'surcharges' and permissible 'discounts' based on words and labels, rather than economic realities." 975 F.Supp.2d 430, 444 (SDNY 2013). The court concluded that the law therefore regulated speech, and violated the First Amendment under this Court's commercial speech doctrine. In addition, because the law turned on the "virtually incomprehensible distinction between what a vendor can and cannot tell its customers, " the District Court found that the law was unconstitutionally vague. Id., at 436.

         The Court of Appeals for the Second Circuit vacated the judgment of the District Court with instructions to dismiss the merchants' claims. It began by considering single- sticker pricing, where merchants post one price and would like to charge more to customers who pay by credit card. All the law did in this context, the Court of Appeals explained, was regulate a relationship between two prices- the sticker price and the price charged to a credit card user-by requiring that the two prices be equal. Relying on our precedent holding that price regulation alone regulates conduct, not speech, the Court of Appeals concluded that §518 did not violate the First Amendment.

         The court also considered other types of pricing regimes-for example, posting separate cash and credit prices. The Court of Appeals thought it "far from clear" that §518 prohibited such pricing schemes. 808 F.3d 118, 137 (CA2 2015). The federal surcharge ban on which §518 was modeled did not apply outside the single-sticker context, and the merchants had not clearly shown that §518 had a "broader reach" than the federal law. Ibid. Deciding that petitioners' challenge in this regard "turn[ed] on an unsettled question of state law, " the Court of Appeals abstained from reaching the merits of the ...


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