Italian Colors Restaurant v. Xavier Becerra, 878 F.3d 1165

Five California businesses (Italian Colors Restaurant; Laurelwood Cleaners; Family Graphics; Stonecrest Gas & Wash; Leon’s Transmission) seek to impose credit-card surcharges but have refrained out of fear of violating Cal. Civ. Code § 1748.1, which bans surcharges but permits cash discounts.
Plaintiffs state they would use a single-sticker pricing scheme (post one advertised price, then add a surcharge for credit-card users) and say surcharges better communicate credit-card processing costs and more effectively influence consumer behavior than equivalent cash discounts.
California enacted § 1748.1 in 1985 after a now-lapsed federal surcharge ban; the statute forbids imposing a surcharge on credit-card users and allows discounts for non-card payments; willful violators face treble damages and attorney’s fees.
Plaintiffs sued the state Attorney General seeking a declaration that § 1748.1 violates the First Amendment (content- and speaker-based restriction on commercial speech) and is unconstitutionally vague; the district court granted summary judgment for plaintiffs and enjoined enforcement.
On appeal, the Ninth Circuit addressed standing, whether the statute regulates speech, and whether § 1748.1 survives Central Hudson intermediate scrutiny; the court affirmed that the statute, as applied to these plaintiffs, violates the First Amendment and limited relief to the plaintiffs and their specific single-sticker surcharge practice.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Standing (pre-enforcement)	Plaintiffs have concrete plans to post single-sticker surcharges and have reasonably self-censored due to credible threat of enforcement	State points to sparse enforcement history and no direct threats to plaintiffs	Plaintiffs have standing: credible threat, concrete intent, and self-censorship suffice (as First Amendment inquiry favors standing)
Does § 1748.1 regulate speech or conduct?	§ 1748.1 regulates merchants’ price communications (how prices are framed)	§ 1748.1 regulates economic conduct (charging different prices)	Regulates commercial speech (Expressions III controls)
Central Hudson — Lawful and non-misleading?	Surcharges would be truthful and non-misleading as plaintiffs intend to disclose them	State contends some surcharges can be deceptive (bait-and-switch)	Plaintiffs’ proposed surcharges are lawful and non-misleading (record shows intent to disclose)
Central Hudson — Substantial interest, direct advancement, and tailoring	State’s interest in preventing deception is insufficiently supported; statute blocks truthful causal price information and has many exemptions; less restrictive alternatives exist	§ 1748.1 advances consumer protection and market operation as stated in legislative history	§ 1748.1, as applied to these plaintiffs, does not directly advance the interest and is more extensive than necessary; violates First Amendment (as-applied)

Expressions Hair Design v. Schneiderman, 137 S. Ct. 1144 (2017) (statute regulating surcharge display regulates price communication and implicates the First Amendment)
Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n of N.Y., 447 U.S. 557 (1980) (intermediate scrutiny framework for commercial speech)
Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (standing requirements for injury, causation, redressability)
Edenfield v. Fane, 507 U.S. 761 (1993) (government must show harms are real and that regulation materially alleviates them)
Sorrell v. IMS Health Inc., 564 U.S. 552 (2011) (heightened scrutiny for regulations that suppress truthful, non-misleading information)
44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484 (1996) (government’s burden is heavy in restricting truthful commercial speech)
LSO, Ltd. v. Stroh, 205 F.3d 1146 (9th Cir. 2000) (standing in pre-enforcement First Amendment challenges)
Ariz. Right to Life Political Action Comm. v. Bayless, 320 F.3d 1002 (9th Cir. 2003) (chilling effect and hold-your-tongue approach to facial/pre-enforcement First Amendment suits)