Italian Colors Restaurant v. Harris
99 F. Supp. 3d 1199
E.D. Cal.2015Background
- Plaintiffs are five California small businesses and owners who want to use dual pricing (higher price for credit card users framed as a surcharge) but fear civil enforcement under Cal. Civ. Code § 1748.1, which bans credit-card surcharges while allowing equivalent discounts for non-credit payment methods.
- § 1748.1(b) permits private enforcement: a cardholder can recover treble damages and fees for an unlawful surcharge; the statute’s stated purpose was to prevent deceptive price increases and encourage discounts.
- Historically, contractual no-surcharge rules and federal law shaped state approaches; Thrifty Oil (Cal. Ct. App. 2001) allowed disclosed dual pricing described as a discount, but left the discount/surcharge boundary unclear.
- Plaintiffs contend the statute restricts how merchants may describe price differences (speech) and is thus a First Amendment violation; they also assert the statute is unconstitutionally vague.
- The Attorney General contends the law regulates economic conduct (charging a surcharge at point of sale) and does not regulate speech, urging rational-basis review; the State also offered a limiting construction at oral argument but conceded enforcement likely if retailers widely used the term “surcharge.”
- The district court granted Plaintiffs’ summary judgment, holding § 1748.1 is a content-based, speaker-specific restriction on commercial speech that fails intermediate scrutiny and is unconstitutionally vague; the statute is permanently enjoined.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 1748.1 implicates the First Amendment | § 1748.1 restricts merchants from calling a credit-price premium a “surcharge,” i.e., regulates how price information is framed — speech protected by the First Amendment | § 1748.1 regulates economic conduct (imposing an extra charge at point of sale), not speech; merchants can still disclose costs | Court: statute regulates how price information is conveyed (speech), not prices themselves; First Amendment applies |
| Standard of review for the restriction | Commercial speech protection requires intermediate scrutiny under Central Hudson | Because statute is economic regulation, rational-basis review applies | Court: content-based, speaker-specific nature triggers heightened scrutiny (intermediate) for commercial speech |
| Whether § 1748.1 satisfies Central Hudson (narrow tailoring / direct advancement) | State’s interest in preventing consumer deception is legitimate but statute is overbroad; less speech-restrictive means (required disclosure) exist | Statute prevents surprise surcharges and protects consumers; legislative purpose supports the ban | Court: statute does not directly and narrowly advance the interest; a disclosure requirement would be narrower — § 1748.1 fails intermediate scrutiny |
| Whether § 1748.1 is unconstitutionally vague | The statute fails to define the line between a lawful “discount” and unlawful “surcharge,” creating uncertainty and chilling speech | Text plainly prohibits imposing a surcharge and permits discounts; Attorney General’s limiting construction remedies doubt | Court: language is ambiguous in operation (e.g., timing, signage, labeling); even with proffered limiting construction, the statute is impermissibly vague and chills lawful expression |
Key Cases Cited
- Va. Bd. of Pharmacy v. Va. Citizens Consumer Council, 425 U.S. 748 (1976) (commercial speech about prices is protected under the First Amendment)
- Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n of N.Y., 447 U.S. 557 (1980) (four-part test for regulation of commercial speech)
- Sorrell v. IMS Health Inc., 564 U.S. 552 (2011) (struck down speaker- and content-based restrictions on commercial use of information)
- In re R.M.J., 455 U.S. 191 (1982) (government may not broadly ban potentially misleading commercial speech if narrower measures suffice)
- Greater New Orleans Broad. Ass'n v. United States, 527 U.S. 173 (1999) (content- and speaker-based distinctions undermine government rationales for speech restrictions)
- 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484 (1996) (government bears burden to justify restrictions on commercial speech)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (Article III standing requirements)
- Thrifty Oil Co. v. Superior Court, 91 Cal. App. 4th 1070 (2001) (California appellate case treating disclosed dual pricing labeled as a discount as permissible under § 1748.1)