Expressions Hair Design v. SchneidermanExpressions Hair Design v. Schneiderman
New York General Business Law § 518 (“Section 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.” Plaintiffs-Ap-pellees in this action (“Plaintiffs”) are five New York businesses and their owners and managers.
BACKGROUND
A. “Swipe Fees” and Credit-Card Surcharges
Every time a consumer pays for goods or services with a credit card, the credit-card issuer charges the merchant a percentage of the purchase price. (The parties and. literature refer to these fees as “swipe fees” or “merchant-discount fees.”) The typical fee is two to three percent of the transaction amount. Plaintiffs and other businesses that chafe at these fees would like to pass them along to consumers while also making consumers aware of the charge in an effort to convince them to pay cash. Accordingly, they would like to charge more than their regular price to customers who use credit cards; that is, they would like to impose a “surcharge” on credit-card users. Another way of passing the cost of credit along to customers is to offer a discount from the regular price to customers who use cash. While these two means of passing along the cost of credit may seem equivalent (in that they both ultimately result in credit-card customers paying more than cash customers), differences between them have led to a series of efforts by both credit-card companies and legislators to prohibit credit-card surcharges specifically.
One difference between credit-card surcharges and cash discounts involves consumers’ reactions to them. A psychological phenomenon known as “loss aversion” means that “changes that make things worse (losses) loom larger than improvements or gains” of an equivalent amount. Daniel Kahneman et al., Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias, 5 J. Econ. Persp. 193, 199 (1991). For this reason, credit-card surcharges are more effective than cash discounts at discouraging credit-card use among consumers, which has naturally led credit-card companies to oppose them. See Richard Thaler, Toward a Positive Theory of Consumer Choice, 1 J. Econ. Behav. & Org. 39, 45 (1980). But some consumer advocates and lawmakers, too, have favored protecting consumers from the inconvenience and annoyance of having extra charges added to their bills, and have also suggested that discouraging credit-card use may have adverse econom-
According to proponents of prohibitions on credit-card surcharges, experience also suggests that such surcharges will tend to exceed the amount necessary for the seller to recoup its swipe fees, meaning that sellers will effectively be able to extract windfall profits from credit-card users.
B. The Lapsed Federal Ban on Credit-Card Surcharges
New York enacted Section 518 in 1984. Because the law’s enactment was motivated by the expiration of a federal law that prohibited credit-card surcharges, we briefly recount the history of that federal law.
In the early days of credit cards, credit-card issuers’ contracts with merchants prohibited merchants from charging different amounts to customers who used credit cards and those who used other methods of payment. In 1974, however, Congress amended the federal Truth in Lending Act (“TILA”) to protect merchants’ ability to offer their customers discounts for using cash. See Fair Credit Billing Act § 167, Pub.L. No. 93-495, tit. III, 88 Stat. 1500 (1974) (codified in relevant part at
The 1976 Amendments’ ban on credit-card surcharges was initially set to expire in 1979, but in 1978, Congress extended it until 1981. See Financial Institutions Regulatory & Interest Rate Control Act § 1501, Pub.L. No. 95-630, 92 Stat. 3641 (1978). In 1981, Congress extended the statute again, and- — apparently in response to the charge that the distinction between credit-card surcharges and cash discounts remained difficult to understand — further clarified the matter by defining the term “regular price” as follows:
the tag or posted price charged for the property or service if a single price is tagged or posted, or the price charged for the property or service when payment is made by use of [a credit card] if either (1) no price is tagged or posted, or (2) two prices are tagged or posted, one of which is charged when payment is made by use of [a credit card] and the other when payment is made by use of cash, check, or similar means.
Cash Discount Act § 102, Pub.L. No. 97-25, 95 Stat. 144 (1981) (codified in relevant part at
The 1981 enactment provided that the ban on credit-card surcharges would expire on February 27, 1984.
C. Section 518’s Enactment
Section 518, in its entirety, reads as follows:
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.
When the bill proposing
Advocacy groups were divided on the proposed bill. It was supported by the New York State Consumer Protection Board, which explained that surcharges “psychologically ... impose penalties on purchasers and may actually dampen retail sales,” and also expressed the fear that permitting credit-card surcharges would undermine efforts to “insure that customers can depend on advertised claims and' prices ... by permitting unannounced price increases at the point of sale.” J.A. 114. However, the Retail Council of New York State opposed the bill, arguing that swipe fees required merchants to increase their prices, and that in the absence of surcharges, price increases would be spread across all customers, resulting in cash purchasers’ effectively subsidizing credit-card users’ purchases. Ultimately, the New York Senate passed
D.
Although New York’s statutory ban on credit-card surcharges has been in effect for several decades, it was, for much of that time, effectively redundant with standard provisions in credit-card issuers’ contracts that prohibited sellers from imposing credit-card surcharges on customers (although, as previously noted, TILA guarantees sellers’ freedom to offer cash discounts).
The parties have cited just one reported prosecution under
In addition to the Fulvio prosecution, Plaintiffs point to another, more recent spate of enforcement activity involving
E. Procedural History
Plaintiffs filed this action against New York in the Southern District of New York on June 4, 2013. Their July 15, 2013 amended complaint contains three claims (all brought pursuant to
In their amended complaint, Plaintiffs allege that they would like to charge credit-card customers more than cash customers to account for the credit-card companies’ swipe fees. Specifically, they would like to impose a credit-card surcharge, as opposed to offering a cash discount. According to the amended complaint, only one Plaintiff currently charges different amounts for credit and cash purchases: Expressions Hair Design, a unisex hair salon in Vestal, New York, alleges that its current policy is to charge two different prices, one for credit-card customers and one for cash customers. However, it claims to fear that describing this difference as a “surcharge,” or “say[ing] that credit is ‘extra’ or ‘more,’ ” might violate
On June 17, 2013, Plaintiffs moved for a preliminary injunction preventing Defendants from enforcing
On October 3, 2013, the district court issued an opinion granting Plaintiffs’ preliminary injunction motion and denying New York’s motion to dismiss. Exprés-
The parties stipulated to — and the district court entered, on November 4, 2013 — ■ a final judgment on Plaintiffs’ First and Fourteenth Amendment claims, even though their preemption claim was still pending. See
This appeal followed.
DISCUSSION
“When reviewing an order granting either a preliminary or a permanent injunction, we review the district court’s legal holdings de novo and its ultimate decision for abuse of discretion.” Goldman, Sachs & Co. v. Golden Empire Sch. Fin. Auth.,
I.
A.
Some preliminary discussion is necessary to frame more precisely the scope of Plaintiffs’ First Amendment challenge. Again, the statute 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.”
The parties agree that this baseline is not the ultimate price that the seller charges to cash customers, but rather is something different — namely, the seller’s “regular” price. Importantly, then,
If a surcharge means an additional amount above the seller’s regular price, then it is basically self-evident how
With this background in mind, we turn to Plaintiffs’ challenge to
Throughout the course of this litigation, Plaintiffs have attempted to demonstrate
Plaintiffs do not clarify in their briefing whether they are, in fact, mounting a facial attack on
B.
As applied to single-sticker-price schemes like the ones described in Plaintiffs’ submissions,
We start from the premise — conceded by Plaintiffs — that prices, although necessarily communicated through language, do not rank as “speech” within the meaning of the First Amendment. This principle is illustrated most vividly by the fact that price-control laws, which necessarily prevent sellers from communicating certain (illegal) prices, have never been thought to implicate the First Amendment. See, e.g., Munn v. Illinois, 94 U.S. (4 Otto) 113, 125,
If prohibiting certain prices does not implicate the First Amendment, it follows that prohibiting certain relationships between prices also does not implicate the First Amendment. Indeed, Plaintiffs readily concede that New York could simply prohibit sellers from charging different amounts for credit-card and cash purchases altogether without thereby “triggering] First Amendment scrutiny.” Appellees’ Br. at 36. The problem with
By its terms,
Plaintiffs’ chief error — or, perhaps more accurately, the central flaw in their argu
In Plaintiffs’ view, credit-card surcharges and cash discounts must just be labels because consumers react differently to them: they react more negatively to credit-card surcharges than they react to cash discounts. Thus, Plaintiffs argue, New York has violated the First Amendment by banning a label it disfavors (“credit-card surcharge”) while permitting a label it approves (“cash discount”). This argument, however, plainly begs the question: it assumes (incorrectly) that what New York has regulated are, in fact, labels. It is true, of course, that the government generally may not enact speech restrictions favoring one message over another. See Reed v. Town of Gilbert, — U.S. -,
In fact, consumers react negatively to credit-card surcharges not because surcharges “communicate” any particular “message,” but because consumers dislike
Although the First Amendment generally prevents the government from justifying a speech restriction by reference to the harmful reactions that the speech in question will cause among the reading or listening public, see, e.g., Thompson v. W. States Med. Ctr.,
In concluding that sticker prices are not constitutionally exceptional, we again draw support from the First Circuit’s decision in National Association of Tobacco Outlets, which is both closely on-point and persuasive. There, the First Circuit rejected a First Amendment challenge to an ordinance that (among other things) barred retailers from using coupons “that provide! ] any tobacco products without charge or for less than the listed or non-discounted price,” and from selling tobacco products “through ... multi-pack discounts.”
In short, Plaintiffs have provided no reason for us to conclude that
We note that under United States v. O’Brien,
C.
We now turn to the balance of Plaintiffs’ First Amendment challenge, which is premised on the assumption that
Two sets of arguments relevant here turn on the question whether
Second, Plaintiffs posit a number of hypothetical pricing schemes that they do not actually employ (or profess any desire to employ), but which, Plaintiffs nonetheless suggest, deserve First Amendment protection. To take some specific examples that have been discussed over the course of this litigation: A seller might not post any prices at all, but ultimately charge credit-card customers more than cash customers to pass along the cost of the credit-card companies’ swipe fees. Or
Both our precedent and Supreme Court precedent squarely hold that over-breadth challenges predicated on the chilling of commercial speech are not available under the First Amendment. See Allstate Ins. Co. v. Serio,
The First Amendment over-breadth doctrine “permits a defendant to make a facial challenge to an overly broad statute restricting speech, even if he himself has engaged in speech that could, be regulated under a more narrowly drawn statute.” Alexander v. United States,
The primary problem with both Plaintiffs’ as-applied challenge and their putative overbreadth challenge is that it is far from clear that
“When anticipatory relief is sought in federal, court against a state statute, respect for the place of the States in our federal system calls for close consideration” of whether a ruling on the constitutionality of the state law is, in fact, necessary. Arizonans for Official English v. Arizona,
The First Amendment principle recognized in Dombrowski — that a state law should not be struck down as substantially overbroad if a “readily apparent” narrowing construction is available — is not always explicitly acknowledged as an outgrowth of Pullman abstention. ' Nonetheless, federal courts have consistently reaffirmed that in considering an overbreadth challenge to a state statute, we must presume that the state courts will give the law a narrow construction so long as the law is “readily susceptible” to that construction. Vt. Right to Life Comm.,
Applying the foregoing principles to the ease at hand, we conclude that neither portion of Plaintiffs’ First Amendment challenge premised on
We therefore conclude that
The district court suggested that the actions of the New York prosecutors described above, by demonstrating that
We also decline to certify to the New York Court of Appeals the question whether
Here, we believe that certification is not preferable, primarily because of the way in which this case has been litigated. Were we to certify, Plaintiffs’ challenge would be definitively resolved if the New York Court of Appeals were to interpret
In sum:
II.
The district court also erred in holding that
Under traditional standards governing facial vagueness challenges, a law is facially unconstitutional only if it is “impermissibly vague in all of its applications.” Vill. of Hoffman Estates v. Flipside, Hoffman Estates, Inc.,
Here,
The Supreme Court has suggested, however, that another variety of facial vagueness challenge — akin to a First Amendment overbreadth challenge — may be available “in the First Amendment context.” United States v. Williams,
If the New York courts interpret
CONCLUSION
We have considered Plaintiffs’ remaining arguments and find them to be without merit. For the foregoing reasons, we VACATE the judgment below and REMAND for the dismissal of Plaintiffs’ claims.
Notes
. Plaintiffs are Expressions Hair Design, a unisex hair salon in Vestal, New York, and its co-owner, Linda Fiacco; The Brooklyn Far-macy & Soda Fountain, Inc., an ice-cream
. When credit-card surcharges were legalized in Australia, for example, they rose to about twice the amount that sellers actually had to pay in swipe fees, despite predictions that competition among sellers would prevent this from happening.
. In the hearings leading up to the enactment of the 1976 Amendments, at least one congressman expressed disbelief that this clarification was needed, opining that the distinction between cash discounts and credit-card surcharges ought to be obvious. See A Bill to Amend the Fair Credit Billing Act (Public Law 93-495) with Respect to the Use of Cash Discounts, and for Other Purposes: Hearing on H.R. 10209 before the Subcomm. on Consumer Affairs, of the H. Comm, on Banking, Currency, and Housing, 94th Cong. 96 (1975) (Statement of Congressman Wylie) ("[T]o say that the word ‘surcharge’ and the word ‘discount’ are synonymous, makes us all look like fools in my judgment.”).
. A "seller” is defined as “any person who honors credit cards or debit cards which may be used to purchase or lease property or services.”
. In the last decade, sellers began challenging these provisions in various antitrust lawsuits, which culminated in a nationwide class-action settlement pursuant to which Visa and MasterCard agreed to drop their contractual prohibitions on credit surcharges. See In re Payment Card Interchange Fee & Merck. Discount Antitrust Litig.,
. In discussing facial and as-applied challenges, we recognize that these categories are simply useful analytical tools, as opposed to necessary elements of a plaintiff’s claim. See, e.g., Citizens United v. FEC,
. New York argues further that if we conclude that
. Plaintiffs' argument that
. The subtext of Plaintiffs’ argument that it is impermissible to regulate based on consumer reactions is their view that
. Along similar lines, Plaintiffs appear to concede that laws against price-gouging— which regulate the difference between the seller's regular price and the price that may be charged in periods of unusually high demand, e.g.,
. At least two district courts have previously reached this same conclusion with respect to other states’ credit-card surcharge bans. See Rowell v. Pettijohn, No. 14-cv-190, slip op. at 6,
. To be clear, we do not intend to suggest that the First Amendment would, in fact, be violated even if
. Indeed, although New York invites us to construe
. In a pure overbreadth challenge based on a statute’s application to hypothetical situations not before the court, a determination that the statute is readily susceptible to an interpretation under which it would not cover the hypothetical situations might well end the litigation regardless of the possibility of certification. See Am. Booksellers Ass’n, 484 U.S. at 397,
. Indeed, federal courts themselves have declined to consider pre-enforcement as-applied challenges that lack an adequate “foundation." Vt. Right to Life Comm., Inc. v. Sorrell,
. The Due Process Clause requires "a greater degree of specificity” where the challenged statute is "capable of reaching expression sheltered by the First Amendment.” VIP of Berlin,
. The Supreme Court recently signaled another arguable departure from the traditional rule that, outside the First Amendment context, a statute is facially invalid only if it is unconstitutionally vague in all of its applications. In Johnson v. United States, the Court held that the so-called "residual clause” of the Armed Career Criminal Act,