The New York Court of Appeals will consider the state’s law prohibiting merchants from imposing credit card surcharges, following certification of that question by the Second Circuit, on remand from the U.S. Supreme Court.
What happened
The dispute began in 2013, when a group of New York businesses and merchants filed suit arguing that Section 518 of the state’s General Business Law violated their First Amendment free speech rights.
The statute states: “No 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. Any seller who violates the provisions of this section shall be guilty of a misdemeanor punishable by a fine not to exceed five hundred dollars or a term of imprisonment up to one year, or both.”
A federal district court judge sided with the merchants and struck down the law, but a panel of the Second Circuit reversed. Section 518 does not regulate speech, the court held—it regulates conduct.
However, other federal circuit courts reached different conclusions when considering state surcharge laws. Recognizing the split, the Supreme Court granted certiorari in the Second Circuit case.
The Supreme Court vacated and remanded, holding that the statute must be analyzed as a speech regulation under the First Amendment.
Facing the parties for a second time, the federal appellate panel had a narrower question to answer: whether a “single-sticker-price scheme” ran afoul of Section 518. Some of the plaintiffs averred that they wanted to post a single price for their goods and services and then display the credit card surcharge to be imposed (either as a percentage of the base price or as a dollar amount) alongside that single price. For example, a merchant might post a price of $10 for an item, but note “with roughly equal prominence” that a three percent surcharge would be imposed on credit card users.
But when faced with the Supreme Court’s mandate to determine whether Section 518 is a valid commercial speech regulation under Central Hudson Gas & Electric Corp. v. Public Service Commission of New York and if the law could be upheld as a valid disclosure requirement under Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, the Second Circuit asked for a little help.
“We have previously noted our uncertainty about how widely Section 518’s restrictions sweep,” the court said, and that “resolution of at least some of this uncertainty will clear the path for our First Amendment analysis. Thus, before definitively addressing the questions the Supreme Court has asked us to resolve—namely, whether Section 518, as applied to the single-price scheme, is either a valid regulation of commercial speech under Central Hudson or a permissible disclosure rule under Zauderer—we seek the benefit of the New York Court of Appeals’ views with respect to certain aspects of Section 518’s operations.”
Specifically, the panel asked the state’s highest court whether a merchant complies with Section 518 so long as the merchant posts the total dollars and cents price charged to credit card users. If so, then the statute could potentially be understood from a First Amendment perspective to do nothing but compel the truthful disclosure of an item’s credit card price, the court said.
Alternatively, if Section 518 restricts certain forms of speech that the state deems particularly deceptive (failing to post the credit card price, for example) but preserves alternative ways for merchants to communicate the same message (that consumers will pay less when they pay in cash), that fact would be relevant to the court’s analysis.
“As a result, it is clear to us that securing the Court of Appeals’ views on the question whether a merchant complies with Section 518 so long as, when posting prices, the merchant discloses the total dollars and cents price charged to credit card users will materially assist—and will in fact determine the course of—our First Amendment analysis,” the Second Circuit wrote.
The panel certified the following question to the New York Court of Appeals: “Does a merchant comply with New York’s General Business Law Section 518 so long as the merchant posts the total dollars and cents price charged to credit card users?”
To read the opinion in Expressions Hair Design v. Schneiderman, click here.
Why it matters
The battle over New York’s surcharge law continues, with the case headed to the state’s highest court for clarification on whether the “single sticker price” strategy will satisfy the requirements of the statute as well as constitutional analysis. This issue may ultimately be of greater importance to Uber drivers and other workers in the so-called “gig economy” but it could also result in disparate impact for those who avoid gig economy applications.